Schedule 14A
(Rule
(Rule 14A-101)
Information Required In Proxy Statement
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT
(AMENDMENT NO. )
Filed by the Registrant [X]
x
Filed by a Party other than the Registrant [_]
¨
Check the appropriate box:
¨ Preliminary Proxy Statement ¨ Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) x Definitive Proxy Statement ¨ Definitive Additional Materials ¨ Soliciting Material Under Rule 14a-12 |
Duke Energy Corporation
- --------------------------------------------------------------------------------
(Name
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (Check the appropriate box):
[X]
xNo fee required.
[_]
¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------------
5) Total Fee Paid:
-----------------------------------------------------------------------------
[_]
| 1) | Title of each class of securities to which transaction applies: |
| 2) | Aggregate number of securities to which transaction applies: |
| 3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| 4) | Proposed maximum aggregate value of transaction: |
| 5) | Total Fee Paid: |
¨ Fee paid previously with preliminary materials:
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-----------------------------------------------------------------------------
2)
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| 1) | Amount Previously Paid: |
| 2) | Form, Schedule or Registration |
| 3) | Filing Party: |
| 4) | Date Filed: |
Proxy
Statement
and notice of
2002
2003 Annual Meeting
[LOGO] Duke Energy (R)
526 South Church Street
Charlotte, NC 28202-1802
March 27, 2002
28, 2003
Dear Shareholder:
I am pleased to invite you to our annual meeting to be held on April 25, 200224, 2003 in the O. J. Miller Auditorium located in our Charlotte headquarters building. We will discuss our 20012002 performance, and our goals for 2002,2003 and respond to any questions you may have. Enclosed with this proxy statement are your proxy card, voting instructions and Duke Energy's 2001Energy’s 2002 annual report.
Within the proxy statement you will see that the Board of Directors has
proposed for your approval certain amendments to our Articles of Incorporation.
These proposed changes are designed to modernize this important document and
bring it in line with those of many of our peer companies. On behalf of the
Board of Directors, I urge your support for these important proposals.
As in the past, we are offering you the opportunity to cast your vote by telephone or online via the Internet. Whether you choose to vote by proxy card, telephone or Internet, it would help if you would vote as soon as possible.
I look forward to seeing you at the annual meeting.
Sincerely,
/s/ R.B. Priory
R.B. PRIORY
Chairman of the Board President
and Chief Executive Officer
[LOGO] Duke Energy (R)
526 South Church Street
Charlotte, NC 28202-1802
Notice of Annual Meeting of Shareholders
April 25, 2002
24, 2003
March 27, 2002
28, 2003
We will hold the annual meeting of shareholders of Duke Energy Corporation on Thursday, April 25, 2002,24, 2003, at 10:00 a.m. in the O. J. Miller Auditorium in the Energy Center located at 526 South Church Street in Charlotte, North Carolina.
The purpose of the annual meeting is to consider and take action on the following:
1. Election of four nominees as Class II directors and one nominee as a Class
I director.
2. Ratification of Deloitte & Touche LLP as Duke Energy's independent auditors
for 2002.
Amendment to the Articles of Incorporation to:
3A. Update the corporate purpose clause.
3B. Authorize serial preferred stock.
3C. Increase the shareholder vote required to change the By-Laws.
3D. Decrease the permissible range of size of the Board of Directors.
4. A shareholder proposal relating to investments in alternative energy
sources, if properly presented at the annual meeting.
5. A shareholder proposal relating to the role of the Board of Directors in
long-term strategic planning, if properly presented at the annual meeting.
6. A shareholder proposal relating to the appointment of independent auditors
who only render audit services, if properly presented at the annual meeting.
7. A shareholder proposal relating to a study of the risk and responsibility
for public harm due to Duke Energy's nuclear program, if properly presented
at the annual meeting.
| 1. | Election of five nominees as Class III directors and one nominee as a Class I director. |
| 2. | Ratification of Deloitte & Touche LLP as Duke Energy’s independent auditors for 2003. |
| 3. | Approval of the Amended Duke Energy Corporation 1998 Long-Term Incentive Plan. |
| 4. | Approval of the Amendment and Restatement of the Duke Energy Corporation 2000 Policy Committee Short-Term Incentive Plan as the Duke Energy Corporation Executive Short-Term Incentive Plan. |
| 5. | A shareholder proposal relating to a study of the risk and responsibility for public harm due to Duke Energy’s nuclear program, if properly presented at the annual meeting. |
| 6. | A shareholder proposal relating to re-examination of Duke Energy’s dividend policy, if properly presented at the annual meeting. |
Shareholders of record as of February 28, 20022003 can vote at the annual meeting. This proxy statement, proxy card and voting instructions, along with our 20012002 annual report to shareholders, are being distributed on or about March 27, 2002.
28, 2003.
Your vote is very important. If voting by mail, please sign, date and return the enclosed proxy card in the enclosed prepaid envelope and allow sufficient time for the postal service to deliver your proxy before the meeting. If voting by telephone or on the Internet, please follow the instructions on your proxy card.
By order of the Board of Directors
/s/
Richard W. Blackburn
Richard W. Blackburn
Executive Vice President,
General Counsel and Chief Administrative Officer
Corporate Secretary
Table of Contents
- --------------------------------------------------------------------------------
Commonly Asked Questions and Answers About the Annual | 1 | |
Proposals to be Voted Upon | ||
Proposal 1: Election of | 3 | |
Proposal 2: Ratification of Deloitte & Touche LLP as Duke | 3 | |
Proposal | 3 | |
Proposal 4: | 7 | |
Proposal 5: | 9 | |
Proposal 6: Shareholder Proposal relating to Re-examination of Duke Energy’s Dividend Policy | 10 | |
The Board of | 12 | |
Beneficial | 16 | |
Information on the Board of | 17 | |
Report of the Audit | 19 | |
Report of the Compensation | 20 | |
Performance | 23 | |
Compensation | 24 | |
Summary Compensation | 24 | |
Option Grants in | 26 | |
Option Exercises and Year-End | 27 | |
Equity Compensation Plans | 27 | |
Employment Contracts and Termination of Employment and Change-in-Control | 28 | |
Retirement Plan | 29 | |
Other | 30 | |
Appendix A | A-1 |
Commonly Asked
Questions and
Answers About
the Annual
Meeting
- --------------------------------------------------------------------------------
Q: What am I voting on?
A: . Election of five directors: the nominees are G. Alex Bernhardt, Sr.,
William A. Coley, Max Lennon, Leo E. Linbeck, Jr. and James T. Rhodes;
.
Q: | What am I voting on? |
A: | • Election of six directors: the nominees are Robert J. Brown, William T. Esrey, George D. Johnson, Jr., James G. Martin, Michael E. J. Phelps, and Richard B. Priory; |
Q: | Who can vote? |
A: | Common shareholders of Duke Energy as of the close of business on the record date, February 28, 2003, can vote at the annual meeting, either in person or by proxy. Each share of Duke Energy Common Stock has one vote. |
Q: | How do I vote? |
A: | Sign and date each proxy card that you receive and return it in the prepaid envelope or vote by telephone or on the Internet. If we receive your signed proxy card (or properly transmitted telephone or Internet proxy) before the annual meeting, we will vote your shares as you direct. You can specify when submitting your proxy whether your shares should be voted for all, some or none of the nominees for director. You can also specify whether you approve, disapprove or abstain from voting on the other five proposals. |
If you use the proxy card and simply sign, date and return it without making any selections, your proxy will be voted in accordance with the recommendations of the Board of Directors:
.
Q: | May I change my vote? |
A: | You may change your vote or revoke your proxy by: |
Q: | Can I vote my shares by telephone or on the Internet? |
A: | Yes. You may vote by telephone or on the Internet, by following the instructions included on your proxy card. Your deadline for voting by telephone or on the Internet is 11:59 p.m., April 22, 2003. |
Q: | Will my shares be voted if I do not provide my proxy? |
A: | No. If you hold your shares directly in your own name, they will not be voted if you do not provide a proxy unless you vote in person at the meeting. Brokerage firms generally have the authority to vote customers’ unvoted shares on certain “routine” matters. If your shares are held in the name of a brokerage firm, the brokerage firm can vote your shares for the election of directors and for Proposal 2 if you do not timely provide your proxy because these matters are considered “routine” under the applicable rules. The other proposals are not considered routine and therefore may not be voted by your broker without instruction. |
Q: | As a Duke Energy employee, how do I vote shares held in my account in the Duke Energy Retirement Savings Plan? |
A: | If you are a participant in the Duke Energy Retirement Savings Plan, you have the right to direct the plan trustee in the voting of those shares of Duke Energy Common Stock that are held by the plan and allocated to your plan account on any issues presented at the annual meeting. Plan participant proxies will be treated confidentially. |
If you elect not to vote by proxy, shares allocated to your Planplan account will be voted by the Planplan trustee in the same proportion as those shares held by the Planplan for which the Planplan trustee has received direction from Planplan participants.
1
Commonly Asked
Questions and
Answers About
the Annual
Meeting
- --------------------------------------------------------------------------------
Q: What constitutes a quorum?
A: As of the record date, February 28, 2002, 778,199,474 shares of Duke Energy
Common Stock were issued and outstanding and entitled to vote at the
meeting. In order to conduct the annual meeting, a majority of the shares
entitled to vote must be present in person or by proxy. This is referred to
as a "quorum." If you submit a properly executed proxy card or vote by
telephone or on the Internet, you will be considered part of the quorum.
Abstentions and broker "non-votes" will be counted as present and entitled
to vote for purposes of determining a quorum. A broker "non-vote" occurs
when a nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting
power with respect to that item and has not received instructions from the
beneficial owner.
Q: What vote is needed for these proposals to be adopted?
A: Directors are elected by a plurality of the votes cast at the meeting.
"Plurality" means that the nominees receiving the largest number of votes
cast are elected as directors up to the maximum number of directors to be
chosen at the meeting. A majority of the votes cast at the meeting is
required to approve the other proposals, except that 80% of the Common Stock
outstanding on February 28, 2002 is required to approve Proposal 3D. For the
election of directors, abstentions and broker "non-votes" will not be
counted. For the other proposals, abstentions and broker "non-votes" will
not be counted as votes cast.
Q: Who conducts the proxy solicitation and how much will it cost?
A: Duke Energy is asking for your proxy for the annual meeting and will pay all
the costs of asking for shareholder proxies. We have hired Georgeson
Shareholder Communications, Inc. to help us send out the proxy materials and
ask for proxies. Georgeson's fee for these services is $22,500, plus
out-of-pocket expenses. We can ask for proxies through the mail or
personally by telephone, telegram, fax or other means. We can use directors,
officers and regular employees of Duke Energy to ask for proxies. These
people do not receive additional compensation for these services.
Q: | What constitutes a quorum? |
A: | As of the record date, February 28, 2003, 896,757,363 shares of Duke Energy Common Stock were issued and outstanding and entitled to vote at the meeting. In order to conduct the annual meeting, a majority of the shares entitled to vote must be present in person or by proxy. This is referred to as a “quorum.” If you submit a properly executed proxy card or vote by telephone or on the Internet, you will be considered part of the quorum. Abstentions and broker “non-votes” will be counted as present and entitled to vote for purposes of determining a quorum. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner. |
Q: | What vote is needed for these proposals to be adopted? |
A: | Directors are elected by a plurality of the votes cast at the meeting. “Plurality” means that the nominees receiving the largest number of votes cast are elected as directors up to the maximum number of directors to be chosen at the meeting. A majority of the votes cast at the meeting is required to approve the other proposals. For the election of directors, abstentions and broker “non-votes” will not be counted. For the other proposals, abstentions and broker “non-votes” will not be counted as votes cast. |
Q: | Who conducts the proxy solicitation and how much will it cost? |
A: | Duke Energy is asking for your proxy for the annual meeting and will pay all the costs of asking for shareholder proxies. We have hired Georgeson Shareholder Communications, Inc. to help us send out the proxy materials and ask for proxies. Georgeson’s fee for these services is $17,500, plus out-of-pocket expenses. We can ask for proxies through the mail or personally by telephone, telegram, fax or other means. We can use directors, officers and regular employees of Duke Energy to ask for proxies. These people do not receive additional compensation for these services. |
We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding solicitation material to the beneficial owners of Duke Energy Common Stock.
Q: How does a shareholder nominate someone to be a director of Duke Energy or
bring business before the annual meeting?
A: Nominations for director may be made only by the Board of Directors or by a
shareholder who has given the proper notice, as provided in the By-Laws,
between 90 and 120 days prior to the first anniversary of the previous
year's annual meeting. For the 2003 annual meeting, we must receive this
notice on or after December 26, 2002, and on or before January 25, 2003.
Q: | How does a shareholder nominate someone to be a director of Duke Energy or bring business before the annual meeting? |
A: | Nominations for director may be made only by the Board of Directors or by a shareholder who has given the proper notice, as provided in the By-Laws, between 90 and 120 days prior to the first anniversary of the previous year’s annual meeting. For the 2004 annual meeting, we must receive this notice on or after December 26, 2003, and on or before January 25, 2004. |
Other business may be brought before an annual meeting by a shareholder who has delivered notice (containing certain information specified in the By-Laws) within the time limits described above for delivering notice of a nomination for the election of a director. These requirements apply to any matter that a shareholder wishes to raise at an annual meeting other than through the SEC'sSEC’s shareholder proposal procedures. If you intend to use the SEC procedures and wish to have your proposal included in next year'syear’s proxy statement, you must deliver the proposal in writing to our Corporate Secretary by November 27, 2002.
29, 2003.
A copy of the full text of the By-Law advance notice provisions discussed above may be obtained by writing to the Office of the Corporate Secretary, Post Office Box 1006, Charlotte, North Carolina 28201-1006.
2
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
PROPOSAL 1:
Election of Directors
The Board of Directors recommends a vote FOR each nominee.
The Board of Directors of Duke Energy consists of 1211 members, divided into three classes. The three-year terms of the classes are staggered so that the term of one class expires at each annual meeting. The terms of the fourfive Class IIIII directors will expire at the 20022003 annual meeting. In addition, James T.
Rhodes,Michael E. J. Phelps, who was appointed as a Class I director by the Board of Directors on October 30, 2001,April 25, 2002, will stand for election at the 20022003 annual meeting. If elected, his term will expire at the 2004 annual meeting.
The Board of Directors has nominated the following Class IIIII directors for election: Robert J. Brown, William T. Esrey, George D. Johnson, Jr., James G. Alex Bernhardt, Sr., William A. Coley, Max LennonMartin, and Leo E.
Linbeck, Jr.Richard B. Priory. It has nominated James T. RhodesMichael E. J. Phelps for election as a Class I director.
If any director is unable to stand for election, the Board of Directors may reduce the number of directors or designate a substitute. In that case, shares represented by proxies may be voted for a substitute director. We do not expect that any nominee will be unavailable or unable to serve.
As part of our agreement to acquire Westcoast Energy Inc., the Board of
Directors agreed to appoint Michael E.J. Phelps, Westcoast's Chief Executive
Officer, as a director of Duke Energy following consummation of the
transaction. Since such consummation did not occur in sufficient time to permit
the Board of Directors to nominate Mr. Phelps and have him included in this
proxy statement as a nominee for election to the Board of Directors, he will be
appointed as a director in Class I at the next regular meeting of the Board of
Directors following the consummation of the Westcoast acquisition. The Board of
Directors intends to nominate Mr. Phelps for election to the Board of Directors
at the 2003 annual meeting.
PROPOSAL 2:
Ratification of Deloitte & Touche LLP as Duke Energy'sEnergy’s Independent Auditors for 2002
2003
The Board of Directors recommends a vote FOR this proposal.
The Board of Directors, upon recommendation of the Audit Committee, has reappointed, subject to shareholder ratification, the firm of Deloitte & Touche LLP, certified public accountants, as independent auditors to examine Duke Energy'sEnergy’s accounts for the year 2002.2003. If the shareholders do not ratify this appointment, the Board of Directors will consider other certified public accountants upon recommendation of the Audit Committee.
A representative of Deloitte & Touche LLP will as in prior years, attend the annual meeting and will have the opportunity to make a statement and be available to respond to appropriate questions.
PROPOSALS 3A through 3D:
Amendments to the Articles of Incorporation
While our Articles of Incorporation have been amended many times over the years
as the need arose, until recently no attempt has been made to determine whether
this document as a whole reflects modern corporate practices. As a result of a
recent analysis, the Board of Directors has determined that a number of
provisions contained in the Articles of Incorporation are either outmoded or no
longer necessary and recommends that the shareholders approve the adoption of
proposed amendments to those provisions as discussed below.
PROPOSAL 3A:
Updating3:
Approval of the Corporate Purpose Clause
Amended Duke Energy Corporation 1998 Long-Term Incentive Plan
The Board of Directors recommends a vote FOR this proposal.
State law allows a corporation
The Duke Energy Corporation 1998 Long-Term Incentive Plan was approved by Duke Energy’s shareholders at the 1998 annual meeting, and the shareholders approved an amendment to state in its Articlesthe plan at the 2001 annual meeting, increasing the shares reserved for issuance under the plan. The purpose of Incorporation the purpose or purposesplan is to strengthen Duke Energy’s ability to attract, motivate and retain employees and outside directors and to provide an additional incentive for which it is organized.employees and outside directors to promote Duke Energy’s financial success and growth. The corporate purpose clause
currently set forth in Article IIIaggregate number of our Articlesshares reserved for issuance under the plan was 60,000,000 shares with 28,619,715 of Incorporation was adopted
in 1917 and, consistent with the practice at that time, is very specific. While
augmented in later years and nowsuch shares remaining reserved for issuance as of considerable length, it does not reflect
Duke Energy's current operations. December 31, 2002.
The Board of Directors believes it would be
advisableapproved at its meeting on February 25, 2003 and is now asking the shareholders to replace this outdated provision with a modern Article which statesvote on and approve amendments to the plan. Amendments requiring shareholder approval are (i) the revised performance criteria under the plan, and (ii) an increase in the maximum number of shares of Common Stock that Duke Energy may engage in any lawful act or activity for which
corporations may be organizedissued under the business corporation statuteplan as restricted stock awards, performance awards and phantom stock awards from 6,000,000 to 12,000,000. These proposed amendments are described in more detail below.
The full text of North
Carolina, asthe amended from timeplan was filed electronically with the SEC with this proxy statement. A brief description of the material features of the plan is presented here, but you are encouraged to time. read the full plan if you need more information.
The proposed amendment is notperformance criterion for performance awards intended to change or otherwise affect Duke Energy's current business strategy. Rather,
it is standard language frequently used by North Carolina corporations and is a
desirable partqualify under Section 162(m) of the Internal Revenue Code that has been used since 1998 is total shareholder return. Current payments under the plan to the executive officers listed in the Summary Compensation Table under “Compensation” below, referred to as the Named Executive Officers, are set forth in that table under the column captioned “LTIP Payouts.” Current awards under the plan to the Named Executive Officers are set forth in the Long-Term Incentive Plan Awards Table.
Performance Criteria
The Board of proposals designedDirectors, at its meeting on February 25, 2003, amended the definition of “Performance Criteria” under the plan to modernize Duke Energy's
Articles of Incorporation.
include the additional
3
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 3 continued
criteria of EVA (economic value added), economic profit (net operating profit after tax, less a cost of capital charge), SVA (shareholder value added) and revenues. These new performance criteria will provide enhanced flexibility in structuring future performance awards under the Plan and will also achieve consistency with the proposed performance measures in the Executive Short-Term Incentive Plan described in Proposal 4.
As amended, the performance criteria available to the Compensation Committee under the plan now include:
In order to maximize deductibility of the payments under the plan to the Company’s five most highly compensated employees under the provisions of Section 162(m) of the Internal Revenue Code, and to comply with the requirements of the regulations issued by the Internal Revenue Service, the shareholders are requested to approve this change in the definition of performance criteria and the revised material terms of the performance goals under the plan.
Increase in the Allocation of Available Shares for Restricted Stock Awards, Performance Awards and Phantom Stock Awards
Of the total 60,000,000 shares reserved for issuance under the plan, the aggregate number of shares of Common Stock issuable as restricted stock awards, performance awards and phantom stock awards was 6,000,000, with 4,132,026 shares remaining reserved as of December 31, 2002 for such awards. In order to ensure that adequate numbers of shares will be available in the near future to attract,motivate and retain executives, the Board of Directors, at its meeting of February 25, 2003 approved, subject to shareholder approval, an increase in the maximum number of shares that may be issued under the plan for such awards from 6,000,000 to 12,000,000.
A favorable vote by the holders of a majority of the Company’s common stock present, or represented, and entitled to vote at the Annual Meeting is required to approve the amendments to the plan described above. In the event that the proposal does not receive a favorable majority vote, the Board of Directors would then determine whether to amend or abandon the plan or to simply continue the plan without the amendments requiring shareholder approval and, to the extent necessary as a result, forego the deductibility of those limited individual compensation amounts in excess of $1 million, as provided by Section 162(m) of the Internal Revenue Code.
Other Principal Features of the Plan
Administration of the Plan. The Compensation Committee of the Board of Directors administers the plan. The Compensation Committee determines who receives awards, what types of awards are granted, when awards are granted and the terms of awards, except that awards to outside directors must be authorized by the Board of Directors.
Eligibility to Receive Awards. Substantially all employees of Duke Energy and its subsidiaries and all of Duke Energy’s outside directors are eligible to be granted awards under the plan. The number of actual grantees may vary from year to year.
Stock Option Awards. Awards of nonqualified stock options and incentive stock options may be granted under the plan. Nonqualified stock options may be granted to employees and outside directors; incentive stock options may be granted only to employees. The maximum number of shares of Common Stock that may be granted under stock options to any one participant during any calendar year is 2,000,000 shares. The value of Common Stock (determined at the time of grant) that may be subject to incentive stock options that become exercisable by any one employee in any one year is limited to $100,000.
The maximum term of a stock option granted under the plan is ten years. The exercise price per share of an option is established by the Compensation Committee and may not be less than the fair market value of a share of Common Stock on the grant date. The Compensation Committee determines the extent to which an option becomes and/or remains exercisable following termination of employment or
4
Proposals to be Voted Upon
Proposal 3 continued
service due to retirement, death, disability or certain other circumstances, subject to limitations for incentive stock options.
Stock Appreciation Rights. The Compensation Committee may grant stock appreciation rights under the plan. A stock appreciation right entitles the holder to receive the excess of the fair market value of a share of Common Stock on the date of exercise over the base price specified in the award, with respect to each share of Common Stock to which the stock appreciation right relates. The maximum number of shares of Common Stock subject to stock appreciation rights granted to any one participant during any calendar year is 2,000,000 shares.
A stock appreciation right may be granted either in tandem with an option or on a stand-alone basis. A stock appreciation right granted in tandem with an option has a base price per share equal to the per share exercise price of the option and generally has the same vesting and termination schedule as the option. Exercise of the stock appreciation right as to a number of shares results in the cancellation of the same number of shares under the option. A stock appreciation right granted on a stand-alone basis will be exercisable as determined by the Compensation Committee, but in no event after ten years from the date of grant. The base price of a stand-alone stock appreciation right may not be less than 100% of the fair market value of a share of Common Stock on the date of grant. Stock appreciation rights are payable in cash, in shares of Common Stock, or both, as determined by the Compensation Committee.
Performance Awards. Performance awards are units denominated either in shares of Common Stock (“performance shares”) or in specified dollar amounts (“performance units”). Performance awards are payable upon the achievement of performance criteria established by the Compensation Committee at the beginning of the performance period. The performance period may not exceed ten years from the date of grant. At the end of the performance period, the Compensation Committee determines the payment to be made based on the extent to which the performance goals have been achieved. Performance awards are payable in cash, in shares of Common Stock, or both, as determined by the Compensation Committee.
The Compensation Committee may grant performance awards that are intended to qualify for exemption under Section 162(m) of the Internal Revenue Code, as well as performance awards that are not intended to so qualify. The performance criteria for a Section 162(m) qualified performance award may relate to Duke Energy, a subsidiary or abusiness unit, and may be absolute or measured relative to a peer group. Pending approval by the shareholders of the current criteria and the additional criteria described above, as set forth in this proposal, only the performance criteria described under “Performance Criteria” above may be used for a Section 162(m) qualified award. No more than $2.5 million may be payable in any one calendar year to any one participant under a Section 162(m) qualified performance unit award. No more than 400,000 share units may be subject to a Section 162(m) qualified performance share award granted to any one participant in any calendar year.
Restricted Stock Awards. The Compensation Committee may grant restricted stock awards under the plan. Restricted stock awards contain restrictions with respect to transferability and ownership of the shares of Common Stock granted and are subject to forfeiture under certain conditions. The restrictions lapse in accordance with the vesting requirements set forth in the award. Vesting requirements may be based on the participant’s continued employment for a specified time period but shall not lapse in their entirety prior to the first anniversary of the date of grant or on the attainment of specified business goals or performance criteria. The Compensation Committee may require the payment of a specified purchase price in connection with a restricted stock award.
No more than 400,000 shares of restricted stock intended to qualify under Section 162(m) may be granted to any one participant during any calendar year. Subject to shareholder approval of this Proposal, an award of restricted stock that is intended to qualify for exemption under Section 162(m) will have its vesting requirements limited to the performance criteria described under “Performance Criteria” above.
Phantom Stock Awards. The Compensation Committee may grant awards of phantom stock under the plan. A phantom stock award gives the participant the right to receive the fair market value of a share of Common Stock on the vesting date (subject to any applicable maximum value) for each unit of phantom stock awarded. Vesting periods may be no more than ten years from the date of grant. Phantom stock units may be subject to restrictions and conditions set by the Compensation Committee. Payments of phantom stock awards may be in cash, in shares of Common Stock, or both, as determined by the Compensation Committee.
Dividend Equivalent Awards. The Compensation Committee may grant dividend equivalent awards under the plan. A dividend equivalent award gives
5
Proposals to be Voted Upon
Proposal 3 continued
the participant the right to receive cash payments that are equivalent to dividends on the shares of Common Stock to which the award relates. Dividend equivalent awards may be granted in tandem with other awards or on a stand-alone basis. Dividend equivalent awards granted in tandem with other awards expire at the time the underlying award is exercised, becomes otherwise payable or expires. Dividend equivalent awards granted on a stand-alone basis shall expire no later than 10 years from the date of grant. Dividend equivalent awards may be payable in cash or in shares of Common Stock, as determined by the Compensation Committee.
Term of the Plan. The plan will terminate on April 16, 2008, except that the plan may be terminated earlier by the Board of Directors.
Other Information. The Board of Directors may amend the plan at any time, except that shareholder approval is required for amendments that change who is eligible to participate in the plan, increase the number of shares of Common Stock reserved for issuance under the plan or for certain kinds of awards, allow grants of options at an exercise price below fair market value or allow the repricing of options.
The Compensation Committee may provide for the effect of a “change in control” (as defined in the plan) on awards granted under the plan. Such provisions may include accelerating or extending time periods for exercising, vesting or realizing gain from any awards, waiving or modifying performance or other conditions relating to payment or other rights under awards or cash settlement of awards.
Federal Income Tax Consequences. The following is a general description of the federal income tax consequences to participants and Duke Energy relating to awards that may be granted under the plan. The description does not purport to cover all tax consequences relating to awards.
The grant of a stock option will not result in taxable income at the time of grant for the grantee or Duke Energy. The grantee will have no taxable income upon exercising an incentive stock option (except that the alternative minimum tax may apply), and Duke Energy will receive no deduction when an incentive stock option is exercised. Upon exercising a nonqualified stock option, the grantee will recognize ordinary income in the amount by which the fair market value exceeds the option price; Duke Energy will be entitled to a deduction for the same amount. The treatment to a grantee of a disposition of shares acquired through the exercise of an option depends on how long the shares are held and on whether the shares were acquired by exercising an incentive stock option or a nonqualified stockoption. Generally, there will be no tax consequence to Duke Energy when shares acquired under an option are disposed of except that Duke Energy may be entitled to a deduction if shares acquired upon exercise of an incentive stock option are disposed of before the applicable incentive stock option holding periods have been satisfied.
The current federal income tax consequences of other awards authorized under the plan are generally in accordance with the following: stock appreciation rights are subject to taxation in substantially the same manner as nonqualified stock options; restricted stock subject to a substantial risk of forfeiture results in income recognition of the excess of the fair market value of the shares of Common Stock over the purchase price (if any) only at the time the restrictions lapse (unless the recipient elects to accelerate recognition as of the date of grant); and performance awards, phantom stock awards and dividend equivalent awards are generally subject to tax at the time of payment. In each of the foregoing cases, Duke Energy will generally have a corresponding deduction at the same time the participant recognizes income.
Compensation of the executive officers listed in the Summary Compensation Table in “Compensation” below is subject to the tax deduction limits of Section 162(m) of the Internal Revenue Code. Stock options and stock appreciation rights that qualify as “performance-based compensation” are exempt from Section 162(m), thus allowing Duke Energy the full tax deduction otherwise permitted for such compensation. The plan enables the Compensation Committee to grant stock options, stock appreciation rights and other awards that will be exempt from the deduction limits of Section 162(m).
The closing price of Duke Energy Common Stock on the New York Stock Exchange on March 18, 2003 was $15.51 per share.
Plan Benefits. No determinations have been made with respect to benefits and amounts that will be received or allocated under the plan in the future.
6
Proposals to be Voted Upon
Proposal 3 continued
Since January 1, 2003, stock options, performance shares and restricted stock have been granted under the plan as set forth in the table below, to theNamed Executive Officers and the other groups identified in the table. The exercise price of the stock option awards set forth in the table ranged from $13.77 to $17.10.
Name or Identity of Group1 | Number of Shares Underlying Options | Number of Performance Shares | Number of Shares of Restricted Stock | |||
R. B. Priory Chairman of the Board and Chief Executive Officer | 490,800 | 155,710 | 0 | |||
F. J. Fowler President and Chief Operating Officer | 201,000 | 63,770 | 0 | |||
R. P. Brace Executive Vice President and Chief Financial Officer | 127,600 | 40,480 | 0 | |||
R. J. Osborne Executive Vice President and Chief Risk Officer | 129,600 | 41,120 | 0 | |||
All executive officers as a group (8) | 1,239,800 | 391,630 | 0 | |||
All non-executive directors as a group (10) | 40,000 | 0 | 0 | |||
All employees (including non-executive officers) | 5,391,100 | 1,423,170 | 15,897 |
| 1 | H. J. Padewer’s employment with Duke Energy terminated on December 31, 2002, and therefore he received no awards under the plan during the period covered by this table. |
PROPOSAL 3B:
Authorization4:
Approval of Serial Preferred Stock
the Amendment and Restatement of the Duke Energy Corporation 2000 Policy Committee Short-Term Incentive Plan as the Duke Energy Corporation Executive Short-Term Incentive Plan
The Board of Directors recommends a vote FOR this proposal.
Under Article IV
The Duke Energy 2000 Policy Committee Short-Term Incentive plan was approved by the shareholders at the 2000 annual meeting. The plan was designed to advance Duke Energy’s interests by rewarding members of the Articles of Incorporation, Duke Energy is currently
authorized to issue 2,000,000,000 shares of Common Stock, without par value,
12,500,000 shares of Preferred Stock, $100 par value per share, 10,000,000
shares of Preferred Stock A, $25 par value per share, and 1,500,000 shares of
Preference Stock, $100 par value per share. As ofPolicy Committee when corporate performance reaches certain predetermined levels. In February, 28, 2002, there were
outstanding 778,199,474 shares of Common Stock, five series of Preferred Stock
without sinking fund requirements having an aggregate par value of
$178,000,000, two series of Preferred Stock2003, in connection with sinking fund requirements
having an aggregate par value of $38,000,000 and one series of Preferred Stock
A without sinking fund requirements having a par value of $31,000,000. There
were no shares of Preference Stock outstanding as of that date.
Reasons for the Proposed Amendment
The basic structure of Article IV relating to the issuance of the Preferred
Stock and the Preferred Stock A (Preferred Stocks) by series was adopted during
the 1950's based upon statutory authorization enacted many years earlier, and
has a number of features prevalent at that time that are no longer desirable.
These include a two-thirds class vote of the Preferred Stocks for issuances
exceeding 250,000 sharescertain changes in the caseresponsibilities of Preferred Stock or 1,000,000 shares inmembers of Duke Energy’s senior management, the case of Preferred Stock A unless certain earnings and assets tests are met,
and for the approval of certain mergers and consolidations involving Duke
Energy regardless of size and whether or not Duke Energy is the surviving
corporation. Article IV also does not permitPolicy Committee was discontinued. At its February, 2003 meeting, the Board of Directors amended and restated the plan to issue
seriesbe named the Duke Energy Corporation Executive Short-Term Incentive Plan and to allow awards to be granted only to employees designated from time to time as “executive officers” by the Board of Directors, currently numbering eight. The plan is administered by the Compensation Committee of the Preferred Stocks having general voting power.
Board of Directors.
The Board of Directors believes that it would be advisable to amend Article IV
to authorize a new class of Preferred Stock, to be known as "Serial Preferred
Stock," consisting of 20,000,000 shares issuable in series, which would provide
the flexibility needed to meet current requirements of the securities market or
the exigencies of negotiations for the acquisition of other corporations or
properties. The proposed Serial Preferred Stock would not be set aside for any
specific purpose, but would be subject to issuance in the discretion of the
Board of Directors from time to time for any proper corporate purpose without
further action by the shareholders. The terms of any new series will be
dependent largely on conditions existing at the time of issuance and therefore
cannot be indicated at the present time.
The Board of Directors has no immediate intention to enter into any
negotiations, agreements or understandings with respect to the proposed Serial
Preferred Stock, but considers it advisable and in the best interests of Duke
Energy to have such shares authorized and available for issuance to meet future
requirements if and when the need arises. Requiringis now asking the shareholders to meetvote on and approve the amendment and restatement of the Duke Energy Corporation2000 Policy Committee Short-Term Incentive Plan to become the Duke Energy Corporation Executive Short-Term Incentive Plan. Approval of this proposal will also constitute approval of the performance measures described below.
The full text of the amended and restated plan was filed electronically with the SEC with this proxy statement. A brief description of the material features of the plan is presented here, but you are encouraged to read the full plan if you need more information.
Material Features of the Plan. Before the end of the first quarter of each separate issuanceyear, the Compensation Committee will establish performance targets and corresponding target awards for each executive officer for that year. The Compensation Committee may establish a performance target as a specified level of a series wouldbusiness measure and provide that the performance target will be time-consuming and
costly, particularly in those instances wheredetermined by eliminating the numberfinancial effects of sharesspecified transactions or occurrences. If the Compensation Committee intends that awards qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code (described below), the performance targets may track any of the following business measures, for Duke Energy or any of its subsidiaries or business units:
7
Proposals to be issuedVoted Upon
Proposal 4 continued
Achievement of the business measures listed above may be smalldetermined on a stand-alone basis or as compared to a peer group. Section 162(m) limits the deductibility of annual compensation over $1 million paid to certain employees. However, this limit does not apply to qualifying performance-based compensation. Alternatively, the Compensation Committee may establish strategic objectives, instead of business measures, as performance targets for awards that it does not intend to qualify as performance-based compensation under Section 162(m). Awards will be payable in relation tocash, and the total capitalamount of Duke Energy. Moreover, if
shareholder approvalall award payments to any executive officer will not exceed $4,000,000 for any given year.
Soon after the close of such securities were postponed untileach year, the Compensation Committee will certify in writing the extent to which the performance targets have been achieved. If any targets have been achieved, the Compensation Committee will determine for each executive officer the amount of the award that has been earned, based on a specific need
arose,predetermined formula. The Compensation Committee may reduce the delay could, in some instances, depriveamount of any of these awards based upon its assessment of individual performance, the failure of the executive officer to remain employed by Duke Energy or its subsidiaries throughout the year, or for any other reason. The Compensation Committee may allow executive officers to defer payment of opportunities
otherwise available.
all or part of any awards.
If the shareholders approve the proposed amendment to Article IV,and restatement of the plan, the plan will replace the current Duke Energy will no longer issue any shares of Preferred Stock or Preferred Stock A and
anticipates that over time it will redeem or otherwise retire the outstanding
series of those classes of stock when it is deemed cost-efficient to do so and
otherwise advantageous under the circumstances. One of the outstanding series
of Preferred Stock with sinking fund requirements must be redeemed by Duke
Energy in December of this year,2000 Policy Committee Short-Term Incentive Plan, and the other outstanding series is
mandatorily redeemableplan will continue in installments commencing in June 2003. By that time,
all outstanding series of Preferred Stock without sinking fund requirements
will be subject to redemption at the option of Duke Energy. The outstanding
series of Preferred Stock A without sinking fund requirements will be subject
to redemption at the option of Duke Energy commencing in December 2003.
The proposal ofeffect until the Board of Directors contemplates that when all series of
Preferred Stock and Preferred Stock A are redeemedterminates it. The Compensation Committee may amend or otherwise retired,modify the Articles of Incorporationplan as it sees fit. However, no amendment or modification will be amended,effective without further shareholder
authorization, to delete all references to the Preferred Stock and the
Preferred Stock A in Article IV of the Articles of Incorporation. At such time,
the Serial Preferred Stock, if and when issued, will become the senior equity
securities of Duke Energy.
4
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 3B continued
Proposed Serial Preferred Stock
The Serial Preferred Stock will rank junior to the Preferred Stock and the
Preferred Stock A and senior to the Preference Stock and the Common Stock with
respect to dividends and distribution of assets upon liquidation, dissolution
or winding up of Duke Energy.
The Board of Directors will be authorized to determine at the time of creating
each series the designations, preferences, limitations and relative rights of
the series permitted to be fixed by the Board of Directors pursuant to proposed
Article IV, including, but not limited to, the distinctive designation of and
the number of shares in the series, the terms of any dividend payable thereon,
the terms, if any, on which shares of the series may be redeemed, the terms of
any applicable sinking fund, any conversionDirector or voting rights of the series and
the amount payable upon liquidation, dissolution or winding up of Duke Energy.
All shares of Serial Preferred Stock of the same series will be identical in
all respects and, except for the permitted variances and differences between
series expressly provided for in the resolutions creating the series as
contemplated by the proposed Article IV, all shares of Serial Preferred Stock
of all series will be identical in all respects.
Subject to the prior rights of the Preferred Stocks, each series of Serial
Preferred Stock with dividend rights will be entitled to receive, if declared
by the Board of Directors, and before any dividends are paid on the Preference
Stock or the Common Stock, dividends upon such terms as may be fixed by the
Board of Directors for such series.
Duke Energy will be permitted to redeem, pursuant to the provisions of any
applicable sinking fund or otherwise, any series of Serial Preferred Stock, or
any part thereof, upon such terms as the Board of Directors may fix at the time
it creates such series.
If so provided by the Board of Directors at the time of creation of the series,
the shares of a series of Serial Preferred Stock may be convertible or
exchangeable into shares of Common Stock or other securities of Duke Energy or
of any other corporation or other entity, upon terms fixed at the time of
creation of the series.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of Duke Energy, the holders of each series of Serial Preferred Stock
will be entitled to receive, subject to the prior payment in full of the
amounts payable in such event to the holders of the Preferred Stocks and before
any distribution is made to the holders of the Preference Stock or the Common
Stock, the distributive amount fixed by the Board of Directors at the time such
series was created.
The holders of the Serial Preferred Stock will have such voting rights as a
series or otherwise with respect to the election of directors or otherwise as
may be fixed by the Board of Directors at the time of the creation of the
series, in addition to any voting rights provided by law.
If so provided by the Board of Directors at the time of creation of the series,
the shares of a series of Serial Preferred Stock may be subject to restrictions
and conditions upon the issuance of any additional Serial Preferred Stock
ranking on a parity with or prior to such shares as to dividends or upon
dissolution.
The holders of the Serial Preferred Stock will have no preemptive rights. The
Serial Preferred Stock, when issued, will be fully paid and nonassessable.
The full text of the proposed Article IV of the Articles of Incorporation,
which includes the provisions for the proposed Serial Preferred Stock, is set
forth in Exhibit A to this proxy statement. The foregoing description of the
proposed Serial Preferred Stock is qualified in its entirety by reference to
such provisions.
Anti-Takeover Aspects
The Board of Directors has undertaken not to issue the Serial Preferred Stock
for the principal purpose of acting as an anti-takeover device and to seek shareholder approval, prior to authorizing the issuance of any Serial Preferred
Stock for
if that purpose.
Serial Preferred Stock can be, and has been, used by corporations specifically
for anti-takeover purposes. For example, shares of Serial Preferred Stock can
be privately placed with purchasers who support a board of directors in
opposing a tender offer or other hostile takeover bid, or can be issued to
dilute the stock ownership and voting power of a third party seeking a merger
or other extraordinary corporate transaction. Under these and similar
circumstances, the Serial Preferred Stock can serve to perpetuate incumbent
management and can adversely affect shareholders who may want to participate in
the tender offer or other transaction.
The Board of Directorsapproval is sensitive to these issues, particularly because Duke
Energy's Articles of Incorporation and By-Laws already contain provisions that
may have an anti-takeover effect. These provisions require, among other things,
(i) a classified Board of Directors, (ii) a vote of at least
5
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 3B continued
80% of Duke Energy's voting power to amend certain provisions of its Articles
of Incorporation, and (iii) advance notice procedures with respect to
shareholder proposals and nominations of directors. Duke Energy also has a
shareholder rights plan, the effect of which may be to discourage attempts to
gain control of Duke Energy without the approval of the Board of Directors. The
shareholder rights plan would not be affected by the proposed authorization of
shares of Serial Preferred Stock.
The proposal to amend Article IV is not part of a plan to adopt a series of
anti-takeover measures, and Duke Energy has no present intent to propose other
anti-takeover measures in future proxy solicitations. To emphasize this point,
the Board of Directors has adopted resolutions that state that the Serial
Preferred Stock authorized by the proposed amendment of Article IV:
a) not be used for the principal purpose of acting as an anti-takeover device
without shareholder approval; and
b) not be given supermajority voting rights except possibly with respect to
proposed amendments to the Articles of Incorporation altering materially
existing provisions of the Serial Preferred Stock or creating, or increasing
the authorized amount of, any class of stock ranking, as to dividend or
assets, prior to the Serial Preferred Stock.
--------
Unless required by North Carolina law, no further authorization for the
issuance of the Serial Preferred Stock would be necessary, but any such
issuance would be subject to the approval of the North Carolina Utilities
Commission and The Public Service Commission of South Carolina.
Financial Statements
A copy of the annual report to shareholders was mailed on or about March 27,
2002 to each shareholder of record on February 28, 2002. Reference is made to
the consolidated financial statements of Duke Energy, selected quarterly data
and management's discussion and analysis of results of operations and financial
condition, all appearing in such report, which are incorporated herein by this
reference. The consolidated financial statements of Duke Energy incorporated
herein have been examined by Deloitte & Touche LLP, independent auditors, to
the extent and for the periods indicated in their report thereon.
PROPOSAL 3C:
Requiring a Majority Vote of Holders of Outstanding Shares to Adopt, Amend or
Repeal the By-Laws
The Board of Directors recommends a vote FOR this proposal.
North Carolina law currently permits the shareholders to adopt, amend or repeal
the by-laws of a corporation at a meeting of the shareholders at which a
majority of the shares entitled to vote on the matter is present in person or
by proxy if the votes cast at the meeting favoring the action exceed the votes
cast at the meeting opposing the action. This could allow a minority (and in
certain circumstances a small minority) of the shareholders, without any
involvement by the board of directors of the corporation in the process, to
effect significant changes in a corporation's by-laws.
The Board of Directors believes that the By-Laws of Duke Energy, which,
together with its Articles of Incorporation, constitute its fundamental
governing documents, should be changed by the shareholders only when holders of
a majority of the outstanding shares entitled to vote on the matter favor such
change. Accordingly, the Board of Directors proposes to add a new Article VII
to the Articles of Incorporation, which would, as permitted by North Carolina
law, require the affirmative vote of the holders of at least a majority of the
combined voting power of the then outstanding shares of stock of all classes
entitled to vote generally in the election of directors, voting together as a
single class, for the shareholders to adopt, amend or repeal any provisions in
the By-Laws. This voting requirement would also apply to any amendment or
repeal of new Article VII of the Articles of Incorporation or the adoption of
any provision inconsistent with the new Article.
The full text of the proposed Article VII of the Articles of Incorporation,
which would replace current Article VII which is no longer required to be
included as part of the Articles of Incorporation, is set forth in Exhibit B to
this proxy statement.
6
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
PROPOSAL 3D:
Decrease the Permissible Range of Size of the Board of Directors
The Board of Directors recommends a vote FOR this proposal.
The By-Laws of Duke Energy have provided since 1986 that the number of
directors constituting the Board of Directors will be not less than twelve nor
more than twenty-four as fixed from time to time within those limits by the
Board of Directors. In that year the number of directors was fixed at twenty.
This By-Law provision was carried forward into the Articles of Incorporation of
Duke Energy in 1991 when certain amendments were made to that document. At that
time the number of directors was fixed at nineteen.
Consistentcomply with modern governance principles, the Board of Directors has tended
in recent years to favor a smaller board as being more effective and has fixed
the number of directors at twelve, commencing with the date of the 2002 annual
meeting. The Board of Directors believes that the number of directors
constituting the Board of Directors should be not less than nine nor more than
eighteen, with the actual number of directors within that range continuing to
be fixed by the Board of Directors, and deems advisable a proposed amendment to
clause (a) of Article VIII of the Articles of Incorporation effecting this
change. The Board of Directors has made a corresponding change in the By-Laws,
subjecttherequirements for performance-based compensation under Section 162(m).
Plan Benefits. Subject to shareholder approval of the proposed amendment,plan, the Compensation Committee has granted the following target awards for the year 2003 under the plan, with performance targets for the named executives based on Duke Energy’s earnings per share and cash flow for 2003:
Name or Identity of Group | Dollar Value ($) | |
R. B. Priory Chairman of the Board and Chief Executive Officer | 1,080,000 | |
F. J. Fowler President and Chief Operating Officer | 603,000 | |
R. P. Brace Executive Vice President and Chief Financial Officer | 406,000 | |
R. J. Osborne Executive Vice President and Chief Risk Officer | 405,000 | |
All eligible executive officers as a group (8) | 3,466,500 |
The actual awards may be more or less than these target awards, depending upon differences between actual earnings per share and cash flow and the earnings per share and cash flow performance targets. Performance targets for executive officers other than the named executive officers may be based on business unit earnings before interest and taxes and economic profit and/or other measures, in addition to take effect onearnings per share and cash flow.
8
Proposals to be Voted Upon
SHAREHOLDER PROPOSALS
Each of the date of such approval.
SHAREHOLDER PROPOSALS
The following four proposals havehas been submitted by shareholdersa shareholder for inclusion in this proxy statement. Upon oral or written request, we will promptly furnish the namesname and addressesaddress of the shareholdersshareholder submitting the proposals,proposal, as well as the number of shares theythe shareholder held at the time the proposals were submitted.
PROPOSAL 4:
Investments in Alternative Energy Sources
The Board of Directors recommends a vote AGAINST this shareholder proposal.
Invest in Clean Energy (I.C.E.) Proposal
Be it resolved that Duke Energy shall invest sufficient resources to build new
electrical generation from solar and wind power sources to replace
approximately one percent (1%) of system capacity yearly for the next twenty
years with the goal of having the company producing twenty percent (20%) of
generation capacity from clean renewable sources in 20 years.
Supporting Statement
Utility deregulation demands the company present a good public image, and the
public is demanding progress towards clean energy.
Efforts must be made to slow down changes in global climate so that we can
continue to survive on planet earth.
The proposal allows flexibility in schedule for the Board of Directors to
implement this proposal. The 20% figure is just a reasonable and conservative
goal to aim for.
A one percent yearly addition to generation capacity allows for small pilot
plants to be built and tried as the program advances.
The company should look to building facilities that are made to last a long
time.
Solar power towers, wind farms, solar photovoltaic arrays and parabolic solar
thermal collectors already exist in other places in this range of power
production, proving that Duke could realistically build such facilities in the
Carolinas and elsewhere.
Opposing Statement of the Board of Directors
A proposal identical to this proposal was submitted at last year's annual
meeting by one of the two shareholders making this proposal and was opposed by
over 95% of the shareholders voting at the meeting. The Board of Directors
believes that this proposal is contrary to the best interests of Duke Energy
and the shareholders.
Duke Energy considers the development of clean, renewable energy sources to be
a matter of importance. It also supports research in the development and
commercial deployment of such technologies and closely monitors technological
developments in this sector. Duke Energy has developed several different
commercial projects utilizing these kinds of technologies and participates in
commercial developments that are consistent with its business strategy and
capital investment requirements. As with other generation technologies deployed
by Duke Energy, renewable energy generation technologies must be economically
attractive in addition to their having technological feasibility.
The proponents would have shareholders require Duke Energy to pursue certain
renewable energy sources without reference to any economic, scientific or
technical data on which to evaluate such actions. If adopted, the proposal
would require Duke Energy to replace its electric generating system capacity
with solar and wind power sources by approximately 1% per year, regardless of
whether 1% replacements are practical and regardless of cost, and to commit to
that timetable for the next 20 years.
7
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 4 continued
The proposal generally requires Duke Energy to replace portions of its electric
generation system in artificial, predetermined percentage amounts according to
an artificial, predetermined timetable. Changes in the composition of electric
generation systems, however, do not occur in successive increments of
approximately 1% and are not implemented on the basis of the sort of timetable
that the proposal specifies. Moreover, the proposal could require Duke Energy
to dismantle system capacity that might be highly productive in order to
replace it with solar and wind power technologies, replacements that would
involve very substantial costs with respect to construction and maintenance.
Based on data provided by the World Energy Assessment conducted by the United
Nations Development Programme, the technologies included in the proposal
presently are 3 times to 40 times as expensive as current conventional
generation technologies.
The timing and advisability of entering into any new business, such as
renewables, including research and marketing decisions relating to it, require
the judgment of experienced management. Duke Energy has experience in renewable
energy. It has participated in past research and development and commercial
ventures involving renewable energy, including biomass and solar energy.
However, the long-term commitment and scale of investment required by the
proposal would not, in the Board's opinion, be in the best interests of
shareholders or customers.
The Board of Directors opposes this proposal because it requires Duke Energy to
adopt a highly restrictive and costly plan with respect to Duke Energy's future
electric operations. Duke Energy remains committed through research, technology
and innovation to meet consumers' demands for new products and services. Duke
Power, a Duke Energy company, is participating in a collaborative effort to
develop a voluntary green power program for North Carolina electric consumers.
The Board of Directors believes, however, that the requirement in the proposal
that Duke Energy should actively pursue a business activity such as renewable
energy sources, irrespective of consumers' demands, technical data and economic
factors, is unwarranted and not in the best interests of shareholders.
The Board of Directors recommends a vote AGAINST this proposal for the reasons
set forth above.
submitted.
PROPOSAL 5:
Role of the Board of Directors in Long-Term Strategic Planning
The Board of Directors recommends a vote AGAINST this shareholder proposal.
Resolved, that the shareowners of Duke Energy Corporation ("Company") hereby
urge that the Board of Directors prepare a description of the Board's role in
the development and monitoring of the Company's long-term strategic plan.
Specifically, the disclosure should include the following: (1) A description of
the Company's corporate strategy development process, including timelines; (2)
an outline of the specific tasks performed by the Board in the strategy
development and the compliance monitoring processes, and (3) a description of
the mechanisms in place to ensure director access to pertinent information for
informed director participation in the strategy development and monitoring
processes. This disclosure of the Board's role in the strategy development
process should be disseminated to shareowners through appropriate means,
whether it be posted on the Company's website or sent via a written
communication to shareowners.
Statement of Support
The development of a well-conceived corporate strategy is critical to the
long-term success of a corporation. While senior management of our Company is
primarily responsible for development of the Company's strategic plans, in
today's fast-changing environment it is more important than ever that the Board
engage actively and continuously in strategic planning and the ongoing
assessment of business opportunities and risks. It is vitally important that
the individual members of the Board, and the Board as an entity, participate
directly and meaningfully in the development and continued assessment of our
Company's strategic plan.
A recent report by PricewaterhouseCoopers entitled "Corporate Governance and
the Board - What Works Best" examined the issue of director involvement in
corporate strategy development. The Corporate Governance Report found that
chief executives consistently rank strategy as one of their top issues, while a
poll of directors showed that board contributions to the strategic planning
process are lacking. It states: "Indeed, it is the area most needing
improvement. Effective boards play a critical role in the development process,
by both ensuring a sound strategic planning process and scrutinizing the plan
itself with the rigor required to determine whether it deserves endorsement."
8
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 5 continued
The Company's proxy statement, and corporate proxy statements generally,
provides biographical and professional background information on each director,
indicates his or her compensation, term of office, and board committee
responsibilities. While this information is helpful in assessing the general
capabilities of individual directors, it provides shareholders no insight into
how the directors, individually and as a team, participate in the critically
important task of developing the Company's operating strategy. And while there
is no one best process for board involvement in the strategy development and
monitoring processes, shareholder disclosure on the Board's role in strategy
development would provide shareholders information with which to better assess
the performance of the board in formulating corporate strategy. Further, it
would help to promote "best practices" in the area of meaningful board of
director involvement in strategy development.
We urge your support for this important corporate governance reform.
Opposing Statement of the Board of Directors
The Board of Directors believes that this proposal is contrary to the best
interests of Duke Energy and the shareholders.
The Board of Directors annually reviews management's long-term strategic plan
and reviews strategic updates. It also reviews management's specific goals at
the beginning of the year and actual performance periodically. These duties are
consistent with Duke Energy's board governance principles, and the Board of
Directors fully recognizes the importance of these obligations. The Corporate
Performance Review Committee of the Board of Directors is responsible for
assessing the implementation of strategy by business unit or function.
The Board of Directors believes that no useful purpose would be served by
providing the shareholders with a detailed description of the role of the Board
of Directors in the development and monitoring of Duke Energy's long-term
strategic plan, as requested by the proposal.
A detailed description of the role of the Board of Directors in the strategy
development process would soon become obsolete in many respects. The
opportunities that appear to be available for a given future time period when a
strategic plan is designed are often very different from the opportunities that
actually materialize. Further, variances from a strategic plan typically
develop as performances are realized. For these reasons, the Board of Directors
evaluates Duke Energy's strategic plan and management's actual performance in
achieving Duke Energy's goals by using a dynamic process that analyzes numerous
factors and peer comparisons. Of necessity, this process changes over time.
The detailed description of Duke Energy's corporate strategy development
process, including timelines, as envisioned by the proposal, could compromise
sensitive corporate information. It thus could put Duke Energy at a competitive
disadvantage without in any way aiding the oversight function of the Board of
Directors.
Approval of the proposal would not in itself result in disclosure of the role
of the Board of Directors in the development and monitoring of Duke Energy's
long-term strategic plan. Approval by the shareholders would only serve to urge
the Board of Directors to provide the requested information. Disclosure would
actually occur only after the Board of Directors exercises its collective
business judgment in determining that making the disclosure would be in the
best interests of Duke Energy and the shareholders.
The Board of Directors recommends a vote AGAINST this proposal for the reasons
set forth above.
PROPOSAL 6:
Appointment of Independent Auditors Who Only Render Audit Services
The Board of Directors recommends a vote AGAINST this shareholder proposal.
RESOLVED: That the shareholders of Duke Energy request that the Board of
Directors adopt a policy that in the future the firm that is appointed to be
the Company's independent accountants will only provide audit services to the
Company and not provide any other services.
Supporting Statement
The Securities and Exchange Commission passed new proxy statement rules that
took effect February 5, 2001, which require companies to disclose how much they
pay their accounting firms for audit services and non-audit services.
The results have been startling. According to a Wall Street Journal article of
April 10, 2001: "The nation's biggest companies last year paid far more money
than previously estimated to their independent accounting firms for services
other than auditing, newly disclosed figures show, renewing questions about
whether such fees create conflicts of interest for auditing firms... At issue:
How objective can an accounting firm be in an audit when it is also making
millions of dollars providing the client with other services."
9
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 6 continued
That Wall Street Journal article reported that of the 307 S&P 500 companies it
had surveyed, the average fees for non-audit services were nearly three times
as big as the audit fees. The Company's 2001 proxy statement revealed that it
had paid its independent auditor $3.3 million for its audit work and $11.7
million for other work.
When the SEC was seeking comments on its accountant disclosure rules,
substantial institutional investors urged that auditors should not accept
non-audit fees from companies. The California Public Employees' Retirement
System's General Counsel, Kayla J. Gillan, wrote: "The SEC should consider
simplifying its Proposal and drawing a bright-line test: no non-audit services
to an audit client." TIAA-CREF's Chairman/CEO John H. Biggs wrote:
"...independent public audit firms should not be the auditors of any company
for which they simultaneously provide other services. It's that simple."
It is respectfully submitted that it would be in the best interests of the
Company's shareholders if the Board of Directors adopts a policy that in the
future any firm appointed to be the Company's independent accountants shall
only provide audit services to the Company and not provide any other services.
Opposing Statement of the Board of Directors
The Board of Directors believes that adoption of this proposal would not be in
the best interests of Duke Energy or its shareholders.
Duke Energy is closely monitoring developments and public concerns in the area
of auditor independence and will readily comply with evolving legal and
regulatory requirements. As Deloitte & Touche LLP has announced its intention
to split its management consulting business from its audit services business,
the Board of Directors believes that this proposal is unnecessary.
As noted in the discussion under "Fees Paid to Independent Auditors" under
"Other Information" below in this proxy statement, Duke Energy has retained
Deloitte & Touche LLP to advise it on a number of matters in addition to its
core auditing functions. As set forth in that section, Duke Energy engaged
Deloitte & Touche LLP to perform various "nonaudit" services in 2001 for which
that firm billed approximately $27.6 million. This amount included $21.9
million for tax services and $5.7 million primarily for advice related to
acquisitions and divestitures and for the issuance of consents and comfort
letters in connection with SEC filings and financing transactions. These
nonaudit services are compatible with maintaining auditor independence. Indeed,
the SEC stated in its release promulgating the auditor independence rules that
"[a]ccountants will continue to be able to provide a wide variety of non-audit
services to their audit clients."
Decisions to engage a particular accounting firm are made by Duke Energy only
when two conditions are met. The first is a determination that the accounting
firm's particular expertise, coupled with its knowledge of Duke Energy and
management and financial systems, provides substantial assurance of
high-quality and timely results with tangible cost savings. The second is a
determination that the engagement is consistent with the maintenance of auditor
independence as required by the auditor independence rules of the SEC. These
determinations are reviewed regularly with the Audit Committee, as noted in the
Report of the Audit Committee.
Discretion in determining the best allocation of tasks among accounting (and
other) firms is an essential component of the ability of the Board of Directors
and the Audit Committee to discharge their responsibilities to Duke Energy and
its shareholders. The Board of Directors believes that the retention of this
discretion is entirely consistent with Duke Energy's ability to monitor and
ensure the independence of its auditors. In the area of tax services, Duke
Energy uses a number of different firms and does not rely on any firm
exclusively.
The Executive Vice President and Chief Financial Officer, the Corporate
Controller and the Audit Committee monitor and evaluate the performance of
Deloitte & Touche LLP in both its auditing services and its nonaudit services,
the magnitude of the fees paid for such services and the compatibility of the
nonaudit services with the maintenance of the firm's independence. Moreover, in
late 2000, Duke Energy adopted restrictions beyond the requirements of the
auditor independence rules of the SEC by prohibiting Deloitte & Touche LLP from
providing internal auditing services or financial information systems design
and implementation services. Duke Energy will adopt further prohibitions on
various nonaudit services as warranted by the circumstances.
In addition to these internal procedures, Duke Energy annually seeks
shareholder ratification of its selection of independent auditors. Duke Energy
also provides to its shareholders information relating to fees paid to its
auditors as well as disclosure of the Audit Committee's consideration of
whether the provision of nonaudit services is compatible with maintaining their
independence, all as required by the rules of the SEC.
10
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 6 continued
Given the recent announcement of Deloitte & Touche LLP about its consulting
business, the protective measures already in place and the disclosures required
when independent auditors are selected for nonaudit work, the Board of
Directors believes there is little chance for abuse and no benefit to Duke
Energy or its shareholders from an arbitrary limitation on the power of
management and the Board of Directors to exercise business judgment in the
selection of auditors.
The Board of Directors recommends a vote AGAINST this proposal for the reasons
set forth above.
PROPOSAL 7:
Study of the Risk and Responsibility for Public Harm Due to Duke Energy'sEnergy’s Nuclear Program
The Board of Directors recommends a vote AGAINST this shareholder proposal.
Nuclear Risk and Responsibility
The shareholders request the Board of Directors to conduct an open comprehensive study, utilizing independent public resources, oversight, and participation (but excluding proprietary and confidential information), defining Duke Energy'sEnergy’s risk of, and potential responsibility for, causing public harm due to the company'scompany’s continued participation in nuclear energy programs, and to prepare, at reasonable expense, a report for the next annual shareholders'shareholders’ meeting in 2003.
2004.
Supporting Statement
Statement:
Duke Energy'sEnergy’s Environmental, Health & Safety Policy states:
Duke Energy highly values the health and safety of our employees, customers and communities.
Duke Energy will engage in partnerships that enhance public environmental, health & safety awareness and address common environmental, health & safety issues.
Duke Energy will foster open dialogue and informed decision making through meaningful and regular communication of environmental, health and safety information with management, employees and the public.
Additional Supporting Statement
Statement:
The last Nuclear Regulatory Commission study of reactor accident consequences was done by the Sandia National Laboratory in 1981.
Duke Energy has made application to the Nuclear Regulatory Commission to renew the operating licenses for the McGuire and Catawba nuclear plants for an additional 20 years and, if approved, will have authorization to operate these plants until the years 2041-2046. License approval by the Nuclear Regulatory Commission, and subsequent operation of the reactors, would extend by 20 years the risks associated with plant aging and the threats associated with terrorism.
The Nuclear Regulatory Commission acknowledges the threat of terrorism attacks on nuclear facilities. While ongoing analysis at the federal level is essential, when such questions are raised at the local level, they are often considered generic and not within the scope of the license renewal process.
Opposing Statement of the Board of Directors
A proposal identical to this was submitted at last year’s annual meeting by the shareholder making this proposal and was opposed by over 89% of the shareholders voting at the meeting. The Board of Directors believescontinues to believe that this proposal is unnecessary and contrary to the best interests of Duke Energy and theits shareholders.
Duke Energy takes very seriously its responsibility to operate its nuclear facilities safely, and it has an outstanding record in discharging its responsibility in this regard. Duke Energy continues to be one of the top performers in the U.S. nuclear industry in terms of regulatory safety as indicated by reviews of the Nuclear Regulatory Commission (NRC) and the Institute of Nuclear Power Operations.
The supporting statement for the proposal does not accurately reflect the substantial, ongoing analyses that have been conducted by the NRC and Duke Energy conductsto address nuclear plant risks and potential safety improvements. Duke Energy has for many years been an industry leader in developing probabilistic risk assessments for its nuclear facilities,
whichfacilities. These are sophisticated reactor safety studies that consider the likelihood of various accident sequences and the likely results. TheseIn these studies, usewhich are updated as appropriate, Duke Energy uses the most current accepted risk assessment methodologymethodologies and the most currentplant equipment reliability information. Duke Energy useshas used these studies to identify and implement changes in plant equipment and operating procedures that would enable it to continue
to operateenhance the performance and safety of its nuclear facilities in a safe manner. Thesefacilities. Information and results from these studies arehave been shared with variousthe NRC and other federal regulatory agencies as appropriate and are updated as
necessary.
appropriate.
The proposal asks that an open comprehensiveseeks a further study of potential reactor safety risks utilizing independent public resources be undertaken and implies thatresources. However, a meaningful studydetailed risk assessment of this kind can be
conductedwould require proprietary and a report thereon can be issued. In fact, a meaningful study of
the sort requested by the proposal would likely be impossible to conduct and
the report that is requested by the proposal may run counter to national
security interests. This is because a substantial amount ofsecurity-sensitive information that is
used to develop probabilistic risk assessments for Duke Energy's nuclear
facilities is not, and never has been, available to the public. Due to
restrictions placedMoreover, a study such as the one proposed offers no clear benefits given the studies already conducted by Duke Energy and the information on those studies that has been filed in public documents with the NRC. The NRC filings include substantial information on the public availabilitymethodologies and the results of information by the NRC
followingDuke Energy risk assessments. These assessments already address the terrorist attackskinds of September 11, 2001, certain informationrisks that previously was available to the public
11
9
Proposals to be Voted Upon
- --------------------------------------------------------------------------------
Proposal 75 continued
has since been restricted. To the extent that
The supporting statement for the proposal requestsreferences Duke Energy’s application pending before the NRC to renew the operating licenses for the McGuire and Catawba nuclear plants for an analysis
of vulnerabilities to terrorist attack, that analysis would requireadditional 20 years. That application is being reviewed by the consideration of security-sensitive information which has never been publicly
available. Disclosure of this kind of information could raise substantial
homeland security concerns.NRC. Duke Energy also has in place effective aging management programs for its nuclear facilities which have been approved by the NRC. Duke Energy is committed to implementing additional aging management programs in the context of license renewalsrenewal for those facilities, as necessary and as required by the NRC to mitigate the effects of aging during any extended periods of operation. The Board of Directors believes thatNRC’s license renewal regulations and review have provided for a meaningful study and reportfull assessment of the kindequipment aging issues relevant to an additional 20 years of operation.
The supporting statement for the proposal requests, usingalso references the sourcesthreat of terrorism at nuclear plants. Following the proposal requires and conductedattacks of September 11, 2001, terrorism is a matter the NRC has been addressing for all nuclear power plants in the mannerUnited States. The NRC has repeatedly expressed its determination to strengthen security at the proposal specifies, cannotfacilities that it regulates. To this end, the NRC has issued threat advisories to all nuclear plants, requiring the plants to go to the highest security levels; it has issued orders to all nuclear plants, requiring specific security measures over and above those required by regulations; and it has been conducting a comprehensive review of security requirements, re-thinking the scope and adequacy of those requirements.
The NRC also has reasonably concluded that terrorism risks are not matters to be generated. Such a study would also
be unnecessary sinceaddressed in considering the renewal of the licenses for Duke Energy's analysesEnergy’s plants or the renewal of the licenses for any other plants; rather, these are issues that the NRC and assessments alreadylicensees are addressing for current plant operation by the generic measures and reviews that are described above. The fact that the NRC has, consistent with its regulations, chosen to address the kinds of risks thatrelevant issues through regulatory processes other than a license renewal review does not support the proposal could legitimately haveneed for the new study address.
proposed study.
The Board of Directors thus believes that the proposed study is not necessary and that adoption of the proposal is not in the best interests of Duke Energy and its shareholders.
The Board of Directors recommends a vote AGAINST this proposal for the reasons set forth above.
12
PROPOSAL 6:
Re-examination of Duke Energy’s Dividend Policy
The Board of Directors - --------------------------------------------------------------------------------
recommends a vote AGAINST this shareholder proposal.
Shareholders Should Not Be Left Behind
Left Behind! is the title of the popular book series by Tim LaHaye and Jerry Jenkins about the End-Times. That’s also the cry of many shareholders since Duke announced an annual dividend of $1.10 per share for 2002. This marked the fifth consecutive year the dividend had been at this (equivalent) level. That may not matter to Duke’s top executives or large institutional investors. But it could to small investors who may need money for daily expenses, or to ‘seniors’ who bought Duke some times ago as part of a retirement portfolio, counting on the income for things like medicines, doctor bills, food and, generally, greater self-sufficiency. It can hurt many who depend on dividend income, and over this period have seen its buying power plummet. For these citizens, exchanging Duke for higher payout companies may simply not be practical, considering sales commissions and capital gains taxes.
Duke’s growth (or lack thereof) is based partly on management action, and partly, on external factors such as, the national economy and power needs. With dividends held constant over this period, one could conclude that management used funds that might otherwise have underwritten higher dividends to finance growth. In fact, Duke management stated “we continue to believe the best way to meet our aggressive growth targets is to invest substantial earnings back into the company, rather than to incur the expense of external financing. This growth leaves investors in a better overall position than would an increased dividend yield”. In a sense, growth could be viewed as being financed on the backs of shareholders.
Value can take different forms. Duke management appears to believe shareholder value is achieved mainly by growth, and this may be true for some as indicated above. But for others, it will not be true, and many might prefer more spendable ‘value’ now. Dividends that keep pace with inflation is a measure of ‘value’ too. We have seen over the past year severe
10
Proposals to be Voted Upon
Proposal 6 continued
negative ‘growth’ in share value, leaving shareholders now with continuing low dividends and lower stock prices as well.
While dividends remained constant, Mr. Priory’s compensation grew: $1.03M (1997), $1.74M(1998), $2.00M(1999), $3.16M(2000), and $3.58M(2001). Top assistants saw similar growth. In addition, ‘long-term compensation’ for each included anywhere from 400,000 to 1,400,000 share options, large restricted stock awards, and other compensation. Share awards, alone, may explain why management is so intent on growth versus increasing dividends.
It would seem, a more balanced relationship could exist between company profitability, growth, and executive compensation, on one hand and dividends on the other. It’s right that management be rewarded; it’s not right that small shareholders be ‘left behind’. Duke could still continue a “growth” strategy, but perhaps slightly moderated.
It is therefore proposed that shareholders ask the Board to re-examine present policies for establishing annual dividend yield that has produced no increase in five years. This proposal is not intended to directly or indirectly establish either a maximum or minimum dividend payout.
Opposing Statement of the Board of Directors
This proposal requests re-examination by the Board of Directors of Duke Energy’s dividend policy. The Directors already perform this activity on a regular basis in the exercise of their fiduciary responsibilities and business judgment. Therefore, the Board of Directors believes that adoption of this proposal is unnecessary and would not be in the best interests of Duke Energy and its shareholders.
Under the North Carolina Business Corporation Act and Duke Energy’s Articles of Incorporation and By- Laws, the Board of Directors bears the fiduciary responsibility to conduct the business of the Company. These duties include having the sole discretion to declare dividends in the Directors’ business judgment by weighing multiple factors in determining when, whether, and in what amounts dividends should be declared relative to other business priorities. In December 2000, after thorough deliberation, the Board determined to maintain the dividend at 27.5 cents per quarter. The Board of Directors viewed this decision as striking an appropriate balance between providing a competitive dividend yield and ensuring that the Company has the resources available to fund growth. The Board has since exercised its fiduciary responsibility each time it has declared quarterly dividends. Through late 2002 and early 2003, the Board evaluated Duke Energy’s business and endorsed a 2003 business plan with the intent of continuing to pay the dividend at its current level. The Board’s decisions regarding dividend policy are based on the anticipated needs of the business for capital and the most efficient means of enhancing shareholder value in the light of current business circumstances and tax considerations.
Approval of the proposal would not in itself lead to any increase in dividends paid to shareholders. Approval by the shareholders would only serve to request the Board of Directors to re-examine its dividend policy, which it already regularly does. Any change in the amount of dividend payments per share would occur only after the Board of Directors exercises its collective business judgment in conducting its periodic evaluations as to whether a change in its current dividend policy is in the best interests of the Company and all of its shareholders in light of the considerations described above.
The Board of Directors recommends a vote AGAINST this proposal for the reasons set forth above.
11
The Board of Directors
Nominees for election at the annual meeting are marked with an asterisk (*).
[PHOTO]
G. Alex Bernhardt, Sr.
G. Alex Bernhardt, Sr. *
Director since 1991
Chairman and CEO, Bernhardt Furniture Company, furniture manufacturer
Age 58
59
Mr. Bernhardt has been associated with Bernhardt Furniture Company of Lenoir, North Carolina, since 1965. He was named President and a director in 1976 and became Chairman and CEO in 1996. [PHOTO] He is a Class II director with a term expiring in 2005.
Robert J. Brown
Robert J. Brown
*
Director since 1994
Chairman and CEO, B&C Associates, Inc., marketing research and public relations firm
Age 67
68
Mr. Brown founded B&C Associates, Inc., High Point, North Carolina, in 1960, served as its President from 1960 until 1968 and has been its Chairman and CEO since 1973. He is a director of Wachovia Corporation, Sonoco Products Company and AutoNation, Inc. He is a Class III director with a term expiring in 2003.
[PHOTO] William A. Coley
William A. Coley *
Director since 1990
Group President, Duke Power, franchised electric operations of Duke Energy
Age 58
Mr. Coley joined Duke Energy in 1966. He was named President of Duke Energy's
Associated Enterprises Group in 1994 and was appointed to his present position
in June 1997. He is a director of CT Communications, Inc. and SouthTrust
Corporation.
13
The Board of Directors
- --------------------------------------------------------------------------------
[PHOTO] William T. Esry
William T. Esrey*
Director since 1985
Chairman, and CEO, Sprint Corporation, a diversified telecommunications holding company
Age 62
63
Mr. Esrey has served as Chairman of Sprint Corporation since 1990 and served as its CEO since 1985.from 1985 to March, 2003. He was President of Sprint Corporation from 1985 to 1996. Mr. Esrey is a director of Sprint Corporation, General Mills, Inc., and Exxon Mobil Corporation and had been a director of PanEnergy Corp since 1985. He is a Class
III director with a term expiring in 2003.
[PHOTO]
12
The Board of Directors
Ann Maynard Gray
Ann Maynard Gray
Director since 1994
Former Vice President, ABC, Inc. and Former President, Diversified Publishing Group of ABC, Inc.,
television, radio and publishing
Age 56
57
Ms. Gray was President, Diversified Publishing Group of ABC, Inc. from 1991 until 1997, and was a Corporate Vice President of ABC, Inc. and its predecessors from 1979 to 1998. She is a director of JP Morgan Funds, Elan Corporation, plc, and The Phoenix Companies, Inc. and had been a director of PanEnergy Corp since 1994. Ms. Gray is a Class I director with a term expiring in 2004.
[PHOTO] Dennis R. Hendrix
Dennis R. Hendrix
Director since 1990
Retired Chairman of the Board, PanEnergy Corp
Age 62
Mr. Hendrix was Chairman of the Board of PanEnergy Corp from 1990 to 1997, CEO
from 1990 to 1995, and President from 1990 to 1993. He served as a director of
Texas Eastern Transmission Corporation (now Texas Eastern Transmission, LP)
from 1990 to 1997 and as its President and CEO from 1990 to 1994. Mr. Hendrix
is a director of Allied Waste Industries, Inc., International Power, PLC and
Newfield Exploration Company. He is a Class I director with a term expiring in
2004.
14
The Board of Directors
- --------------------------------------------------------------------------------
[PHOTO]
George Dean Johnson, Jr.
George Dean Johnson, Jr.
*
Director since 1986
CEO, Extended Stay America, Inc.
development, ownership and management of extended-stay lodging facilities
Age 59
60
Mr. Johnson was a co-founder of Extended Stay America, Inc. and has served as its CEO since 1995. He is a director of Extended Stay America, Inc., Boca Resorts, Inc. and AutoNation, Inc. Mr. Johnson is a Class III director with a term expiring in
2003.
[PHOTO]
Max Lennon
Max Lennon *
Director since 1988
Retired
President, Mars Hill College, Mars Hill, NC
Education and Research Services, nonprofit economic development organization
Age 61
62
Dr. Lennon served aswas appointed to his present position in 2002. He was President of Mars Hill College from 1996 until 2002. He served as President of Eastern Foods, Inc. from 1994 through 1995. HeDr. Lennon was previously involved in higher education from 1966 to 1994, his last tenure being at Clemson University where he served as President for eight years. Dr.
LennonHe is a director of Delta Woodside Industries, Inc. and Delta Apparel. [PHOTO] He is a Class II director with a term expiring in 2005.
13
The Board of Directors
Leo E. Linbeck, Jr.
Leo E. Linbeck, Jr. *
Director since 1986
Chairman, President and CEO, Linbeck Corporation, holding company of four construction-related firms
Age 67
68
Mr. Linbeck assumed his present position in 2003. He was Chairman, President and CEO of Linbeck Corporation from 1990 to 2003, after serving as Chairman, President and CEO of Linbeck Construction Corporation from 1975 to 1990. He served as a director of PanEnergy Corp from 1986. 15
The Board of Directors
- --------------------------------------------------------------------------------
[PHOTO] James G. Martin
He is a Class II director with a term expiring in 2005.
James G. Martin, Ph.D.*
Director since 1994
Corporate Vice President, Carolinas HealthCare System
Age 66
67
Dr. Martin was named to his present position in 1995. He served as Governor of the State of North Carolina from 1985 to 1993 and was a member of the United States House of Representatives, representing the Ninth District of North Carolina, from 1973 to 1984. Dr. Martin is a director of Palomar Medical Technologies, Inc., aaiPharma Inc. and Family Dollar Stores, Inc.
Michael E.J. Phelps*
Director since 2002
Chairman, Duke Energy Canadian Advisory Council
Age 55
Mr. Phelps was named to his present position in 2002. He served as Chairman and Chief Executive Officer of Westcoast Energy Inc. from 1992 to 2002. He is a Class
III director with a term expiring in 2003.
[PHOTO] of Canadian Imperial Bank of Commerce, Canfor Corporation, Canadian Pacific Railway Company and Asia Pacific Foundation of Canada.
14
The Board of Directors
Richard B. Priory
Richard B. Priory
*
Director since 1990
Chairman of the Board President and CEO, Duke Energy Corporation
Age 55
56
Mr. Priory became Chairman of the Board and CEO in June 1997 upon the merger of
Duke Energy and PanEnergy Corp and became1997. He also served as President infrom 1998 until November 1998.2002. He had served as President and Chief Operating Officer of Duke EnergyPower from 1994 until June 1997. He is a director of Dana Corporation and US Airways Group, Inc. and serves on the boards of the Edison Electric Institute and the Institute of Nuclear Power Operations. Mr. Priory is also a member of the National Academy of Engineering. He is a Class III director with a term expiring in 2003.
[PHOTO]
James T. Rhodes
James T. Rhodes *
Director since 2001
Retired Chairman, President and CEO, Institute of Nuclear Power Operations
Age 60
61
Dr. Rhodes was appointed a director of Duke Energy Corporation in October 2001. He was Chairman and CEO of the Institute of Nuclear Power Operations from 1998 to 2001 and Chairman, President and CEO from 1999 until 2001. He served as President and CEO of Virginia Electric & Power Company, a subsidiary of Dominion Resources, Inc., from 1989 until 1997. 16
15
Beneficial Ownership
- --------------------------------------------------------------------------------
This table indicates how much Duke Energy Common Stock was beneficially owned by the current directors, the executive officers listed in the Summary
Compensation Table under "Compensation" below ("Named Executive Officers")Officers and by all current directors and executive officers as a group as of February 28,
2002.
. March 3, 2003.
Shares of Common Stock | ||||
Name or Identity of Group | Beneficially Owned | Total Beneficially Owned 2 | ||
G.A. Bernhardt, Sr. | 27,230 | 34,910 | ||
R.P. Brace1 | 20,983 | 204,333 | ||
R.J. Brown | 15,155 | 22,835 | ||
W.T. Esrey | 54,573 | 62,253 | ||
F.J. Fowler1 | 106,966 | 825,415 | ||
A.M. Gray | 38,196 | 45,876 | ||
G.D. Johnson, Jr. | 32,967 | 40,647 | ||
M. Lennon | 26,916 | 34,596 | ||
L.E. Linbeck, Jr. | 48,645 | 56,325 | ||
J.G. Martin | 15,366 | 20,446 | ||
R.J. Osborne1 | 34,721 | 283,671 | ||
H.J. Padewer | 8,983 | 310,408 | ||
M.E.J. Phelps | 121,789 | 121,789 | ||
R.B. Priory1 | 48,012 | 1,326,912 | ||
J.T. Rhodes | 6,249 | 7,049 | ||
Directors and executive officers as a group (19) | 674,908 | 4,516,747 | ||
| 1 | Current Named Executive Officers also own Common Stock |
| 2 | Includes shares that may be acquired within 60 days after March 3, 2003. |
According to a Schedule 13G filed with the Securities and Exchange Commission, Capital Research and Management Company, 333 South Hope Street, Los Angeles, CA 90071, is the beneficial owner of 79,867,800 shares of Duke Energy Common Stock, equivalents under Duke Energy executive compensation
and benefits arrangements asor approximately 8.9% of February 28, 2002 in the following
amounts: R.B. Priory, 383,281; R.P. Brace, 13,107; F.J. Fowler, 82,511;
H.J. Padewer, 111,533; W.A. Coley, 162,677; R.J. Osborne, 82,409.
/2/ Includes shares that may be acquired within 60 days after February 28,
2002.
outstanding shares.
This table shows how many units of limited partnership interests in TEPPCO Partners, L.P. were beneficially owned on February 28, 2002March 3, 2003 by directors of
Duke Energy, Named Executive Officers, and by directors and executive officers of Duke Energy as a group. No directors of Duke Energy owned such units on that date. TEPPCO Partners, L.P. is a publicly traded master limited partnership, and Texas Eastern Products Pipeline Company, an indirect subsidiary of Duke Energy, is its general partner. As of February 28, 2002,March 3, 2003, the number of units beneficially owned by directors and executive officers of Duke Energy as a group was less than 1% of the outstanding units. None of these persons had the right to acquire units within 60 days after February 28, 2002.
March 3, 2003.
Name or Identity of Group | Number of Units Beneficially Owned | |
F.J. Fowler | 3,100 | |
R.J. Osborne | 1,000 | |
Executive officers as a group | 5,200 |
16
Information on the Board of Directors
- --------------------------------------------------------------------------------
Board Meetings and Attendance
The Board of Directors had ten meetings during 2001.2002. No director attended less than 75% of the total of the board meetings and the meetings of the committees upon which he or she served.
Board Committees
The Board of Directors has the fivefour standing committees described below:
. The Audit Committee recommends to the Board of Directors the engagement of
Duke Energy's independent auditors; provides independent oversight with
respect to financial reporting and internal controls, the internal audit
function and the independent auditors; determines whether the independent
auditors are independent and makes recommendations on audit matters and
internal controls to the Board of Directors.
. The Compensation Committee sets the salaries and other compensation of all
executive officers of Duke Energy except the Chairman of the Board and Chief
Executive Officer. This Committee makes recommendations to the Board of
Directors regarding the salary and other compensation of the Chairman of the
Board and Chief Executive Officer for consideration and action by the Board
of Directors, without the presence or participation of the Chairman of the
Board and Chief Executive Officer. The Committee also makes recommendations
to the Board of Directors on compensation for outside directors.
. The Corporate Governance Committee considers matters related to corporate
governance and formulates and periodically revises principles for board
governance, recommends to the Board of Directors the size and composition of
the Board of Directors within the limits set forth in the Articles of
Incorporation and By-Laws and recommends potential successors to the Chief
Executive Officer. This Committee considers nominees for the Board of
Directors recommended by shareholders.
. The Corporate Performance Review Committee assesses the level of operational
risk and monitors and makes recommendations for improving Duke Energy's
overall operational performance. It also determines whether current
operating practices provide sufficient support for Duke Energy's emphasis on
continuous improvement.
. The Finance and Risk Management Committee reviews Duke Energy's financial
and fiscal affairs and makes recommendations to the Board of Directors
regarding dividend, financing and fiscal policies. It reviews the financial
exposure of Duke Energy together with mitigating strategies and determines
whether actions taken by management with respect to financial matters are
consistent with internal controls approved by the Audit Committee.
| • | TheAudit Committee recommends to the Board of Directors the appointment of Duke Energy’s independent auditors; provides independent oversight for financial reporting and internal controls, the internal audit function and the independent auditors; determines the independence of auditors; and makes recommendations on audit matters and internal controls to the Board of Directors. |
| • | TheCompensation Committee sets the salaries and other compensation of all executive officers of Duke Energy, except the Chairman of the Board and Chief Executive Officer. This committee makes recommendations to the Boardof Directors regarding the Chairman and CEO’s salary and other compensation, without his presence or participation. The committee also makes recommendations to the Board of Directors on compensation for outside directors. |
| • | TheCorporate Governance Committee considers matters related to corporate governance, and formulates and periodically revises governance principles. It recommends the size and composition of the Board of Directors, within the limits of the Articles of Incorporation and By-Laws, and recommends potential successors to the Chief Executive Officer. This committee also considers nominees recommended by shareholders for the Board of Directors. |
| • | TheFinance and Risk Management Committee reviews Duke Energy’s financial and fiscal affairs, and makes recommendations to the Board of Directors regarding dividends, financing and fiscal policies. It reviews the financial exposure of Duke Energy as well as mitigating strategies, and determines whether actions taken by management with respect to financial matters are consistent with internal controls approved by the Audit Committee. |
Board Committee Membership Roster
Corporate Finance and
Corporate Performance Risk
Name Audit Compensation Governance Review Management
G.A. Bernhardt, Sr. X* X
R.J. Brown X X
W.T. Esrey X X
A.M. Gray X X
D.R. Hendrix X X
H.S. Hook X X
G.D. Johnson, Jr. X X*
M. Lennon X* X
L.E. Linbeck, Jr. X X*
J.G. Martin X X*
R.B. Priory X X
J.T. Rhodes X X
Number of
meetings in 2001 7 6 5 6 6
-------------------------------------------------------------------------
Name | Audit | Compensation | Corporate Governance | Finance and Risk Management | ||||
G.A. Bernhardt, Sr. | ü | |||||||
R.J. Brown | ü | ü | ||||||
W.T. Esrey | ü | ü | ||||||
A.M. Gray | ü | ü | ||||||
G.D. Johnson, Jr. | ü | ü* | ||||||
M. Lennon | ü* | |||||||
L.E. Linbeck, Jr. | ü* | ü | ||||||
J.G. Martin | ü | ü* | ||||||
M.E.J. Phelps | ü | ü | ||||||
R.B. Priory | ü | |||||||
J.T. Rhodes | ü | |||||||
Number of meetings in 2001 | 11 | 6 | 8 | 6 | ||||
* Chair
18
17
Information on the Board of Directors
- --------------------------------------------------------------------------------
Resignation and Retirement Policies
We have a policy stating that members of the Board of Directors are to submit their resignations when they change employment or have another significant change in their professional roles and responsibilities. The normal retirement of those individuals who were members of the Board of Directors when the policy was adopted in 1998 is not considered a change for this purpose. The Corporate Governance Committee will determine whether any such resignation will be accepted. Any resignation that is accepted will likely be effective as of the
end of the term of the director tendering the resignation.
Our Board of Directors retirement policy states that normal retirement for each director will occur at the annual shareholders meeting following his or her seventieth birthday.
Compensation of Directors
Annual Retainer and Fees.We pay outside directors an annual retainer of $40,000. We also pay an outside director serving as Chairman of the Audit, Compensation, Corporate Governance Corporate Performance Review or Finance and Risk Management Committee an additional $4,000 per year. Outside directors also receive a fee of $1,000 for attendance at each meeting of the Board of Directors, each committee meeting and other functions requiring their presence, together with expenses of attendance.
A director may elect to receive 50% of his or her retainer and attendance fees in the form of Duke Energy Common Stock or may defer that portion by having it held in trust for the director'sdirector’s benefit and invested in Duke Energy Common Stock at market price. The director may elect to receive the remaining 50% of such compensation in cash or may elect to defer, until termination of his or her service on the Board of Directors, that portion and invest the deferred amounts among several investment options, including Duke Energy Common Stock.
Stock Options and Stock Awards.In January and July of each year, each outside director is credited with 200 shares of Duke Energy Common Stock to be held in trust. Dividends paid on this stock are reinvested in Duke Energy Common Stock. An outside director will receive, generally upon termination of service from the Board of Directors, the shares held in trust for his or her account on the basis of the distribution schedule that he or she has chosen.
Outside directors receive annual non-qualified stock option grants under the Duke Energy 1998 Long-Term Incentive Plan. Each outside director is granted an option for 4,000 shares at the same time executive officers receive annual long-term incentive awards.incentiveawards. The grant for 20022003 was made on December 19, 2001,February 25, 2003, consistent with the grant date for 20022003 awards to executive officers.
Arrangement with Outgoing Westcoast Energy Chief Executive Officer. Pursuant to an arrangement made in connection with Duke Energy’s acquisition of Westcoast Energy, Michael E. J. Phelps entered into a non-compete agreement expiring in March, 2004, under which he receives C$41,000 monthly. In November 2002, Mr. Phelps received a lump-sum payment of C$242,000 in lieu of office and administrative support that would otherwise have been provided to him under the arrangement over a three-year period following the acquisition.
Charitable Giving Program.After ten years on the Board of Directors, eligible directors participate in the Directors'Directors’ Charitable Giving Program. Under this program, Duke Energy will make, upon the director'sdirector’s death, donations of up to $1,000,000 to charitable organizations selected by the director. A director may request that Duke Energy make donations under this program during the director'sdirector’s lifetime, in which case the maximum donation will be reduced on a net present value basis. We maintain life insurance policies upon eligible directors to fund donations under the program. Eligible directors include only those who were members of the Board of Directors on February 18, 1998, and certain former directors who previously qualified for this benefit.
Stock Ownership Guidelines.Outside directors are subject to stock ownership guidelines which establish a target level of ownership of Duke Energy Common Stock (or Common Stock equivalents) of 4,000 shares. Each outside director is expected to attain this ownership level within five years from January 1, 1997,
the implementation date of the guidelines, or from the beginning of his or her service on the Board of Directors, if after that date.unless service began prior to January 1, 1997, the implementation date of the guidelines, in which case ownership was to have been attained by January 1, 2002. The targeted ownership level has been met by all directors whose stock ownership guideline date was
January 1, 2002.
19
18
Report of the Audit Committee
- --------------------------------------------------------------------------------
The Audit Committee of the Board of Directors is composed entirely of nonemployee directors, all of whom are independent.independent under the currently applicable standards of the New York Stock Exchange and the standards proposed by the Securities and Exchange Commission in January 2003 pursuant to the Sarbanes-Oxley Act of 2002. The Audit Committee'sCommittee’s responsibilities are described under the caption "Board Committees"“Board Committees” under "Information“Information on the Board of Directors"Directors” above in this proxy statement. The Board of Directors readoptedadopted a revised written charter for the Audit Committee in 2002.2003, a copy of which is attached as Appendix A to this proxy statement. The Audit Committee held seveneleven meetings during 2001.
2002.
The financial statements of Duke Energy are prepared by management, which is responsible for their objectivity and integrity. With respect to the financial statements for the calendar year ended December 31, 2001,2002, the Audit Committee reviewed and discussed the audited financial statements and the quality of financial reporting with management and the independent auditors. It also discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No.StandardsNo. 61 (Communication with Audit Committees) and received and discussed with the independent auditors the matters in the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). The Audit Committee also considered the compatibility of nonaudit services with the auditors'auditors’ independence.
Based upon the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board of Directors authorized, the inclusion of the audited financial statements in Duke Energy'sEnergy’s Annual Report on Form 10-K for the year ended December 31, 2001,2002, for filing with the SEC. The Audit Committee also recommended to the Board, subject to shareholder ratification, the selection of Duke Energy'sEnergy’s independent auditors.
This report has been provided by the Audit Committee.
Max Lennon, Chairman
Ann M. Gray
Harold S. Hook
Leo E. Linbeck, Jr.
G. Alex Bernhardt, Sr.
Robert J. Brown
James T. Rhodes
20
19
Report of the
Compensation
Committee
- --------------------------------------------------------------------------------
The Committee'sCommittee’s Responsibilities
The Compensation Committee of the Board of Directors is composed entirely of nonemployee directors. The Compensation Committee is responsible for setting and administering policies which govern Duke Energy'sEnergy’s executive compensation programs. The purpose of this report is to summarize the compensation philosophy and policies that the Compensation Committee applied in making executive compensation decisions in 2001.
2002.
Compensation Philosophy
The Compensation Committee has approved compensation programs intended to:
.
Stock Ownership Guidelines
To underscore the importance of linking executive and shareholder interests, the Board of Directors has adopted stock ownership guidelines for executive officers and other members of senior management. The target level of ownership of Duke Energy Common Stock (or Common Stock equivalents) is established as a fixed number of shares. The target level for the Chairman of the Board President and Chief Executive Officer is 100,000 shares. The target level for the remaining members of the Policy Committee,certain other executive officers, including Messrs. Padewer,Fowler, Brace Fowler and Osborne, is 28,000 shares. The Policy Committee consists of
eight senior executive officers and is responsible for strategic planning and
setting policy and management principles for the entire Duke Energy enterprise. Each employee subject to the guidelines is expected to achieve the ownership target within five years from the date on which the employee became subject to the guidelines, with January 1, 2002 being the first of such dates.guidelines. All executive officers whose stock ownership guideline date was on or before January 1, 2002,2003 have met the ownership target. Common Stock beneficially held for an executive's Duke Energyexecutive’s DukeEnergy Retirement Savings Plan account, Common Stock equivalents earned through non-qualified deferred compensation programs and any other beneficially owned Common Stock are included in determining compliance with the guidelines. Shares that executives have the right to acquire through the exercise of stock options are not included in the calculation of stock ownership for guideline purposes.
Compensation Methodology
Each year the Compensation Committee reviews data from market surveys, proxy statements and independent consultants to assess Duke Energy'sEnergy’s competitive position with respect to the following three components of executive compensation:
.
The Compensation Committee also considers individual performance, level of responsibility and skills and experience in making compensation decisions for each executive.
Components of Compensation
. Base Salary: Base salaries for executives are determined based upon job
responsibilities, level of experience, individual performance, comparisons
to the salaries of executives in similar positions obtained from market
surveys, and competitive data obtained from consultants and staff research.
The goal for the base pay component is to compensate executives at a level
which approximates the median salaries of individuals in comparable
positions and markets. The Compensation Committee approves all salary
increases for executive officers. Base pay increases were approved,
effective January 1, 2001, for Messrs. Padewer, Brace, Fowler and Osborne.
Mr. Priory's base salary increase was approved effective February 1, 2001.
. Annual Incentives: Annual cash incentives are provided to executives to
promote the achievement of performance objectives of Duke Energy and the
executive's particular business unit. In 2001, the Compensation Committee
administered two annual incentive plans that permitted the award of annual
cash incentives to
21
| • | Base Salary:Base salaries for executives are determined based upon job responsibilities, level of experience, individual performance, comparisons to the salaries of executives in similar positions obtained from market surveys, and competitive data obtained from consultants and staff research. The goal for the base pay component is to compensate executives at a level which approximates the median salaries of individuals in comparable positions and markets. The Compensation Committee approves all salary increases for executive officers. Base pay increases were approved, effective January 1, 2002, for Messrs. Fowler, Padewer, Brace, and Osborne. Mr. Priory’s base salary increase was approved effective February 1, 2002. |
| • | Annual Incentives:Annual cash incentives are provided to executives to promote the achievement of performance objectives of Duke Energy and the executive’s particular business unit. In 2002, the Compensation Committee administered two annual incentive plans that permitted the award of annual cash incentives to executive officers. Policy Committee members, including the Named Executive Officers set forth in the Summary Compensation Table under “Compensation” below, earned incentive compensation under the Duke Energy Policy Committee Short-Term Incentive Plan, while executive officers not on the Policy Committee |
20
Report of the
Compensation
Committee
- --------------------------------------------------------------------------------
executive officers. Policy Committee members, including the Named Executive
Officers set forth in the Summary Compensation Table under "Compensation"
below, earned incentive compensation under the Duke Energy Policy Committee
Short-Term Incentive Plan, while executive officers not on the Policy
Committee earned incentive compensation under the Duke Energy Corporation
Annual Incentive Plan, under which certain Duke Energy employees receive a
short-term incentive opportunity. Target incentive opportunities for
executives under both plans are established as a percentage of base salary,
using survey data for individuals in comparable positions and markets.
Incentive amounts are intended to provide competitive incentive amounts for
individuals in comparable positions and markets when target performance is
achieved.
earned incentive compensation under the Duke Energy Corporation Annual Incentive Plan, under which certain Duke Energy employees receive a short-term incentive opportunity. Target incentive opportunities for executives under both plans are established as a percentage of base salary, using survey data for individuals in comparable positions and markets. Incentive amounts are intended to provide competitive incentive amounts for individuals in comparable positions and markets when target performance is achieved. |
Incentive amounts may equal up to 200% of target when outstanding financial results are achieved.
Awards under Duke Energy'sEnergy’s Policy Committee Short-Term Incentive Plan were calculated based upon Duke Energy'sEnergy’s earnings per share (EPS) results. The Compensation Committee established minimum, target and maximum performance levels prior to the beginning of 2001,2002, and participants could receive up to 200% of their short-term incentive targets. EPS performance for 20012002 resulted in payments of 200% of bonus targetsno payment to the Policy Committee members, including the Named Executive Officers.
Awards under the Duke Energy Corporation Annual Incentive Plan, in which executive officers other than members of the Policy Committee participate, were determined on the basis of a combination of: (1) EPS measures, (2) earningsEBIT (earnings before interest and income taxes (EBIT)taxes) measures and, in some instances, otherequivalent measures unique to individual business groups, (3) return on capital employed (ROCE) measures, and (4) individual objectives. EPS measures, the combination of EBIT (and(or equivalent measures unique to individual business group measures,groups, if applicable) and ROCE measures, and individual objectives determined, on average, 67%0%, 25%62% and 8%38%, respectively, of each executive officer'sofficer’s bonus.
. Long-Term Incentive Compensation:
| • | Long-Term Incentive Compensation:The Compensation Committee has structured long-term incentive compensation to provide for an appropriate balance between rewarding performance and encouraging employee retention. |
For 2002 and encouraging employee retention, and to
provide a degree of flexibility to executives in selecting the form in which
compensation is received.
For 2001, executives could elect to receive up to 30% and 20%, respectively, of the annualized value of their long-term incentive compensation in the form of phantom stock, with the remainder being provided in the form of stock options. For 2002,
executives could elect to receive up to 30% of such value in the form of
phantom stock. The purpose of stock options and phantom stock is to align compensation directly with increases in shareholder value. The number of options granted is determined by reviewing surveyreviewingsurvey data to determine the annualized value of long-term incentive compensation made to other executives and management employees in comparable positions and markets (target value) and then dividing the portion of target value elected to be received by the executive in the form of stock options by an expected present value of the option, as determined by using the Black-Scholes option pricing model. The number of phantom stock units granted is determined by dividing the portion of target value elected to be received by the executive in the form of phantom stock units by the fair market value of a share of Duke Energy Common Stock on the date of grant. In determining the number of options and phantom stock units to be awarded, the Compensation Committee, or, in some cases, its designee, also considers the grant recipient'srecipient’s qualitative and quantitative performance, the size of stock option and other stock-based awards in the past, and expectations of the grant recipient'srecipient’s future performance.
In late 2001,2002, in light of market and industry conditions, the Compensation Committee deferred approval of any awards of long-term incentives, to be made as a component of 20022003 compensation, until early 2003, pending completion of a comprehensive review of the company’s executive compensation programs by its independent compensation consultant. Following the review, the Compensation Committee approved awards of non-qualified stock options (as described under "Option
Grants in 2001" below) and phantom stock (as described in the Summary
Compensation Table under "Compensation" below)performance shares to members of the Policy
Committee with the exception ofexecutive officers, including Mr. Priory. Messrs. Padewer, Brace, Fowler
and Osborne each elected to receive 30% of the annualized value of their 2002
long-term incentive compensation in the form of phantom stock. In late 2001,
as a component of 2002 compensation, the Compensation Committee also approved
the award ofThese non-qualified stock options and phantom stock to executive
officers who were not members ofperformance shares will be reported in the Policy Committee.proxy statement for the 2004 annual meeting. All of the non-qualified stock optionoptions and phantom stock awardsperformance shares were granted under the Duke Energy 1998 Long-Term Incentive Plan.
Executives may alsocould elect to receive stock options in lieu of up to 50% of their annual cash bonus for 2002 and 2001 performance under the Short-Term Incentive Exchange Program. Under this program, participants receive a non-qualified stock option whose
22
Report of the Compensation Committee
- -------------------------------------------------------------------------------- present value on the grant date is two times the amount of cash bonus exchanged. The exercise price is equal to the fair market value of Duke Energy Common Stock on the grant date. Because executives elect to forego cash compensation to receive options under the program, the options vest 100% at grant. Awards under thisThis program forwas discontinued effective with the 2003 performance year.
Messrs. Fowler, Brace and Osborne earned no incentives earned in 2001 were made in early 2002 (as describedshown in the Summary Compensation Table under "Compensation"“Compensation” below) to Messrs. Brace, Fowler and Osborne, who elected to exchange 50%,
30%, and 20%, respectively,consequently received no awards of their annual incentives for a stock option.
Awards of non-qualified stock options under this program to executive
officers who were not members
21
Report of the Policy
Compensation
Committee were also made in early
2002. All of the stock option awards were granted under the Duke Energy 1998
Long-Term Incentive Plan.
non-qualified stock options under this program pursuant to their election to exchange 30%, 50%, and 40%, respectively, of their incentives for a stock option. An award of non-qualified stock options under this program to an executive officer who was not a member of the Policy Committee, for incentives earned in 2002, was made in early 2003 under the Duke Energy 1998 Long-Term Incentive Plan. |
Compliance with Section 162(m) of the Internal Revenue Code
Under Section 162(m) of the Internal Revenue Code, Duke Energy may not deduct annual compensation in excess of $1 million paid to certain employees, generally its Chief Executive Officer and its four other most highly compensated executive officers, unless that compensation qualifies as performance-based compensation. While the Compensation Committee intends to structure performance-related awards in a way that will preserve the maximum deductibility of compensation awards, the Compensation Committee may from time to time approve awards which would vest upon the passage of time or other compensation which would not result in qualification of those awards as performance-based compensation. It is not anticipated that compensation realized by any executive officer under Duke Energy plans and programs now in effect or subject to shareholder approval as described in this proxy statement will result in a material loss of tax deductions.
Compensation of the Chief Executive Officer
The Compensation Committee reviews annually the compensation of the Chief Executive Officer and recommends any adjustments to the Board of Directors for approval. In 2001,2002, the Compensation Committee retained the consulting firm of Frederic W. Cook and Co. to conduct a review of the compensation of the Chief Executive Officer. The Chief Executive Officer participates in the same programs and receives compensation based upon the same criteria as Duke Energy'sEnergy’s other executive officers. However, the Chief Executive Officer'sOfficer’s compensation reflects the greater policy- and decision-making authority that the Chief Executive Officer holds and the higher level of responsibility he has with respect to the strategic direction of Duke Energy and its financial and operating results. The componentsThecomponents of Mr. Priory's 2001Priory’s 2002 compensation were:
. Base Salary: After considering Duke Energy's overall performance and
competitive practices, the Compensation Committee recommended, and the Board
of Directors approved, a 14.3% increase in Mr. Priory's base salary, to
$1,100,000, effective February 1, 2001.
. Annual Incentives: Annual incentive compensation for Mr. Priory is based
solely upon EPS results. Based on 2001 EPS performance, Mr. Priory received
a payment of $2,177,088, representing 200% of his target incentive
opportunity.
. Long-Term Incentives: In February 2001, Mr. Priory received a stock option
award for 400,000 shares of Duke Energy Common Stock with an exercise price
at fair market value on the date of grant, and an award for 24,240 phantom
stock units. The stock option has a ten-year term, and both the stock option
and phantom stock awards will vest 25% on each of the first four
anniversaries of the grant date.
| • | Base Salary:After considering Duke Energy’s overall performance and competitive practices, the Compensation Committee recommended, and the Board of Directors approved, a 9.1% increase in Mr. Priory’s base salary, to $1,200,000, effective February 1, 2002. |
| • | Annual Incentives:Annual incentive compensation for Mr. Priory is based solely upon EPS results. Based on 2002 EPS performance, Mr. Priory received no annual incentive payment. |
| • | Long-Term Incentives:In February 2002, Mr. Priory received a stock option award for 408,400 shares of Duke Energy Common Stock with an exercise price at fair market value on the date of grant, and an award for 48,810 phantom stock units. The stock option has a ten-year term, and both the stock option and phantom stock awards will vest 25% on each of the first four anniversaries of the grant date. |
The Compensation Committee conducts its annual review of Chief Executive Officer performance and compensation in February of each year to assure thorough consideration of year-end results. Actions taken by the Board of Directors in February 20022003 with respect to Mr. Priory's 2002Priory’s 2003 compensation will be reflected in the proxy statement for the 20032004 annual meeting whichand will include, among other things, an award to Mr. Priory of non-qualified stock options with respect to 408,400490,800 shares and a phantom stockperformance share award for 48,810
phantom stock units.
155,710 shares.
It is the Compensation Committee'sCommittee’s intention that, when taken together, the components of Mr. Priory'sPriory’s pay, including base salary, annual incentives and long-term incentives, will result in compensation which approximates the 50th percentile of the market when incentive plan performance expectations are met and in compensation as high as the 75th percentile of the market when incentive plan performance expectations are exceeded.
This report has been provided by the Compensation Committee.
Leo E. Linbeck, Jr., Chairman
William T. Esrey
George Dean Johnson, Jr.
Max Lennon
James G. Martin
23
22
Performance Graph
- --------------------------------------------------------------------------------
Comparison of Five-Year Cumulative Total Return Among the Corporation, S&P 500 Index, S&P Utilities Index, and DJ Utilities
[CHART]
Assumes $100 invested on December 31, 1996, in Duke
Energy Common Stock, S&P 500 Index, S&P Utilities
Index, and DJ Utilities. Assumes reinvestment of
dividends.
Duke Energy S&P 500 Index S&P
Utilities DJ Utilities
1996 100 100 100
100
1997 124 133 124
122
1998 149 171 141
145
1999 122 206 129
137
2000 212 188 205
205
2001 201 166 143
152
24
23
Compensation
- --------------------------------------------------------------------------------
Summary Compensation Table
Annual Compensation | Long-Term Compensation | |||||||||||||||
Awards | Payouts | |||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($)3 | Other Annual Compensation ($) | Restricted Stock Award(s) ($)7 | Securities Underlying Options/SARS (#) | LTIP Payouts ($)8 | All Other Compensation ($)9 | ||||||||
R.B. Priory | 2002 | 1,191,678 | 0 | 575,1354 | 1,679,552 | 408,400 | 2,219,167 | 274,518 | ||||||||
Chairman of the Board | 2001 | 1,088,544 | 2,177,088 | 319,150 | 996,991 | 400,000 | 224,202 | |||||||||
and Chief Executive Officer | 2000 | 954,164 | 1,908,328 | 300,384 | 400,000 | 156,596 | ||||||||||
F.J. Fowler | 2002 | 559,996 | 0 | 63,866 | 42,100 | 532,600 | 77,068 | |||||||||
President and Chief Operating | 2001 | 500,004 | 750,006 | 79,305 | 535,810 | 119,000 | 209,961 | |||||||||
Officer | 2000 | 450,000 | 585,000 | 70,940 | 270,575 | 104,000 | 139,812 | |||||||||
H.J. Padewer1 | 2002 | 660,000 | 0 | 105,216 | 2,935,830 | |||||||||||
Group President | 2001 | 600,000 | 900,000 | 98,267 | 742,673 | 164,700 | 83,622 | |||||||||
Energy Services | 2000 | 500,004 | 750,006 | 91,111 | 450,388 | 173,600 | 51,331 | |||||||||
R.P. Brace2 | 2002 | 579,996 | 0 | 336,7315 | 66,800 | 58,872 | ||||||||||
Executive Vice President | 2001 | 550,000 | 715,000 | 1,126,7226 | 1,330,759 | 406,200 | 26,498 | |||||||||
and Chief Financial Officer | ||||||||||||||||
R.J. Osborne | 2002 | 540,000 | 0 | 69,072 | 28,000 | 514,847 | 78,795 | |||||||||
Executive Vice President | 2001 | 500,004 | 750,006 | 70,960 | 486,072 | 107,800 | 69,194 | |||||||||
and Chief Risk Officer | 2000 | 399,996 | 520,195 | 66,867 | 270,575 | 104,000 | 45,363 | |||||||||
| 1 | Mr. Padewer’s employment with Duke Energy terminated effective December 31, 2002. |
| 2 | Mr. Brace joined Duke Energy on January 1, 2001. |
| 3 | Messrs. Fowler, Brace and |
| 4 | Includes a supplemental relocation payment of $100,001 made under Duke Energy’s relocation policy in connection with Mr. Priory’s required relocation, as directed and approved by the Board |
| 5 | Includes a supplemental relocation payment of $91,666 made under Duke Energy’s relocation policy in connection with Mr. Brace’s relocation from the United Kingdom to North Carolina, and |
| 6 | Includes a one-time payment of $983,608, including partial reimbursement of the related tax liability, in connection with Mr. Brace’s relocation from the United Kingdom to North Carolina. |
| 7 | Messrs. Priory, Fowler, Padewer, Brace and Osborne elected to receive a portion of the value of the long-term incentive component of their 2002 and 2001 compensation in the form of phantom stock. The awards were granted under the Duke Energy 1998 Long-Term Incentive Plan. The 2002 and 2001 awards for Messrs. Fowler, Padewer, Brace and Osborne were made on December 19, 2001 and December 20, 2000, respectively. Mr. Priory’s 2002 and 2001 awards were made on February 26, 2002 and February 27, 2001, respectively. Phantom stock is represented by units denominated in |
24
Compensation
shares of Duke Energy Common Stock. Each phantom stock unit represents the right to receive, upon vesting, one share of Duke Energy Common Stock. One quarter of each award vests on each of the first four anniversaries of the grant date provided the recipient continues to be employed by Duke Energy or his or her employment terminates on account of retirement. The awards fully vest in the event of the recipient’s death or disability or a change in control of Duke Energy as specified in the plan. If the recipient’s employment terminates other than on account of retirement, death or disability, any unvested shares remaining on the termination date are forfeited. The phantom stock awards also grant an equal number of dividend equivalents, which represent the right to receive cash payments equivalent to the cash dividends paid on the number of shares of Duke Energy Common Stock represented by the phantom stock units awarded, until the related phantom stock units vest or are forfeited. |
The aggregate number of phantom stock units held by Messrs. Priory, Fowler, Padewer, Brace
Mr. Padewer received an award of restricted stock upon his employment with Duke Energy. Mr. Mr. Brace received an award of restricted stock upon his employment with Duke Energy. Mr.
25 Compensation
Option Grants in This table shows options granted to the Named Executive Officers during Option/SAR Grants in Last Fiscal Year
With respect to all 26 Compensation Option Exercises and Year-End Values This table shows aggregate exercises of options during Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values
* Duke Energy has not granted any SARs to the Named Executive Officers or any other persons. Equity Compensation This table shows information about securities to be issued upon exercise of outstanding options, warrants and rights under Duke Energy’s equity compensation plans, along with the weighted-average exercise price of the outstanding options, warrants and rights and the number of securities remaining available for future issuance under the plans.
27 Compensation Employment Contracts and Termination of Employment and Change-in-Control Arrangements Duke Energy entered into a severance agreement and a change-in-control agreement with The severance agreements for Messrs. Priory, Fowler, Padewer The change-in-control agreements for Messrs. Priory, Fowler, Padewer, Brace A provision continuing from Mr. 28 Compensation Balance Plan, with vesting to occur on the third anniversary of his employment or upon his disability, death, or termination of employment for Retirement Plan Information Executive officers and other eligible employees of Duke Energy and its affiliated companies, participate in the Duke Energy Retirement Cash Balance Plan, a noncontributory, qualified, defined benefit retirement plan. In addition, selected managers are eligible to participate in the Duke Energy Executive Cash Balance Plan, which is a noncontributory, nonqualified, defined benefit retirement plan. A portion of the benefits earned in the Executive Cash Balance Plan is attributable to compensation in excess of the Internal Revenue Service annual compensation limit ($ Under the benefit accrual formula used to determine benefits under the Retirement Cash Balance Plan, an eligible
In addition, the employee receives an additional 4% for any portion of eligible pay above the Social Security taxable wage base ($ Assuming that the Named Executive Officers currently employed by Duke Energy continue in their present positions at their present salaries until retirement at age 65, their estimated annual pensions in a single life annuity form under the applicable plans attributable to such salaries would be: 29 Other Information Discretionary Voting Authority As of the date this proxy statement went to press, we did not anticipate that any matter other than the proposals set out in this proxy statement would be raised at the annual meeting. If any other matters are properly presented at the annual meeting, the persons named as proxies will have discretion to vote on those matters according to their best judgment. Section 16(a) Beneficial Ownership Reporting Compliance Based solely on information furnished to us and contained in reports filed with the SEC, as well as any written representations that no other reports were required, we believe that during Fees Paid to Independent Auditors The following table presents fees for professional
The Audit Committee has considered the compatibility of nonaudit services with the Electronic Delivery of the 2003 Annual If you In order to If you elect to receive your Duke Energy materials via the Internet, you can still request paper copies by contacting Investor Relations at (800) 488-3853 or by e-mail at InvestDUK@duke-energy.com. 30 Appendix A CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF DUKE ENERGY CORPORATION (February 25, 2003) I. General Focus The Audit Committee (the “Committee”) shall:
II. Structure and Operations The Committee shall be comprised of three or more members of the All members of the Committee shall have a working familiarity with basic finance and accounting practices (or acquire such familiarity within a reasonable period after his or her appointment) and at least one member shall in the judgment of the Board of Directors have accounting or related financial management expertise as required by the rules of the NYSE. Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Corporation The members of the Committee shall be appointed by the Board and shall serve until such member’s successor is duly elected and qualified or until such member’s earlier resignation or removal. The members of the Committee may be removed, with or without cause, by majority vote of the Board. The full Board shall elect the Chair of the Committee. The Chair shall be entitled to III. Meetings The Committee shall meet at least quarterly or more frequently as circumstances dictate. As part of its goal to foster open communication, the Committee shall periodically meet separately with each of management, the vice president of internal audit and the independent auditors to discuss any matters that the Committee or each of these groups believe should be discussed privately. The Committee may meet privately with the general counsel and the vice president with responsibility for the compliance program, as necessary. In addition, the Committee shall meet with the independent auditors and management quarterly to review the Corporation’s financial statements in a manner consistent with that outlined in Section IV All non-management directors that are not members of the A The Chair shall designate a person who need not be a member thereof to act as secretary and IV. Responsibilities and Duties The following functions shall be the common recurring activities of the The Committee, in discharging its oversight role, is empowered to study or investigate any matter of interest or concern that the Committee deems appropriate. In this regard, the Committee shall have the authority to retain outside legal, accounting or other advisors for this purpose, including the authority to approve the fees payable to such The Committee shall be A-1 Notwithstanding the foregoing, the Committee is not responsible for certifying the Corporation’s financial statements or guaranteeing the independent auditor’s report. The fundamental responsibility for the Corporation’s financial statements and disclosures rests with management and the independent auditors. Documents/Reports Review
Independent Auditors
The Committee may delegate to one or more members of the Committee the authority to grant such pre-approvals. The delegatee’s decisions regarding approval of services shall be Notwithstanding the foregoing, pre-approval is not necessary for minor nonaudit services, as specified in Rule 2-01(c)(7) of Regulation S-X.
(a) Review the written report of the independent auditor that delineates all relationships between the independent auditor and the Corporation that the auditors believe may impact their independence and objectivity, which report should be submitted to the Committee at least annually, and discuss with the independent auditor and management the scope of any such disclosed relationship and their actual or (b) Confirm the (c) Take into account the opinions of management and the Corporation’s internal auditors (or personnel responsible for the internal audit function). Internal Auditors
Financial Reporting Process
A-2
Legal Compliance/General
Reports
The Committee shall
V. Annual Performance Evaluation The Committee shall perform a review and evaluation, at least annually, of the performance of the Committee and its members, including a review of the compliance of the Committee with this Charter. In addition, the Committee shall review and reassess, at least annually, the adequacy of this Charter and recommend to the A-3
DUKE ENERGY CORPORATION Annual Meeting of April Energy Center - O.J. Miller Auditorium 526 South Church Street Charlotte, North Carolina PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints R.B. Priory, R.P. Brace and R.W. Blackburn, and each of them, proxies, with the powers the undersigned would possess if personally present, and with full power of substitution, to vote all shares of Common Stock of Duke Energy Corporation of the undersigned at the annual meeting of shareholders to be held in the Energy Center, 526 South Church Street, Charlotte, North Carolina, on April Your vote for the election of directors may be indicated on the reverse. Nominees
TO VOTE, DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
