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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999 or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 1-4928
DUKE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 56-0205520
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
526 South Church Street, Charlotte, North 28202-1904
Carolina (Zip Code)
(Address of principal executive offices)
704-594-6200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
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<S> <C>
Common Stock, without par value New York Stock Exchange, Inc.
6.375% Preferred Stock A, 1993 Series, par value
$25 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 5 7/8% Due
2001 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 5 7/8%
Series C Due 2003 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 1/4%
Series B Due 2004 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 3/8% Due
2008 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 5/8%
Series B Due 2003 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 3/4% Due
2025 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 6 7/8%
Series B Due 2023 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Due 2000 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Series B
Due 2000 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7% Due 2033 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7 1/2%
Series B Due 2025 New York Stock Exchange, Inc.
First and Refunding Mortgage Bonds, 7 7/8% Due
2024 New York Stock Exchange, Inc.
7.20% Quarterly Income Preferred Securities
issued by Duke Energy
Capital Trust I and guaranteed by Duke Energy
Corporation New York Stock Exchange, Inc.
7.20% Trust Preferred Securities issued by Duke
Energy Capital
Trust II and guaranteed by Duke Energy
Corporation New York Stock Exchange, Inc.
Preference Stock Purchase Rights New York Stock Exchange, Inc.
Series C 6.60% Senior Notes Due 2038 New York Stock Exchange, Inc.
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Title of class
Preferred Stock, par value $100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
<TABLE>
<S> <C>
Estimated aggregate market value of the voting stock held by
nonaffiliates of the registrant at
February 29, 2000............................................ $ 17,313,000,000
Number of shares of Common Stock, without par value,
outstanding at February 29, 2000............................. 366,689,508
</TABLE>
Documents incorporated by reference:
The registrant is incorporating herein by reference certain sections of the
proxy statement relating to the 2000 annual meeting of shareholders to provide
information required by Part III, Items 10, 11, 12 and 13 of this annual
report.
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DUKE ENERGY CORPORATION
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
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PART I.
<S> <C>
1.Business............................................................... 1
General............................................................... 1
Electric Operations................................................... 3
Natural Gas Transmission.............................................. 7
Field Services........................................................ 9
Trading and Marketing................................................. 11
Global Asset Development.............................................. 12
Other Energy Services................................................. 14
Real Estate Operations................................................ 15
Environmental Matters................................................. 15
Foreign Operations and Export Sales................................... 16
Employees............................................................. 16
Operating Statistics.................................................. 17
Executive Officers of Duke Energy..................................... 18
2.Properties............................................................. 18
3.Legal Proceedings...................................................... 20
4.Submission of Matters to a Vote of Security Holders.................... 20
PART II.
5.Market for Registrant's Common Equity and Related Stockholder Matters.. 20
6.Selected Financial Data................................................ 21
7.Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 21
7A.Quantitative and Qualitative Disclosures About Market Risk............ 39
8.Financial Statements and Supplementary Data............................ 40
9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................... 80
PART III.
10.Directors and Executive Officers of the Registrant.................... 80
11.Executive Compensation................................................ 80
12.Security Ownership of Certain Beneficial Owners and Management........ 80
13.Certain Relationships and Related Transactions........................ 80
PART IV.
14.Exhibits, Financial Statement Schedule, and Reports on Form 8-K....... 81
Signatures............................................................. 82
Exhibit Index.......................................................... 83
</TABLE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
From time to time, Duke Energy may make statements regarding its assumptions,
projections, expectations, intentions or beliefs about future events. These
statements are intended as "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. Duke Energy cautions that
assumptions, projections, expectations, intentions or beliefs about future
events may and often do vary from actual results, and the differences between
assumptions, projections, expectations, intentions or beliefs and actual
results can be material. Accordingly, there can be no assurance that the actual
results will not differ materially from those expressed or implied by the
forward-looking statements. For a discussion of some factors that could cause
actual achievements and events to differ materially from those expressed or
implied in such forward-looking statements, see "Management's Discussion and
Analysis of Results of Operations and Financial Condition, Current Issues--
Forward-Looking Statements."
<PAGE>
PART I.
Item 1. Business.
GENERAL
Duke Energy Corporation (collectively with its subsidiaries, "Duke Energy")
is an integrated energy and energy services provider with the ability to offer
physical delivery and management of both electricity and natural gas throughout
the U.S. and abroad. Duke Energy provides these and other services through
seven business segments:
.Electric Operations
.Natural Gas Transmission
.Field Services
.Trading and Marketing
.Global Asset Development
.Other Energy Services
.Real Estate Operations
Electric Operations generates, transmits, distributes and sells electric
energy in central and western North Carolina and the western portion of South
Carolina (doing business as Duke Power or Nantahala Power and Light). These
electric operations are subject to the rules and regulations of the Federal
Energy Regulatory Commission (FERC), the North Carolina Utilities Commission
(NCUC) and the Public Service Commission of South Carolina (PSCSC).
Natural Gas Transmission provides interstate transportation and storage of
natural gas for customers primarily in the Mid-Atlantic and New England states.
Until the sale of the Midwest Pipelines on March 29, 1999, Natural Gas
Transmission also provided interstate transportation and storage services in
the midwest states. See further discussion of the sale of the Midwest Pipelines
in Note 2 to the Consolidated Financial Statements, "Business Combinations,
Acquisitions and Dispositions." The interstate natural gas transmission and
storage operations are subject to the rules and regulations of the FERC.
Field Services gathers, processes, transports and markets natural gas and
produces, transports and markets natural gas liquids (NGLs). Field Services
operates gathering systems in western Canada and ten contiguous states that
serve major gas-producing regions in the Rocky Mountain, Permian Basin, Mid-
Continent and onshore and offshore Gulf Coast areas.
Trading and Marketing markets natural gas, electricity and other energy-
related products across North America. Duke Energy owns a 60% interest in
Trading and Marketing's energy trading operations, with Mobil Corporation
owning a 40% minority interest. This segment also includes certain other
trading activities and limited hydrocarbon exploration and production
activities that are wholly owned by Duke Energy.
Global Asset Development develops, owns and operates energy-related
facilities worldwide. Global Asset Development conducts its operations
primarily through Duke Energy North America, LLC (Duke Energy North America)
and Duke Energy International, LLC (Duke Energy International).
Other Energy Services provides engineering, consulting, construction and
integrated energy solutions worldwide, primarily through Duke Engineering &
Services, Inc. (Duke Engineering & Services), Duke/Fluor Daniel and
DukeSolutions, Inc. (DukeSolutions).
Real Estate Operations conducts its business through Crescent Resources,
Inc., which develops high quality commercial and residential real estate
projects and manages land holdings in the southeastern U.S.
The 1997 merger of Duke Power Company (Duke Power) and PanEnergy Corp
(PanEnergy) was accounted for as a pooling of interests; therefore, all
financial information included in this annual report for
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periods prior to the merger include the combined historical financial results
of Duke Power and PanEnergy. See Note 2 to the Consolidated Financial
Statements, "Business Combinations, Acquisitions and Dispositions," for
additional information on the merger.
Certain terms used to describe Duke Energy's business are explained below.
British Thermal Unit (Btu). A standard unit for measuring thermal energy or
heat commonly used as a gauge for the energy content of natural gas and other
fuels.
Cubic Foot (cf). The most common unit of measurement of gas volume; the
amount of natural gas required to fill a volume of one cubic foot under stated
conditions of temperature, pressure and water vapor.
Distribution. The system of lines, transformers and switches that connect the
electric transmission system to customers.
Federal Energy Regulatory Commission (FERC). The agency that regulates the
transportation of electricity and natural gas in interstate commerce and
authorizes the buying and selling of energy commodities at market-based rates.
Gathering System. Pipeline, processing and related facilities that access
production and other sources of natural gas supplies for delivery to mainline
transmission systems.
Generation. The process of transforming other forms of energy, such as
nuclear or fossil fuels, into electricity. Also, the amount of electric energy
produced, expressed in megawatt-hours.
Greenfield Development. The development of a new power generating facility on
an undeveloped site.
Independent System Operator (ISO). Ensures non-discriminatory access to a
regional transmission system, providing all customers access to the power
exchange and clearing all bilateral contract requests for use of the electric
transmission system. Also responsible for maintaining bulk electric system
reliability.
Jurisdictional. Facilities and activities subject to the primary regulatory
oversight of FERC or state regulatory agencies.
Liquefied Natural Gas (LNG). Natural gas that has been converted to a liquid
by cooling it to -260 degrees Fahrenheit.
Local Distribution Company (LDC). A company that obtains the major portion of
its revenues from the operations of a retail distribution system for the
delivery of electricity or gas for ultimate consumption.
2
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Natural Gas. A naturally occurring mixture of hydrocarbon and non-hydrocarbon
gases found in porous geological formations beneath the earth's surface, often
in association with petroleum. The principal constituent is methane.
Natural Gas Liquids (NGLs). Liquid hydrocarbons extracted during the
processing of natural gas. Principal commercial NGLs include butanes, propane,
natural gasoline and ethane.
Peak Load. The amount of electricity required during periods of highest
demand. Peak periods fluctuate by season, generally occurring in the morning
hours in winter and in late afternoon during the summer.
Throughput. The amount of natural gas or natural gas liquids transported
through a pipeline system.
Transmission System (Electric). An interconnected group of electric
transmission lines and related equipment for moving or transferring electric
energy in bulk between points of supply and points at which it is transformed
for delivery over a distribution system to customers, or for delivery to other
electric transmission systems.
Transmission System (Natural Gas). An interconnected group of natural gas
pipelines and associated facilities for transporting natural gas in bulk
between points of supply and delivery points to industrial customers, local
distribution companies, or for delivery to other natural gas transmission
systems.
Watt. A measure of real power production or usage equal to one joule per
second.
A discussion of the current business and operations of each of Duke Energy's
segments follows. For further discussion of the operating outlook of Duke
Energy and its segments, see "Management's Discussion and Analysis of Results
of Operations and Financial Condition, Introduction--Business Strategy." For
financial information concerning Duke Energy's business segments, see Note 3 to
the Consolidated Financial Statements, "Business Segments."
Duke Energy is a North Carolina corporation with its principal executive
offices located at 526 South Church Street, Charlotte, NC 28202-1904. The
telephone number is 704-594-6200.
ELECTRIC OPERATIONS
Service Area and Customers
Electric Operations' service area, approximately two-thirds of which lies in
North Carolina, covers about 22,000 square miles with an estimated population
of 5.3 million and includes a number of cities, of which the largest are
Charlotte, Greensboro, Winston-Salem and Durham in North Carolina, and
Greenville and Spartanburg in South Carolina. Electric Operations supplies
electric service directly to approximately two million residential, commercial
and industrial customers in more than 200 cities, towns and unincorporated
communities. Electricity is sold at wholesale to incorporated municipalities
and to several public and private utilities. In addition, sales are made
through contractual agreements to municipal or cooperative customers who
purchased portions of the Catawba Nuclear Station. For statistics related to
gigawatt-hour sales by customer type, see "Business, Operating Statistics." For
further discussion of the Catawba Nuclear Station joint ownership, see Note 5
to the Consolidated Financial Statements, "Joint Ownership of Generating
Facilities."
Electric Operations' service area is undergoing increasingly diversified
industrial and commercial development. The textile industry, machinery and
equipment manufacturing, and chemical and chemical-related industries are of
major significance to the economy of the area. Other industrial activities
include rubber and plastic products, paper and allied products, and various
other light and heavy manufacturing and service businesses. The largest
industry served is the textile industry, which accounted for approximately $428
million of Electric Operations' revenues for 1999, representing 10% of total
electric revenues and 36% of industrial revenues. Electric Operations normally
experiences seasonal peak loads in summer and winter.
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(A map appears here depicting Electric Operation's 100 kV Electric Lines, 230kV
Electric Lines, 500 kV Electric Lines, Nuclear Facilities, Fossil Facilities,
Hydro Facilities, and Combustion Turbine Facilities.)
Capability and Resources of Energy
Electric energy required to supply the needs of Electric Operations'
customers is primarily generated by three nuclear generating stations with a
combined net capability of 5,020 megawatts (MW) (Oconee Nuclear Station--2,538
MW, McGuire Nuclear Station--2,200 MW and Catawba Nuclear Station--282 MW,
which represents Electric Operations' 12.5% ownership share in the Catawba
Nuclear Station), eight coal-fired stations with a combined capability of 7,699
MW, thirty-one hydroelectric stations with a combined capability of 2,803 MW
and six combustion turbine stations with a combined capability of 1,784 MW.
Energy and capacity are also supplied through contracts with other generators
of electricity and purchased on the open market. Electric Operations has
interconnections and arrangements with its neighboring utilities, which are
considered adequate for planning, emergency assistance, exchange of capacity
and energy and reliability of power supply. Future increased energy
requirements of Electric Operations' customers are expected to be supplied
through purchased power contracts and open market purchases. For statistics
regarding sources of electric energy, see "Business, Operating Statistics."
4
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Fuel Supply
Electric Operations presently relies principally on coal and nuclear fuel for
the generation of electric energy. Electric Operations' reliance on oil and gas
is minimal. Information regarding the utilization of sources of power and cost
of fuels for each of the three years in the period ended December 31, 1999 is
set forth in the following table:
<TABLE>
<CAPTION>
Cost of Fuel
per Net
Generation by Kilowatt-hour
Source Generated
(Percent)(d) (Cents)(d)
----------------- --------------
1999 1998 1997 1999 1998 1997
----- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Coal...................................... 50.4 50.7 59.0 1.33 1.32 1.30
Nuclear(a)................................ 48.0 46.2 38.5 0.43 0.44 0.48
Oil and gas(b)............................ 0.8 1.0 0.4 4.51 4.01 5.58
----- ----- ----- ---- ---- ----
All fuels (cost based on weighted
average)(a).............................. 99.2 97.9 97.9 0.92 0.93 0.99
Hydroelectric(c).......................... 0.8 2.1 2.1
----- ----- -----
100.0 100.0 100.0
===== ===== =====
</TABLE>
--------
(a) Statistics related to nuclear generation and all fuels reflect
Electric Operations' 12.5% ownership interest in the Catawba
Nuclear Station.
(b) Cost statistics include amounts for light-off fuel at Electric
Operations' coal-fired stations.
(c) Generating figures are net of output required to replenish pumped
storage units during off-peak periods.
(d) Years prior to 1998 have been restated to include Nantahala Power
and Light.
Coal. Electric Operations meets its coal demand through purchase supply
contracts and spot agreements. Large amounts of its coal supply are obtained
under supply contracts with mining operators utilizing both underground and
surface mining. Electric Operations has an adequate supply of coal to fuel its
current operations. Its supply contracts, all of which have price adjustment
provisions, have expiration dates ranging from 2000 to 2003. Duke Energy
believes that it will be able to renew such contracts as they expire or to
enter into similar contractual arrangements with other coal suppliers for the
quantities and qualities of coal required. The coal purchased under these
supply contracts is produced from mines located in eastern Kentucky, southern
West Virginia and southwestern Virginia. Coal requirements not met by supply
contracts have been and are expected to be fulfilled with spot market
purchases.
The average sulfur content of coal being purchased by Electric Operations is
approximately 1%. Such coal satisfies the current emission limitation for
sulfur dioxide for existing facilities. See also "Management's Discussion and
Analysis of Results of Operations and Financial Condition, Current Issues--
Environmental, Air Quality Control" for additional information regarding
particulate matter.
Nuclear. Generally, the process for developing nuclear generating fuel supply
involves the mining and milling of uranium ore to produce uranium concentrates,
the conversion of uranium concentrates to uranium hexafluoride, enrichment of
that gas and fabrication of the enriched uranium hexafluoride into usable fuel
assemblies. Electric Operations has contracted for uranium materials and
services required to fuel the Oconee, McGuire and Catawba Nuclear Stations.
Based upon current projections, these contracts will meet Electric Operations'
requirements through the following years:
<TABLE>
<CAPTION>
Uranium Conversion Enrichment Fabrication
Nuclear Station Material Service Service Service
--------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Oconee............................ 2000 2000 2002 2006
McGuire........................... 2000 2000 2002 2009
Catawba........................... 2000 2000 2002 2009
</TABLE>
5
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Uranium material requirements will be met through various supplier contracts,
with uranium material produced primarily in the U.S. and Canada. Duke Energy
believes that it will be able to renew contracts as they expire or to enter
into similar contractual arrangements with other suppliers of nuclear fuel
materials and services. Requirements not met by long-term supply contracts have
been and are expected to be fulfilled with unfabricated uranium spot market
purchases.
Duke Energy entered into a contract with the Department of Energy (DOE) to
use mixed oxide fuel at its McGuire and Catawba nuclear stations. The mixed
oxide fuel is fabricated from plutonium from the government's surplus and is
similar to conventional uranium fuel. Before using the fuel, Duke Energy must
apply for and receive amendments to the respective facility operating licenses
from the Nuclear Regulatory Commission (NRC). Mixed oxide fuel is scheduled to
be used at McGuire and Catawba nuclear stations in 2007.
After spent fuel is removed from a nuclear reactor, it is placed in temporary
storage for cooling in a spent fuel pool at the nuclear station site. Under
provisions of the Nuclear Waste Policy Act of 1982, Duke Energy has entered
into contracts with the DOE for the disposal of spent nuclear fuel. The DOE
failed to begin accepting the spent nuclear fuel on January 31, 1998, the date
provided by the Nuclear Waste Policy Act and by Duke Energy's contract with the
DOE. On June 8, 1998, Duke Energy filed with the U.S. Court of Federal Claims a
claim against the DOE for damages in excess of $1 billion arising out of the
DOE's failure to begin accepting commercial spent nuclear fuel by January 31,
1998. Damages claimed in the suit are intended to recover costs that Duke
Energy is incurring and will continue to incur as a result of the DOE's partial
material breach of its contract with Duke Energy, including costs associated
with securing additional spent fuel storage capacity. Duke Energy will continue
to safely manage its spent nuclear fuel until the DOE accepts it.
Competition
Electric industry restructuring is being addressed in all 50 states and in
the District of Columbia, which is resulting in changes in the industry. For
further discussion, see "Management's Discussion and Analysis of Results of
Operations and Financial Condition, Current Issues--Electric Competition."
Electric Operations is currently subject to competition in some areas from
government owned power systems, municipally owned electric systems, rural
electric cooperatives and, in certain instances, other private utilities.
Currently, statutes in North Carolina and South Carolina provide for the
assignment by the NCUC and the PSCSC, respectively, of all areas outside
municipalities in such States to regulated electric utilities and rural
electric cooperatives. Substantially all of the territory comprising the
Electric Operations' service area has been so assigned. The remaining areas
have been designated as unassigned and in such areas Electric Operations
remains subject to competition. A decision of the North Carolina Supreme Court
limits, in some instances, the right of North Carolina municipalities to serve
customers outside their corporate limits. In South Carolina there continues to
be competition between municipalities and other electric suppliers outside the
corporate limits of the municipalities, subject, however, to the regulation of
the PSCSC. In addition, Electric Operations is engaged in continuing
competition with various natural gas providers.
Regulation
The NCUC and the PSCSC approve rates for retail electric sales within their
respective states. The FERC approves Electric Operations' rates for certain
electric sales to wholesale customers. For further discussion of rate matters,
see Note 4 to the Consolidated Financial Statements, "Regulatory Matters--
Electric Operations." The FERC, the NCUC and the PSCSC also have authority over
the construction and operation of Electric Operations' facilities. Electric
Operations holds certificates of public convenience and necessity issued by the
FERC, the NCUC and the PSCSC, authorizing it to construct and operate the
electric facilities now in operation for which certificates are required, and
to sell electricity to retail and wholesale customers. Prior approval from the
NCUC and the PSCSC is required to issue securities.
The NCUC, PSCSC and FERC have implemented regulations governing access to
regulated electric customer data by non-regulated entities and services
provided between regulated and non-regulated affiliated
6
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entities. These regulations affect the activities of Trading and Marketing,
Global Asset Development, and Other Energy Services with Electric Operations.
The Energy Policy Act of 1992 (EPACT) and the FERC's subsequent rulemaking
activities permit the FERC to order transmission access for third parties to
transmission facilities owned by another entity. EPACT does not, however,
permit the FERC to issue orders requiring transmission access to retail
customers. The FERC has issued orders for third-party transmission service and
a number of rules of general applicability, including Orders 888 and 889.
Pursuant to the FERC's final rules, Electric Operations obtained from the FERC
open-access rule the rights to sell capacity and energy at market-based rates
from its own assets. For further discussion, see "Management's Discussion and
Analysis of Results of Operations and Financial Condition, Current Issues--
Electric Competition."
The Electric Operations segment is subject to the jurisdiction of the NRC as
to the design, construction and operation of its nuclear stations. For
discussions of nuclear decommissioning costs and nuclear insurance regulatory
requirements and coverages, see Note 11 to the Consolidated Financial
Statements, "Nuclear Decommissioning Costs" and Note 14 to the Consolidated
Financial Statements, "Commitments and Contingencies--Nuclear Insurance,"
respectively.
The hydroelectric generating facilities of Electric Operations are licensed
by the FERC under Part I of the Federal Power Act, with license terms expiring
from 2001 to 2036. The nuclear generating facilities of Electric Operations are
licensed by the NRC with license terms expiring from 2013 to 2026. The FERC has
authority to grant extensions of hydroelectric generating licenses, and the NRC
has authority to grant extensions of nuclear generating licenses. Duke Energy
has filed an application for a 20-year renewal of its operating license for the
Oconee Nuclear Station. The application is expected to receive approval from
the NRC in 2000. Duke Energy is also initiating the license renewal process for
the McGuire and Catawba Nuclear Stations in 2000. Duke Energy has filed a
license application for one of its hydroelectric facilities for which it
expects to receive a new license by 2001. Duke Energy is also in various stages
of relicensing other facilities whose licenses expire between 2005 and 2008.
The Electric Operations segment is subject to the jurisdiction of the
Environmental Protection Agency (EPA) and state environmental agencies. For a
discussion of environmental regulation, see "Business, Environmental Matters."
NATURAL GAS TRANSMISSION
Natural Gas Transmission provides interstate transportation and storage of
natural gas through its Northeast Pipelines, which includes Texas Eastern
Transmission Corporation (TETCO) and Algonquin Gas Transmission Company
(Algonquin). The Midwest Pipelines, which included Panhandle Eastern Pipe Line
Company (PEPL) and Trunkline Gas Company (Trunkline), were also a part of
Natural Gas Transmission until their sale to CMS Energy Corporation (CMS) in
March 1999. See further discussion of the sale in Note 2 to the Consolidated
Financial Statements, "Business Combinations, Acquisitions and Dispositions."
Investments include a 37.5% ownership interest in Maritimes & Northeast
Pipeline, which has a design capacity of 530 million cubic feet per day
(MMcf/d) in Canada and 400 MMcf/d in the U.S. Maritimes & Northeast Pipeline
was placed in service and received the first delivery of natural gas from the
Sable Offshore Energy Project in December 1999.
In January 2000, Natural Gas Transmission announced that it had entered into
a definitive agreement to purchase the East Tennessee Natural Gas Company, a
1,100-mile pipeline that crosses the TETCO pipeline in Tennessee and serves the
rapidly growing southeastern region of the U.S. The transaction is expected to
close in late March 2000, subject to regulatory approval. For more information
on this purchase, see Note 19 to the Consolidated Financial Statements,
"Subsequent Events."
For 1999, consolidated natural gas deliveries by Natural Gas Transmission's
interstate pipelines totaled 1,893 trillion British thermal units (TBtu),
compared to 2,593 TBtu in 1998. For the Northeast Pipelines, 1999 natural gas
deliveries were 1,565 TBtu, a 7% increase from last year. The Midwest
Pipelines, as a consequence of the sale to CMS, reported natural gas deliveries
of 328 TBtu in 1999 compared to 1,141 TBtu in 1998.
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A majority of the delivered volumes of Natural Gas Transmission's interstate
pipelines represents gas transported under long-term firm service agreements
with local distribution company (LDC) customers in the pipelines' market areas.
Firm transportation services are also provided under contract to gas marketers,
producers, other pipelines, electric power generators and a variety of end-
users. In addition, the pipelines provide both firm and interruptible
transportation to customers on a short-term or seasonal basis. See natural gas
deliveries statistics under "Business, Operating Statistics." Demand for gas
transmission of Natural Gas Transmission's interstate pipeline systems is
seasonal, with the highest throughput occurring during the colder periods in
the first and fourth quarters.
Natural Gas Transmission's interstate pipeline systems consist of
approximately 11,000 miles of pipe, which include 650 miles related to the
partial ownership interest in Maritimes & Northeast Pipeline. The pipeline
systems receive natural gas from most major North American producing regions
for delivery to markets primarily in the Mid-Atlantic and New England states.
(A map appears here depicting Natural Gas Transmission's interstate pipeline
systems and storage.)
TETCO's major customers are located in Pennsylvania, New Jersey and New York,
and include LDCs serving the Pittsburgh, Philadelphia, Newark and New York City
metropolitan areas. Algonquin's major customers include LDCs and electric power
generators located in the Boston, Hartford, New Haven, Providence and Cape Cod
areas.
TETCO also provides firm and interruptible open-access storage services.
Storage is offered as a stand-alone unbundled service or as part of a no-notice
bundled service. TETCO's storage services utilize two joint venture storage
facilities in Pennsylvania and one wholly owned and operated storage field in
Maryland. TETCO also leases storage capacity. TETCO's certificated working
capacity in these three fields is 75 billion cubic feet (Bcf), and the combined
working gas in storage was 59 Bcf on December 31, 1999. Algonquin owns no
storage fields.
8
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Competition
Duke Energy's interstate pipeline subsidiaries compete with other interstate
and intrastate pipeline companies in the transportation and storage of natural
gas. The principal elements of competition among pipelines are rates, terms of
service, and flexibility and reliability of service.
In the Mid-Atlantic and New England markets, TETCO competes directly with
Transcontinental Gas Pipe Line Corporation, Tennessee Gas Pipeline Company
(TGPC), Iroquois Gas Transmission System (Iroquois), CNG Transmission
Corporation and Columbia Gas Transmission Corporation. Algonquin competes
directly in certain market areas with TGPC and Iroquois.
Natural gas competes with other forms of energy available to Duke Energy's
customers and end-users, including electricity, coal and fuel oils. The primary
competitive factor is price. Changes in the availability or price of natural
gas and other forms of energy, the level of business activity, conservation,
legislation and governmental regulations, the capability to convert to
alternative fuels, and other factors, including weather, affect the demand for
natural gas in the areas served by Duke Energy.
Regulation
The FERC has authority to regulate rates and charges for natural gas
transported in or stored for interstate commerce or sold by a natural gas
company in interstate commerce for resale. For further discussion of rate
matters, see "Management's Discussion and Analysis of Results of Operations and
Financial Condition, Liquidity and Capital Resources--Operating Cash Flows" and
Note 4 to the Consolidated Financial Statements, "Regulatory Matters--Natural
Gas Transmission." The FERC also has authority over the construction and
operation of pipeline and related facilities utilized in the transportation,
storage and sale of natural gas in interstate commerce, including the
extension, enlargement or abandonment of such facilities. TETCO and Algonquin
hold certificates of public convenience and necessity issued by the FERC,
authorizing them to construct and operate the pipelines, facilities and
properties now in operation for which such certificates are required, and to
transport and store natural gas in interstate commerce.
As required by FERC Order 636, Natural Gas Transmission's pipelines operate
as open-access transporters of natural gas, providing unbundled firm and
interruptible transportation and storage services on an equal basis for all gas
supplies, whether purchased from the pipeline or from another gas supplier.
FERC allows pipelines to recover eligible costs, known as "transition costs,"
resulting from the implementation of Order 636. For further discussion of Order
636, see Note 4 to the Consolidated Financial Statements, "Regulatory Matters--
Natural Gas Transmission."
The FERC has implemented regulations governing access to regulated natural
gas transmission customer data by non-regulated entities and services provided
between regulated and non-regulated affiliated entities. These regulations
affect the activities of Trading and Marketing, Global Asset Development and
Other Energy Services with Natural Gas Transmission.
Natural Gas Transmission is subject to the jurisdiction of the EPA and state
environmental agencies. For a discussion of environmental regulation, see
"Business, Environmental Matters." Natural Gas Transmission is also subject to
the Natural Gas Pipeline Safety Act of 1968, which regulates gas pipeline and
LNG plant safety requirements, and to the Hazardous Liquid Pipeline Safety Act
of 1979, which regulates oil and petroleum pipelines.
FIELD SERVICES
Field Services gathers, processes, transports and markets natural gas and
produces, transports and markets NGLs. Field Services owns and operates
approximately 28,000 miles of natural gas gathering systems, including
intrastate pipelines, and 52 natural gas processing plants in the U.S. and
Canada. Field Services also has ownership interests in 12 other natural gas
processing plants in the U.S.
Field Services gathers natural gas from production wellheads through
gathering systems in western Canada and ten contiguous states that serve major
gas-producing regions in the Rocky Mountain, Permian Basin, Mid-Continent and
onshore and offshore Gulf Coast areas. Field Services' operations also include
several intrastate pipeline systems and one high-deliverability natural gas
storage facility.
9
<PAGE>
The map below includes Field Services' natural gas gathering systems,
intrastate pipelines, region offices and supply areas. The map also shows the
interstate systems of the Natural Gas Transmission segment.
(A map appears here depicting the items indicated in the above paragraph.)
Field Services' NGL processing operations involve the extraction of NGLs from
natural gas and, at certain facilities, the fractionation of the NGLs into
their individual components (ethane, propane, butane and natural gasoline). The
natural gas used in Field Services' processing operations is generally gathered
on its own gathering system. NGLs are sold by Field Services to a variety of
customers ranging from large, multi-national petrochemical and refining
companies to small, family-owned retail propane distributors. Most NGL sales
are based upon current market-related prices. Field Services also produces
helium at the National Helium Corporation facility in Liberal, Kansas and the
Ladder Creek facility in Colorado.
Field Services' operating results are significantly impacted by changes in
NGL prices, which increased approximately 30.8% in 1999 compared to 1998. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition, Quantitative and Qualitative Disclosures About Market Risk" for a
discussion of Field Services' exposure to changes in commodity prices.
On March 31, 1999, Field Services completed the $1.35 billion acquisition of
the natural gas gathering, processing, fractionation and NGL pipeline business
from Union Pacific Resources (UPR), as well as UPR's
10
<PAGE>
natural gas and NGL marketing activities (collectively, "the UPR acquisition").
For further discussion of the UPR acquisition see Note 2 to the Consolidated
Financial Statements, "Business Combinations, Acquisitions and Dispositions."
In 1998, Field Services sold assets related to its crude oil gathering and
marketing business, including 1,800 miles of intrastate crude oil pipelines in
the Mid-Continent and South Texas areas and 450 miles of intrastate NGL
pipelines in the Texas Gulf Coast area, to TEPPCO Partners, L.P. (TEPPCO) in
exchange for an additional ownership interest in TEPPCO. As a result of the
sale, Duke Energy now has a 2% general partner interest and a 19.1% limited
partner interest in TEPPCO, a publicly owned master limited partnership that
transports refined products and liquefied petroleum products through a 4,300
mile pipeline system.
On December 16, 1999, Field Services announced that it had signed definitive
agreements to combine Field Services' gas gathering and processing businesses
with Phillips Petroleum Company's Gas Processing and Marketing unit to form a
new midstream company. The transaction is expected to close by late March 2000.
For additional information, see Note 19 to the Consolidated Financial
Statements, "Subsequent Events."
See certain operating statistics of Field Services under "Business, Operating
Statistics." Activities of Field Services can fluctuate in response to the
seasonality affecting natural gas.
Competition
Field Services competes with major integrated oil companies, major interstate
pipelines, national and local natural gas gatherers, brokers, marketers and
distributors for natural gas supplies, in gathering and processing natural gas
and in marketing and transporting natural gas and NGLs. Competition for natural
gas supplies is primarily based on the efficiency and reliability of
operations, the availability of transportation to high demand markets and the
ability to obtain a satisfactory price for the producer's natural gas.
Competition for sales customers is based primarily upon reliability and price
of delivered natural gas and NGLs.
Regulation
The intrastate pipelines owned by the Field Services group are subject to
state regulation and, to the extent they provide services under Section 311 of
the Natural Gas Policy Act of 1978, are also subject to FERC regulation.
However, the majority of the natural gas gathering activities of the Field
Services group are not subject to regulation by the FERC.
Field Services is subject to the jurisdiction of the EPA and state
environmental agencies. For a discussion of environmental regulation, see
"Business, Environmental Matters." Certain operations of Field Services are
subject to the jurisdiction of the Department of Transportation and certain
similar state agencies whose regulations have incorporated certain provisions
of the Natural Gas Pipeline Safety Act of 1968, the Hazardous Liquid Pipeline
Safety Act of 1979, and subsequent amendments.
TRADING AND MARKETING
Trading and Marketing markets natural gas, electricity and other energy-
related products across North America. Duke Energy owns a 60% interest in
Trading and Marketing's natural gas and electric power trading operations, with
Mobil Corporation (Mobil) owning a 40% minority interest. Trading and Marketing
also includes certain other trading activities and limited hydrocarbon
exploration and production activities that are wholly owned by Duke Energy.
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<PAGE>
Trading and Marketing markets natural gas primarily to LDCs, electric power
generators (including Global Asset Development's generation facilities),
municipalities, large industrial end-users and energy marketing companies.
Trading and Marketing markets electricity to investor owned utilities,
municipal power generators and other power marketers. Trading and Marketing
also provides energy management services, such as supply and market
aggregation, peaking services, dispatching, balancing, transportation, storage,
tolling, contract negotiation and administration, as well as energy commodity
risk management products and services. Operations are primarily in the U.S.
and, to a lesser extent, in Canada, and are serviced through three operating
centers. Additionally, during 1999, Duke Energy Hydrocarbons was formed to
invest capital in limited hydrocarbon exploration and production prospects
through non-operating working interests.
Natural gas marketing operations encompass both on-system and off-system
supplies. With respect to on-system supplies, Trading and Marketing generally
purchases natural gas from Field Services' facilities and delivers the gas to
an intrastate or interstate pipeline for redelivery to another customer.
Natural Gas Transmission's pipelines are utilized for deliveries when prudent.
With respect to off-system supplies, Trading and Marketing purchases natural
gas from producers, pipelines and other suppliers not connected with Duke
Energy's facilities for resale to customers. Substantially all of Mobil's U.S.
and Canadian natural gas production is committed to be marketed through Trading
and Marketing through 2006.
With respect to electricity marketing operations, Trading and Marketing
purchases electricity from third-party suppliers and from Global Asset
Development's domestic generation facilities for resale to customers.
Trading and Marketing has a portfolio of short-term and long-term sales
agreements with customers, the vast majority of which incorporate market-
sensitive pricing terms. Long-term gas purchase agreements with producers,
principally entered into in connection with on-system supplies, also generally
include market-sensitive pricing provisions. Purchases and sales of off-system
gas and electricity supplies are normally made under short-term contracts.
Purchase and sales commitments involving significant price and location risk
are generally hedged with offsetting commitments and commodity futures, swaps
and options. For information concerning Trading and Marketing's risk-management
activities, see "Management's Discussion and Analysis of Results of Operations
and Financial Condition, Quantitative and Qualitative Disclosures About Market
Risk--Commodity Price Risk" and Note 7 to the Consolidated Financial
Statements, "Risk Management and Financial Instruments--Commodity Derivatives--
Trading."
See certain operating statistics of Trading and Marketing under "Business,
Operating Statistics." Activities of Trading and Marketing can fluctuate in
response to the seasonality affecting both electricity and natural gas.
Competition
Trading and Marketing competes with major integrated oil companies, major
interstate pipelines and their marketing affiliates, brokers, marketers and
distributors, and electric utilities and other electric power marketers for
natural gas supplies and in marketing natural gas, electricity and other energy
commodities. Competition in the energy marketing business is driven by the
price of commodities and services delivered, along with the quality and
reliability of services provided.
Regulation
The energy marketing activities of Trading and Marketing may, in certain
circumstances, be subject to the jurisdiction of the FERC. Current FERC
policies permit Trading and Marketing entities subject to FERC jurisdiction to
market natural gas and electricity at market-based rates.
GLOBAL ASSET DEVELOPMENT
Global Asset Development develops, owns and operates energy-related
facilities worldwide. Global Asset Development conducts its operations
primarily in the U.S. through Duke Energy North America and internationally,
currently in Australia and Latin America, through Duke Energy International.
12
<PAGE>
Deregulation of energy markets in the U.S. and abroad is providing
substantial opportunities for Global Asset Development to grow through
acquisitions, construction of greenfield projects and expansion of existing
facilities. Global Asset Development is an active participant in both domestic
and international competitive energy-related markets, which include natural gas
pipelines, power generation, energy trading and marketing and other services.
Global Asset Development owns, operates or has substantial interests in
approximately 12,500 MW of generation and approximately 1,900 miles of pipeline
systems, including projects under construction.
Domestically, Duke Energy North America is investing in new merchant power
plants throughout the U.S. To capture the greatest value, Duke Energy North
America, through its portfolio management strategy, seeks opportunities to
invest in markets which have capacity needs and to divest, in whole or in part,
when significant value can be realized. During 1999, Duke Energy North America
began construction of multiple new power generation plants in the southwest and
midwest.
The following map includes Duke Energy North America's power generation
facilities.
(A map appears here depicting Duke Energy North America's power generation
facilities, including those under construction.)
Duke Energy International continues to focus on its regional target areas in
Australia and Latin America for further expansion opportunities and intends to
implement its strategies in Europe. In January 1999, Duke Energy International
completed the $315 million purchase of power generation and transmission assets
in western Australia and New Zealand, including an ownership interest in a
pipeline in western Australia. From August 1999 through January 2000, Duke
Energy International entered into a series of transactions to complete an
approximate $1.0 billion purchase of an approximate 95% economic interest in
Companhia de Geracao de Energia Eletrica Paranapanema, an electric generating
company in Brazil. Also during 1999, Duke Energy International reached a
definitive agreement with Dominion Resources, Inc. to acquire its portfolio of
hydroelectric, natural gas and diesel power generation businesses in Argentina,
Belize, Bolivia and Peru for approximately $405 million. For additional
information on business acquisitions see "Management's Discussion and Analysis
of Results of Operations and Financial Condition, Liquidity and Capital
Resources--Investing Cash Flows" and Notes 2 and 19 to the Consolidated
Financial Statements, "Business Combinations, Acquisitions and Dispositions"
and "Subsequent Events," respectively.
13
<PAGE>
The following map illustrates the locations of Duke Energy International's
worldwide energy facilities, including projects under construction or under
contract.
(A map appears here depicting the items indicated in the above paragraph.)
Competition and Regulation
Global Asset Development experiences substantial competition from existing
utility companies as well as other merchant electric generation companies in
the U.S. Internationally, Global Asset Development focuses on regions where
free markets prevail or are developing. Competition in these markets is from
other multinational energy companies and local private and public utilities.
Most of Global Asset Development's operations are not subject to regulation.
However, to the extent that Global Asset Development's generating stations in
California sell electricity under "reliability must run" agreements to the
California Independent System Operator, such sales are made at FERC regulated
rates.
Global Asset Development is subject to international, federal, state and
local environmental regulations. For a discussion of environmental regulation,
see "Business, Environmental Matters."
OTHER ENERGY SERVICES
Other Energy Services provides engineering, consulting, construction and
integrated energy solutions worldwide, primarily through Duke Engineering &
Services, Duke/Fluor Daniel and DukeSolutions.
Duke Engineering & Services specializes in energy and environmental projects
and provides comprehensive engineering, quality assurance, project and
construction management and operating and maintenance services for all phases
of hydroelectric, nuclear and renewable power generation, transmission and
distribution projects worldwide.
Duke/Fluor Daniel, operating through several entities, provides full service
siting, permitting, licensing, engineering, procurement, construction, start-
up, operating and maintenance services for fossil-fired plants, both
14
<PAGE>
domestically and internationally. Subsidiaries of Duke Energy and Fluor
Corporation each own 50% of Duke/Fluor Daniel.
DukeSolutions provides energy consulting services to large end users of
energy by first identifying and then affecting points in a customer's
operations where energy related costs are incurred, including procurement,
production and disposal. The scope of services involves providing strategic
solutions to reduce costs when customers buy energy, convert it into a usable
form, use it to manufacture products and dispose of any waste.
Other Energy Services experiences substantial competition from utilities and
other independent companies in the U. S. or abroad.
Other Energy Services is subject to the jurisdiction of the EPA and
international, state and local environmental agencies. For a discussion of
environmental regulation, see "Business, Environmental Matters."
REAL ESTATE OPERATIONS
Real Estate Operations conducts its business through Crescent Resources Inc.,
which develops high quality commercial and residential real estate projects and
manages land holdings in the southeastern U.S. At December 31, 1999, Real
Estate Operations owned 4.2 million square feet of commercial and industrial
space, with an additional 1.4 million square feet under construction. At
December 31, 1999, the commercial portfolio included 2.6 million square feet of
office space, 1.5 million square feet of warehouse space and 0.1 million square
feet of retail space. In 1999, commercial buildings totaling 2.0 million of
square feet were sold for $155 million.
Real Estate Operations' residential developments are high-end, country club
and golf course communities with individual lots sold to custom builders. In
1999, Real Estate Operations added the development of moderately priced
residential communities in Jacksonville, Florida, with sales in tracts to
national builders. In 1999, Real Estate Operations sold 917 residential
developed lots for $138 million, and tract sales were $9 million.
In 1999, Real Estate Operations also announced plans to enter the multi-
family market and to significantly increase its retail development. At December
31, 1999, Real Estate Operations had approximately 200,000 acres of land under
its management.
ENVIRONMENTAL MATTERS
Duke Energy is subject to international, federal, state and local regulations
with regard to air and water quality, hazardous and solid waste disposal and
other environmental matters. Certain environmental regulations affecting Duke
Energy include:
. The Clean Air Act Amendments of 1990, which require a two-phase reduction
by electric utilities in aggregate annual emissions of sulfur dioxide and
nitrogen oxide by 2000;
. State Implementation Plans, which were issued by the EPA to 22 states
including North and South Carolina, and the District of Columbia related
to existing and new national ambient air quality standards for ozone;
. The Federal Water Pollution Control Act Amendments of 1987, which require
permits for facilities that discharge treated wastewater into the
environment; and
. The Comprehensive Environmental Response, Compensation and Liability Act,
which can require any individual or entity which may have owned or
operated a disposal site, as well as transporters or generators of
hazardous wastes which were sent to such site, to share in remediation
costs for the site.
For further discussion of environmental matters involving Duke Energy,
including possible liability and capital costs, see "Legal Proceedings,"
"Management's Discussion and Analysis of Results of Operations and Financial
Condition, Current Issues--Environmental" and Note 14 to the Consolidated
Financial Statements,
15
<PAGE>
"Commitments and Contingencies--Environmental." Compliance with international,
federal, state and local provisions' regulating the discharge of materials into
the environment, or otherwise protecting the environment, is not expected to
have a material adverse effect on the competitive position, consolidated
results of operations or financial position of Duke Energy.
FOREIGN OPERATIONS AND EXPORT SALES
Foreign operations consisted of 10% of consolidated revenues in 1999 and 15%
of consolidated long-lived assets as of December 31, 1999. For 1998 and 1997,
foreign operations and export sales were not material to Duke Energy as a
whole. For a discussion of Duke Energy's foreign operations and the risks
associated with them, see "Management's Discussion and Analysis of Results of
Operations and Financial Condition, Quantitative and Qualitative Disclosures
About Market Risk--Foreign Operations Risk" and Notes 3 and 7 to the
Consolidated Financial Statements, "Business Segments" and "Risk Management and
Financial Instruments," respectively.
EMPLOYEES
At December 31, 1999, Duke Energy had approximately 21,000 employees.
Approximately 1,600 operating and maintenance employees are represented by
unions. Of these approximately 1,400 are represented by the International
Brotherhood of Electrical Workers (IBEW). During 1999, new agreements were
reached with IBEW units for a portion of the employees. Additionally,
negotiations began with the IBEW for a new contract for other employees. The
new contract when completed, will be effective in 2000. An additional 74
employees are represented by the United Steelworkers and Rubberworkers of
America. Approximately 160 employees are represented by the Paper, Allied,
Chemical and Energy Workers Union (PACE, formerly the Oil, Chemical and Atomic
Workers International Union). Two new agreements were reached with PACE during
1999.
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<PAGE>
OPERATING STATISTICS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Electric Operations(a)
Sources of Electric Energy, GWh(b)
Generated--net output:
Coal............................. 41,306 42,164 45,234 40,649 32,389
Nuclear.......................... 39,263 38,366 29,569 33,177 39,836
Hydro............................ 638 1,714 1,633 1,802 2,117
Oil and gas...................... 662 846 301 199 255
-------- ------- ------- ------ ------
Total generation............... 81,869 83,090 76,737 75,827 74,597
Purchased power and net
interchange..................... 3,617 2,659 3,781 3,885 1,239
-------- ------- ------- ------ ------
Total output................... 85,486 85,749 80,518 79,712 75,836
Plus: Purchases from other
Catawba joint owners............ 1,233 1,656 2,316 2,662 6,070
-------- ------- ------- ------ ------
Total sources of energy........ 86,719 87,405 82,834 82,374 81,906
Less: Line loss and company
usage........................... 5,171 5,394 4,899 4,827 4,780
-------- ------- ------- ------ ------
Total GWh sales................ 81,548 82,011 77,935 77,547 77,126
======== ======= ======= ====== ======
Electric Energy Sales, GWh
Residential...................... 21,897 22,002 20,483 21,484 20,124
General service.................. 21,807 21,093 19,687 19,593 18,461
Industrial
Textile......................... 11,201 11,981 11,955 11,603 12,155
Other........................... 18,704 18,668 18,376 18,131 17,738
Other energy and wholesale....... 7,715 8,933 7,029 6,781 7,852
-------- ------- ------- ------ ------
Total GWh sales billed......... 81,324 82,677 77,530 77,592 76,330
Unbilled GWh sales............... 224 (666) 405 (45) 796
-------- ------- ------- ------ ------
Total GWh sales................ 81,548 82,011 77,935 77,547 77,126
======== ======= ======= ====== ======
Natural Gas Transmission
Throughput Volumes, TBtu(c):
Northeast Pipelines
TETCO........................... 1,254 1,148 1,300 1,349 1,234
Algonquin....................... 311 311 341 327 331
-------- ------- ------- ------ ------
Total Northeast Pipelines...... 1,565 1,459 1,641 1,676 1,565
-------- ------- ------- ------ ------
Midwest Pipelines(d)
PEPL............................ 176 560 659 687 663
Trunkline....................... 152 581 620 632 519
-------- ------- ------- ------ ------
Total Midwest Pipelines........ 328 1,141 1,279 1,319 1,182
-------- ------- ------- ------ ------
Intercompany eliminations........ -- (7) (58) (56) (44)
-------- ------- ------- ------ ------
Total Natural Gas
Transmission.................. 1,893 2,593 2,862 2,939 2,703
======== ======= ======= ====== ======
Field Services
Natural Gas Gathered and
Processed/Transported, TBtu/d(e).. 5.1 3.6 3.4 2.9 1.9
NGL Production, MBbl/d(f).......... 192.4 110.2 108.2 78.5 54.8
Average Natural Gas Price per
MMBtu(g).......................... $2.27 $2.11 $2.59 $2.59 $1.64
Average NGL Price per Gallon....... $0.34 $0.26 $0.35 $0.39 $0.33
Natural Gas Marketed, TBtu/d....... 0.5 0.4 0.4 0.5 0.1
Trading and Marketing
Natural Gas Marketed, TBtu/d....... 10.5 8.0 6.9 5.5 3.6
Electricity Marketed, GWh.......... 109,634 98,991 64,650 4,229 513
</TABLE>
- --------
(a) Years prior to 1998 have been restated to include Nantahala Power and
Light.
(b) Gigawatt-hour.
(c) Trillion British thermal units.
(d) Sold in March 1999.
(e) Trillion British thermal units per day.
(f) Thousand barrels per day.
(g) Million British thermal units.
17
<PAGE>
EXECUTIVE OFFICERS OF DUKE ENERGY
Richard B. Priory, 53, Chairman of the Board, President and Chief Executive
Officer. Mr. Priory served as President and Chief Operating Officer from 1994
until he assumed his present position in 1997 following the merger with
PanEnergy.
William A. Coley, 56, Group President, Duke Power. Mr. Coley served as
President of Duke Energy's Associated Enterprises Group from 1994 to 1997 when
he assumed his present position following the merger.
Fred J. Fowler, 54, Group President, Energy Transmission. Mr. Fowler served
as Group Vice President of PanEnergy from 1996 until the merger, when he
assumed his present position. He was President of TETCO from 1994 to 1996.
Harvey J. Padewer, 52, Group President, Energy Services. Mr. Padewer assumed
his present position on January 1, 1999. From 1995 through 1998, he served as
Senior Vice President and General Manager of Utilicorp Energy Group, where he
was President, Aquila Energy; President, Utilico Group; and Vice Chairman of
the Board, Aquila Pipeline Corporation. From 1989 to 1995, he served in
executive positions at ABB Power Generation, Inc., first as Vice President,
Sales and Marketing and later as President, Turbine Power Division.
Richard W. Blackburn, 57, Executive Vice President, General Counsel and
Secretary. Mr. Blackburn was named to his present position in October 1997.
Prior to joining Duke Energy, he served as President and Group Executive of
NYNEX Corporation's Worldwide Communications and Media Group from 1995 to 1997.
Richard J. Osborne, 49, Executive Vice President and Chief Financial Officer.
Mr. Osborne served as Senior Vice President and Chief Financial Officer from
1994 until he assumed his present position in 1997 following the merger.
Ruth G. Shaw, 52, Executive Vice President and Chief Administrative Officer.
Ms. Shaw served as Senior Vice President, Corporate Resources, from 1994 until
she assumed her present position following the merger.
Sandra P. Meyer, 45, Vice President and Corporate Controller. Ms. Meyer
assumed her present position in September 1999. Prior to her present position,
Ms. Meyer served as Vice President, Duke Power Planning and Finance following
the merger in 1997. She became Vice President and Controller of PanEnergy in
1994 and was named to the additional position of Treasurer in October 1996.
Executive officers are elected annually by the Board of Directors and serve
until the first meeting of the Board of Directors following the annual meeting
of shareholders and until their successors are duly elected.
There are no family relationships between any of the executive officers nor
any arrangement or understanding between any executive officer and any other
person pursuant to which the officer was selected.
Item 2. Properties.
ELECTRIC OPERATIONS
At December 31, 1999, Electric Operations operated three nuclear generating
stations with a combined net capability of 5,020 MW (which includes 12.5%
ownership in the Catawba Nuclear Station), eight coal-fired stations with a
combined capability of 7,699 MW, thirty-one hydroelectric stations with a
combined capability of 2,803 MW and six combustion turbine stations with a
combined capability of 1,784 MW, all of which are located in North Carolina or
South Carolina.
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<PAGE>
In addition, Electric Operations owned, as of December 31, 1999,
approximately 13,000 conductor miles of electric transmission lines, including
600 conductor miles of 525 kilovolts, 2,600 conductor miles of 230 kilovolts,
6,500 conductor miles of 100 kilovolts, and 3,300 conductor miles of 13 to 66
kilovolts. Electric Operations also owned approximately 91,100 conductor miles
of electric distribution lines, including 61,800 conductor miles of rural
overhead lines, 15,500 conductor miles of urban overhead lines, 7,500 conductor
miles of rural underground lines and 6,300 conductor miles of urban underground
lines. At December 31, 1999, the electric transmission and distribution systems
comprised approximately 1,600 substations.
Substantially all electric plant is mortgaged under the Indenture relating to
First and Refunding Mortgage Bonds.
NATURAL GAS TRANSMISSION
TETCO's gas transmission system extends approximately 1,700 miles from
producing fields in the Gulf Coast region of Texas and Louisiana to Ohio,
Pennsylvania, New Jersey and New York. It consists of two parallel systems, one
consisting of three large-diameter parallel pipelines and the other consisting
of from one to three large-diameter pipelines over its length. TETCO's system
consists of 9,220 miles of pipeline and has 73 compressor stations.
TETCO also owns and operates two offshore Louisiana pipeline systems, which
extend over 100 miles into the Gulf of Mexico and consist of 490 miles of
pipeline.
Algonquin's transmission system connects with TETCO's facilities in New
Jersey, and extends approximately 250 miles through New Jersey, New York,
Connecticut, Rhode Island and Massachusetts. The system consists of 1,066 miles
of pipeline with six compressor stations.
For information concerning natural gas storage properties, see "Business,
Natural Gas Transmission."
FIELD SERVICES
For information regarding the properties of Field Services, see "Business,
Field Services."
GLOBAL ASSET DEVELOPMENT
Duke Energy North America owns several gas-fueled electric generating
stations throughout the U.S., including four wholly owned stations in
California with combined capacity of 3,351 MW. As of December 31, 1999, Duke
Energy North America had ownership interests ranging from 24.42% to 50% in
numerous other generating facilities with combined capacity of 1,217 MW.
Additionally, Duke Energy North America wholly owns or has ownership interests
ranging from 50% to 78.53% in several generating stations that are under
construction. The combined capacity of these facilities is 2,960 MW.
As of December 31, 1999, Duke Energy International's properties included a
combination of hydroelectric and thermal power generation assets. Duke Energy
International had ownership interests ranging from 50% to 98% in hydroelectric
facilities located in Brazil, Argentina, Bolivia, Peru and Belize, with
combined capacity of 3,443 MW. Wholly owned thermal facilities in Australia and
New Zealand had capacity of 392 MW. Thermal facilities in which Duke Energy
International had ownership interests ranging from 21.9% to 97% in Peru,
Ecuador, El Salvador, Indonesia and Argentina had capacity of 1,085 MW. These
statistics include projects under construction or under contract.
Additionally, Duke Energy International owned 889 miles of pipeline systems
in Australia, and had an ownership interest of 11.84% in 800 miles of pipeline
systems in Australia and a 21.9% ownership interest in 190 miles of pipeline
systems in Peru. These statistics include projects under construction. Also as
of December 31, 1999, Duke Energy International had a 25% indirect interest in
National Methanol Company, which owns and operates a methanol and MTBE (methyl
tertiary butyl ether) business in Jubail, Saudi Arabia.
For additional information and maps regarding the properties of Global Asset
Development, see "Business, Global Asset Development."
19
<PAGE>
REAL ESTATE OPERATIONS
For information regarding the properties of Real Estate Operations, see
"Business, Real Estate Operations."
OTHER
None of the properties used in connection with Duke Energy's other business
activities are considered material to Duke Energy's operations as a whole.
Item 3. Legal Proceedings.
The Illinois Environmental Protection Agency has initiated an environmental
enforcement proceeding against a former subsidiary of Duke Energy relating to
alleged air quality permit violations at a natural gas compressor station. Duke
Energy has agreed to indemnify the purchaser of this former subsidiary against
liability for any penalty or fines resulting from these alleged violations.
This proceeding could result in a penalty in excess of $100,000.
See Note 14 to the Consolidated Financial Statements, "Commitments and
Contingencies--Injury and Damages Claims," for discussion of Duke Energy's
injury and damages claims.
Management believes that the resolution of the matters discussed and referred
to above will not have a material adverse effect on consolidated results of
operations or financial position.
For additional information concerning litigation and other contingencies, see
Note 14 to the Consolidated Financial Statements, "Commitments and
Contingencies," and "Management's Discussion and Analysis of Results of
Operations and Financial Condition, Current Issues--Environmental." With respect
to the State Implementation Plan EPA proceeding discussed under "Management's
Discussion and Analysis of Results of Operations and Financial Condition,
Current Issues--Environmental--Air Quality Control," in March 2000, the court
ruled in favor of the EPA with respect to several issues. Management's estimate
of the potential capital improvement costs in this matter remain appropriate.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of Duke Energy's security holders during
the last quarter of 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The common stock of Duke Energy is listed for trading on the New York Stock
Exchange. At February 29, 2000, there were approximately 152,392 holders of
record of such common stock.
Common Stock Data by Quarter
<TABLE>
<CAPTION>
1999 1998
----------------------------- ----------------------------
Stock Price Range Stock Price Range
Dividends ------------------- Dividends ------------------
Per Share High Low Per Share High Low
--------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
First Quarter.... $0.55 $64 11/16 $54 13/16 $0.55 $60 5/8 $53 7/16
Second Quarter... 1.10 61 3/16 52 1/8 1.10 62 9/16 55 1/8
Third Quarter.... -- 58 1/2 52 7/16 -- 66 3/16 57 1/16
Fourth Quarter... 0.55 56 7/8 47 1/16 0.55 70 11/16 60 1/16
</TABLE>
On December 17, 1998, Duke Energy's Board of Directors adopted a shareholder
rights plan, which was subsequently approved by the North Carolina Utilities
Commission and the Public Service Commission of South Carolina. Under the terms
of the plan, holders of record of outstanding common stock on February 12, 1999
received one right for each share of common stock owned. The plan is intended
to assure fair and equal treatment for all shareholders in the event of a
hostile takeover attempt and to encourage a potential acquirer to negotiate
with the Board of Directors a fair price for all shareholders before attempting
a takeover. The adoption of the plan was not in response to any takeover offer
or threat.
20
<PAGE>
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
1999 1998 1997(b) 1996(b) 1995(b)
------- ------- ------- ------- -------
In millions, except per share amounts
<S> <C> <C> <C> <C> <C>
Income Statement
Operating revenues.................. $21,742 $17,610 $16,309 $12,302 $ 9,694
Operating expenses(a)............... 19,947 15,177 14,339 10,143 7,626
------- ------- ------- ------- -------
Operating income.................... 1,795 2,433 1,970 2,159 2,068
Other income and expenses........... 248 214 138 135 122
------- ------- ------- ------- -------
Earnings before interest and taxes.. 2,043 2,647 2,108 2,294 2,190
Interest expense.................... 601 514 472 499 508
Minority interests.................. 142 96 23 6 --
------- ------- ------- ------- -------
Earnings before income taxes........ 1,300 2,037 1,613 1,789 1,682
Income taxes........................ 453 777 639 698 664
------- ------- ------- ------- -------
Income before extraordinary item.... 847 1,260 974 1,091 1,018
Extraordinary gain/(loss), net of
tax................................ 660 (8) -- (17) --
------- ------- ------- ------- -------
Net income.......................... 1,507 1,252 974 1,074 1,018
Dividends and premiums on
redemptions of preferred and
preference stock................... 20 21 72 44 49
------- ------- ------- ------- -------
Earnings available for common
stockholders....................... $ 1,487 $ 1,231 $ 902 $ 1,030 $ 969
======= ======= ======= ======= =======
Common Stock Data
Shares of common stock outstanding
Year-end........................... 366 363 360 359 362
Weighted average................... 365 361 360 361 361
Earnings per share (before
extraordinary item)(a)
Basic.............................. $ 2.26 $ 3.43 $ 2.51 $ 2.90 $ 2.68
Dilutive........................... $ 2.25 $ 3.42 $ 2.50 $ 2.88 $ 2.67
Earnings per share(a)
Basic.............................. $ 4.08 $ 3.41 $ 2.51 $ 2.85 $ 2.68
Dilutive........................... $ 4.07 $ 3.40 $ 2.50 $ 2.83 $ 2.67
Dividends per share................. $ 2.20 $ 2.20 $ 1.90 $ 1.57 $ 1.50
Balance Sheet
Total assets........................ $33,409 $26,806 $24,029 $22,366 $20,868
Long-term debt...................... $ 8,683 $ 6,272 $ 6,530 $ 5,485 $ 5,803
Preferred stock with sinking fund
requirements....................... $ 104 $ 124 $ 149 $ 234 $ 234
</TABLE>
- --------
(a) Financial information reflects a pre-tax $800 million charge for estimated
injury and damages claims. The earnings per share effect of this charge was
$1.34 per share. See Note 14 to the Consolidated Financial Statements,
"Commitments and Contingencies--Injury and Damages Claims," for additional
information.
(b) Financial information reflects accounting for the 1997 merger with
PanEnergy Corp as a pooling of interests. As a result, the financial
information gives effect to the merger as if it had occurred January 1,
1995.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
INTRODUCTION
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements.
21
<PAGE>
Business Segments. Duke Energy Corporation (collectively with its
subsidiaries, "Duke Energy") is an integrated energy and energy services
provider with the ability to offer physical delivery and management of both
electricity and natural gas throughout the U.S. and abroad. Duke Energy
provides these and other services through seven business segments:
.Electric Operations
.Natural Gas Transmission
.Field Services
.Trading and Marketing
.Global Asset Development
.Other Energy Services
.Real Estate Operations
Electric Operations generates, transmits, distributes and sells electric
energy in central and western North Carolina and the western portion of South
Carolina (doing business as Duke Power or Nantahala Power and Light). These
electric operations are subject to the rules and regulations of the Federal
Energy Regulatory Commission (FERC), the North Carolina Utilities Commission
(NCUC) and the Public Service Commission of South Carolina (PSCSC).
Natural Gas Transmission provides interstate transportation and storage of
natural gas for customers primarily in the Mid-Atlantic and New England states.
Until the sale of the Midwest Pipelines on March 29, 1999, Natural Gas
Transmission also provided interstate transportation and storage services in
the midwest states. See further discussion of the sale of the Midwest Pipelines
in Note 2 to the Consolidated Financial Statements. The interstate natural gas
transmission and storage operations are subject to the rules and regulations of
the FERC.
Field Services gathers, processes, transports and markets natural gas and
produces, transports and markets natural gas liquids (NGLs). Field Services
operates gathering systems in western Canada and ten contiguous states that
serve major gas-producing regions in the Rocky Mountain, Permian Basin, Mid-
Continent and onshore and offshore Gulf Coast areas.
Trading and Marketing markets natural gas, electricity and other energy-
related products across North America. Duke Energy owns a 60% interest in
Trading and Marketing's energy trading operations, with Mobil Corporation
owning a 40% minority interest. This segment also includes certain other
trading activities and limited hydrocarbon exploration and production
activities that are wholly owned by Duke Energy.
Global Asset Development develops, owns and operates energy-related
facilities worldwide. Global Asset Development conducts its operations
primarily through Duke Energy North America, LLC (Duke Energy North America)
and Duke Energy International, LLC (Duke Energy International).
Other Energy Services provides engineering, consulting, construction and
integrated energy solutions worldwide, primarily through Duke Engineering &
Services, Inc. (Duke Engineering & Services), Duke/Fluor Daniel and
DukeSolutions, Inc. (DukeSolutions).
Real Estate Operations conducts its business through Crescent Resources,
Inc., which develops high quality commercial and residential real estate
projects and manages land holdings in the southeastern U.S.
In 1997, Duke Power Company (Duke Power) merged with PanEnergy Corp
(PanEnergy). The merger was accounted for as a pooling of interests; therefore,
the Consolidated Financial Statements and other financial information included
in this Annual Report for periods prior to the merger include the combined
historical financial results of Duke Power and PanEnergy. See Note 2 to the
Consolidated Financial Statements for additional information on the
combination.
22
<PAGE>
Business Strategy. Duke Energy's business strategy is to develop integrated
energy infrastructures in targeted regions where Duke Energy's extensive
capabilities in developing energy assets, operating electricity, gas and NGL
plants, optimizing commercial operations and managing risk can provide
comprehensive energy solutions for customers and create superior value for
shareholders. Domestically, Duke Energy is aggressively investing in new
merchant power plants throughout the U.S., expanding its natural gas pipeline
infrastructure in the eastern U.S., rapidly increasing its leading position in
gas processing and NGL marketing and broadening its trading and marketing
expertise across the energy spectrum. Internationally, Duke Energy is
currently focusing on integrated electric and gas opportunities in Australia
and Latin America and intends to implement its strategies in Europe.
Electric Operations continues to strive to maintain low costs and
competitive rates for its customers and to provide high quality customer
service. Electric Operations is expected to grow moderately, consistent with
historical trends. Expansion will primarily result from continued economic
growth in its service territory.
Natural Gas Transmission provides solid earnings growth and strengthens its
competitive position by adhering to a comprehensive strategy of selected
acquisitions and developing incremental projects that expand services to meet
specific customer needs. In January 2000, Natural Gas Transmission announced
that it had entered into a definitive agreement to purchase the East Tennessee
Natural Gas Company, a pipeline well positioned to serve the rapidly growing
southeastern region of the U.S. The transaction is expected to close in the
first quarter of 2000, subject to regulatory approval. For more information on
this purchase, see Note 19 to the Consolidated Financial Statements.
Duke Energy plans to significantly grow several of its business segments:
Field Services, Trading and Marketing, Global Asset Development and Other
Energy Services. Restructuring of energy markets in the U.S. and abroad is
providing substantial opportunities for these segments to capitalize on their
broad capabilities.
Expansion opportunities for Field Services include the planned combination
of Duke Energy's gas gathering and processing businesses with Phillips
Petroleum's Gas Processing and Marketing unit to form a new midstream company.
The transaction is expected to close by first quarter 2000, subject to
regulatory approval. See Note 19 to the Consolidated Financial Statements for
further discussion.
Trading and marketing activities at Duke Energy continue to expand as
Trading and Marketing provides energy supply, output marketing, risk
management and commercial optimization services to all of Duke Energy's
merchant structure developments. Trading and Marketing continues to increase
its customer base for wholesale energy management services to aggregators,
distribution companies, large industrials and other marketers.
Global Asset Development expects to continue strong earnings growth through
acquisitions, divestitures, construction of greenfield projects and expansion
of existing facilities as opportunities are extracted, evaluated and realized
through the marketplace. Duke Energy's combination of assets and capabilities
that span the energy value chain have contributed to Global Asset
Development's successful delivery of natural gas pipeline, power generation,
energy marketing and other services as demonstrated both domestically and
internationally. To capture the greatest value in North America, Duke Energy
North America, through its portfolio management strategy, seeks opportunities
to invest in markets which have capacity needs and to divest, in whole or in
part, when significant value can be realized.
Other Energy Services seeks to grow with various types of services including
comprehensive energy efficiencies in food, textile and government facilities.
The strong real estate market in the Southeast continues to present substan-
tial growth opportunities for both the commercial and residential development
of Real Estate Operations. In addition to initiating development of signifi-
cant office and industrial facilities in each of its established markets, Real
Estate Operations entered a new market niche in 1999 to develop moderately
priced residential communities in Jacksonville, Florida. Real Estate Opera-
tions also announced plans to enter the multi-family market and to signifi-
cantly increase its retail development.
23
<PAGE>
RESULTS OF OPERATIONS
In 1999, earnings available for common stockholders were $1,487 million, or
$4.08 per basic share, net of an after-tax extraordinary gain of $660 million,
or $1.82 per basic share. In 1998, earnings available for common stockholders
were $1,231 million, or $3.41 per basic share, net of an after-tax
extraordinary loss of $8 million, or $0.02 per basic share. The increase in
earnings available for common stockholders was primarily due to the 1999
extraordinary gain resulting from the sale of the Midwest Pipelines. This gain,
along with the factors described below that affect segment profit and loss, was
partially offset by a pre-tax $800 million charge for estimated injury and
damages claims (see Note 14 to the Consolidated Financial Statements), higher
interest expense and minority interest expense
Earnings available for common stockholders increased $329 million in 1998
from 1997 earnings of $902 million, or $2.51 per basic share. The increase in
earnings available for common stockholders was due to the factors described
below that affect segment profit and loss. These factors were partially offset
by increased interest expense and minority interests.
Operating income for 1999 was $1,795 million compared to $2,433 million in
1998 and $1,970 million in 1997. Earnings before interest and taxes (EBIT) were
$2,043 million, $2,647 million and $2,108 million for 1999, 1998 and 1997,
respectively. Management evaluates each business segment based on an internal
measure of earnings before interest and taxes, after deducting minority
interests. Operating Income and EBIT are affected by the same fluctuations for
Duke Energy and each of its business segments. The only notable difference
between Operating Income and EBIT is the inclusion in EBIT of certain non-
operating activities. See Note 3 to the Consolidated Financial Statements for
additional information on business segments.
EBIT is summarized in the following table and is discussed by business
segment thereafter.
EBIT by Business Segment
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1999 1998 1997
-------- -------- --------
In millions
<S> <C> <C> <C>
Electric Operations............................. $ 856 $ 1,513 $ 1,282
Natural Gas Transmission........................ 627 702 624
Field Services.................................. 144 76 157
Trading and Marketing........................... 70 81 23
Global Asset Development........................ 181 64 4
Other Energy Services........................... (94) 10 18
Real Estate Operations.......................... 176 142 98
Other Operations................................ (9) 2 (120)
Minority Interests.............................. 92 57 22
-------- -------- --------
Consolidated EBIT............................... $ 2,043 $ 2,647 $ 2,108
======== ======== ========
</TABLE>
Other Operations primarily include communication services, water services and
certain unallocated corporate costs. Included in the amounts discussed
hereafter are intercompany transactions that are eliminated in the Consolidated
Financial Statements.
24
<PAGE>
Electric Operations
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
In millions, except where noted
<S> <C> <C> <C>
Operating Revenues......................... $ 4,700 $ 4,626 $ 4,401
Operating Expenses......................... 3,966 3,228 3,221
---------- ---------- ----------
Operating Income........................... 734 1,398 1,180
Other Income, Net of Expenses.............. 122 115 102
---------- ---------- ----------
EBIT....................................... $ 856 $ 1,513 $ 1,282
========== ========== ==========
Sales -- GWh (a)........................... 81,548 82,011 77,935
</TABLE>
--------
(a) Gigawatt-hours.
In 1999, EBIT for Electric Operations decreased $657 million compared to
1998, primarily due to an $800 million charge for estimated injury and damages
claims. See Note 14 to the Consolidated Financial Statements for additional
information related to this charge. Partially offsetting this decrease was a
2.8% increase in the number of customers in the Electric Operations' service
territory during 1999, and the absence of 1998 severance and other costs
related to closing Electric Operations' merchandising business.
In 1998, EBIT for Electric Operations increased $231 million as compared to
1997, primarily due to a 5.2% increase in gigawatt-hour sales. Gigawatt-hour
sales increased as a result of warmer spring and summer weather conditions
during 1998 and a 2.5% growth in the number of customers in the Electric
Operations' service territory. EBIT also increased due to the absence of 1997
severance costs, however this was substantially offset by 1998 costs related to
the closing of Electric Operations' merchandising business.
Natural Gas Transmission
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
In millions, except where noted
<S> <C> <C> <C>
Operating Revenues......................... $ 1,206 $ 1,528 $ 1,572
Operating Expenses......................... 615 864 964
---------- ---------- ----------
Operating Income........................... 591 664 608
Other Income, Net of Expenses.............. 36 38 16
---------- ---------- ----------
EBIT....................................... $ 627 $ 702 $ 624
========== ========== ==========
Throughput -- TBtu (a)..................... 1,893 2,593 2,862
</TABLE>
--------
(a) Trillion British thermal units.
EBIT for Natural Gas Transmission decreased $75 million in 1999 compared to
1998. As a result of the sale of the Midwest Pipelines to CMS Energy
Corporation (CMS) on March 29, 1999, EBIT for the Midwest Pipelines decreased
$156 million compared to 1998's full year of operation. For the Northeast
Pipelines, EBIT increased $81 million compared to 1998, primarily as a result
of increased earnings from market-expansion projects and joint ventures, higher
throughput and lower operating expenses. A gain of $24 million resulting from
the sale of Duke Energy's interest in the Alliance Pipeline project and
benefits totaling $38 million related to the completion of certain PCB
(polychlorinated biphenyl) and soil clean-up programs below estimates also
increased EBIT in 1999. Partially offsetting these contributions to EBIT were
the non-recurrence of the 1998 favorable resolution of regulatory issues
related to gas supply realignment cost issues ("GSR issues") and a 1998 refund
from a state property tax ruling.
In 1998, EBIT for Natural Gas Transmission increased $78 million compared to
1997. EBIT for the Northeast Pipelines increased $56 million in 1998 over 1997,
primarily as a result of the favorable resolution of
25
<PAGE>
GSR issues, favorable state property tax rulings and increased market expansion
projects. These increases were partially offset by a decrease in throughput
primarily as a result of mild winter weather.
For the Midwest Pipelines, 1998 EBIT increased $22 million compared to 1997,
primarily due to a gain on the sale of the general partner interests in
Northern Border Partners, L.P. and non-recurring 1997 litigation expenses.
These increases were partially offset by the favorable resolution of certain
regulatory matters in 1997, which was reflected as additional revenue and other
income.
Field Services
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1999 1998 1997
---------- ---------- ----------
In millions, except where noted
<S> <C> <C> <C>
Operating Revenues....................... $ 3,590 $ 2,639 $ 3,055
Operating Expenses....................... 3,444 2,598 2,898
---------- ---------- ----------
Operating Income......................... 146 41 157
Other Income, Net of Expenses............ (2) 35 --
---------- ---------- ----------
EBIT..................................... $ 144 $ 76 $ 157
========== ========== ==========
Natural Gas Gathered and
Processed/Transported, TBtu/d (a)....... 5.1 3.6 3.4
NGL Production, MBbl/d (b)............... 192.4 110.2 108.2
Natural Gas Marketed, TBtu/d............. 0.5 0.4 0.4
Average Natural Gas Price per MMBtu (c).. $ 2.27 $ 2.11 $ 2.59
Average NGL Price per Gallon (d)......... $ 0.34 $ 0.26 $ 0.35
</TABLE>
--------
(a) Trillion British thermal units per day.
(b) Thousand barrels per day.
(c) Million British thermal units.
(d) Does not reflect results of commodity hedges.
In 1999, EBIT for Field Services increased $68 million compared to 1998. A
significant portion of the increase resulted from the March 31, 1999
acquisition of the natural gas gathering, processing, fractionation and NGL
pipeline business from Union Pacific Resources (UPR), (collectively, the "UPR
acquisition"). For more information on the UPR acquisition, see Note 2 to the
Consolidated Financial Statements. Improved average NGL prices, which were up
$0.08 per gallon, or 30.8% from the prior year, also contributed to the
increase in EBIT. Partially offsetting these increases were $34 million in 1998
of gains on sales of assets, which were included in other income.
EBIT for Field Services decreased $81 million in 1998 from 1997, primarily
due to a decrease in average NGL prices of approximately $0.09 per gallon, or
25.7%. The decrease in EBIT was partially offset by $34 million of gains on
sales of assets, which were included in other income.
On December 16, 1999, Duke Energy announced that it had signed definitive
agreements with Phillips Petroleum to form a new midstream gas gathering and
processing company. See Note 19 to the Consolidated Financial Statements for
further discussion.
26
<PAGE>
Trading and Marketing
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1999 1998 1997
----------- ---------- ----------
In millions, except where noted
<S> <C> <C> <C>
Operating Revenues........................ $ 11,793 $ 8,785 $ 7,489
Operating Expenses........................ 11,724 8,665 7,446
----------- ---------- ----------
Operating Income.......................... 69 120 43
Other Income, Net of Expenses............. 43 2 1
Minority Interest Expense................. 42 41 21
----------- ---------- ----------
EBIT...................................... $ 70 $ 81 $ 23
=========== ========== ==========
Natural Gas Marketed, TBtu/d.............. 10.5 8.0 6.9
Electricity Marketed, GWh................. 109,634 98,991 64,650
</TABLE>
In 1999, EBIT for Trading and Marketing decreased $11 million from 1998. The
decrease resulted primarily from lower natural gas trading margins, partially
offset by higher electricity trading margins as well as margins associated with
other trading activities and sales of natural gas interests associated with
drilling activities.
EBIT for Trading and Marketing increased $58 million in 1998 compared to
1997. The increase resulted primarily from increased trading margins and
electricity margins, partially offset by increased expenses due to business
growth. Electricity volumes marketed increased primarily as a result of
acquiring the remaining 50% ownership interest in the Duke/Louis Dreyfus,
L.L.C. (D/LD) joint venture in June 1997.
Global Asset Development
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
In millions, except where noted
<S> <C> <C> <C>
Operating Revenues....................... $ 777 $ 319 $ 123
Operating Expenses....................... 571 261 129
---------- ---------- ----------
Operating Income......................... 206 58 (6)
Other Income, Net of Expenses............ 25 22 11
Minority Interest Expense................ 50 16 1
---------- ---------- ----------
EBIT..................................... $ 181 $ 64 $ 4
========== ========== ==========
Proportional Megawatt Capacity Owned
(a)..................................... 8,773 6,041 3,912
Proportional Maximum Pipeline Capacity
(a), MMcf/d (b)......................... 309 124 --
</TABLE>
--------
(a) Includes under construction or under contract.
(b) Million cubic feet per day.
In 1999, EBIT for Global Asset Development increased $117 million compared to
1998. The increase includes $99 million in income from the sale of partial
interests in four generating stations in the U.S. as a result of executing its
domestic portfolio management strategy. Earnings from new projects in Latin
America and Australia also contributed $63 million to the increase. Partially
offsetting these increases were higher operating expenses and increased
development costs associated with business expansion.
EBIT for Global Asset Development increased $60 million in 1998 over 1997.
The increase resulted primarily from business expansion and acquisitions,
including the July 1998 acquisition of three electric generating stations in
California and the December 1997 acquisition of an indirect 32.5% ownership
interest in American Ref-Fuel Company. An expansion to the PT Puncakjaya power
generation facility in Indonesia also contributed to the increase in EBIT
during 1998. The increase in EBIT was partially offset by decreased earnings
resulting from lower prices at National Methanol Company, a methanol and MTBE
(methyl tertiary butyl ether) business in Saudi Arabia.
27
<PAGE>
Other Energy Services
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1999 1998 1997
--------- ------- --------
In millions
<S> <C> <C> <C>
Operating Revenues............................... $ 989 $ 521 $ 376
Operating Expenses............................... 1,083 511 353
--------- ------- -------
Operating Income................................. (94) 10 23
Other Income, Net of Expenses.................... -- -- (5)
--------- ------- -------
EBIT............................................. $ (94) $ 10 $ 18
========= ======= =======
</TABLE>
In 1999, EBIT for Other Energy Services decreased $104 million compared to
1998. The decrease was primarily due to charges of $38 million and $35 million
at Duke Engineering & Services and DukeSolutions, respectively. These charges,
which include costs associated with repositioning the companies to focus on
growth markets, included expenses related to severance, office closings and
write-offs of uncollectable accounts. Increased development activity at
DukeSolutions and decreased earnings from projects of Duke Engineering &
Services also contributed to lower EBIT. EBIT for Other Energy Services
decreased $8 million in 1998 compared to 1997, primarily due to reduced
earnings of Duke Engineering & Services.
Real Estate Operations
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
In millions
<S> <C> <C> <C>
Operating Revenues................................ $ 233 $ 181 $ 124
Operating Expenses................................ 57 39 26
-------- -------- --------
EBIT.............................................. $ 176 $ 142 $ 98
======== ======== ========
</TABLE>
In 1999, EBIT for Real Estate Operations increased $34 million compared to
1998. The increase was primarily due to increased residential developed lot
sales, land sales and commercial project sales, partially offset by decreased
lake lot sales. EBIT for Real Estate Operations increased $44 million in 1998
over 1997, primarily as a result of increased commercial project sales, lake
lot sales and land sales, including a gain on the sale of land in the Jocassee
Gorges region of South Carolina.
Other Operations
EBIT for Other Operations decreased $11 million in 1999 compared to 1998,
primarily as a result of the resolution of certain contingent items during
1998. EBIT for Other Operations increased $122 million in 1998 compared to
1997, primarily as a result of the absence of $71 million of non-recurring 1997
merger-related costs and the favorable resolution of certain contingent items
in 1998, partially offset by a 1997 gain on the sale of Duke Energy's ownership
interest in the Midland Cogeneration Venture.
Other Impacts on Earnings Available for Common Stockholders
Interest expense increased $87 million in 1999 compared to 1998, and $42
million in 1998 compared to 1997 due to higher average debt balances
outstanding, resulting from acquisitions and expansion.
Minority interests increased $46 million in 1999 compared to 1998, and $73
million in 1998 compared to 1997. The increases were due primarily to regular
distributions paid on new issuances of Duke Energy's trust preferred
securities. For more information on issuances of trust preferred securities,
see Note 12 to the Consolidated Financial Statements. Excluding these
dividends, minority interests related primarily to Global Asset Development's
1999 investments and Trading and Marketing's joint venture with Mobil
Corporation. For more information regarding acquisitions and new projects, see
Notes 2 and 8 to the Consolidated Financial Statements.
28
<PAGE>
Duke Energy's effective income tax rate was approximately 35%, 38% and 40%
for 1999, 1998 and 1997, respectively. The decrease in 1999 from 1998 was
primarily due to the favorable resolution of several income tax issues and the
utilization of certain capital loss carryforwards due to the sale of the
Midwest Pipelines. Favorable resolution of income tax issues also resulted in a
decline in the effective tax rate in 1998 from 1997. Duke Energy expects its
ongoing effective tax rate to approximate 38%.
The sale of the Midwest Pipelines to CMS closed on March 29, 1999 and
resulted in a $660 million extraordinary gain, net of income tax of $404
million. For further discussion on the sale, see Note 2 to the Consolidated
Financial Statements.
In January 1998, TEPPCO Partners, L.P., in which Duke Energy has a 21.1%
ownership interest, redeemed certain First Mortgage Notes which resulted in
Duke Energy recording a non-cash extraordinary loss of $8 million, net of
income tax of $5 million, related to its share of costs of the early retirement
of debt.
In December 1997, Duke Energy redeemed four issues of preferred stock and
commenced a tender offer to purchase a portion of six additional issues of
preferred stock. Premiums related to these redemptions were included in the
Consolidated Statements of Income and Comprehensive Income in 1997 as Dividends
and Premiums on Redemptions of Preferred and Preference Stock.
LIQUIDITY AND CAPITAL RESOURCES
Operating Cash Flows
Net cash provided by operations was $2,684 million in 1999, $2,331 million in
1998 and $2,140 million in 1997. In each of these years, the increase in cash
was primarily due to net income resulting from business expansion.
On August 29, 1998, the FERC approved a settlement from Texas Eastern
Transmission Corporation (TETCO), a subsidiary of Duke Energy, which
accelerates recovery of natural gas transition costs. The order was effective
October 1, 1998 and includes a rate moratorium until 2004. Net cash flows from
operations are not expected to change for the first two years after
implementation; however, after the natural gas transition costs are fully
recovered, cash flows from operations are expected to decrease on an annual
basis. For more information concerning the settlement, see Note 4 to the
Consolidated Financial Statements.
In late 1999, Duke Energy established an accrual for estimated injury and
damages claims. Duke Energy expects to fund approximately $350 million, which
is comprised of an insurance policy premium and estimated claim activity over
the next year, primarily through new debt issuances. Management believes that
the long-term cash requirements of the projected liability will not have a
material effect on Duke Energy's liquidity or cash flows. See Note 14 to the
Consolidated Financial Statements for further discussion.
Investing Cash Flows
Capital and investment expenditures were approximately $5.9 billion in 1999
compared to approximately $2.5 billion in 1998. The increase primarily resulted
from business expansion for the Field Services and Global Asset Development
segments. Business expansion for Field Services included the $1.35 billion
acquisition of the natural gas gathering, processing, fractionation and NGL
pipeline business from UPR along with its natural gas and NGL marketing
activities. International business expansion for Global Asset Development
included $1.7 billion for multiple acquisitions in Latin America, western
Australia and New Zealand. In 1999, Global Asset Development also began
construction of multiple power generation plants in North America and continued
capital expenditures on projects initiated prior to 1999. Expenditures related
to these activities were partially funded by $1.9 billion in cash proceeds from
the sale of Panhandle Eastern Pipe Line Company (PEPL), Trunkline Gas Company
(Trunkline) and additional storage related to those systems, which
substantially comprised the Midwest Pipelines, along with Trunkline LNG
Company. For additional information concerning acquisitions and dispositions,
see Note 2 to the Consolidated Financial Statements.
29
<PAGE>
Capital and investment expenditures in 1998 increased $472 million from $2.0
billion in 1997 primarily due to business expansion by Global Asset
Development. This included the $501 million purchase of three electric
generating stations in California and the completion of the first phase of
Bridgeport Energy, a power generation plant in Connecticut. Business expansion
for Natural Gas Transmission and Field Services also contributed to the
increase in capital and investment expenditures. The increase was partially
offset by decreased expenditures for Electric Operations, primarily as a result
of steam generator replacements at certain of its nuclear plants in 1997, and
by the acquisition of the remaining 50% ownership of the D/LD joint venture in
June 1997.
Projected 2000 capital and investment expenditures for Electric Operations,
including allowance for funds used during construction, are approximately $900
million. These projections include expenditures for existing plants, including
refurbishment and upgrades related to the Oconee Nuclear Station's application
for a 20-year renewal of its operating license, which is expected to receive
approval from the Nuclear Regulatory Commission in 2000.
Projected 2000 capital and investment expenditures for Natural Gas
Transmission, including allowance for funds used during construction, are
approximately $600 million. These projections include expansion of the
Maritimes & Northeast Pipeline, which delivers natural gas to markets in the
Canadian Maritimes provinces and the northeastern U.S. from a supply basin
offshore of Nova Scotia, and the planned $386 million purchase of the East
Tennessee Natural Gas Company, which is expected to close in the first quarter
of 2000 and is contingent upon regulatory approval. For further discussion on
this purchase, see Note 19 to the Consolidated Financial Statements.
Duke Energy plans to continue to significantly grow several of its business
segments: Field Services, Global Asset Development, Trading and Marketing and
Other Energy Services. Expansion plans for Field Services include the
combination of Duke Energy's gas gathering and processing businesses with
Phillips Petroleum's Gas Processing and Marketing unit to form a new midstream
company. The transaction is expected to close by first quarter 2000 and is
subject to regulatory approval. See Note 19 to the Consolidated Financial
Statements for additional information.
Projected 2000 capital and investment expenditures for Global Asset
Development are approximately $3.6 billion. Expansion opportunities for Global
Asset Development's domestic division, Duke Energy North America, include the
continuation of various greenfield projects across the U.S. Expansion plans for
Global Asset Development's international division, Duke Energy International,
include completing the purchase of Dominion Resources, Inc.'s portfolio of
hydroelectric, natural gas and diesel power generation businesses in Argentina
and Bolivia (see Note 2 to the Consolidated Financial Statements) and the
January 2000 completion of the tender offer for additional ownership interests
in Companhia de Geracao de Energia Eletrica Paranapanema (Paranapanema) (see
Note 19 to the Consolidated Financial Statements). Duke Energy International
will also continue to focus on its regional target areas in Australia and Latin
America for further expansion opportunities and intends to implement its
strategies in Europe.
Projected 2000 capital and investment expenditures for Trading and Marketing
are approximately $200 million. This includes expenditures related to Trading
and Marketing's new subsidiary, Duke Energy Hydrocarbons, which was formed in
the second quarter of 1999 to invest capital in limited hydrocarbon exploration
and production prospects through non-operating working interests. Duke Energy's
intent is to produce natural gas to partially offset the short gas position of
Duke Energy's power generation assets and to increase production volumes that
will be beneficial to Field Services, Trading and Marketing, and Natural Gas
Transmission.
Projected 2000 capital and investment expenditures for Other Energy Services,
Real Estate Operations and Other Operations are approximately $200 million,
$400 million and $250 million, respectively.
All projected capital and investment expenditures for the above segments are
subject to periodic review and revision and may vary significantly depending on
a number of factors including, but not limited to, industry restructuring,
regulatory constraints, acquisition opportunities, market volatility and
economic trends.
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Financing Cash Flows
Duke Energy's consolidated capital structure at December 31, 1999, including
short-term debt, was 44% debt, 6% minority interests, 7% trust preferred
securities, 1% preferred stock and 42% common equity. Fixed charges coverage,
calculated using the Securities and Exchange Commission method, was 2.9 times,
4.7 times and 4.1 times for 1999, 1998 and 1997, respectively.
Duke Energy's business expansion opportunities, along with dividends, debt
repayments and operating and investing requirements, are expected to be funded
by cash from operations, external financing, common stock issuances and the
proceeds from certain asset sales.
During 1999, Duke Energy and its subsidiary, Duke Capital Corporation (Duke
Capital), issued a total of $1.9 billion of Senior Notes. The proceeds were
used for general corporate purposes, including reducing commercial paper
indebtedness incurred in connection with acquisitions of electric power
generating assets in Latin America. Global Asset Development, through its
Australian subsidiary, borrowed approximately $450 million under new financing
arrangements, including a combined commercial paper and medium-term note
program, bank facilities and non-recourse financing for certain western
Australian assets. These new Global Asset Development financings are
denominated in either Australian or New Zealand dollars. Issuances from the
combined commercial paper and medium-term note program and the bank facilities
were used to refund bridge financing of assets obtained during 1998 and 1999
and to fund on-going construction expenditures for the Eastern Gas Pipeline and
future projects in Australia. Global Asset Development also assumed
approximately $430 million of non-recourse debt, denominated in Brazilian
reais, in relation to the acquisition of Paranapanema (see Note 2 to the
Consolidated Financial Statements) and borrowed $380 million under a new bank
facility to refinance the California generating assets. For additional
information regarding debt, see Note 10 to the Consolidated Financial
Statements.
Also during the year, Duke Energy's and Duke Capital's business trusts, which
are treated as wholly owned subsidiaries for financial reporting purposes,
issued a total of $500 million of trust preferred securities. See Note 12 to
the Consolidated Financial Statements for additional information on trust
preferred securities.
Under its commercial paper facilities, Duke Energy had the ability to borrow
up to $2.8 billion at both December 31, 1999 and 1998. The commercial paper
facilities consisted of $1.25 billion for Duke Energy and $1.55 billion for
Duke Capital. At December 31, 1999, Global Asset Development also had available
an approximately $500 million combined commercial paper and medium-term note
program. Duke Energy's various bank credit facilities totaled approximately
$3.7 billion (including approximately $320 million related to foreign
facilities) at December 31, 1999 and $2.9 billion at December 31, 1998. At
December 31, 1999, approximately $1.8 billion was outstanding under the
commercial paper facilities and approximately $460 million of borrowings were
outstanding under the bank credit facilities. Certain of the credit facilities
support the issuance of commercial paper, therefore, the issuance of commercial
paper reduces the amount available under these credit facilities (see Note 10
to the Consolidated Financial Statements).
As of December 31, 1999, Duke Energy and its subsidiaries had the ability to
issue up to $2.15 billion aggregate principal amount of debt and other
securities under shelf registrations filed with the Securities and Exchange
Commission. Effective January 7, 2000, the amount available was increased by
$1.5 billion. Such securities may be issued as First and Refunding Mortgage
Bonds, Senior Notes, Subordinated Notes or Preferred Securities.
On December 16, 1999, Duke Energy announced that it had signed definitive
agreements to combine Duke Energy's gas gathering and processing businesses
with Phillips Petroleum's Gas Processing and Marketing unit to form a new
midstream company. The new company will seek to arrange approximately $2.6
billion of debt financing and, upon closing of the transaction, will make a
one-time cash distribution of $1.2 billion to both Duke Energy and Phillips
Petroleum. The new company would then offer approximately 20% of its equity to
the public in 2000 to reduce the debt resulting from the transaction. Such an
offering is conditional upon completion of the transaction and favorable market
conditions. For additional information, see Note 19 to the Consolidated
Financial Statements.
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To maintain financial flexibility and reduce the amount of financing needed
for growth opportunities, Duke Energy's Board of Directors adopted a dividend
policy in June 1998 that targets 50% of earnings paid out in dividends on
common stock. The Board of Directors intends to maintain dividends at the
current quarterly rate of $0.55 per share until the target payout ratio is
reached at which time it intends to re-evaluate its dividend policy.
In April 1999, Duke Energy's shareholders approved an amendment to the
Articles of Incorporation to increase the authorized common stock from 500
million to 1 billion shares. This increase in authorized stock will provide
Duke Energy with added flexibility in effecting financings, stock splits or
stock dividends, stock plans and other transactions and arrangements involving
the use of common stock.
Duke Energy InvestorChoice Plan, a stock dividend reinvestment plan, allows
investors to reinvest dividends in new issuances of common stock and to
purchase common stock directly from Duke Energy. Issuances under this plan were
not material in 1999, 1998 or 1997.
Duke Energy used authorized but unissued shares of its common stock to meet
1999 and 1998 employee benefit plan contribution requirements. This practice is
expected to continue in 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk Policies
Duke Energy is exposed to market risks associated with interest rates,
commodity prices, equity prices and foreign exchange rates. Comprehensive risk
management policies have been established by the Corporate Risk Management
Committee (CRMC) to monitor and control these market risks. The CRMC is chaired
by the Chief Financial Officer and is comprised of senior executives. The CRMC
has responsibility for oversight of interest rate risk, foreign currency risk,
credit risk and energy risk management, including approval of energy financial
exposure limits.
Interest Rate Risk
Duke Energy is exposed to risk resulting from changes in interest rates as a
result of its issuance of variable-rate debt, fixed-rate debt and trust
preferred securities, commercial paper and auction market preferred stock, as
well as interest rate swaps and interest rate lock agreements. Duke Energy
manages its interest rate exposure by limiting its variable-rate and fixed-rate
exposures to certain percentages of total capitalization, as set by policy, and
by monitoring the effects of market changes in interest rates. Duke Energy may
also enter into financial derivative instruments including, but not limited to,
swaps, options and treasury rate agreements to manage and mitigate interest
rate risk exposure. See Notes 1, 7, 10, 12 and 13 to the Consolidated Financial
Statements for additional information.
Based on a sensitivity analysis as of December 31, 1999, it was estimated
that if market interest rates average 1% higher (lower) in 2000 than in 1999,
earnings before income taxes would decrease (increase) by approximately $24
million. Comparatively, based on a sensitivity analysis as of December 31,
1998, had interest rates averaged 1% higher (lower) in 1999 than in 1998, it
was estimated that earnings before income taxes would have decreased
(increased) by approximately $23 million. These amounts were determined by
considering the impact of the hypothetical interest rates on the variable-rate
securities outstanding as of December 31, 1999 and 1998. In the event of a
significant change in interest rates, management would likely take actions to
manage its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no changes in Duke Energy's financial structure.
Commodity Price Risk
Duke Energy, substantially through its subsidiaries, is exposed to the impact
of market fluctuations in the price of natural gas, electricity and natural gas
liquid products marketed and purchased. Duke Energy employs
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established policies and procedures to manage its risks associated with these
market fluctuations using various commodity derivatives, including forward
contracts, futures, swaps and options. Market risks associated with commodity
derivatives held for purposes other than trading were not material at December
31, 1999 and 1998. See Notes 1 and 7 to the Consolidated Financial Statements
for additional information.
The risk in the commodity trading portfolio is measured on a daily basis
utilizing a Value-at-Risk model to determine the maximum potential one-day
favorable or unfavorable Daily Earnings at Risk (DER). The DER is monitored
daily in comparison to established thresholds. Other measures are also utilized
to monitor the risk in the commodity trading portfolio on a monthly and annual
basis.
The DER computations are based on a historical simulation, which utilizes
price movements over a specified period to simulate forward price curves in the
energy markets to estimate the favorable or unfavorable impact of one-day's
price movement on the existing portfolio. The historical simulation emphasizes
the most recent market activity, which is considered the most relevant
predictor of immediate future market movements for natural gas, electricity and
petroleum products. The DER computations utilize several key assumptions,
including a 95% confidence level for the resultant price movement and the
holding period specified for the calculation. Duke Energy's DER calculation
includes commodity derivative instruments held for trading purposes. The
estimated potential one-day favorable or unfavorable impact on earnings before
income taxes related to commodity derivatives held for trading purposes at
December 31, 1999 and 1998 was approximately $10 million. The average estimated
potential one-day favorable or unfavorable impact on earnings before income
taxes related to commodity derivatives held for trading purposes was
approximately $11 million and $5 million during 1999 and 1998, respectively.
The increase in average 1999 amounts compared to 1998 is a result of an
increase in the authorized energy financial exposure limit in 1998, which was
approved by the CRMC. Changes in markets inconsistent with historical trends
could cause actual results to exceed predicted limits.
Subsidiaries of Duke Energy are also exposed to market fluctuations in the
prices of NGLs related to their ongoing gathering and processing operating
activities. Duke Energy closely monitors the risks associated with NGL price
changes on its future operations, and where appropriate, uses crude oil and
natural gas commodity instruments to hedge NGL prices. Based on a sensitivity
analysis as of December 31, 1999, it was estimated that if NGL prices average
one cent per gallon less in 2000, earnings before income taxes would decrease
by approximately $6 million, after considering the effect of Duke Energy's
commodity hedge positions. Comparatively, based on sensitivity analysis as of
December 31, 1998, if NGL prices would have averaged one cent per gallon less
in 1999, it was estimated that earnings before income taxes would have
decreased by approximately $8 million.
Equity Price Risk
Duke Energy maintains trust funds, as required by the Nuclear Regulatory
Commission, to fund certain costs of nuclear decommissioning. (See Note 11 to
the Consolidated Financial Statements.) As of December 31, 1999 and 1998, these
funds were invested primarily in domestic and international equity securities,
fixed-rate, fixed-income securities and cash and cash equivalents. Management
believes that its exposure to fluctuations in equity prices or interest rates
will not materially affect consolidated results of operations. See further
discussion in the Current Issues, Nuclear Decommissioning Costs section of
Management's Discussion and Analysis.
Foreign Operations Risk
Duke Energy is exposed to foreign currency risk, sovereign risk and other
foreign operations risk that arise from investments in international affiliates
and businesses owned and operated in foreign countries. To mitigate risks
associated with foreign currency fluctuations, when possible, contracts are
denominated in or indexed to the U.S. dollar or may be hedged through debt
denominated in the foreign currency. Duke Energy also uses foreign currency
derivatives, where possible, to manage its risk related to foreign currency
fluctuations. To monitor its currency exchange rate risks, Duke Energy uses
sensitivity analysis, which measures the impact of a devaluation of the foreign
currencies to which it has exposure.
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At December 31, 1999, Duke Energy's primary foreign currency exchange rate
exposures were the Brazilian real, the Australian dollar and the Canadian
dollar. Exposures to other foreign currencies were not material. Based on the
sensitivity analysis at December 31, 1999, a 10% devaluation in the currency
exchange rates in Brazil would reduce Duke Energy's financial position by
approximately $65 million and would not significantly affect Duke Energy's
consolidated results of operations or cash flows over the next twelve months.
Based on the sensitivity analysis at December 31, 1999, a 10% devaluation in
other foreign currencies were insignificant to Duke Energy's consolidated
results of operations, financial position or cash flows. Exposures to foreign
currency risks were not material to consolidated results of operations,
financial position or cash flows during 1998.
CURRENT ISSUES
Electric Competition. Wholesale Competition. The Energy Policy Act of 1992
(EPACT) and the FERC's subsequent rulemaking activities have established the
regulatory framework to open the wholesale energy market to competition. EPACT
amended provisions of the Public Utility Holding Company Act of 1935 and the
Federal Power Act to remove certain barriers to a competitive wholesale market.
EPACT permits utilities to participate in the development of independent
electric generating plants for sales to wholesale customers, and also permits
the FERC to order transmission access for third parties to transmission
facilities owned by another entity. It does not, however, permit the FERC to
issue an order requiring transmission access to retail customers. The FERC,
responsible in large measure for implementation of EPACT, has moved vigorously
to implement its mandate, interpreting the statute broadly and issuing orders
for third-party transmission service and a number of rules of general
applicability, including Orders 888 and 889.
Open-access transmission for wholesale customers as defined by the FERC's
final rules provides energy suppliers, including Duke Energy, with
opportunities to sell and deliver capacity and energy at market-based prices.
Duke Energy and several of its non-regulated subsidiaries have been granted
authority by the FERC to act as power marketers. Electric Operations obtained
from the FERC open-access rule the rights to sell capacity and energy at
market-based rates from its own assets. Open access provides another supply
option through which Electric Operations can purchase at attractive rates a
portion of capacity and energy requirements resulting in lower overall costs to
customers. Open access also provides Electric Operations' existing wholesale
customers with competitive opportunities to seek other suppliers for their
capacity and energy requirements.
On December 20, 1999, the FERC issued its Order No. 2000 regarding Regional
Transmission Organizations (RTOs). In its order, the FERC stressed the
voluntary nature of RTO participation by utilities and sets minimum
characteristics and functions that must be met by utilities that participate in
an RTO. The order provides for an open, flexible structure for RTOs to meet the
needs of the market, and provides for the possibility of incentive ratemaking
and other benefits for utilities that participate in an RTO.
The characteristics for acceptable RTOs include independence from market
participants, operational control over a region of sufficient scope to support
efficient and nondiscriminatory markets, and exclusive authority to maintain
short-term reliability. The order requires each utility subject to the
jurisdiction of the FERC and not already in a FERC-approved RTO to make a
filing by October 15, 2000, that either proposes participation in an RTO that
will be in operation no later than December 15, 2001, or provides a status
report on the utility's progress towards participation in an RTO.
Because Order No. 2000 has just been issued, and may be revised in certain
respects, management cannot estimate its effect on future consolidated results
of operations or financial position.
Retail Competition. Currently, Electric Operations operates as a vertically
integrated, investor-owned utility with exclusive rights to supply electricity
in a franchised service territory--a 20,000-square-mile service territory in
the Carolinas. In its retail business, the NCUC and the PSCSC regulate Electric
Operations' service and rates.
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Electric industry restructuring is being addressed in all 50 states and in
the District of Columbia. These restructurings will likely impact all entities
owning electric generating assets. The NCUC and the PSCSC are studying the
merits of restructuring the electric utility industry in the Carolinas. During
1999, three electric utility restructuring bills were filed in South Carolina's
House of Representatives. All three bills would introduce competition while
allowing utilities to recover stranded costs, and have transition and phase-in
periods ranging from five to six years. A task force formed by the South
Carolina Senate is also examining issues related to deregulation of the state's
electric utility business. This task force will prepare a report for review,
discussion and possible legislative action by the state's Senate Judiciary
Committee and General Assembly as a whole.
In May 1997, North Carolina passed a bill that established a study commission
to examine whether competition should be implemented in the state. Members of
this commission include legislators, customers, utilities and a member of an
environmental group. The study commission expects to issue its report to the
General Assembly in 2000.
One of the significant issues the study commission must address is the
approximately $6 billion of debt issued by the two North Carolina municipal
agencies (North Carolina Municipal Power Agency Number 1 and the North Carolina
Eastern Municipal Agency). This debt is related to their joint ownership of
generation assets with Duke Energy and Carolina Power & Light (CP&L). The
municipal power agencies' member municipalities currently have electric rates
higher than either Duke Energy or CP&L and are facing significant rate
increases in the future to service the debt. As a result, the power agencies'
debt and electric rates are economic development issues for the 51 power agency
municipalities and, by extension, for the state as a whole.
On October 26 and 27, 1999, at the request of the study commission, four
proposals were submitted to resolve the municipal debt issue, one of which was
a joint Duke Energy-CP&L proposal. The study commission expects to include a
recommendation to resolve the municipal debt issue in its report to the General
Assembly in 2000.
More than a dozen bills on electric restructuring have been introduced in the
last session of Congress. On October 27, 1999 the U.S. House Commerce
Subcommittee on Energy and Power voted to move H.R. 2944, "The Electricity
Competition and Reliability Act," to the full Commerce Committee. The primary
restructuring issues addressed include repeal of major provisions of the Public
Utility Holding Company Act and the Public Utility Regulatory Policies Act,
reliability, transmission, nuclear decommissioning and state authority.
Currently, the electric utility industry is predominantly regulated on a
basis designed to recover the cost of providing electric power to customers. If
cost-based regulation were to be discontinued in the industry for any reason,
including competitive pressure on the cost-based prices of electricity, profits
could be reduced and electric utilities might be required to reduce their asset
balances to reflect a market basis less than cost. Discontinuance of cost-based
regulation would also require affected utilities to write off their associated
regulatory assets. Duke Energy's regulatory assets are included in the
Consolidated Balance Sheets. The portion of these regulatory assets related to
Electric Operations is approximately $1.4 billion, including primarily
purchased capacity costs, debt expense and deferred taxes related to regulatory
assets. Duke Energy is recovering substantially all of these regulatory assets
through its current wholesale and retail electric rates and would attempt to
continue to recover these assets during a transition to competition. In
addition, Duke Energy would seek to recover the costs of its electric
generating facilities in excess of the market price of power at the time of
transition.
Duke Energy supports a properly managed and orderly transition to competitive
generation and retail services in the electric industry. However, transforming
the current regulated industry into efficient, competitive generation and
retail electric markets is a complex undertaking, which will require a
carefully considered transition to a restructured electric industry. The key to
effective retail competition is fairness among customers, service providers and
investors. Duke Energy intends to continue to work with customers, legislators
and
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regulators to address all the important issues. Management currently cannot
predict the impact, if any, of these competitive forces on future consolidated
results of operations or financial position.
Natural Gas Competition. Wholesale Competition. On July 29, 1998, the FERC
issued a Notice of Proposed Rulemaking (NOPR) on short-term natural gas
transportation services, which proposed an integrated package of revisions to
its regulations governing interstate natural gas pipelines. "Short term" has
been defined in the NOPR as all transactions of less than one year. Under the
proposed approach, cost-based regulation would be eliminated for short-term
transportation and replaced by regulatory policies intended to maximize
competition in the short-term transportation market, mitigate the ability of
companies to exercise residual monopoly power and provide opportunities for
greater flexibility in providing pipeline services. The proposed changes
include initiatives to revise pipeline scheduling procedures, receipt and
delivery point policies and penalty policies, and require pipelines to auction
short-term capacity. Other proposed changes would improve the FERC's reporting
requirements, permit pipelines to negotiate rates and terms of services, and
revise certain rate and certificate policies that affect competition.
In conjunction with the NOPR, the FERC also issued a Notice of Inquiry (NOI)
on its pricing policies in the existing long-term market and pricing policies
for new capacity. The FERC seeks comments on whether its policies are biased
toward either short-term or long-term service, provide accurate price signals
and the right incentives for pipelines to provide optimal transportation
services and construct facilities that meet future demand and do not result in
over building and excess capacity. Comments on the NOPR and NOI were due in
April 1999. On September 15, 1999, the FERC issued a new policy statement on
certifying new interstate capacity in response to comments filed on the
certificate issues raised in the NOPR.
Because the ultimate resolution of these issues is unknown, management cannot
estimate the effects of these matters on future consolidated results of
operations or financial position.
Retail Competition. Changes in regulation to allow retail competition could
affect Duke Energy's natural gas transportation contracts with local gas
distribution companies. Natural gas retail deregulation is in the very early
stages of development and management cannot estimate the effects of this matter
on future consolidated results of operations or financial position.
Nuclear Decommissioning Costs. Duke Energy's estimated site-specific nuclear
decommissioning costs total approximately $1.9 billion stated in 1999 dollars
based on decommissioning studies completed in 1999. This estimate includes the
cost of decommissioning plant components not subject to radioactive
contamination. Duke Energy contributes to an external decommissioning trust
fund and maintains an internal reserve to fund these costs.
The balance of the external funds as of December 31, 1999 and 1998 was $703
million and $580 million, respectively. The balance of the internal reserve as
of December 31, 1999 and 1998 was $223 million and $217 million, respectively,
and is reflected in the Consolidated Balance Sheets as Accumulated Depreciation
and Amortization.
Both the NCUC and the PSCSC have granted Duke Energy recovery of estimated
decommissioning costs through retail rates over the expected remaining service
periods of its nuclear plants. Management believes that funding of the
decommissioning costs will not have a material adverse effect on consolidated
results of operations or financial position. See Note 11 to the Consolidated
Financial Statements for additional information.
As of December 31, 1999 and 1998, the external decommissioning trust fund was
invested primarily in domestic and international equity securities, fixed-rate,
fixed-income securities and cash and cash equivalents. Maintaining a portfolio
that includes long-term equity investments maximizes the returns to be utilized
to fund nuclear decommissioning, which in the long-term will better correlate
to inflationary increases in decommissioning costs. However, the equity
securities included in Duke Energy's portfolio are exposed to price
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fluctuations in equity markets, and the fixed-rate, fixed-income securities are
exposed to changes in interest rates.
Duke Energy actively monitors its portfolio by benchmarking the performance
of its investments against certain indexes and by maintaining, and periodically
reviewing, established target allocation percentages of the assets in its
trusts. Because the accounting for nuclear decommissioning recognizes that
costs are recovered through the Electric Operations segment's rates,
fluctuations in equity prices or interest rates do not affect consolidated
results of operations.
Environmental. Duke Energy is subject to international, federal, state and
local regulations regarding air and water quality, hazardous and solid waste
disposal and other environmental matters.
Manufactured Gas Plants and Superfund Sites. Duke Energy was an operator of
manufactured gas plants until the early 1950s and has entered into a
cooperative effort with the State of North Carolina and other owners of certain
former manufactured gas plant sites to investigate and, where necessary,
remediate these contaminated sites. The State of South Carolina has expressed
interest in entering into a similar arrangement. Duke Energy is considered by
regulators to be a potentially responsible party and may be subject to future
liability at seven federal Superfund sites and two state Superfund sites. While
the cost of remediation of the remaining sites may be substantial, Duke Energy
will share in any liability associated with remediation of contamination at
such sites with other potentially responsible parties. Management believes that
resolution of these matters will not have a material adverse effect on
consolidated results of operations or financial position.
PCB (Polychlorinated Biphenyl) Assessment and Clean-up Programs. In June
1999, the Environmental Protection Agency (EPA) certified that TETCO, a wholly
owned subsidiary of Duke Energy, had completed clean up of PCB contaminated
sites under conditions stipulated by a U.S. Consent Decree in 1989. TETCO is
required to continue groundwater monitoring on a number of sites for at least
the next two years. The estimated cost of such monitoring is not material.
Under terms of the agreement with CMS discussed in Note 2 to the Consolidated
Financial Statements, Duke Energy is obligated to complete clean-up of
previously identified contamination at certain agreed-upon sites on the PEPL
and Trunkline systems. These clean-up programs are expected to continue until
2001. The contamination resulted from the past use of lubricants containing
PCBs and the prior use of wastewater collection facilities and other on-site
disposal areas. Soil and sediment testing, to date, has detected no significant
off-site contamination. Duke Energy has communicated with the EPA and
appropriate state regulatory agencies on these matters.
At December 31, 1999 and 1998, remaining estimated clean-up costs on the
TETCO, PEPL and Trunkline systems were accrued and included in the Consolidated
Balance Sheets as Other Current Liabilities and Environmental Clean-up
Liabilities. These cost estimates represent gross clean-up costs expected to be
incurred, have not been discounted or reduced by customer recoveries and
generally do not include fines, penalties or third-party claims. Costs expected
to be recovered from customers have been deferred and are included in the
Consolidated Balance Sheets as Environmental Clean-up Costs.
The federal and state clean-up programs are not expected to interrupt or
diminish Duke Energy's ability to deliver natural gas to customers. Based on
Duke Energy's experience to date and costs incurred for clean-up operations,
management believes the resolution of matters relating to the environmental
issues discussed above will not have a material adverse effect on consolidated
results of operations or financial position.
Air Quality Control. The Clean Air Act Amendments of 1990 require a two-phase
reduction by electric utilities in aggregate annual emissions of sulfur dioxide
and nitrogen oxide by 2000. Duke Energy currently meets all requirements of
Phase I. Duke Energy supports the national objective of protecting air quality
in the most cost-effective manner, and has already reduced emissions by
operating plants efficiently, using nuclear and hydroelectric generation and
implementing various compliance strategies. To meet Phase II requirements by
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2000, Duke Energy's current strategy includes using low-sulfur coal,
purchasing sulfur dioxide emission allowances and installing low-nitrogen
oxide burners and emission monitoring equipment. Construction activities
needed to comply with Phase II requirements will be completed in the spring of
2000, allowing compliance with year 2000 Phase II requirements. Additional
annual operating expenses of approximately $25 million for low-sulfur coal
premiums, emission allowance purchases and other compliance activities will
occur after 2000. This strategy is contingent upon developments in future
markets for emission allowances, low-sulfur coal, future regulatory and
legislative actions and advances in clean air technologies.
In October 1998, the EPA issued a final ruling on regional ozone control
which requires revised State Implementation Plans for 22 eastern states and
the District of Columbia. This EPA ruling is being challenged in court by var-
ious states, industry and other interests, including the states of North Caro-
lina and South Carolina and Duke Energy. In May 1999, the court ordered that
no state need submit a plan "pending further order of the court." The EPA has
undertaken other ozone-related actions having virtually identical goals. These
actions have likewise been challenged by the same or similar parties. The res-
olution of the October 1998 action is expected to resolve these other ozone-
related actions as well. The North Carolina Environmental Management Commis-
sion is considering several competing proposals to reduce utility emissions of
nitrogen oxide. A proposed rule is anticipated in March 2000 with a final rule
in September 2000. Depending on the resolution of these matters, costs to Duke
Energy may range from approximately $100 million to $600 million for addi-
tional capital improvements.
In October 1999, the EPA sent Duke Energy a request seeking information on
Duke Power's repair and maintenance of its coal-fired plants since 1978. This
is part of the EPA's New Source Reviews (NSR) enforcement initiative, in which
the EPA claims that utilities and others have committed widespread violations
of the Clean Air Act permitting requirements for the past quarter century. In
November 1999, the EPA filed suit against seven utilities and issued an
administrative order to Tennessee Valley Authority alleging numerous NSR
permitting violations. The EPA's allegations run counter to previous EPA
guidance regarding the applicability of the NSR permitting requirements. Duke
Power, along with several other utilities, has routinely undertaken the type
of repair, replacement, and maintenance projects that the EPA now claims are
illegal. A suit has not been instituted against Duke Energy, and while it is
too early to predict any consequences, Duke Energy believes that all of its
electric generation units are properly permitted and have been properly
maintained. Because this matter is in its most preliminary stage with respect
to Duke Energy, management cannot estimate the effects of these matters on
future consolidated results of operations or financial position.
In December 1997, the United Nations held negotiations in Kyoto, Japan to
determine how to minimize global warming caused by, among other things, carbon
dioxide emissions from fossil-fired generating facilities and methane from
natural gas operations. Further negotiations in November 1998 resulted in a
work plan to complete the operational details of the Kyoto agreement by late
2000. If this initiative is adopted in its current form, it could have far
reaching implications to Duke Energy and the entire energy industry. Because
this matter is in the early stages of discussion, management cannot estimate
the effects on future consolidated results of operations or financial
position.
Litigation and Contingencies. For information concerning litigation and
other commitments and contingencies, see Note 14 to the Consolidated Financial
Statements.
Year 2000 Readiness Program. Duke Energy did not experience any disruption
to its operations resulting from the transition to the year 2000. Duke Energy
completed its year 2000 readiness program at all of its business units in
November 1999. Systems will continue to be monitored throughout the year, with
special attention given to the leap year transition. The total cost of the
program, including internal labor as well as incremental costs such as
consulting and contract costs, was approximately $58 million. These costs
exclude replacement systems that, in addition to being Year 2000 ready,
provided significantly enhanced capabilities which benefit operations in
future periods.
New Accounting Standard. In September 1998, Statement of Financial
Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. Duke Energy is required to
38
<PAGE>
adopt this standard by January 1, 2001. SFAS No. 133 requires that all
derivatives be recognized as either assets or liabilities and measured at fair
value, and it defines the accounting for changes in the fair value of the
derivatives depending on the intended use of the derivative. Duke Energy is
currently reviewing the expected impact of SFAS No. 133 on consolidated results
of operations and financial position.
Subsequent Events. On December 16, 1999, Duke Energy announced that it had
signed definitive agreements to combine Duke Energy's gas gathering and
processing businesses with Phillips Petroleum's Gas Processing and Marketing
unit to form a new midstream company. Under the terms of the agreements, the
new company will seek to arrange approximately $2.6 billion of debt financing
and, upon closing of the transaction, will make a one-time cash distribution of
$1.2 billion to both Duke Energy and Phillips Petroleum. At closing, Duke
Energy will own about 70% of the new company and Phillips Petroleum will own
about 30%. The new company would then offer approximately 20% of its equity to
the public in 2000 to reduce the debt resulting from the transaction. Such an
offering is conditional upon completion of the transaction and favorable market
conditions.
On January 4, 2000, Duke Energy announced that it had entered into a
definitive agreement to purchase, for $386 million, 100% of the stock of El
Paso Energy Corporation's wholly owned subsidiary, East Tennessee Natural Gas
Company, a 1,100-mile pipeline that crosses Duke Energy's TETCO pipeline and
serves the southeastern region of the U.S.
Both transactions are subject to regulatory approval and are expected to
close in the first quarter of 2000.
In January 2000, Duke Energy completed a tender offer to the minority
shareholders of Paranapanema and successfully acquired an additional 51%
economic interest in the company for approximately $280 million. This increased
Duke Energy's economic ownership from approximately 44% to approximately 95%.
Forward-Looking Statements. From time to time, Duke Energy's reports, filings
and other public announcements may include assumptions, projections,
expectations, intentions or beliefs about future events. These statements are
intended as "forward-looking statements" under the Private Securities
Litigation Reform Act of 1995. Duke Energy cautions that assumptions,
projections, expectations, intentions or beliefs about future events may and
often do vary from actual results and the differences between assumptions,
projections, expectations, intentions or beliefs and actual results can be
material. Accordingly, there can be no assurance that actual results will not
differ materially from those expressed or implied by the forward-looking
statements. Some of the factors that could cause actual achievements and events
to differ materially from those expressed or implied in such forward-looking
statements include state, federal and foreign legislative and regulatory
initiatives that affect cost and investment recovery, have an impact on rate
structures and affect the speed and degree to which competition enters the
electric and natural gas industries; industrial, commercial and residential
growth in the service territories of Duke Energy and its subsidiaries; the
weather and other natural phenomena; the timing and extent of changes in
commodity prices, interest rates and foreign currency exchange rates; changes
in environmental and other laws and regulations to which Duke Energy and its
subsidiaries are subject or other external factors over which Duke Energy has
no control; the results of financing efforts, including Duke Energy's ability
to obtain financing on favorable terms, which can be affected by Duke Energy's
credit rating and general economic conditions; growth in opportunities for Duke
Energy's business units; and the effect of accounting policies issued
periodically by accounting standard-setting bodies.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See "Management's Discussion and Analysis of Results of Operations" and
"Financial Condition, Quantitative and Qualitative Disclosures About Market
Risk."
39
<PAGE>
Item 8. Financial Statements and Supplementary Data.
DUKE ENERGY CORPORATION
Consolidated Statements Of Income And Comprehensive Income
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
In millions, except
per share amounts
<S> <C> <C> <C>
Operating Revenues
Sales, trading and
marketing of natural gas
and petroleum products
(Notes 1 and 7)........... $ 10,922 $ 7,854 $ 8,151
Generation, transmission
and distribution of
electricity (Notes 1 and
4)........................ 4,934 4,586 4,334
Trading and marketing of
electricity (Notes 1 and
7)........................ 3,610 2,788 1,665
Transportation and storage
of natural gas (Notes 1
and 4).................... 1,139 1,450 1,504
Other (Note 8)................ 1,137 932 655
-------- -------- --------
Total operating revenues... 21,742 17,610 16,309
-------- -------- --------
Operating Expenses
Natural gas and petroleum
products purchased (Note
1)........................ 10,636 7,497 7,705
Net interchange and
purchased power (Notes 1,
4 and 5).................. 3,507 2,916 1,960
Fuel used in electric
generation (Notes 1 and
11)....................... 764 767 743
Other operation and
maintenance (Notes 4, 11
and 14)................... 3,701 2,738 2,721
Depreciation and
amortization (Notes 1 and
5)........................ 968 909 841
Property and other taxes... 371 350 369
-------- -------- --------
Total operating expenses... 19,947 15,177 14,339
-------- -------- --------
Operating Income............ 1,795 2,433 1,970
-------- -------- --------
Other Income and Expenses
Deferred returns and
allowance for funds used
during construction (Note
1)........................ 82 88 109
Other, net................. 166 126 29
-------- -------- --------
Total other income and
expenses.................. 248 214 138
-------- -------- --------
Earnings Before Interest and
Taxes...................... 2,043 2,647 2,108
Interest Expense (Notes 7
and 10).................... 601 514 472
Minority Interests (Note
12)........................ 142 96 23
-------- -------- --------
Earnings Before Income
Taxes...................... 1,300 2,037 1,613
Income Taxes (Notes 1 and
6)......................... 453 777 639
-------- -------- --------
Income Before Extraordinary
Item....................... 847 1,260 974
Extraordinary Gain (Loss),
net of tax................. 660 (8) --
-------- -------- --------
Net Income.................. 1,507 1,252 974
-------- -------- --------
Dividends and Premiums on
Redemptions of Preferred
and Preference Stock (Note
13)........................ 20 21 72
-------- -------- --------
Earnings Available For
Common Stockholders........ 1,487 1,231 902
-------- -------- --------
Other Comprehensive Income,
net of tax
Foreign currency
translation adjustments
(Note 1).................. (2) -- --
-------- -------- --------
Total Comprehensive
Income.................... $ 1,485 $ 1,231 $ 902
======== ======== ========
Common Stock Data (Note 1)
Weighted average shares
outstanding............... 365 361 360
Earnings per share (before
extraordinary item)
Basic.................... $ 2.26 $ 3.43 $ 2.51
Dilutive................. $ 2.25 $ 3.42 $ 2.50
Earnings per share
Basic.................... $ 4.08 $ 3.41 $ 2.51
Dilutive................. $ 4.07 $ 3.40 $ 2.50
Dividends per share........ $ 2.20 $ 2.20 $ 1.90
</TABLE>
See Notes to Consolidated Financial Statements.
40
<PAGE>
DUKE ENERGY CORPORATION
Consolidated Statements Of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
In millions
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income...................................... $ 1,507 $ 1,252 $ 974
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 1,151 1,055 983
Extraordinary (gain) loss, net of tax......... (660) 8 --
Injuries and damages accrual.................. 800 -- --
Deferred income taxes......................... (210) (35) 99
Purchased capacity levelization............... 104 88 56
Transition cost recoveries (payments), net.... 95 (28) (36)
(Increase) decrease in
Receivables.................................. (659) (18) (266)
Inventory.................................... (89) (104) (7)
Other current assets......................... (138) (39) (18)
Increase (decrease) in
Accounts payable............................. 477 72 239
Taxes accrued................................ (57) (6) 50
Interest accrued............................. 32 (2) (13)
Other current liabilities.................... 73 84 15
Other, net.................................... 258 4 64
-------- -------- --------
Net cash provided by operating activities..... 2,684 2,331 2,140
-------- -------- --------
Cash Flows From Investing Activities
Capital and investment expenditures............. (5,936) (2,500) (2,028)
Proceeds from sale of subsidiaries.............. 1,900 -- --
Decommissioning, retirements and other.......... 236 24 34
-------- -------- --------
Net cash used in investing activities......... (3,800) (2,476) (1,994)
-------- -------- --------
Cash Flows From Financing Activities
Proceeds from the issuance of
Long-term debt................................ 3,221 1,357 1,618
Guaranteed preferred beneficial interests in
subordinated notes of Duke Energy Corporation
or Subsidiaries.............................. 484 581 339
Common stock and stock options................ 162 176 15
Payments for the redemption of
Long-term debt................................ (1,505) (698) (869)
Common stock.................................. -- -- (25)
Preferred and preference stock................ (20) (180) (224)
Net change in notes payable and commercial
paper.......................................... 58 (350) (290)
Dividends paid.................................. (822) (814) (726)
Other........................................... 22 6 (41)
-------- -------- --------
Net cash provided by (used in) financing
activities................................... 1,600 78 (203)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... 484 (67) (57)
Cash received from business acquisitions........ 49 38 --
Cash and cash equivalents at beginning of year.. 80 109 166
-------- -------- --------
Cash and cash equivalents at end of year........ $ 613 $ 80 $ 109
======== ======== ========
Supplemental Disclosures
Cash paid for interest, net of amount
capitalized.................................... $ 541 $ 490 $ 476
Cash paid for income taxes...................... $ 732 $ 733 $ 470
</TABLE>
See Notes to Consolidated Financial Statements.
41
<PAGE>
DUKE ENERGY CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
In millions
<S> <C> <C>
ASSETS
Current Assets (Note 1)
Cash and cash equivalents (Note 7)............................ $ 613 $ 80
Receivables (Note 7).......................................... 3,248 2,318
Inventory..................................................... 599 543
Current portion of natural gas transition costs (Note 4)...... 81 100
Current portion of purchased capacity costs (Note 5).......... 146 99
Unrealized gains on mark-to-market transactions (Note 7)...... 1,131 1,457
Other (Note 7)................................................ 353 246
------- -------
Total current assets........................................ 6,171 4,843
------- -------
Investments and Other Assets
Investments in affiliates (Notes 8 and 14).................... 1,299 902
Nuclear decommissioning trust funds (Note 11)................. 703 580
Pre-funded pension costs (Note 17)............................ 315 332
Goodwill, net (Notes 1 and 2)................................. 844 495
Notes receivable.............................................. 154 244
Unrealized gains on mark-to-market transactions (Notes 1 and
7)........................................................... 690 396
Other......................................................... 705 283
------- -------
Total investments and other assets.......................... 4,710 3,232
------- -------
Property, Plant and Equipment (Notes 1, 5, 9, 10 and 11)
Cost.......................................................... 30,436 27,128
Less accumulated depreciation and amortization................ 9,441 10,253
------- -------
Net property, plant and equipment........................... 20,995 16,875
------- -------
Regulatory Assets and Deferred Debits (Note 1)
Purchased capacity costs (Note 5)............................. 497 648
Debt expense.................................................. 223 253
Regulatory asset related to income taxes...................... 500 506
Natural gas transition costs (Note 4)......................... 4 80
Environmental clean-up costs (Note 14)........................ 27 69
Other......................................................... 282 300
------- -------
Total regulatory assets and deferred debits................. 1,533 1,856
------- -------
Total Assets................................................... $33,409 $26,806
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
42
<PAGE>
DUKE ENERGY CORPORATION
Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
In millions
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable............................................. $ 2,312 $ 1,754
Notes payable and commercial paper (Notes 7 and 10).......... 267 209
Taxes accrued (Note 1)....................................... 685 119
Interest accrued............................................. 139 109
Current maturities of long-term debt and preferred stock
(Notes 10 and 13)........................................... 515 707
Unrealized losses on mark-to-market transactions (Notes 1 and
7).......................................................... 1,241 1,387
Other (Notes 1 and 14)....................................... 717 670
------- -------
Total current liabilities.................................. 5,876 4,955
------- -------
Long-term Debt (Notes 7 and 10)............................... 8,683 6,272
------- -------
Deferred Credits and Other Liabilities (Note 1)
Deferred income taxes (Note 6)............................... 3,402 3,705
Investment tax credit (Note 6)............................... 225 242
Nuclear decommissioning costs externally funded (Note 11).... 703 580
Environmental clean-up liabilities (Note 14)................. 101 148
Unrealized losses on mark-to-market transactions (Note 7).... 438 362
Other (Note 14).............................................. 2,099 907
------- -------
Total deferred credits and other liabilities............... 6,968 5,944
------- -------
Minority Interests (Note 2)................................... 1,200 253
------- -------
Guaranteed Preferred Beneficial Interests in Subordinated
Notes of Duke Energy Corporation or Subsidiaries (Notes 7 and
12)......................................................... 1,404 919
------- -------
Preferred and Preference Stock (Notes 7 and 13)
Preferred and preference stock with sinking fund
requirements................................................ 71 104
Preferred and preference stock without sinking fund
requirements................................................ 209 209
------- -------
Total preferred and preference stock....................... 280 313
------- -------
Commitments and Contingencies (Notes 5, 11 and 14)
Common Stockholders' Equity (Notes 15 and 16)
Common stock, no par, 1 billion shares authorized; 366
million and 363 million shares outstanding at December 31,
1999 and 1998, respectively................................. 4,603 4,449
Retained earnings............................................ 4,397 3,701
Accumulated other comprehensive income....................... (2) --
------- -------
Total common stockholders' equity.......................... 8,998 8,150
------- -------
Total Liabilities and Stockholders' Equity.................... $33,409 $26,806
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
43
<PAGE>
DUKE ENERGY CORPORATION
Consolidated Statements Of Common Stockholders' Equity
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
In millions
<S> <C> <C> <C>
Common Stock
Balance at beginning of year................... $ 4,449 $ 4,284 $ 4,289
Dividend reinvestment and employee benefits.... 154 165 (9)
Other capital stock transactions, net.......... -- -- 4
-------- -------- --------
Balance at end of year....................... 4,603 4,449 4,284
-------- -------- --------
Retained Earnings
Balance at beginning of year................... 3,701 3,256 3,052
Net income..................................... 1,507 1,252 974
Common stock dividends......................... (802) (794) (682)
Preferred and preference stock dividends and
premiums on redemptions (Note 13)............. (20) (21) (72)
Other capital stock transactions, net.......... 11 8 (16)
-------- -------- --------
Balance at end of year....................... 4,397 3,701 3,256
-------- -------- --------
Accumulated Other Comprehensive Income
Balance at beginning of year................... -- -- --
Foreign currency translation adjustments (Note
1)............................................ (2) -- --
-------- -------- --------
Balance at end of year....................... (2) -- --
-------- -------- --------
Total Common Stockholders' Equity................ $ 8,998 $ 8,150 $ 7,540
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
44
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1999, 1998 and 1997
1. Summary of Significant Accounting Policies
Consolidation. The consolidated financial statements include the accounts of
all of Duke Energy Corporation's majority-owned subsidiaries after the
elimination of significant intercompany transactions and balances. Investments
in other entities that are not controlled by Duke Energy Corporation, but where
it has significant influence over operations, are accounted for using the
equity method.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Although these estimates are based on management's knowledge of current
and expected future events, actual results could differ from those estimates.
"Duke Energy" is used in these Notes as a collective reference to Duke Energy
Corporation and its subsidiaries.
Cash and Cash Equivalents. All liquid investments with maturities at date of
purchase of three months or less are considered cash equivalents.
Inventory. Inventory consists primarily of materials and supplies, gas held
for transmission, processing and sales commitments, and coal held for electric
generation. Inventory is recorded at the lower of cost or market, primarily
using the average cost method.
Accounting for Risk Management and Commodity Trading Activities. Duke Energy,
primarily through its subsidiaries, manages its exposure to risk from existing
contractual commitments and provides risk management services to its customers
and suppliers through commodity derivatives, including forward contracts,
futures, over-the-counter swap agreements and options.
Commodity derivatives utilized for trading purposes are accounted for using
the mark-to-market method. Under this methodology, these instruments are
adjusted to market value, and the unrealized gains and losses are recognized in
current period income and are included in the Consolidated Statements of Income
and Comprehensive Income as Natural Gas and Petroleum Products Purchased or Net
Interchange and Purchased Power, and in the Consolidated Balance Sheets as
Unrealized Gains or Losses on Mark-to-Market Transactions.
Commodity derivatives such as futures, forwards, over-the-counter swap
agreements and options are also utilized for non-trading purposes to hedge the
impact of market fluctuations in the price of natural gas, electricity and
other energy-related products. To qualify as a hedge, the price movements in
the commodity derivatives must be highly correlated with the underlying hedged
commodity. Under the deferral method of accounting, gains and losses related to
commodity derivatives which qualify as hedges are recognized in income when the
underlying hedged physical transaction closes and are included in the
Consolidated Statements of Income and Comprehensive Income as Natural Gas and
Petroleum Products Purchased, or Net Interchange and Purchased Power. If the
commodity derivative is no longer sufficiently correlated to the underlying
commodity, or if the underlying commodity transaction closes earlier than
anticipated, the deferred gains or losses are recognized in income.
Duke Energy periodically uses interest rate swaps, accounted for under the
accrual method, to manage the interest rate characteristics associated with
outstanding debt. Interest rate differentials to be paid or received as
interest rates change are accrued and recognized as an adjustment to interest
expense. The amount accrued as either a payable to or receivable from
counterparties is included in the Consolidated Balance Sheets as Regulatory
Assets and Deferred Debits.
45
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
1. Summary of Significant Accounting Policies -- Continued
Duke Energy also periodically utilizes interest rate lock agreements to hedge
interest rate risk associated with new debt issuances. Under the deferral
method of accounting, gains or losses on such agreements, when settled, are
deferred in the Consolidated Balance Sheets as Long-term Debt and are amortized
in the Consolidated Statements of Income and Comprehensive Income as an
adjustment to interest expense.
Duke Energy is exposed to foreign currency risk from investments in
international affiliates and businesses owned and operated in foreign
countries. To mitigate risks associated with foreign currency fluctuations,
when possible, contracts are denominated in or indexed to the U.S. dollar or
may be hedged through debt denominated in the foreign currency. Duke Energy
also uses foreign currency derivatives, where possible, to hedge its risk
related to foreign currency fluctuations. To qualify as a hedge, there must be
a high degree of correlation between price movements in the derivative and the
item designated as being hedged. These derivatives are accounted for under the
deferral method previously described under commodity derivatives used for non-
trading purposes.
Duke Energy also enters into foreign currency swap agreements to manage
foreign currency risks associated with energy contracts denominated in foreign
currencies. These agreements are accounted for under the mark-to-market method
previously described.
Goodwill. Goodwill represents the excess of acquisition costs over the fair
value of the net assets of an acquired business. The goodwill created by Duke
Energy's acquisitions is amortized on a straight-line basis over the useful
lives of the assets, ranging from 10 to 40 years. The amount of goodwill
reported on the Consolidated Balance Sheets as of December 31, 1999 and 1998,
respectively, was $844 million and $495 million, net of accumulated
amortization of $218 million and $166 million. See Note 2 to the Consolidated
Financial Statements for information on significant goodwill additions.
Property, Plant and Equipment. Property, plant and equipment are stated at
original cost. Duke Energy capitalizes all construction-related direct labor
and material costs, as well as indirect construction costs. Indirect costs
include general engineering, taxes and the cost of money. The cost of renewals
and betterments that extend the useful life of property, plant and equipment is
also capitalized. The cost of repairs and replacements is charged to expense as
incurred. Depreciation is generally computed using the straight-line method.
The composite weighted-average depreciation rates, excluding nuclear fuel, were
3.73%, 3.82% and 3.67% for 1999, 1998 and 1997, respectively.
When property, plant and equipment maintained by Duke Energy's regulated
operations are retired, the original cost plus the cost of retirement, less
salvage, is charged to accumulated depreciation and amortization. When entire
regulated operating units are sold or non-regulated properties are retired or
sold, the property and related accumulated depreciation and amortization
accounts are reduced, and any gain or loss is recorded in income, unless
otherwise required by the Federal Energy Regulatory Commission (FERC).
Impairment of Long-Lived Assets. The recoverability of long-lived assets and
intangible assets are reviewed whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. Such
evaluation is based on various analyses, including undiscounted cash flow
projections.
Unamortized Debt Premium, Discount and Expense. Premiums, discounts and
expenses incurred in connection with the issuance of presently outstanding
long-term debt are amortized over the terms of the respective issues. Any call
premiums or unamortized expenses associated with refinancing higher-cost debt
obligations used to finance regulated assets and operations are amortized
consistent with regulatory treatment of those items.
Environmental Expenditures. Environmental expenditures that relate to an
existing condition caused by past operations and do not contribute to current
or future revenue generation are expensed. Environmental
46
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
1. Summary of Significant Accounting Policies -- Continued
expenditures relating to current or future revenues are expensed or capitalized
as appropriate. Liabilities are recorded when environmental assessments and/or
clean-ups are probable and the costs can be reasonably estimated. Certain of
these environmental assessments and clean-up costs are expected to be recovered
from Natural Gas Transmission customers and have, therefore, been deferred and
are included in the Consolidated Balance Sheets as Environmental Clean-up
Costs.
Cost-Based Regulation. Duke Energy's regulated operations are subject to the
provisions of Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation." Accordingly,
certain assets and liabilities that result from the regulated ratemaking
process are recorded that would not be recorded under generally accepted
accounting principles for non-regulated entities. These regulatory assets and
liabilities are classified in the Consolidated Balance Sheets as Regulatory
Assets and Deferred Debits, and Deferred Credits and Other Liabilities,
respectively. The applicability of SFAS No. 71 is routinely evaluated, and
factors such as regulatory changes and the impact of competition are
considered. Discontinuing cost-based regulation or increasing competition might
require companies to reduce their asset balances to reflect a market basis less
than cost and to write off their associated regulatory assets. Management
cannot predict the potential impact, if any, of discontinuing cost-based
regulation or increasing competition on future financial position or
consolidated results of operations. However, Duke Energy continues to position
itself to effectively meet these challenges by maintaining competitive prices.
Common Stock Options. Duke Energy accounts for stock-based compensation using
the intrinsic method of accounting. Under this method, compensation cost, if
any, is measured as the excess of the quoted market price of Duke Energy's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. Restricted stock is recorded as compensation cost over the requisite
vesting period based on the market value on the date of the grant. Pro forma
disclosures utilizing the fair value accounting method are included in Note 16
to the Consolidated Financial Statements.
Revenues. Revenues on sales of electricity and transportation and storage of
natural gas are recognized as service is provided. Revenues on sales of natural
gas and petroleum products, as well as electricity, gas and other energy
products marketed, are recognized in the period of delivery. Receivables on the
Consolidated Balance Sheets included $207 million and $193 million as of
December 31, 1999 and 1998, respectively, for electric service that has been
provided but not yet billed to customers. When rate cases are pending final
approval, a portion of the revenues is subject to possible refund. Reserves are
established where required for such cases.
Nuclear Fuel. Amortization of nuclear fuel is included in the Consolidated
Statements of Income and Comprehensive Income as Fuel Used in Electric
Generation. The amortization is recorded using the units-of-production method.
Deferred Returns and Allowance for Funds Used During Construction (AFUDC).
Deferred returns represent the estimated financing costs associated with
funding certain regulatory assets. These regulatory assets primarily arose from
the funding of purchased capacity costs above levels collected in rates.
Deferred returns are non-cash items and are primarily recognized as an addition
to Purchased Capacity Costs with an offsetting credit to Other Income and
Expenses.
AFUDC represents the estimated debt and equity costs of capital funds
necessary to finance the construction of new regulated facilities. AFUDC is a
non-cash item and is recognized as a cost of Property, Plant and Equipment,
with offsetting credits to Other Income and Expenses and to Interest Expense.
After construction is completed, Duke Energy is permitted to recover these
costs, including a fair return, through their inclusion in rate base and in the
provision for depreciation.
47
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
1. Summary of Significant Accounting Policies -- Continued
Rates used for capitalization of deferred returns and AFUDC by Duke Energy's
regulated operations are calculated in compliance with FERC rules.
Foreign Currency Translation. Assets and liabilities of Duke Energy's
international operations, where the local currency is the functional currency,
have been translated at year-end exchange rates, and revenues and expenses have
been translated using average exchange rates prevailing during the year.
Adjustments resulting from translation are included in the Consolidated
Statements of Income and Comprehensive Income as Foreign Currency Translation
Adjustments. The financial statements of international operations, where the
U.S. dollar is the functional currency, reflect certain transactions
denominated in the local currency that have been remeasured in U.S. dollars.
The remeasurement of local currencies into U.S. dollars creates gains and
losses from foreign currency transactions that are included in consolidated net
income.
Income Taxes. Duke Energy and its subsidiaries file a consolidated federal
income tax return. Deferred income taxes have been provided for temporary
differences. Temporary differences occur when events and transactions
recognized for financial reporting result in taxable or tax-deductible amounts
in different periods. Investment tax credits have been deferred and are being
amortized over the estimated useful lives of the related properties.
Earnings Per Common Share. Basic earnings per share is based on a simple
weighted average of common shares outstanding. Dilutive earnings per share
reflects the potential dilution that could occur if securities or other
agreements to issue common stock, such as stock options, were exercised or
converted into common stock. The numerator for the calculation of basic and
dilutive earnings per share is earnings available for common stockholders.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
In millions
<S> <C> <C> <C>
Denominator for Earnings per Share
Denominator for basic earnings per share (weighted average
shares outstanding)....................................... 365 361 360
Assumed exercise of dilutive stock options................. (a) 1 2
--- --- ---
Denominator for dilutive earnings per share................ 365 362 362
=== === ===
</TABLE>
--------
(a) While Duke Energy had dilutive stock options as of December 31,
1999, the amount did not round to one million.
Extraordinary Items. In 1999, Duke Energy realized an extraordinary gain of
$660 million, or $1.82 per share, relating to the sale of certain pipeline
companies. See Note 2 to the Consolidated Financial Statements for additional
information on the extraordinary item.
In January 1998, TEPPCO Partners, L.P. (TEPPCO), in which a subsidiary of
Duke Energy has a 2% general partner interest and a 19.1% limited partner
interest, redeemed certain First Mortgage Notes. A non-cash extraordinary loss
of $8 million, net of income tax of $5 million, was recorded related to costs
of the early retirement of debt. Earnings per common share for 1998 were
reduced by $0.02 as a result of this charge.
New Accounting Standard. In September 1998, SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued. Duke Energy is
required to adopt this standard by January 1, 2001. SFAS No. 133 requires that
all derivatives be recognized as either assets or liabilities and measured at
fair value, and it defines the accounting for changes in the fair value of the
derivatives depending on the intended use of the
48
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
1. Summary of Significant Accounting Policies -- Continued
derivative. Duke Energy is currently reviewing the expected impact of SFAS No.
133 on consolidated results of operations and financial position.
Reclassifications. Certain amounts have been reclassified in the Consolidated
Financial Statements to conform to the current presentation.
2. Business Combinations, Acquisitions and Dispositions
Business Combinations: PanEnergy Corp (PanEnergy). On June 18, 1997, Duke
Power Company (Duke Power) changed its name to Duke Energy Corporation and
completed a stock-for-stock merger with PanEnergy (the merger). PanEnergy was
involved in the gathering, processing, transportation and storage of natural
gas; the production of natural gas liquids (NGLs); and the marketing of natural
gas, electricity and other energy-related products. Pursuant to the merger
agreement, Duke Energy issued 158.3 million shares of its common stock in
exchange for all of the outstanding common stock of PanEnergy. Accordingly,
each share of PanEnergy common stock outstanding was converted into the right
to receive 1.0444 shares of Duke Energy's common stock. In addition, each
outstanding option to purchase PanEnergy common stock became an option to
purchase common stock of Duke Energy, adjusted accordingly. The merger was
accounted for as a pooling of interests; therefore, the Consolidated Financial
Statements and other financial information included in this Annual Report for
periods prior to the merger include the combined historical financial results
of Duke Power and PanEnergy.
Business Acquisitions: For acquisitions accounted for using the purchase
method, assets and liabilities have been consolidated as of the purchase date
and earnings from the acquisitions have been included in consolidated earnings
of Duke Energy subsequent to the purchase date. Assets acquired and liabilities
assumed are recorded at their estimated fair values, and the excess of the
purchase price over the estimated fair value of the net identifiable assets and
liabilities acquired are recorded as goodwill.
Dominion Resources' Hydroelectric, Natural Gas and Diesel Power Generation
Businesses. In August 1999, Duke Energy, through its wholly owned subsidiary,
Duke Energy International, LLC (Duke Energy International) reached a definitive
agreement with Dominion Resources, Inc. (Dominion Resources) to acquire its
portfolio of hydroelectric, natural gas and diesel power generation businesses
in Argentina, Belize, Bolivia and Peru for approximately $405 million. In
October 1999, Duke Energy International completed the purchase of the
businesses in Belize and Peru from Dominion Resources, as well as acquired
additional ownership interests in the Peru business (Egenor) from two other
parties for $152 million in cash and certain other ownership interests in South
America. The purchase increased Duke Energy International's ownership in Egenor
from approximately 30% to 90%. The completion of the purchases in Argentina and
Bolivia are subject to receiving appropriate governmental consents and
approvals and are expected to close by mid-2000.
Assets and liabilities of the Belize and Peru businesses have been recorded
at preliminary fair values along with goodwill of $74 million which is being
amortized on a straight-line basis over 35 to 40 years. The final purchase
price allocation and estimated life of goodwill are subject to adjustment when
additional information concerning asset and liability valuations is finalized
and the evaluation of certain pre-acquisition contingent liabilities has been
completed.
Companhia de Geracao de Energia Eletrica Paranapanema (Paranapanema). In
August 1999, Duke Energy International entered a series of transactions to
complete a $761 million purchase of a controlling voting interest and an
approximate 44% economic interest in Paranapanema, an electric generating
company in
49
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
2. Business Combinations, Acquisitions and Dispositions -- Continued
Brazil. Assets and liabilities have been recorded at preliminary fair values
along with goodwill of $134 million which is being amortized on a straight-line
basis over 40 years. The final purchase price allocation and estimated life of
goodwill are subject to adjustment when additional information concerning asset
and liability valuations is finalized and the evaluation of certain pre-
acquisition contingent liabilities has been completed.
In January 2000, Duke Energy completed a tender offer to the minority
shareholders of Paranapanema and successfully acquired an additional 51%
economic interest in the company for approximately $280 million. This increased
Duke Energy's economic ownership from approximately 44% to approximately 95%.
See Note 19 to the Consolidated Financial Statements.
Union Pacific Resources' Gathering, Processing and Marketing Operations. On
March 31, 1999, Duke Energy through its wholly owned subsidiary, Duke Energy
Field Services, Inc., completed the $1.35 billion acquisition of the natural
gas gathering, processing, fractionation and NGL pipeline business from Union
Pacific Resources (UPR), as well as UPR's NGL marketing activities
(collectively, "the UPR acquisition"). Goodwill of $135 million has been
recorded and is being amortized on a straight-line basis over 15 to 20 years.
The final purchase price allocation and estimated life of goodwill are subject
to adjustment pending additional information concerning asset and liability
valuations and the evaluation of certain pre-acquisition contingent
liabilities.
Dispositions: PEPL Companies and Trunkline LNG. On March 29, 1999, wholly
owned subsidiaries of Duke Energy sold Panhandle Eastern Pipe Line Company
(PEPL), Trunkline Gas Company and additional storage related to those systems
(collectively, the PEPL Companies), which substantially comprised the Midwest
Pipelines, along with Trunkline LNG Company (Trunkline LNG) to CMS Energy
Corporation (CMS). The sales price of $2.2 billion involved cash proceeds of
$1.9 billion and CMS' assumption of existing PEPL debt of approximately $300
million. The sale resulted in an extraordinary gain of $660 million, net of
income tax of $404 million, and an increase in earnings per basic share of
$1.82. Under the terms of the agreement with CMS, Duke Energy retained certain
assets and liabilities, such as the Houston office building, certain
environmental, legal and tax liabilities, and substantially all intercompany
balances. Management believes that the retention of these items will not have a
material adverse effect on consolidated results of operations or financial
position.
Combined Operating Results of the PEPL Companies and Trunkline LNG for the
Period from January 1, 1999 through March 28, 1999 (a)
<TABLE>
<CAPTION>
In millions
<S> <C>
Operating Revenues............................................... $126
Operating Expenses............................................... 57
Other Income, Net................................................ 4
----
Earnings Before Interest and Taxes.............................. $ 73
====
</TABLE>
--------
(a) Excludes intercompany building rental revenue, allocated corporate
expenses, building depreciation and certain other costs retained
by Duke Energy.
The pro forma results of operations for acquisitions and dispositions do not
materially differ from reported results.
50
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
3. Business Segments
Duke Energy is an integrated energy and energy services provider with the
ability to offer physical delivery and management of both electricity and
natural gas throughout the U.S. and abroad. Duke Energy provides these and
other services through seven business segments:
. Electric Operations
. Natural Gas Transmission
. Field Services
. Trading and Marketing
. Global Asset Development
. Other Energy Services
. Real Estate Operations
Electric Operations generates, transmits, distributes and sells electric
energy in central and western North Carolina and the western portion of South
Carolina (doing business as Duke Power or Nantahala Power and Light). These
electric operations are subject to the rules and regulations of the FERC, the
North Carolina Utilities Commission (NCUC) and the Public Service Commission of
South Carolina (PSCSC).
Natural Gas Transmission provides interstate transportation and storage of
natural gas for customers primarily in the Mid-Atlantic and New England states.
Until the sale of the Midwest Pipelines on March 29, 1999, Natural Gas
Transmission also provided interstate transportation and storage services in
the midwest states. See further discussion of the sale of the Midwest Pipelines
in Note 2 to the Consolidated Financial Statements. The interstate natural gas
transmission and storage operations are subject to the rules and regulations of
the FERC.
Field Services gathers, processes, transports and markets natural gas and
produces, transports and markets NGLs. Field Services operates gathering
systems in western Canada and ten contiguous states that serve major gas-
producing regions in the Rocky Mountain, Permian Basin, Mid-Continent and
onshore and offshore Gulf Coast areas.
Trading and Marketing markets natural gas, electricity and other energy-
related products across North America. Duke Energy owns a 60% interest in
Trading and Marketing's energy trading operations, with Mobil Corporation
owning a 40% minority interest. This segment also includes certain other
trading activities and limited hydrocarbon exploration and production
activities that are wholly owned by Duke Energy.
Global Asset Development develops, owns and operates energy-related
facilities worldwide. Global Asset Development conducts its operations
primarily through Duke Energy North America, LLC (Duke Energy North America)
and Duke Energy International.
Other Energy Services provides engineering, consulting, construction and
integrated energy solutions worldwide, primarily through Duke Engineering &
Services, Inc., Duke/Fluor Daniel and DukeSolutions, Inc.
Real Estate Operations conducts its business through Crescent Resources,
Inc., which develops high quality commercial and residential real estate
projects and manages land holdings in the southeastern U.S.
Duke Energy's reportable segments are strategic business units that offer
different products and services and are each managed separately. The accounting
policies for the segments are the same as those described in Note 1 to the
Consolidated Financial Statements. Management evaluates segment performance
based on earnings before interest and taxes (EBIT) after deducting minority
interests. EBIT presented in the accompanying table includes intersegment sales
accounted for at prices representative of unaffiliated party
51
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
3. Business Segments -- Continued
transactions. Segment assets are provided as additional information in the
accompanying table and are net of intercompany advances, intercompany notes
receivable and investments in subsidiaries.
Other Operations primarily includes communication services, water services
and certain unallocated corporate items.
Business Segment Data
<TABLE>
<CAPTION>
Depreciation Capital and
Unaffiliated Intersegment Total and Investment Segment
Revenues Revenues Revenues EBIT Amortization Expenditures Assets
------------ ------------ -------- ------- ------------ ------------ -------
In millions
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31,
1999
Electric Operations..... $ 4,700 $ -- $ 4,700 $ 856 $542 $ 759 $13,133
Natural Gas
Transmission........... 1,100 106 1,206 627 126 261 3,897
Field Services.......... 2,883 707 3,590 144 131 1,630 3,565
Trading and Marketing... 11,334 459 11,793 70 12 104 4,060
Global Asset
Development............ 612 165 777 181 104 2,703 6,673
Other Energy Services... 886 103 989 (94) 14 94 612
Real Estate Operations.. 233 -- 233 176 9 368 983
Other Operations........ (6) 44 38 (9) 30 17 1,298
Eliminations and
Minority Interests..... -- (1,584) (1,584) 92 -- -- (812)
------- ------- ------- ------- ---- ------ -------
Total Consolidated.... $21,742 $ -- $21,742 $ 2,043 $968 $5,936 $33,409
======= ======= ======= ======= ==== ====== =======
Year Ended December 31,
1998
Electric Operations..... $ 4,626 $ -- $ 4,626 $ 1,513 $522 $ 586 $12,953
Natural Gas
Transmission........... 1,426 102 1,528 702 215 290 4,996
Field Services.......... 2,094 545 2,639 76 80 304 1,893
Trading and Marketing... 8,614 171 8,785 81 11 8 3,233
Global Asset
Development............ 237 82 319 64 31 1,027 2,061
Other Energy Services... 436 85 521 10 12 41 376
Real Estate Operations.. 181 -- 181 142 6 217 724
Other Operations........ (4) 26 22 2 32 27 968
Eliminations and
Minority Interests..... -- (1,011) (1,011) 57 -- -- (398)
------- ------- ------- ------- ---- ------ -------
Total Consolidated.... $17,610 $ -- $17,610 $ 2,647 $909 $2,500 $26,806
======= ======= ======= ======= ==== ====== =======
Year Ended December 31,
1997
Electric Operations..... $ 4,401 $ -- $ 4,401 $ 1,282 $498 $ 743 $12,958
Natural Gas
Transmission........... 1,468 104 1,572 624 229 247 5,059
Field Services.......... 2,481 574 3,055 157 71 157 1,855
Trading and Marketing... 7,411 78 7,489 23 7 18 1,857
Global Asset
Development............ 109 14 123 4 9 348 988
Other Energy Services... 343 33 376 18 6 47 223
Real Estate Operations.. 124 -- 124 98 4 223 594
Other Operations........ (28) -- (28) (120) 17 245 941
Eliminations and
Minority Interests..... -- (803) (803) 22 -- -- (446)
------- ------- ------- ------- ---- ------ -------
Total Consolidated.... $16,309 $ -- $16,309 $ 2,108 $841 $2,028 $24,029
======= ======= ======= ======= ==== ====== =======
</TABLE>
52
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
3. Business Segments -- Continued
In 1999, foreign operations consisted of 10% of consolidated revenues and 15%
of consolidated long-lived assets, primarily in Canada and Latin America.
Foreign operations were not material for 1998 and 1997.
4. Regulatory Matters
Electric Operations. The NCUC and the PSCSC approve rates for retail electric
sales within their respective states. The FERC approves Electric Operations'
rates for electric sales to wholesale customers. Electric sales to the other
joint owners of the Catawba Nuclear Station, which represent a majority of
Electric Operations' electric wholesale revenues, are set through contractual
agreements.
In 1997, in conjunction with its merger with PanEnergy, Duke Energy agreed to
cap the base electric rates for retail customers at existing levels through
2000, with very limited exceptions. Duke Energy also agreed to freeze rates,
except for the market-based rates, for transmission and wholesale electric
sales. In addition, Duke Energy agreed to a cap on the rates charged to the
other joint owners of Catawba Nuclear Station under the interconnection
agreements and on the reimbursement of certain costs related to administration
and general expenses and general plant costs under operation and fuel
agreements. Management believes that these agreements will not have a material
adverse effect on consolidated results of operations or financial position.
Fuel costs are reviewed semiannually in the wholesale jurisdiction and
annually in the South Carolina retail jurisdiction, with provisions for
reviewing such costs in base rates. In the North Carolina retail jurisdiction,
a review of fuel costs in rates is required annually and during general rate
case proceedings. All jurisdictions allow Duke Energy to adjust electric rates
for past over- or under-recovery of fuel costs. Therefore, the difference
between actual fuel costs incurred for electric operations and fuel costs
recovered through rates is reflected in revenues. The stipulation agreements
related to the merger do not apply to the fuel cost adjustments.
Certain of Electric Operations' electric wholesale customers, excluding the
other Catawba Nuclear Station joint owners, initiated proceedings in 1995
before the FERC concerning rate-related matters. Duke Energy and nine of its
eleven wholesale customers entered into a settlement in July 1996 which reduced
the customers' electric rates by approximately 9%. These contracts will be in
effect through 2001, subject to annual renewals thereafter. Both of the
customers that did not enter into the settlement signed agreements and began
purchasing electricity from other suppliers in 1997. Management believes that
these agreements will not have a material adverse impact on consolidated
results of operations or financial position.
In December 1997, Duke Energy filed applications with the FERC, NCUC and
PSCSC for authority to combine Nantahala Power and Light (a wholly owned
subsidiary) and Duke Power. Duke Energy received the necessary approvals in
June, April and February 1998, respectively. Nantahala Power and Light began
operations as a division of Duke Power effective August 3, 1998.
On December 20, 1999, the FERC issued Order 2000, which encourages
transmission owners to voluntarily join Regional Transmission Organizations
(RTOs) to increase access to the nation's power grid. All public utilities that
own, operate, or control interstate electric transmission are required to file
with the FERC by October 15, 2000. This filing must describe the company's
proposal to join an RTO, including a description of efforts to participate,
reasons for not participating, plans for further work towards participation
and/or any obstacles in participation. All RTOs are to be operational by
December 15, 2001.
Natural Gas Transmission. Duke Energy's interstate natural gas pipelines
primarily provide transportation and storage services pursuant to FERC Order
636. Order 636 allows pipelines to recover eligible
53
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
4. Regulatory Matters -- Continued
costs resulting from implementation of the order (transition costs). In 1994,
the FERC approved Texas Eastern Transmission Corporation's (TETCO) settlement
resolving regulatory issues related primarily to Order 636 transition costs and
a number of other issues related to services prior to Order 636. Under the 1994
settlement, TETCO's liability for transition costs was estimated based on the
amount of producers' natural gas reserves and other factors. In 1998, TETCO
favorably resolved all remaining gas purchase contracts, recognizing $39
million of income ($24 million after tax). In addition, the FERC approved a
settlement filed by TETCO, which accelerates recovery of natural gas transition
costs. The 1998 settlement is not expected to have a material adverse effect on
the consolidated results of operations or financial position.
Global Asset Development. Three California electric generating plants, Moss
Landing, South Bay and Oakland, sell electricity under the terms of Reliability
Must Run Agreements with the California Independent System Operator, which
purchases electricity at FERC regulated rates. Moss Landing and Oakland have
entered into settlement agreements with respect to the rates to be paid to them
by the Independent System Operator. Those settlements were approved by the FERC
in January 2000. South Bay has not reached a final agreement with respect to
its electric rates and, therefore, its rates are subject to partial refund or
surcharge. Management believes that the final resolution of this matter will
not have a material adverse effect on consolidated results of operations or
financial position.
5. Joint Ownership of Generating Facilities
Joint Ownership of Catawba Nuclear Station
<TABLE>
<CAPTION>
Ownership
Owner Interest
----- ---------
<S> <C>
North Carolina Municipal Power Agency Number 1 (NCMPA)............. 37.5%
North Carolina Electric Membership Corporation (NCEMC)............. 28.125%
Duke Energy Corporation............................................ 12.5%
Piedmont Municipal Power Agency (PMPA)............................. 12.5%
Saluda River Electric Cooperative, Inc. (Saluda River)............. 9.375%
--------
100%
========
</TABLE>
As of December 31, 1999, $523 million of Property, Plant and Equipment and
$243 million of accumulated depreciation and amortization represented Duke
Energy's investment in Catawba Nuclear Station Units 1 and 2. Duke Energy's
share of operating costs is included in the Consolidated Statements of Income
and Comprehensive Income.
Duke Energy entered into contractual interconnection agreements with the
other joint owners of Catawba Nuclear Station to purchase declining percentages
of the generating capacity and energy from the station. These purchased power
agreements became effective in 1985 and 1986. The purchased power agreements
were established for fifteen years for NCMPA and PMPA and ten years for NCEMC
and Saluda River.
The portion of purchased capacity subject to levelization not recovered in
rates was deferred. Duke Energy is recovering the accumulated balance,
including returns on the deferred balance, over a period expected to end in
2004. Jurisdictional levelizations are intended to recover total costs,
including deferred returns, and are subject to adjustments, including final
true-ups. The current levelized approved revenues are approximately $186
million.
54
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
5. Joint Ownership of Generating Facilities -- Continued
For the years ended December 31, 1999, 1998 and 1997, purchased capacity and
energy costs from the other joint owners was approximately $62 million, $88
million and $120 million, respectively. These amounts, after adjustments for
the costs of capacity purchased not reflected in current rates, are included in
the Consolidated Statements of Income and Comprehensive Income as Net
Interchange and Purchased Power. As of December 31, 1999 and 1998, $643 million
and $747 million, respectively, associated with the cost of capacity purchased
but not reflected in current rates have been accumulated in the Consolidated
Balance Sheets as Purchased Capacity Costs and Current Portion of Purchased
Capacity Costs.
The interconnection agreements also provide for supplemental power sales by
Duke Energy to the other joint owners of Catawba Nuclear Station to satisfy
their capacity and energy needs beyond the capacity and energy which they
retain from the station or potentially acquire in the form of other resources.
The agreements
further provide the other joint owners the ability to secure such supplemental
requirements outside of these contractual agreements following an appropriate
notice period. NCEMC, Saluda River and NCMPA have given such appropriate notice
effective January 1, 2001. PMPA will continue to receive supplemental power
sales from Duke Energy through December 31, 2005. As the other joint owners
retain more capacity and energy from the station, or obtain additional capacity
and energy from a third party, supplemental power sales are expected to
decline. Management believes this will not have a material adverse effect on
consolidated results of operations or financial position.
6. Income Taxes
Income Tax Expense
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------
1999 1998 1997
------ ------ ------
In millions
<S> <C> <C> <C>
Current income taxes
Federal............................................ $ 526 $ 673 $ 433
State.............................................. 138 138 100
------ ------ ------
Total current income taxes....................... 664 811 533
------ ------ ------
Deferred income taxes, net
Federal............................................ (127) (15) 112
State.............................................. (65) (4) 9
------ ------ ------
Total deferred income taxes, net................. (192) (19) 121
------ ------ ------
Investment tax credit amortization................... (19) (15) (15)
------ ------ ------
Total income tax expense............................. $ 453 $ 777 $ 639
====== ====== ======
</TABLE>
55
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
6. Income Taxes -- Continued
Income Tax Expense Reconciliation to Statutory Rate
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------
1999 1998 1997
------ ------ ------
In millions
<S> <C> <C> <C>
Income tax, computed at the statutory rate of 35%.. $ 455 $ 713 $ 565
Adjustments resulting from:
State income tax, net of federal income tax
effect.......................................... 47 90 71
Favorable resolution of tax issues............... (30) -- --
Other items, net................................. (19) (26) 3
------ ------ ------
Total income tax expense....................... $ 453 $ 777 $ 639
------ ------ ------
Effective tax rate................................. 34.9% 38.1% 39.6%
====== ====== ======
</TABLE>
Net Deferred Income Tax Liability Components
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
In millions
<S> <C> <C>
Deferred credits and other liabilities.................... $ 556 $ 268
Alternative minimum tax credit carryforward............... -- 30
Other..................................................... 8 36
------- -------
Total deferred income tax assets........................ 564 334
Valuation allowance....................................... (62) (52)
------- -------
Net deferred income tax assets.......................... 502 282
------- -------
Investments and other assets.............................. (245) (207)
Property, plant and equipment............................. (2,483) (2,405)
Regulatory assets and deferred debits..................... (427) (542)
Regulatory asset related to restating to pre-tax basis.... (432) (435)
Other..................................................... -- (69)
------- -------
Total deferred income tax liabilities................... (3,587) (3,658)
------- -------
State deferred income tax, net of federal tax effect...... (340) (357)
------- -------
Net deferred income tax liability......................... $(3,425) $(3,733)
======= =======
</TABLE>
The change in the net deferred income tax liability from 1998 to 1999 differs
from the 1999 deferred income tax expense as a result of the removal of net
deferred income tax liabilities due to the sale of the PEPL Companies and
Trunkline LNG.
7. Risk Management and Financial Instruments
Commodity Derivatives. Duke Energy, primarily through Trading and Marketing,
manages its exposure to risk from existing contractual commitments and provides
risk management services to its customers through forward contracts, futures,
over-the-counter swap agreements and options (collectively, "commodity
derivatives"). Energy commodity forward contracts involve physical delivery of
an energy commodity. Energy commodity futures involve the buying or selling of
natural gas, electricity or other energy-related commodities at a fixed price.
Over-the-counter swap agreements require Duke Energy to receive or make
payments based on
56
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
7. Risk Management and Financial Instruments -- Continued
the difference between a specified price and the actual price of the underlying
commodity. Energy commodity options held to mitigate price risk provide the
right, but not the requirement, to buy or sell energy-related commodities at a
fixed price.
Commodity Derivatives -- Trading. Duke Energy engages in the trading of
commodity derivatives, and therefore experiences net open positions. Duke
Energy manages open positions with strict policies which limit its exposure to
market risk and require daily reporting to management of potential financial
exposure. These policies include statistical risk tolerance limits using
historical price movements to calculate a daily earnings at risk measurement.
The weighted-average life of Duke Energy's commodity risk portfolio was
approximately 20 months at December 31, 1999.
Net Gains Recognized from Trading Commodity Derivatives
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
In millions
<S> <C> <C> <C>
Natural gas.................................................. $83 $114 $34
Electricity.................................................. 41 14 (a)
</TABLE>
--------
(a) Not material.
Absolute Notional Contract Quantity of Commodity Derivatives Held for
Trading Purposes
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
<S> <C> <C>
Natural gas, in billion cubic feet........................... 36,285 11,149
Electricity, in gigawatt hours............................... 469,371 112,867
</TABLE>
Fair Values of Commodity Derivatives -- Trading
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
In millions
<S> <C> <C> <C> <C>
Fair value at December 31
Natural gas......................... $2,966 $2,855 $1,275 $1,179
Electricity......................... 1,302 1,271 578 570
Average fair values for the year
Natural gas......................... 2,401 2,269 805 757
Electricity......................... 962 900 420 416
</TABLE>
Commodity Derivatives -- Non-Trading. At December 31, 1999 and 1998, Duke
Energy held or issued several commodity derivatives, primarily in the form of
swaps, that reduce exposure to market price fluctuations for certain power and
NGL production facilities. At December 31, 1999, these commodity derivatives
extended for periods up to ten years. The gains, losses and costs related to
non-trading commodity derivatives that qualify as a hedge are not recognized
until the underlying physical transaction closes. At December 31, 1999 and
1998, Duke Energy had unrealized net gains (losses) of $(120) million and $10
million, respectively, related to non-trading commodity derivatives. The
determination of unrealized net gains (losses) requires judgement in
interpreting market data and developing estimates of fair value. Accordingly,
the unrealized net gains (losses) as of December 31, 1999 and 1998 are not
necessarily indicative of the amounts Duke Energy could have realized in the
current market.
57
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
7. Risk Management and Financial Instruments -- Continued
Absolute Notional Contract Quantity of Commodity Derivatives Held for Non-
Trading Purposes
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Natural gas, in billion cubic feet............................. 592 218
Electricity, in gigawatt hours................................. 45,877 10,618
Power capacity, in megawatt months............................. 25,950 --
Oil, in thousands of barrels................................... 32,764 4,875
</TABLE>
Interest Rate Derivatives. Duke Energy periodically enters into financial
derivative instruments including, but not limited to, swaps, options and
treasury rate agreements to manage and mitigate interest rate risk exposure
related to borrowings. The notional amounts shown in the following table serve
solely as a basis for the calculation of payment streams to be exchanged. These
notional amounts are not a measure of the company's exposure through its use of
derivatives. Fair values shown in the following table represent estimated
amounts that Duke Energy would have received if the swaps had been settled at
current market rates on the respective dates.
Interest Rate Derivatives
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1999 1998
------------------------ ------------------------
Notional Fair Contracts Notional Fair Contracts
Amounts Value Expire Amounts Value Expire
-------- ----- --------- -------- ----- ---------
Dollars in millions
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps........ $600 $ 2 2000 $300 $ 8 1999-2000
</TABLE>
Deferred gains on settled interest rate derivatives were not material in 1999
or 1998. Unrealized gains and losses and exposure to changes in market
condition were not material at December 31, 1999 and 1998. As a result of the
interest rate swap contracts which swap fixed rate obligations to effective
floating rates, interest expense for the relative notional amount on the
Consolidated Statements of Income and Comprehensive Income is recognized at the
weighted average London interbank offered rate (LIBOR) for the year plus the
applicable margins.
Weighted Average Rates for Interest Rate Swaps
<TABLE>
<CAPTION>
For the Years
Ended December
31,
----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
8% Series B Swap........................................... 5.36% 5.69% 5.78%
7.5% Series B Swap......................................... 6.42% 6.74% 6.83%
Commercial paper fixed rate swaps.......................... 4.95% -- --
</TABLE>
Foreign Currency Derivatives. Trading and Marketing enters into foreign
currency swap agreements to manage foreign currency risks associated with
energy contracts denominated in foreign currencies. As of December 31, 1999,
the agreements had a notional contract amount of approximately $762 million,
beginning in the year 2000 and extending to the year 2005, and had a weighted
average fixed exchange rate of 1.470 Canadian dollars to U.S. dollars. As of
December 31, 1998, the agreements had a notional contract amount of
approximately $120 million, beginning in the year 2000 and extending to the
year 2005, and had a weighted average fixed exchange rate of 1.472 Canadian
dollars to U.S. dollars. The fair value of foreign currency swap agreements was
not material at December 31, 1999 or 1998.
58
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
7. Risk Management and Financial Instruments -- Continued
In anticipation of the tender offer for Paranapanema (see Note 19 to the
Consolidated Financial Statements), Duke Energy entered into foreign currency
forward contracts to obtain Brazilian reais. As of December 31, 1999, the
forward contracts had a notional amount of $280 million at an average exchange
rate of 1.8496 Brazilian reais to U.S. dollars which approximated fair value.
Market and Credit Risk. New York Mercantile Exchange (Exchange) traded
futures and option contracts are guaranteed by the Exchange and have nominal
credit risk. On all other transactions previously described, Duke Energy is
exposed to credit risk in the event of nonperformance by the counterparties.
For each counterparty, Duke Energy analyzes its financial condition prior to
entering into an agreement, establishes credit limits and monitors the
appropriateness of these limits on an ongoing basis. The change in market value
of exchange-traded futures and options contracts requires daily cash settlement
in margin accounts with brokers. Swap contracts and most other over-the-counter
instruments are generally settled at the expiration of the contract term and
may be subject to margin requirements with the counterparty.
Financial Instruments. The fair value of financial instruments is summarized
in the following table. Judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates determined as
of December 31, 1999 and 1998 are not necessarily indicative of the amounts
Duke Energy could have realized in current market exchanges. The majority of
the estimated fair value amounts were obtained from independent parties.
Financial Instruments
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
Approximate Approximate
Book Value Fair Value Book Value Fair Value
---------- ----------- ---------- -----------
In millions
<S> <C> <C> <C> <C>
Long-term debt (a)............ $9,165 $8,891 $6,959 $7,240
Guaranteed preferred
beneficial interests in
subordinated notes of Duke
Energy or subsidiaries....... 1,404 1,207 919 937
Preferred stock (a)........... 313 303 333 346
</TABLE>
--------
(a) Includes current maturities.
The fair value of cash and cash equivalents, notes receivable, notes payable
and commercial paper are not materially different from their carrying amounts
because of the short-term nature of these instruments or because the stated
rates approximate market rates.
Guarantees made on behalf of affiliates or recourse provisions from
affiliates have no book value associated with them, and there are no fair
values readily determinable since quoted market prices are not available.
8. Investment in Affiliates
Investments in domestic and international affiliates which are not controlled
by Duke Energy but where Duke Energy has significant influence over operations
are accounted for by the equity method. These investments include undistributed
earnings of $6 million and $5 million in 1999 and 1998, respectively. Duke
Energy's share of net income from these affiliates is reflected in the
Consolidated Statements of Income and Comprehensive Income as Other Operating
Revenues.
59
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
8. Investment in Affiliates -- Continued
Natural Gas Transmission. Investments primarily include ownership interests
in natural gas pipeline joint ventures which transport gas from Canada to the
U.S. Investments include a 37.5% ownership interest in Maritimes & Northeast
Pipeline, L.L.C.
Field Services. Investments primarily include a 37% interest in a partnership
which owns natural gas gathering systems in the Gulf of Mexico (Dauphin Island
Gathering Partners) and a 21.1% interest in TEPPCO.
Global Asset Development. Global Asset Development has investments in various
natural gas and electric generation and transmission facilities in its targeted
geographic areas. Significant investments include a 50% indirect interest in
VMC Generating Company, a merchant electric generating company, a 36.8%
indirect interest in American Ref-Fuel Company and a 25% indirect interest in
National Methanol Company, which owns and operates a methanol and MTBE (methyl
tertiary butyl ether) business in Jubail, Saudi Arabia.
Other Energy Services. Investments include the participation in various
construction and support activities for fossil-fueled generating plants.
Real Estate Operations. Investments include various real estate development
projects.
Other Operations. Investments include a 20% interest in the BellSouth PCS
L.P. joint venture, which provides wireless personal communication services.
Investment in Affiliates
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------------------- ---------------------------- ----------------------------
Domestic International Total Domestic International Total Domestic International Total
-------- ------------- ------ -------- ------------- ----- -------- ------------- -----
In millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Natural Gas
Transmission........... $ 67 $ 83 $ 150 $104 $ 37 $141 $ 67 $ -- $ 67
Field Services.......... 439 -- 439 303 -- 303 160 -- 160
Global Asset
Development............ 425 224 649 171 223 394 174 208 382
Other Energy Services... 51 6 57 19 23 42 16 10 26
Real Estate Operations.. 11 -- 11 5 -- 5 2 -- 2
Other Operations........ (7) -- (7) 17 -- 17 36 13 49
----- ---- ------ ---- ---- ---- ---- ---- ----
Total.................. $ 986 $313 $1,299 $619 $283 $902 $455 $231 $686
===== ==== ====== ==== ==== ==== ==== ==== ====
Equity in Earnings of Investment
<CAPTION>
For the years ended:
-----------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 December 31, 1997
----------------------------- ---------------------------- ----------------------------
Domestic International Total Domestic International Total Domestic International Total
-------- ------------- ------ -------- ------------- ----- -------- ------------- -----
In millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Natural Gas
Transmission........... $ 16 $ 9 $ 25 $ 14 $ 3 $ 17 $ 8 $ -- $ 8
Field Services.......... 44 -- 44 9 -- 9 19 -- 19
Global Asset
Development............ 47 10 57 50 18 68 8 21 29
Other Energy Services... 10 3 13 1 13 14 4 8 12
Real Estate Operations.. 3 -- 3 -- -- -- -- -- --
Other Operations........ (30) -- (30) (29) -- (29) (30) -- (30)
----- ---- ------ ---- ---- ---- ---- ---- ----
Total.................. $ 90 $ 22 $ 112 $ 45 $ 34 $ 79 $ 9 $ 29 $ 38
===== ==== ====== ==== ==== ==== ==== ==== ====
</TABLE>
60
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
8. Investment in Affiliates -- Continued
Summarized Combined Financial Information of Unconsolidated Subsidiaries
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998 1997
------ ------ ------
In millions
<S> <C> <C> <C>
Balance Sheet
Current Assets........................................ $1,544 $ 848 $ 642
Noncurrent Assets..................................... 7,826 7,340 5,868
Current Liabilities................................... 1,155 1,084 758
Noncurrent Liabilities................................ 4,727 3,884 3,257
------ ------ ------
Net Assets.......................................... $3,488 $3,220 $2,495
====== ====== ======
Income Statement
Operating Revenues.................................... $3,510 $1,667 $ 905
Operating Expenses.................................... 3,104 1,166 703
Net Income.......................................... 193 263 72
</TABLE>
Duke Energy had outstanding notes receivable from certain affiliates of $72
million and $80 million at December 31, 1999 and 1998, respectively.
9. Property, Plant and Equipment
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
In millions
<S> <C> <C>
Electric utility
Generation................................................. $ 7,876 $ 7,670
Transmission and distribution.............................. 6,577 6,324
General plant.............................................. 1,166 1,127
Nuclear fuel............................................... 741 554
Construction work in progress.............................. 343 328
------- -------
Total electric utility................................... 16,703 16,003
------- -------
Natural gas transmission.................................... 4,473 6,194
Non-regulated generation.................................... 4,457 837
Gathering and processing.................................... 2,428 1,409
Construction work in progress............................... 881 469
Other property and equipment................................ 1,494 2,216
------- -------
Total Property, Plant and Equipment...................... $30,436 $27,128
======= =======
Accumulated Depreciation
<CAPTION>
December 31,
---------------
1999 1998
------- -------
In millions
<S> <C> <C>
Electric utility(a)......................................... $ 6,950 $ 6,371
Natural gas transmission.................................... 1,217 2,585
Non-regulated generation.................................... 493 26
Other....................................................... 781 1,271
------- -------
Total Accumulated Depreciation........................... $ 9,441 $10,253
======= =======
</TABLE>
--------
(a) Includes amortization of nuclear fuel: 1999--$444 million; 1998--$325
million.
61
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
10. Debt and Credit Facilities
Long-term Debt
<TABLE>
<CAPTION>
December 31,
--------------
Year Due 1999 1998
---------- ------ ------
In millions
<S> <C> <C> <C>
Duke Energy
First and refunding mortgage bonds:(a)
7%................................................. 2000 $ 200 $ 200
5 7/8%--6 5/8%..................................... 2001--2008 625 625
6 3/4%--8.30%...................................... 2023--2025 661 678
7%--8.95%.......................................... 2027--2033 165 165
Mortgage bonds matured during 1999................. -- 425
Pollution control debt, 3.85%--7.75%................ 2012--2017 172 172
Notes:
5.38%--9.21%....................................... 2009--2016 264 65
6%--6.6%........................................... 2028--2038 500 300
Commercial paper, 5.84% and 5.28% weighted-average
rate at December 31, 1999 and 1998, respectively... 1,000 1,200
Other debt.......................................... 21 23
Duke Capital Corporation
Senior Notes:
6 1/4%--7 1/2%..................................... 2004--2009 1,250 250
6 3/4%--8%......................................... 2018--2019 650 150
Commercial paper, 5.91% and 5.73% weighted-average
rate at December 31, 1999 and 1998, respectively... 500 500
Note payable to affiliate 5.03% and 4.68% weighted-
average rate at December 31, 1999 and 1998,
respectively....................................... 83 24
PanEnergy
Bonds:
7 3/4%............................................. 2022 328 328
8 5/8% Debentures.................................. 2025 100 100
Notes:
7%--9.9%, maturing serially........................ 2003--2006 395 395
Notes matured during 1999.......................... -- 114
TETCO
Notes:
8%--10 3/8%........................................ 2000--2004 500 500
Medium-term, Series A, 7.64% -- 9.07%.............. 2001--2012 51 100
Algonquin Gas Transmission Company
9.13% Notes........................................ 2003 100 100
Crescent Resources, Inc(b)
Construction and mortgage loans, 5.86%--7.26%....... 2000--2011 46 69
Revolving credit facilities, 5.98% weighted-average
rate at December 31, 1998.......................... 2001 -- 100
Global Asset Development
Medium-term note, 7.25%............................. 2004 162 --
Credit facilities, 6.01% weighted-average rate at
December 31, 1999.................................. 2002 460 --
Notes:
7.69%--18%......................................... 2000--2005 107 33
7.8%............................................... 2004--2013 161 --
6%--10%(c)......................................... 2013--2017 485 --
Capital leases...................................... 2009--2028 207 --
Notes matured during 1999........................... -- 78
Other debt of subsidiaries.......................... 34 313
Unamortized debt discount and premium, net.......... (62) (48)
------ ------
Total long-term debt................................ 9,165 6,959
Current maturities of long-term debt................ (482) (687)
------ ------
Total long-term portion............................. $8,683 $6,272
====== ======
</TABLE>
- --------
(a) Substantially all of Electric Operations' electric plant was mortgaged.
(b) Substantial amounts of Crescent Resources' real estate development
projects, land and buildings were pledged as collateral.
(c) Paranapanema (Brazil) debt, principal is indexed annually to inflation.
62
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
10. Debt and Credit Facilities -- Continued
Annual Maturities
<TABLE>
<CAPTION>
In millions
<S> <C>
2000............................................................. $482
2001............................................................. 306
2002............................................................. 225
2003............................................................. 601
2004............................................................. 958
</TABLE>
Annual maturities exclude $1,736 million of long-term debt that matures after
2004 which have call options whereby Duke Energy has the option to repay the
debt early. Based on the years in which Duke Energy may first exercise their
redemption options, $881 million could potentially be repaid in 2000, $328
million in 2002, $227 million in 2003, $200 million in 2004 and $100 million
thereafter.
Credit Facilities
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------- ----------------------
Credit Credit
Facilities Outstanding Facilities Outstanding
---------- ----------- ---------- -----------
In millions
<S> <C> <C> <C> <C>
364-day facilities (a)....... $ 823 $ 10 $ 600 $ --
Three-year revolving
facilities.................. 565 450 -- --
Four-year revolving
facilities.................. 125 -- 125 100
Five-year revolving
facilities (a).............. 2,200 -- 2,200 --
------ ---- ------ ----
Total Consolidated......... $3,713 $460 $2,925 $100
====== ==== ====== ====
</TABLE>
--------
(a) Supported commercial paper facilities.
Notes Payable and Commercial Paper
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
In millions
<S> <C> <C>
Credit facilities outstanding.............................. $ 460 $ 100
Note payable............................................... 86 4
Commercial paper outstanding............................... 1,764 1,905
------- -------
2,310 2,009
Less portion classified as long-term
Credit facilities........................................ (460) (100)
Note payable............................................. (83) --
Commercial paper......................................... (1,500) (1,700)
------- -------
Portion classified as short-term........................... $ 267 $ 209
======= =======
</TABLE>
The weighted average interest rate on outstanding short-term notes payable
and commercial paper at December 31, 1999 and 1998 was 5.72% and 5.23%,
respectively.
63
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
11. Nuclear Decommissioning Costs
Nuclear Decommissioning Costs. Estimated site-specific nuclear
decommissioning costs, including the cost of decommissioning plant components
not subject to radioactive contamination, total approximately $1.9 billion
stated in 1999 dollars based on decommissioning studies completed in 1999. This
amount includes Duke Energy's 12.5% ownership in the Catawba Nuclear Station.
The other joint owners of Catawba Nuclear Station are responsible for
decommissioning costs related to their ownership interests in the station. Both
the NCUC and the PSCSC have granted Duke Energy recovery of estimated
decommissioning costs through retail rates over the expected remaining service
periods of Duke Energy's nuclear stations. Such estimates presume each unit
will be decommissioned as soon as possible following the end of its license
life. Although subject to extension, the current operating licenses for Duke
Energy's nuclear units expire as follows: Oconee 1 and 2 --2013, Oconee 3 --
2014; McGuire 1 -- 2021, McGuire 2 -- 2023; and Catawba 1 -- 2024, Catawba
2 -- 2026.
During 1999 and 1998, Duke Energy expensed approximately $57 million which
was contributed to the external funds for decommissioning costs and accrued an
additional $6 million to the internal reserve. Nuclear units are depreciated at
an annual rate of 4.7%, of which 1.61% is for decommissioning. The balance of
the external funds as of December 31, 1999 and 1998 was $703 million and $580
million, respectively. The balance of the internal reserve as of December 31,
1999 and 1998 was $223 million and $217 million, respectively, and is reflected
in the Consolidated Balance Sheets as Accumulated Depreciation and
Amortization. Management believes that the decommissioning costs being
recovered through rates, when coupled with assumed after-tax fund earnings of
5.5% to 5.9%, are currently sufficient to provide for the cost of
decommissioning.
A provision in the Energy Policy Act of 1992 established a fund for the
decontamination and decommissioning of the Department of Energy's (DOE) uranium
enrichment plants. Licensees are subject to an annual assessment for 15 years
based on their pro rata share of past enrichment services. The annual
assessment is recorded in the Consolidated Statements of Income and
Comprehensive Income as Fuel Used in Electric Generation. Duke Energy paid $10
million during 1999 and has paid $75 million cumulatively related to its
ownership interests in nuclear plants. The remaining liability and regulatory
assets of $70 million and $79 million at December 31, 1999 and 1998,
respectively, are reflected in the Consolidated Balance Sheets as Deferred
Credits and Other Liabilities, and Regulatory Assets and Deferred Debits,
respectively.
Spent Nuclear Fuel. Under provisions of the Nuclear Waste Policy Act of 1982,
Duke Energy has entered into contracts with the DOE for the disposal of spent
nuclear fuel. The DOE failed to begin accepting the spent nuclear fuel on
January 31, 1998, the date provided by the Nuclear Waste Policy Act and by Duke
Energy's contract with the DOE. On June 8, 1998, Duke Energy filed with the
United States Court of Federal Claims a claim against the DOE for damages in
excess of $1 billion arising out of the DOE's failure to begin accepting
commercial spent nuclear fuel by January 31, 1998. Damages claimed in the suit
are intended to recover costs that Duke Energy is incurring and will continue
to incur as a result of the DOE's partial material breach of its contract with
Duke Energy, including costs associated with securing additional spent fuel
storage capacity. Duke Energy will continue to safely manage its spent nuclear
fuel until the DOE accepts it. Payments made to the DOE for disposal costs are
based on nuclear output and are included in the Consolidated Statements of
Income and Comprehensive Income as Fuel Used in Electric Generation.
12. Guaranteed Preferred Beneficial Interests in Subordinated Notes of Duke
Energy or Subsidiaries
Duke Energy and Duke Capital Corporation (Duke Capital) have each formed
business trusts for which they own all the respective common securities. The
trusts issue and sell preferred securities and invest the gross proceeds in
assets of the trusts. Substantially all the assets of each trust are junior
subordinated notes issued by the respective company.
64
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
12. Guaranteed Preferred Beneficial Interests in Subordinated Notes of Duke
Energy or Subsidiaries -- Continued
Trust Preferred Securities
<TABLE>
<CAPTION>
December 31,
---------------
Issued Rate 1999 1998 Junior Subordinated Notes
------ ----- ------- ------ -------------------------
In millions
<S> <C> <C> <C> <C>
Duke Energy
1997.................... 7.2% $ 350 $ 350 7.2% Series A due 2037
1999.................... 7.2% 250 -- 7.2% Series B due 2039
Duke Capital
1998.................... 7 3/8% 250 250 7 3/8% Series A due 2038
1998.................... 7 3/8% 350 350 7 3/8% Series B due 2038
1999.................... 8 3/8% 250 -- 8 3/8% Series C due 2029
Unamortized debt
discount................. (46) (31)
------- -----
$ 1,404 $ 919
======= =====
</TABLE>
These trust preferred securities represent preferred undivided beneficial
interests in the assets of the respective trusts. Payment of distributions on
these preferred securities is guaranteed by the respective company, but only to
the extent the trusts have funds legally and immediately available to make such
distributions. Dividends of $87 million, $44 million and $15 million related to
the trust preferred securities have been included in the Consolidated
Statements of Income and Comprehensive Income as Minority Interests for the
years ended December 31, 1999, 1998 and 1997, respectively.
13. Preferred and Preference Stock
Authorized Shares of Stock as of December 31, 1999 and 1998
<TABLE>
<CAPTION>
Par Value Shares
--------- -----------
In millions
<S> <C> <C>
Preferred Stock........................................ $100 12.5
Preferred Stock A...................................... $ 25 10.0
Preference Stock....................................... $100 1.5
</TABLE>
As of December 31, 1999 and 1998, there were no shares of preference stock
outstanding.
Preferred Stock with Sinking Fund Requirements
<TABLE>
<CAPTION>
December 31,
Shares Outstanding -------------------
Rate/Series Year Issued at December 31, 1999 1999 1998
----------- ----------- -------------------- --------- ---------
Dollars in millions
<S> <C> <C> <C> <C>
6.10% C (Preferred Stock A)....... 1992 800,000 $ 20 $ 20
6.20% D (Preferred Stock A)....... 1992 800,000 20 20
6.20% T........................... 1992 130,000 13 13
6.30% U........................... 1992 130,000 13 13
6.40% V........................... 1992 130,000 13 13
6.75% X........................... 1993 250,000 25 25
5.95% B (Preferred Stock A) (a)... 1992 -- -- 20
--------- ---------
Total....................... $ 104 $ 124
========= =========
</TABLE>
--------
(a) Preferred stock series redeemed in September 1999.
65
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
13. Preferred and Preference Stock -- Continued
The annual sinking fund requirements for 2000 through 2004 are $33 million,
$33 million, $13 million, $2 million and $2 million, respectively. Some
additional redemptions are permitted at Duke Energy's option.
Preferred Stock without Sinking Fund Requirements
<TABLE>
<CAPTION>
December 31,
-------------------
Year Shares Outstanding
Rate/Series Issued at December 31, 1999 1999 1998
----------- ------ -------------------- --------- ---------
Dollars in millions
<S> <C> <C> <C> <C>
4.50% C..................... 1964 175,000 $ 18 $ 18
7.85% S..................... 1992 300,000 30 30
7.00% W..................... 1993 249,989 25 25
7.04% Y..................... 1993 299,995 30 30
6.375% (Preferred Stock A).. 1993 1,257,185 31 31
Auction Series A............ 1990 750,000 75 75
--------- ---------
Total..................... $ 209 $ 209
========= =========
</TABLE>
The call provisions for the outstanding preferred stock specify various
redemption prices not exceeding 104% of par value, plus accumulated dividends
to the redemption date.
During February 1998, Duke Energy purchased approximately two million shares
of its preferred stock for $180 million. During December 1997, Duke Energy
redeemed approximately three million shares of preferred stock for $203
million. The premiums related to these redemptions were included in the
Consolidated Statements of Income and Comprehensive Income as Dividends and
Premiums on Redemptions of Preferred and Preference Stock for 1997.
14. Commitments and Contingencies
Nuclear Insurance. Duke Energy owns and operates the McGuire and Oconee
Nuclear Stations with two and three nuclear reactors, respectively, and
operates and has a partial ownership interest in the Catawba Nuclear Station
with two nuclear reactors. Nuclear insurance coverage is maintained in three
program areas: liability coverage; property, decontamination and
decommissioning coverage; and business interruption and/or extra expense
coverage. Certain expenses associated with nuclear insurance premiums paid by
Duke Energy are reimbursed by the other joint owners of the Catawba Nuclear
Station.
Pursuant to the Price-Anderson Act, Duke Energy is required to insure against
public liability claims resulting from nuclear incidents to the full limit of
liability of approximately $9.8 billion.
Primary Liability Insurance. The maximum required private primary liability
insurance of $200 million has been purchased along with a like amount to cover
certain worker tort claims.
Excess Liability Insurance. This policy currently provides approximately $9.6
billion of coverage through the Price-Anderson Act's mandatory industry-wide
excess secondary insurance program of risk pooling. The $9.6 billion of
coverage is the sum of the current potential cumulative retrospective premium
assessments of $88 million per licensed commercial nuclear reactor. This $9.6
billion will be increased by $88 million as each additional commercial nuclear
reactor is licensed, or reduced by $88 million for certain nuclear reactors
that are no longer operational and may be exempted from the risk pooling
insurance program. Under this program, licensees could be assessed
retrospective premiums to compensate for damages in the event of a nuclear
incident at any licensed facility in the nation. If such an incident occurs and
public liability damages exceed primary insurances, licensees may be assessed
up to $88 million for each of their licensed reactors, payable at a rate not
66
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
14. Commitments and Contingencies -- Continued
to exceed $10 million a year per licensed reactor for each incident. The $88
million amount is subject to indexing for inflation and may be subject to state
premium taxes.
Duke Energy is a member of Nuclear Electric Insurance Limited (NEIL), which
provides property and business interruption insurance coverage for Duke
Energy's nuclear facilities under the following three policy programs:
Primary Property Insurance. This policy provides $500 million in primary
property damage coverage for each of Duke Energy's nuclear facilities.
Excess Property Insurance. This policy provides excess property,
decontamination and decommissioning liability insurance in the following
amounts: $2.25 billion for the Catawba Nuclear Station and $1.5 billion each
for the Oconee and McGuire Nuclear Stations.
Business Interruption Insurance. This policy provides business interruption
and/or extra expense coverage resulting from an accidental outage of a nuclear
unit. Each unit of the McGuire and Catawba Nuclear Stations is insured for up
to approximately $4 million per week and the Oconee Nuclear Station units are
insured for up to approximately $3 million per week. Coverage amounts per unit
decline if more than one unit is involved in an accidental outage. Initial
coverage begins after a 12-week deductible period and continues at 100% for 52
weeks and 80% for the next 110 weeks.
If NEIL's losses ever exceed its reserves for any of the above three
programs, Duke Energy will be liable for assessments of up to five times its
annual premiums. The current potential maximum assessments are as follows:
Primary Property Insurance -- $22 million; Excess Property Insurance -- $22
million; Business Interruption Insurance -- $20 million.
The other joint owners of the Catawba Nuclear Station are obligated to assume
their pro rata share of any liabilities for retrospective premiums and other
premium assessments resulting from the Price-Anderson Act's excess secondary
insurance program of risk pooling or the NEIL policies.
Environmental. Duke Energy is subject to international, federal, state and
local regulations regarding air and water quality, hazardous and solid waste
disposal and other environmental matters.
Manufactured Gas Plants and Superfund Sites. Duke Energy was an operator of
manufactured gas plants until the early 1950s and has entered into a
cooperative effort with the State of North Carolina and other owners of certain
former manufactured gas plant sites to investigate and, where necessary,
remediate these contaminated sites. The State of South Carolina has expressed
interest in entering into a similar arrangement. Duke Energy is considered by
regulators to be a potentially responsible party and may be subject to future
liability at seven federal Superfund sites and two state Superfund sites. While
the cost of remediation of the remaining sites may be substantial, Duke Energy
will share in any liability associated with remediation of contamination at
such sites with other potentially responsible parties. Management believes that
resolution of these matters will not have a material adverse effect on
consolidated results of operations or financial position.
PCB (Polychlorinated Biphenyl) Assessment and Clean-up Programs. In June
1999, the Environmental Protection Agency (EPA) certified that TETCO, a wholly
owned subsidiary of Duke Energy, had completed clean up of PCB contaminated
sites under conditions stipulated by a U.S. Consent Decree in 1989. TETCO is
required to continue groundwater monitoring on a number of sites for at least
the next two years. The estimated cost of such monitoring is not material.
67
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
14. Commitments and Contingencies -- Continued
Under terms of the agreement with CMS discussed in Note 2 to the Consolidated
Financial Statements, Duke Energy is obligated to complete clean-up of
previously identified contamination at certain agreed-upon sites on the PEPL
and Trunkline systems. These clean-up programs are expected to continue until
2001. The contamination resulted from the past use of lubricants containing
PCBs and the prior use of wastewater collection facilities and other on-site
disposal areas. Soil and sediment testing, to date, has detected no significant
off-site contamination. Duke Energy has communicated with the EPA and
appropriate state regulatory agencies on these matters.
At December 31, 1999 and 1998, remaining estimated clean-up costs on the
TETCO, PEPL and Trunkline systems have been accrued and are included in the
Consolidated Balance Sheets as Other Current Liabilities and Environmental
Clean-up Liabilities. These cost estimates represent gross clean-up costs
expected to be incurred, have not been discounted or reduced by customer
recoveries and generally do not include fines, penalties or third-party claims.
Costs expected to be recovered from customers have been deferred and are
included in the Consolidated Balance Sheets as of December 31, 1999 and 1998,
as Environmental Clean-up Costs.
The federal and state clean-up programs are not expected to interrupt or
diminish Duke Energy's ability to deliver natural gas to customers. Based on
Duke Energy's experience to date and costs incurred for clean-up operations,
management believes the resolution of matters relating to the environmental
issues discussed above will not have a material adverse effect on consolidated
results of operations or financial position.
Injury and Damages Claims. Duke Energy has experienced numerous claims
relating to damages for personal injury alleged to have arisen from the
exposure to or use of asbestos in connection with construction and maintenance
activities performed by Duke Energy on its electric generation plants during
the 1960s and 1970s. During 1999, Duke Energy experienced a significant
increase in the number of these claims. This increase, coupled with its
cumulative experience in claims received, prompted Duke Energy to conduct a
comprehensive review which was completed in late 1999 and to record an $800
million accrual, which is included in Other Deferred Credits and Other
Liabilities in the Consolidated Financial Statements, to reflect the purchase
of a third party insurance policy as well as estimated amounts for future
claims not recoverable under such policy. The insurance policy, combined with
amounts covered by self-insurance reserves, provides for claims paid up to an
aggregate of $1.6 billion. Duke Energy currently believes the estimated claims
relating to this exposure will not exceed such amount. While Duke Energy is
uncertain as to the timing of when claims will be received, portions of the
estimated claims may not be received and paid for 30 or more years. Amounts
reserved for injury and damages claims were not material in 1998 and 1997.
While Duke Energy has recorded an accrual related to this estimated
liability, such estimates cannot be made with certainty. Factors, such as the
frequency and magnitude of claims, could result in changes in the estimates of
the injury and damages liability and insurance recoveries. Such changes could
result in, over time, a difference from the amount currently reflected in the
financial statements. However, due to Duke Energy's insurance program related
to this liability, management believes that any changes in the estimates would
not have a material adverse affect on consolidated results of operations or
financial position.
Litigation. Duke Energy and its subsidiaries are involved in legal, tax and
regulatory proceedings before various courts, regulatory commissions and
governmental agencies regarding performance, contracts and other matters
arising in the ordinary course of business, some of which involve substantial
amounts. Where appropriate, Duke Energy has made accruals in accordance with
SFAS No. 5, "Accounting for Contingencies," to provide for such matters.
Management believes that the final disposition of these proceedings will not
have a material adverse effect on consolidated results of operations or
financial position.
68
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
14. Commitments and Contingencies -- Continued
Other Commitments and Contingencies. Periodically, Duke Energy may become
involved in contractual disputes with natural gas transmission customers
involving potential or threatened abrogation of contracts by the customers. If
the customers are successful, Duke Energy may not receive the full value of
anticipated benefits under the contracts.
In the normal course of business, certain of Duke Energy's subsidiaries and
affiliates enter into various contracts for energy services that contain
certain schedule and performance requirements. Certain subsidiaries of Duke
Energy had guaranteed performance under some of these contracts in the amount
of approximately $2.5 billion and $1.2 billion as of December 31, 1999 and
1998, respectively. In addition, certain subsidiaries of Duke Energy have
guaranteed debt agreements of affiliates and have provided surety bonds and
letters of credit, all of which totaled approximately $853 million and $492
million as of December 31, 1999 and 1998, respectively. The increase in the
amount of these obligations is due to the increased construction activities at
Duke Energy North America and Duke/Fluor Daniel. Management monitors and
approves these obligations and believes it is unlikely that Duke Energy would
be required to perform or otherwise incur any material losses associated with
the above obligations.
Management believes that these commitments and contingencies will not have a
material adverse effect on consolidated results of operations or financial
position.
Leases. Duke Energy utilizes assets under operating leases in several areas
of operations. Consolidated rental expense amounted to $87 million, $80 million
and $92 million in 1999, 1998 and 1997, respectively. Future minimum rental
payments under Duke Energy's various operating leases for the years 2000
through 2004 are $79 million, $68 million, $58 million, $50 million and $45
million, respectively.
15. Common Stock
At Duke Energy's annual meeting of shareholders held on April 15, 1999,
shareholders approved an amendment to the Articles of Incorporation to increase
the authorized common stock from 500 million to 1 billion shares.
In 1996, the Board of Directors authorized Duke Energy to repurchase up to $1
billion of its common stock during the period beginning February 1996 and
ending February 2001. No repurchases of common stock were made in 1999, 1998 or
1997, and none are anticipated in the future.
16. Stock-Based Compensation
Under Duke Energy's 1998 Stock Incentive Plan, stock options for up to
fifteen million shares of common stock may be granted to key employees. Under
the plan, the exercise price of each option granted equals the market price of
Duke Energy's common stock on the date of grant. Vesting periods range from one
to five years with a maximum exercise term of ten years.
Effective with Duke Energy's merger with PanEnergy Corp, each share of
PanEnergy common stock, outstanding immediately prior to the merger, was
converted into the right to receive 1.0444 shares of Duke Energy common stock.
Each option to purchase PanEnergy common stock, outstanding prior to the
merger, was assumed by Duke Energy and became exercisable upon the same terms
as under the applicable PanEnergy stock option plan and option agreement,
except that these options became options to purchase shares of Duke Energy
common stock, appropriately adjusted.
69
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
16. Stock-Based Compensation -- Continued
Stock Option Activity
<TABLE>
<CAPTION>
Weighted
Options Average
(In thousands) Exercise Price
-------------- --------------
<S> <C> <C>
Outstanding at December 31, 1996............... 3,274 $20
Granted...................................... 388 44
Exercised.................................... (873) 19
Forfeited.................................... (60) 27
-----
Outstanding at December 31, 1997............... 2,729 24
Granted...................................... 3,548 57
Exercised.................................... (948) 21
Forfeited.................................... (868) 57
-----
Outstanding at December 31, 1998............... 4,461 45
Granted...................................... 5,154 54
Exercised.................................... (428) 23
Forfeited.................................... (375) 57
-----
Outstanding at December 31, 1999............... 8,812 51
=====
</TABLE>
Stock Options at December 31, 1999
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------ -----------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices (In thousands) Life (Years) Price (In thousands) Price
-------- -------------- ------------ -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$10 to $14 36 1.4 $12 36 $12
$15 to $20 728 4.0 19 728 19
$21 to $25 153 4.2 23 153 23
$26 to $31 157 6.1 27 157 27
$42 to $50 2,992 9.8 49 124 44
$51 to $59 4,443 8.6 58 582 57
$60 to $67 303 9.0 65 13 67
----- -----
Total 8,812 1,793 34
===== =====
</TABLE>
Duke Energy had 1.5 million and 2.4 million options exercisable at December
31, 1998 and 1997, with weighted average exercise prices of $22 and $21 per
option, respectively.
The weighted-average fair value of options granted was $10, $9 and $10 per
option during 1999, 1998 and 1997, respectively. The fair value of each option
grant was estimated on the date of grant using the Black-Scholes option-pricing
model.
Weighted-Average Assumptions for Option-Pricing
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Stock dividend yield................................. 4.1% 4.2% 3.5%
Expected stock price volatility...................... 18.8% 15.1% 20.7%
Risk-free interest rates............................. 5.9% 5.6% 6.5%
Expected option lives................................ 7 years 7 years 7 years
</TABLE>
70
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
16. Stock-Based Compensation -- Continued
Had compensation expense for stock-based compensation been determined based
on the fair value at the grant dates, 1999 net income would have been $1,498
million, or $4.06 per basic share; 1998 net income would have been $1,250
million, or $3.40 per basic share; and 1997 net income would have been $971
million, or $2.50 per basic share.
Duke Energy has the 1996 Stock Incentive Plan (the 1996 Plan) under which two
million shares of common stock were reserved for awards to employees.
Restricted stock grants made under the 1996 Plan vest over a period ranging
between one and five years. Duke Energy awarded 65,850 restricted shares (fair
value at grant dates of approximately $4 million) in 1999 and 3,000 restricted
shares in 1998. Compensation expense for the grants is charged to earnings over
the restriction period and was not material in 1999, 1998 or 1997.
In addition, Duke Energy granted Performance Awards under the 1998 Long-Term
Incentive Plan (the 1998 Plan), under which fifteen million shares of common
stock have been reserved for employee awards. Grants under the 1998 Plan vest
over periods ranging between one and seven years. Duke Energy awarded 493,200
shares (fair value at grant dates of $26 million) in 1999. Compensation expense
for the stock grants is charged to earnings over the vesting period, and
amounted to $3 million in 1999.
17. Employee Benefit Plans
Retirement Plans. Duke Energy and its subsidiaries maintain a non-
contributory defined benefit retirement plan covering most employees with
minimum service requirements using a cash balance formula. Under a cash balance
formula, a plan participant accumulates a retirement benefit based upon a
percentage, which may vary with age and years of service, of current eligible
earnings and current interest credits.
On December 31, 1998, all defined benefit retirement plans maintained by Duke
Energy and its subsidiaries, except for the PanEnergy retirement plan, were
merged to form the Duke Energy Retirement Cash Balance Plan (Duke Energy Plan).
The plan merger changed the benefit for certain participants, from a formula
based primarily on benefit accrual service and highest average earnings, to a
cash balance formula.
Through December 31, 1998, the PanEnergy retirement plan provided retirement
benefits (i) for eligible employees of certain subsidiaries that are generally
based on an employee's years of benefit accrual service and highest average
eligible earnings, and (ii) for eligible employees of certain other
subsidiaries under a cash balance formula. In 1998, a significant amount of
lump sum payouts was made from the PanEnergy plan resulting in a settlement
gain of $10 million. Effective January 1, 1999, the benefit formula under the
PanEnergy plan, for all eligible employees, was changed to a cash balance
formula.
In connection with the 1999 sale of the Midwest Pipelines to CMS, benefit
accruals under the PanEnergy plan were frozen on December 31, 1998 for all
participants who, as a result of the sale, became employees of CMS and its
subsidiaries. Once the transfer of the benefit obligation and related assets of
the affected participants to CMS was completed, the PanEnergy plan was merged
into the Duke Energy Plan.
Duke Energy's policy is to fund amounts, as necessary, on an actuarial basis
to provide assets sufficient to meet benefits to be paid to plan participants.
On December 30, 1997, assets and related liabilities of $236 million and $204
million, respectively, for certain PanEnergy plan participants were transferred
to the Duke Power plan. As a result of this transfer, no contributions to the
Duke Energy plan were necessary in 1999 or 1998.
71
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
17. Employee Benefit Plans -- Continued
Components of Net Periodic Pension Costs
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------
1999 1998 1997
------ ------ ------
In millions
<S> <C> <C> <C>
Service cost benefit earned during the year.......... $ 72 $ 63 $ 62
Interest cost on projected benefit obligation........ 165 169 164
Expected return on plan assets....................... (224) (218) (209)
Amortization of prior service cost................... (3) (4) (5)
Amortization of net transition asset................. (4) (4) (4)
Recognized net actuarial loss........................ 12 10 17
Settlement gain...................................... -- (10) --
------ ------ ------
Net periodic pension costs........................... $ 18 $ 6 $ 25
====== ====== ======
</TABLE>
Reconciliation of Funded Status to Pre-funded Pension Costs
<TABLE>
<CAPTION>
December 31,
--------------
1999 1998
------ ------
In millions
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year...................... $2,540 $2,372
Service cost................................................. 72 63
Interest cost................................................ 165 169
Plan amendment............................................... -- 5
Actuarial (gain) loss........................................ (41) 141
Transfer to CMS.............................................. (85) --
Benefits paid................................................ (205) (210)
------ ------
Benefit obligation at end of year............................ $2,446 $2,540
====== ======
Change in Plan Assets
Fair value of plan assets at beginning of year (a)........... $2,922 $2,725
Actual return on plan assets................................. 491 406
Employer contributions....................................... (2) 1
Transfer to CMS.............................................. (85) --
Benefits paid................................................ (205) (210)
------ ------
Fair value of plan assets at end of year (a)................. $3,121 $2,922
====== ======
Funded status................................................ $ 675 $ 382
Unrecognized net experience (gain) loss...................... (315) 2
Unrecognized prior service cost reduction.................... (24) (27)
Unrecognized net transition asset............................ (21) (25)
------ ------
Pre-funded pension costs..................................... $ 315 $ 332
====== ======
</TABLE>
--------
(a) Principally equity and fixed income securities.
72
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
17. Employee Benefit Plans -- Continued
Assumptions Used for Pension Benefits Accounting (a)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Percent
<S> <C> <C> <C>
Discount rate................................................. 7.50 6.75 7.25
Salary increase............................................... 4.50 4.67 4.15
Expected long-term rate of return on plan assets.............. 9.25 9.25 9.25
</TABLE>
--------
(a) Reflects weighted averages across all plans.
Duke Energy also sponsors employee savings plans which cover substantially
all employees. Employer matching contributions of $68 million, $53 million and
$53 million were expensed in 1999, 1998 and 1997, respectively.
Other Postretirement Benefits. Duke Energy and most of its subsidiaries
provide certain health care and life insurance benefits for retired employees
on a contributory and non-contributory basis. Employees become eligible for
these benefits if they have met certain age and service requirements at
retirement, as defined in the plans. Under plan amendments effective late 1998
and early 1999, health care benefits for future retirees were changed to limit
employer contributions and medical coverage.
Such benefit costs are accrued over the active service period of employees to
the date of full eligibility for the benefits. The net unrecognized transition
obligation, resulting from the implementation of accrual accounting, is being
amortized over approximately 20 years.
Components of Net Periodic Postretirement Benefit Costs
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------
1999 1998 1997
------ ------ ------
In millions
<S> <C> <C> <C>
Service cost benefit earned during the year........ $ 7 $ 10 $ 10
Interest cost on accumulated postretirement benefit
obligation........................................ 40 43 46
Expected return on plan assets..................... (21) (18) (19)
Amortization of prior service cost................. 1 7 6
Amortization of net transition obligation.......... 18 16 16
Recognized net actuarial (gain) loss............... (1) 1 (1)
------ ------ ------
Net periodic postretirement benefit costs.......... $ 44 $ 59 $ 58
====== ====== ======
</TABLE>
73
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
17. Employee Benefit Plans -- Continued
Reconciliation of Funded Status to Accrued Postretirement Benefit Costs
<TABLE>
<CAPTION>
December 31,
--------------
1999 1998
------ ------
In millions
<S> <C> <C>
Change in Benefit Obligation
Accumulated postretirement benefit obligation at beginning
of year................................................... $ 625 $ 667
Service cost............................................... 7 10
Interest cost.............................................. 40 43
Plan participants' contributions........................... 7 6
Amendments................................................. -- (49)
Actuarial gain............................................. (68) (6)
Benefits paid.............................................. (49) (46)
------ ------
Accumulated postretirement benefit obligation at end of
year...................................................... $ 562 $ 625
------ ------
Change in Plan Assets
Fair value of plan assets at beginning of year (a)......... $ 305 $ 266
Actual return on plan assets............................... 41 34
Employer contributions..................................... 23 45
Plan participants' contributions........................... 7 6
Benefits paid.............................................. (49) (46)
------ ------
Fair market value of plan assets at end of year (a)........ $ 327 $ 305
------ ------
Funded status.............................................. $ (235) $ (320)
Unrecognized prior service cost............................ 8 9
Unrecognized net experience gain........................... (110) (23)
Unrecognized transition obligation......................... 229 239
------ ------
Accrued postretirement benefit costs....................... $ (108) $ (95)
====== ======
</TABLE>
--------
(a) Principally equity and fixed income securities.
Assumptions Used for Postretirement Benefits Accounting (a)
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
Percent
<S> <C> <C> <C>
Discount rate.............................................. 7.50 6.75 7.25
Salary increase............................................ 4.50 4.67 4.33
Expected long-term rate of return on 401(h) assets......... 9.25 9.25 9.25
Expected long-term rate of return on RLR assets............ 6.75 6.75 6.75
Expected long-term rate of return on VEBA assets........... 9.25 9.25 9.25
Assumed tax rate (b)....................................... 39.60 39.60 39.60
</TABLE>
--------
(a) Reflects weighted averages across all plans.
(b) Health care portion of postretirement benefits in VEBA trusts.
For measurement purposes, a 5.0% weighted average rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 4.75% for 2005 and remain at that level
thereafter. Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans.
74
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
17. Employee Benefit Plans -- Continued
Sensitivity to Changes in Assumed Health Care Cost Trend Rates
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
In millions
<S> <C> <C>
Effect on total of service and interest cost
components................................. $ 3 $ (2)
Effect on postretirement benefit
obligation................................. 34 (24)
</TABLE>
18. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -------
In millions, except per share data
<S> <C> <C> <C> <C> <C>
1999
Operating revenues................ $4,160 $4,691 $6,694 $6,197 $21,742
Operating income.................. 627 531 884 (247) 1,795
EBIT.............................. 683 568 908 (116) 2,043
Income before extraordinary item.. 307 288 441 (189) 847
Net income........................ 967 288 441 (189) 1,507
Earnings per share (before
extraordinary item)
Basic........................... $ 0.83 $ 0.77 $ 1.20 $(0.53) $ 2.26
Dilutive........................ $ 0.83 $ 0.77 $ 1.19 $(0.53) $ 2.25
Earnings per share
Basic........................... $ 2.65 $ 0.77 $ 1.20 $(0.53) $ 4.08
Dilutive........................ $ 2.64 $ 0.77 $ 1.19 $(0.53) $ 4.07
1998
Operating revenues................ $4,115 $4,014 $5,298 $4,183 $17,610
Operating income.................. 608 549 826 450 2,433
EBIT.............................. 678 582 871 516 2,647
Income before Extraordinary item.. 328 279 429 224 1,260
Net income........................ 320 279 429 224 1,252
Earnings per share before
Extraordinary item)
Basic........................... $ 0.89 $ 0.76 $ 1.18 $ 0.60 $ 3.43
Dilutive........................ $ 0.89 $ 0.76 $ 1.17 $ 0.60 $ 3.42
Earnings per share
Basic........................... $ 0.87 $ 0.76 $ 1.18 $ 0.60 $ 3.41
Dilutive........................ $ 0.87 $ 0.76 $ 1.17 $ 0.60 $ 3.40
</TABLE>
19. Subsequent Events
On December 16, 1999, Duke Energy announced that it had signed definitive
agreements to combine Duke Energy's gas gathering and processing businesses
with Phillips Petroleum's Gas Processing and Marketing unit to form a new
midstream company. Under the terms of the agreements, the new company will seek
to arrange approximately $2.6 billion of debt financing and, upon closing of
the transaction, will make a one-time cash distribution of $1.2 billion to both
Duke Energy and Phillips Petroleum. At closing, Duke Energy will own about 70%
of the new company and Phillips Petroleum will own about 30%. The new company
would then offer approximately 20% of its equity to the public in 2000 to
reduce the debt resulting from the transaction. Such an offering is conditional
upon completion of the transaction and favorable market conditions.
On January 4, 2000, Duke Energy announced that it had entered into a
definitive agreement to purchase, for $386 million, 100% of the stock of El
Paso Energy Corporation's wholly owned subsidiary, East Tennessee
75
<PAGE>
DUKE ENERGY CORPORATION
Notes to Consolidated Financial Statements -- Continued
19. Subsequent Events -- Continued
Natural Gas Company, a 1,100-mile pipeline that crosses Duke Energy's TETCO
pipeline and serves the southeastern region of the U.S.
Both transactions are subject to regulatory approval and are expected to
close in the first quarter of 2000.
In January 2000, Duke Energy completed a tender offer to the minority
shareholders of Paranapanema and successfully acquired an additional 51%
economic interest in the company for approximately $280 million. This increases
Duke Energy's economic ownership from approximately 44% to approximately 95%.
76
<PAGE>
DUKE ENERGY CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Additions
-------------------------
Balance at Charged to Charged to Balance at
Beginning of Period Expense Other Accounts Deductions End of Period
------------------- ---------- -------------- ---------- -------------
In millions
<S> <C> <C> <C> <C> <C>
December 31, 1999:
Injuries and Damages... $113 $ 900 $-- $111 $ 902
Other (a).............. 254 150 60(c) 104 360
---- ------ --- ---- ------
$367 $1,050 $60 $215 $1,262
December 31, 1998 (b)... 367
December 31, 1997 (b)... 329
</TABLE>
- --------
(a) Principally consists of property insurance reserves and litigation and
other contingency reserves which are included in "Other Current
Liabilities" or "Deferred Credits and Other Liabilities" in the
Consolidated Balance Sheets.
(b) Principally consists of injury and damages reserves, property insurance
reserves and litigation and other contingency reserves which are included
in "Other Current Liabilities" or "Deferred Credits and Other Liabilities"
in the Consolidated Balance Sheets.
(c) Principally litigation and other contingency reserves assumed in business
combinations.
77
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Duke Energy Corporation
We have audited the accompanying consolidated balance sheets of Duke Energy
Corporation and subsidiaries (Duke Energy) as of December 31, 1999 and 1998,
and the related consolidated statements of income and comprehensive income,
common stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1999. Our audits also included the consolidated
financial statement schedule listed in the accompanying index at Item 14. These
financial statements and financial statement schedule are the responsibility of
Duke Energy's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Duke Energy as of December 31,
1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity
with generally accepted accounting principles. Also, in our opinion such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Charlotte, North Carolina
February 11, 2000
78
<PAGE>
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The financial statements of Duke Energy Corporation (Duke Energy) are
prepared by management, who are responsible for their integrity and
objectivity. The statements are prepared in conformity with generally accepted
accounting principles in all material respects and necessarily include
judgments and estimates of the expected effects of events and transactions that
are currently being reported.
Duke Energy's system of internal accounting control is designed to provide
reasonable assurance that assets are safeguarded and transactions are executed
according to management's authorization. Internal accounting controls also
provide reasonable assurance that transactions are recorded properly, so that
financial statements can be prepared according to generally accepted accounting
principles. In addition, accounting controls provide reasonable assurance that
errors or irregularities which could be material to the financial statements
are prevented or are detected by employees within a timely period as they
perform their assigned functions. Duke Energy's accounting controls are
continually reviewed for effectiveness. In addition, written policies,
standards and procedures, and a strong internal audit program augment Duke
Energy's accounting controls.
The Board of Directors pursues its oversight role for the financial
statements through the audit committee, which is composed entirely of directors
who are not employees of Duke Energy. The audit committee meets with management
and internal auditors periodically to review accounting control issues and to
monitor each group's discharge of its responsibilities. The audit committee
also meets periodically with Duke Energy's independent auditors, Deloitte &
Touche LLP. The independent auditors have free access to the audit committee
and the Board of Directors to discuss internal accounting control, auditing and
financial reporting matters without the presence of management.
/s/ Sandra P. Meyer
Sandra P. Meyer
Vice President and Corporate Controller
79
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
Reference is made to "Executive Officers of Duke Energy" included in "Item 1.
Business" of this report. See "The Board of Directors," "Information on the
Board of Directors" and "Other Information" in the proxy statement relating to
Duke Energy's 2000 annual meeting of shareholders (the Proxy Statement),
incorporated herein by reference.
Item 11. Executive Compensation.
See "Compensation" and "Information on the Board of Directors - Compensation
of Directors" in the Proxy Statement, incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
See "Beneficial Ownership" in the Proxy Statement, incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
See "Information on the Board of Directors -- Certain Relationships" in the
Proxy Statement, incorporated herein by reference.
80
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) Consolidated Financial Statements, Supplemental Financial Data and
Supplemental Schedule included in Part II of this annual report are as follows:
Consolidated Financial Statements
Consolidated Statements of Income and Comprehensive Income for the
Years Ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December
31, 1999, 1998 and 1997
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Common Stockholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Quarterly Financial Data (unaudited) (included in Note 18 to the
Consolidated Financial Statements)
Consolidated Financial Statement Schedule II--Valuation and Qualifying
Accounts and Reserves for the Years Ended December 31, 1999, 1998 and 1997
All other schedules are omitted because of the absence of the conditions
under which they are required or because the required information is included in
the financial statements or notes thereto.
(b) Reports on Form 8-K
A Current Report on Form 8-K filed on December 30, 1999 contained disclosures
under Item 5, Other Events, and Item 7, Financial Statements and Exhibits.
(c) Exhibits--See Exhibit Index immediately following the signature page.
81
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 20, 2000 Duke Energy Corporation
(Registrant)
By: Richard B. Priory
Richard B. Priory
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
(i) Principal executive officer:
Richard B. Priory
Chairman of the Board, President and Chief Executive Officer
(ii) Principal financial officer:
Richard J. Osborne
Executive Vice President and Chief Financial Officer
(iii) Principal accounting officer:
Sandra P. Meyer
Vice President and Corporate Controller
(iv) All of the Directors:
Richard B. Priory
G. Alex Bernhardt, Sr.
Robert J. Brown
William A. Coley
William T. Esre
Ann Maynard Gray
Dennis R. Hendrix
Harold S. Hook
George Dean Johnson, Jr.
Max Lennon
Leo E. Linbeck, Jr.
James G. Martin
Russell M. Robinson, II
Date: March 20, 2000
Richard J. Osborne, by signing his name hereto, does hereby sign this
document on behalf of the registrant and on behalf of each of the above-named
persons pursuant to a power of attorney duly executed by the registrant and
such persons, filed with the Securities and Exchange Commission as an exhibit
hereto.
/s/ Richard J. Osborne
By: __________________________________
Attorney-In-Fact
82
<PAGE>
EXHIBIT INDEX
Exhibits filed herewith are designated by an asterisk (*). All exhibits not
so designated are incorporated by reference to a prior filing, as indicated.
Items constituting management contracts or compensatory plans or arrangements
are designated by a double asterisk (**).
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
2 Agreement and Plan of Merger, dated as of November 24, 1996,
as amended and restated as of March 10, 1997, among
registrant, Duke Transaction Corporation and PanEnergy Corp
(filed with Form 8-K dated March 20, 1997, File No. 1-4928, as
Exhibit 2(a)).
3-A Restated Articles of Incorporation of registrant, dated June
18, 1997 (filed with Form S-8, No. 333-29563, effective June
19, 1997, as Exhibit 4(G)).
*3-B Articles of Amendment to Restated Articles of Incorporation of
registrant.
*3-C By-Laws of registrant, as amended.
4 Rights Agreement, dated as of December 17, 1998, between the
registrant and The Bank of New York, as Rights Agent (filed
with Form 8-K dated February 11, 1999).
10-A Agreement, dated March 6, 1978, between the registrant and the
North Carolina Municipal Power Agency No. 1 (filed with Form
8-K for the month of March 1978, File No. 1-4928).
10-B Agreement, dated August 1, 1980, between the registrant and
Piedmont Municipal Power Agency (filed with Form 8-K for the
month of August 1980, File No. 1-4928).
10-C Agreement, dated October 14, 1980, between the registrant and
North Carolina Electric Membership Corporation (filed with
Form 10-Q for the quarter ended September 30, 1980, File No.
1-4928).
10-D Agreement, dated October 14, 1980, between the registrant and
Saluda River Electric Cooperative, Inc. (filed with Form 10-Q
for the quarter ended September 30, 1980, File No. 1-4928).
10-E** Directors' Charitable Giving Program (filed with Form 10-K for
the year ended December 31, 1992, File No. 1-4928, as Exhibit
10-P).
10-F** Estate Conservation Plan (filed with Form 10-K for the year
ended December 31, 1992, File No. 1-4928, as Exhibit 10-R).
10-G** Directors' Savings Plan (filed with Form 10-K for the year
ended December 31, 1996, File No. 1-4928, as Exhibit 10-BB).
10-H** Duke Power Company Stock Incentive Plan (filed as Appendix A
to Schedule 14A of registrant, March 18, 1996, File No. 1-
4928).
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
10-I** 1989 Non-employee Directors Stock Option Plan of Panhandle
Eastern Corporation, adopted February 1, 1989 (filed with Form
S-8 Registration Statement of Panhandle Eastern Corporation,
File No. 33-28912, as Exhibit 28(a)).
10-J** 1982 Key Employee Stock Option Plan of Panhandle Eastern
Corporation, as amended through December 3, 1986 (and related
Agreement) (filed with Form 10-K of Panhandle Eastern
Corporation for the year ended December 31, 1986, File No. 1-
8157, as Exhibit 10(g)).
10-K** Panhandle Eastern Corporation 1994 Long Term Incentive Plan
(filed with Form 10-K of Panhandle Eastern Corporation for the
year ended December 31, 1993, File No. 1-8157, as Exhibit
10.18).
10-L $1,250,000,000 Five-Year Credit Agreement dated as of August
25, 1997, among registrant, the banks listed therein and
Morgan Guaranty Trust Company of New York, as Administrative
Agent (filed with Form 10-K for the year ended December 31,
1997, as Exhibit 10-R).
10-M $950,000,000 Five-Year Credit Agreement dated as of August 25,
1997, among Duke Capital Corporation, the banks listed therein
and The Chase Manhattan Bank, as Administrative Agent (filed
with Form 10-K for the year ended December 31, 1997, as
Exhibit 10-S).
*10-N $600,000,000 364-Day Credit Agreement dated as of August 23,
1999, among Duke Capital Corporation, the banks listed therein
and The Chase Manhattan Bank, as Administrative Agent.
10-O** Employment Agreement by and between the registrant and Richard
B. Priory dated November 24, 1996 (incorporated by reference
to Exhibit C-1 of Exhibit 2 to this Form 10-K), and the First
Amendment thereto dated October 22, 1997 (filed with Form 10-K
for the year ended December 31, 1997, as part of Exhibit 10-
U).
10-P** Employment Agreement by and among PanEnergy Corp, the
registrant and Fred J. Fowler dated November 24, 1996
(incorporated by reference to Exhibit B-3 of Exhibit 2 to this
Form 10-K), and the First Amendment thereto dated October 24,
1997, filed herewith.
10-Q** Employment Agreement by and between the registrant and William
A. Coley dated November 24, 1996 (incorporated by reference to
Exhibit C-2 of Exhibit 2 to this Form 10-K), and the First
Amendment thereto dated October 24, 1997 (filed with Form 10-K
for the year ended December 31, 1997, as part of Exhibit 10-
X).
10-R** Employment Agreement by and between the registrant and Richard
J. Osborne dated November 24, 1996 (incorporated by reference
to Exhibit C-3 of Exhibit 2 to this Form 10-K), and the First
Amendment thereto dated October 27, 1997 (filed with Form 10-K
for the year ended December 31, 1997, as part of Exhibit 10-
Y).
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
10-S** 1990 Long-Term Incentive Plan of Panhandle Eastern Corporation
(filed with Form 10-K of Panhandle Eastern Corporation for the
year ended December 31, 1990, File No. 1-8157, as Exhibit
10.14).
10-T Formation Agreement between PanEnergy Trading and Market
Services, Inc. and Mobil Natural Gas, Inc. dated May 29, 1996
(filed with Form 10-Q of PanEnergy Corp for the quarter ended
June 30, 1996, File No. 1-8157, as Exhibit 2).
10-U Duke Energy Corporation Long-Term Incentive Plan (filed as
Appendix A to Schedule 14A of the registrant, March 16, 1998).
10-V** Duke Energy Corporation Policy Committee Short-Term Incentive
Plan (filed as Appendix B to Schedule 14A of the registrant,
March 16, 1998).
10-W Stock Purchase Agreement between PanEnergy Corp, Texas Eastern
Corporation and CMS Energy Corporation, dated as of October
31, 1998 (filed as Exhibit 10 to Form 8-K of the registrant,
File No. 1-4928, filed November 5, 1998).
10-X Merger and Purchase Agreement among Union Pacific Resources
Company, Union Pacific Fuels, Inc., Duke Energy Field
Services, Inc. and DEFS Merger Sub Corp., dated as of November
20, 1998 (filed as Exhibit 10 to Form 8-K of the registrant,
File No. 1-4928, filed December 1, 1998).
10-Y** Duke Energy Corporation Executive Savings Plan (filed with
Form 10-K Report of TEPPCO Partners, LP, File No. 1-10403, for
the year ended December 31, 1999, as Exhibit 10.7).
10-Z** Duke Energy Corporation Executive Cash Balance Plan (filed
with Form 10-K Report of TEPPCO Partners, LP, File No. 1-
10403, for the year ended December 31, 1999, as Exhibit 10.8).
10-AA** Duke Energy Corporation Retirement Benefit Equalization Plan
(filed with Form 10-K Report of TEPPCO Partners, LP, File No.
1-10403, for the year ended December 31, 1999, as Exhibit
10.9).
*10-BB** Form of Key Employee Severance Agreement and Release between
the registrant and certain key executives.
*10-CC** Form of Change in Control Agreement between the registrant and
certain key executives.
10-DD Contribution Agreement by and among Phillips Petroleum
Company, Duke Energy Corporation and Duke Energy Field
Services L.L.C., dated as of December 16, 1999 (filed as
Exhibit 2.1 to Form 8-K of the registrant, filed December 30,
1999).
10-EE Governance Agreement by and among Phillips Petroleum Company,
Duke Energy Corporation and Duke Energy Field Services L.L.C.,
dated as of December 16, 1999 (filed as Exhibit 2.2 to Form 8-
K of the registrant, filed December 30, 1999).
*12 Computation of Ratio of Earnings to Fixed Charges.
*21 List of Subsidiaries.
*23(a) Independent Auditors' Consent.
*24(a) Power of attorney authorizing Richard J. Osborne and others to
sign the annual report on behalf of the registrant and certain
of its directors and officers.
</TABLE>
85
<PAGE>
<TABLE>
<S> <C>
*24(b) Certified copy of resolution of the Management Committee of the Board
of Directors of the registrant authorizing power of attorney.
*27 Financial Data Schedule for the Year Ended December 31, 1999.
</TABLE>
The total amount of securities of the registrant or its subsidiaries
authorized under any instrument with respect to long-term debt not filed as an
exhibit does not exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis. The registrant agrees, upon request of
the Securities and Exchange Commission, to furnish copies of any or all of such
instruments.
86
<PAGE>
Exhibit 3-B
ARTICLES OF AMENDMENT
OF
DUKE ENERGY CORPORATION
The undersigned corporation hereby submits these Articles of Amendment for
the purpose of amending its Articles of Incorporation:
1. The name of the corporation is Duke Energy Corporation.
2. The following amendment to the Articles of Incorporation of the
corporation was adopted by the holders of its Common Stock on the 15th day of
April, 1999, in the manner prescribed by law:
The first unnumbered paragraph of Article IV of the Articles of
Incorporation was amended to read as follows:
The total number of authorized shares of this Corporation is
1,024,000,000 shares, divided unto 12,500,000 shares of Preferred Stock of
the par value of $100 each (hereafter called Preferred Stock), 10,000,000
shares of Preferred Stock A of the par value of $25 each (hereafter called
Preferred Stock A), 1,500,000 shares of Preference Stock of the par value
of $100 each (hereafter called Preference Stock), and 1,000,000,000 shares
of Common Stock without nominal or par value (hereafter called Common
Stock).
3. Only shares of Common Stock of the corporation were entitled to vote
with respect to the amendment. The number of such shares of the corporation
outstanding at the time of such adoption was 364,145,736; the number of votes
entitled to be cast thereon was 363,464,761; and the number of votes
indisputably represented at the meeting of shareholders was 301,118,240.
4. The number of votes cast for such amendment was 255,717,157, and the
number of votes cast against such amendment was 43,442,086. The total number of
undisputed votes cast for the amendment was sufficient for approval of the
amendment.
This 28th day of April, 1999.
DUKE ENERGY CORPORATION
By: ______________________________
Richard B. Priory
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
Exhibit 3-C
BY-LAWS
OF
DUKE ENERGY CORPORATION
Date of Adoption:
July 28, 1997
Amended February 17, 1999, April 15, 1999
and December 16, 1999
<PAGE>
Exhibit 3-C
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Offices........................................................................................ 1
Section 1.1. Principal Office.............................................................. 1
Section 1.2. Other Offices................................................................. 1
ARTICLE II Meetings of Shareholders....................................................................... 1
Section 2.1. Place of Meetings............................................................. 1
Section 2.2. Annual Meetings............................................................... 1
Section 2.3. Special Meetings.............................................................. 1
Section 2.4. Notice of Meetings............................................................ 1
Section 2.5. Voting Group.................................................................. 2
Section 2.6. Quorum........................................................................ 2
Section 2.7. Voting of Shares.............................................................. 2
Section 2.8. Proxies....................................................................... 3
Section 2.9. Notice of Shareholder Business and Nominations................................ 3
Section 2.10. Conduct of Meetings.......................................................... 5
Section 2.11. Inspectors of Elections...................................................... 6
Section 2.12. Shareholders' List........................................................... 6
ARTICLE III Board of Directors............................................................................ 6
Section 3.1. General Powers................................................................ 6
Section 3.2. Number and Qualifications..................................................... 6
Section 3.3. Election of Directors; Classes................................................ 7
Section 3.4. Removal....................................................................... 7
Section 3.5. Newly Created Directorships; Vacancies........................................ 7
Section 3.6. Compensation of Directors..................................................... 8
ARTICLE IV Meetings of Directors.......................................................................... 8
Section 4.1. Regular Meetings.............................................................. 8
Section 4.2. Special Meetings.............................................................. 8
Section 4.3. Notice........................................................................ 8
Section 4.4. Quorum and Manner of Acting................................................... 8
Section 4.5. Action by Consent of Board of Directors....................................... 8
Section 4.6. Conference Telephone Meetings................................................. 9
ARTICLE V Committees of the Board......................................................................... 9
Section 5.1. Management and Other Committees............................................... 9
Section 5.2................................................................................ 9
Section 5.3................................................................................ 10
ARTICLE VI Officers....................................................................................... 10
Section 6.1. Elected Officers.............................................................. 10
Section 6.2. Election and Term of Office................................................... 10
Section 6.3. Chairman of the Board and Chief Executive Officer............................. 11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 6.4. President........................................................................... 11
Section 6.5. Vice Presidents..................................................................... 11
Section 6.6. Secretary........................................................................... 11
Section 6.7. Treasurer........................................................................... 11
Section 6.8. Controller.......................................................................... 12
Section 6.9. Assistant Secretaries, Assistant Treasurers and Assistant Controllers............... 12
Section 6.10. Removal............................................................................ 12
Section 6.11. Vacancies.......................................................................... 12
ARTICLE VII Stock Certificates and Transfers.................................................................... 13
Section 7.1. Certificates for Shares............................................................. 13
Section 7.2. Share Transfer Records.............................................................. 13
Section 7.3. Lost, Stolen or Destroyed Certificates.............................................. 13
Section 7.4. Fixing Record Date.................................................................. 14
Section 7.5. Holder of Record.................................................................... 14
ARTICLE VIII Contracts, Checks and Drafts, Deposits and Proxies................................................. 14
Section 8.1. Contracts........................................................................... 14
Section 8.2. Checks and Drafts................................................................... 14
Section 8.3. Deposits............................................................................ 14
Section 8.4. Proxies............................................................................. 14
ARTICLE IX Indemnification...................................................................................... 15
Section 9.1. Indemnification..................................................................... 15
ARTICLE X Miscellaneous......................................................................................... 16
Section 10.1. Fiscal Year........................................................................ 16
Section 10.2. Distributions...................................................................... 16
Section 10.3. Seal............................................................................... 16
Section 10.4. Waiver of Notice................................................................... 16
Section 10.5. Time Periods....................................................................... 16
Section 10.6. Resignations....................................................................... 16
Section 10.7. Definitions........................................................................ 16
ARTICLE XI Emergency Provisions................................................................................. 17
Section 11.1. General............................................................................ 17
Section 11.2. Unavailable Directors.............................................................. 17
Section 11.3. Authorized Number of Directors..................................................... 17
Section 11.4. Quorum............................................................................. 17
Section 11.5. Creation of Emergency Committee.................................................... 17
Section 11.6. Constitution of Emergency Committee................................................ 18
Section 11.7. Powers of Emergency Committee...................................................... 18
Section 11.8. Directors Becoming Available....................................................... 18
Section 11.9. Election of Board of Directors..................................................... 18
Section 11.10. Termination of Emergency Committee................................................ 18
Section 11.11. Nonexclusive Powers.............................................................. 18
ARTICLE XII Amendments.......................................................................................... 19
Section 12.1. Amendments......................................................................... 19
</TABLE>
ii
<PAGE>
Exhibit 3-C
BY-LAWS
OF
DUKE ENERGY CORPORATION
(Adopted July 28, 1997 and Amended February 17, 1999,
April 15, 1999 and December 16, 1999)
ARTICLE I
Offices
Section 1.1. Principal Office. The principal office of the Corporation shall be
located in Charlotte, North Carolina.
Section 1.2. Other Offices. The Corporation may have such other offices either
within or without the State of North Carolina as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
ARTICLE II
Meetings of Shareholders
Section 2.1. Place of Meetings. All meetings of shareholders shall be held at
such place either within or without the State of North Carolina as shall be
fixed by the Board of Directors and designated in the notice of the meeting.
Section 2.2. Annual Meetings. The annual meeting of shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on such date and at such time as
may be fixed by the Board of Directors.
Section 2.3. Special Meetings. Except as otherwise required by law and subject
to the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation, special meetings of
shareholders for any purpose or purposes may be called only by (i) the Board of
Directors pursuant to a resolution stating the purpose or purposes thereof or
(ii) by the Chairman of the Board of Directors. No business other than that
stated in the notice shall be transacted at any special meeting.
Section 2.4. Notice of Meetings. Written, printed or electronically transmitted
notice, stating the place, day and hour of the meeting of shareholders and the
purpose or purposes for which the meeting is called, shall be delivered by the
Corporation not less
1
<PAGE>
than 10 calendar days nor more than 60 calendar days before the date of the
meeting, either personally, by mail, or by such other means as may be permitted
by law to each shareholder of record entitled to vote at such meeting; provided
that such notice must be given to all shareholders with respect to any meeting
at which a merger or share exchange is to be submitted to shareholders for
approval and in such other instances as required by law. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail with
postage thereon prepaid, correctly addressed to the shareholder at such
shareholder's address as it appears on the stock transfer books of the
Corporation. If electronically transmitted, such notice shall be deemed to be
delivered when transmitted to the shareholder at the electronic mail address
most recently provided to the Corporation by the shareholder, unless the
Corporation has reason to believe that such transmission is undeliverable at
such address. Such further notice shall be given as may be required by law. When
a meeting is adjourned to a different date, time or place, notice need not be
given of the new date, time or place if the new date, time or place is announced
at the meeting before adjournment and if a new record date is not or must not be
fixed for the adjourned meeting; but if a new record date is fixed for the
adjourned meeting (which must be done if the new date is more than 120 days
after the date of the original meeting), notice of the adjourned meeting must be
given as provided in this Section 2.4 to persons who are shareholders as of the
new record date.
Section 2.5. Voting Group. All shares of one or more classes or series that
under the Articles of Incorporation or the North Carolina Business Corporation
Act are entitled to vote and be counted together collectively on a matter at a
meeting of shareholders constitute a voting group. All shares entitled by the
Articles of Incorporation or the North Carolina Business Corporation Act to vote
generally on a matter are for that purpose a single voting group. Classes or
series of shares shall not be entitled to vote separately by voting group unless
expressly authorized by the Articles of Incorporation or specifically required
by law.
Section 2.6. Quorum. Shares entitled to vote as a separate voting group may take
action on a matter at a meeting of shareholders only if a quorum of that voting
group exists. Unless otherwise required by law, the Articles of Incorporation or
a By-Law adopted by the shareholders, a majority of the votes entitled to be
cast on the matter by the voting group constitutes a quorum of that voting group
for action on that matter. Once a share is represented for any purpose at a
meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
must be set for that adjourned meeting. In the absence of a quorum at the
opening of any meeting of shareholders, such meeting may be adjourned from time
to time by the vote of a majority of the votes cast on the motion to adjourn;
and, subject to the provisions of Section 2.4, at any adjourned meeting any
business may be transacted that might have been transacted at the original
meeting if a quorum exists with respect to the matter proposed.
Section 2.7. Voting of Shares. Each outstanding share entitled to vote shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. Except in the election of directors, the vote of a majority of
shares voted on any matter at a meeting
2
<PAGE>
of shareholders at which a quorum is present shall be the act of the
shareholders on that matter, unless the vote of a greater number is required by
law or by the Articles of Incorporation. Election of directors at all meetings
of the shareholders at which directors are to be elected shall be by ballot,
and, subject to the rights of the holders of any class of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, those nominees for election as
directors who receive the highest number of votes at a meeting at which a quorum
is present up to the maximum number of directors to be elected at such meeting
shall be deemed to have been elected.
Section 2.8. Proxies. Shares may be voted either in person or by one or more
proxies authorized by an appointment of proxy given by the shareholder or by the
shareholder's duly authorized attorney-in-fact, in any manner provided by law,
including electronic or telephonic transmission. An appointment of proxy is
valid for 11 months from the date of its execution, unless a different period is
expressly provided in the appointment form.
Section 2.9. Notice of Shareholder Business and Nominations.
(A) Annual Meetings of Shareholders. (1) Nominations of persons for election to
the Board of Directors and the proposal of business to be considered by the
shareholders may be made at an annual meeting of shareholders (a) pursuant to
the Corporation's notice of meeting pursuant to Section 2.4 of these By-Laws,
(b) by or at the direction of the Board of Directors, or (c) by any shareholder
of the Corporation who was a shareholder of record at the time of giving of
notice provided for in this By-Law, who is entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-Law.
(2) For nominations or other business to be properly brought before an annual
meeting by a shareholder pursuant to clause (c) of paragraph (A)(1) of this
By-Law, the shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 90th calendar day nor earlier than
the close of business on the 120th calendar day prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is more than 30 calendar days before or more
than 60 calendar days after such anniversary date, notice by the shareholder to
be timely must be so delivered not earlier than the close of business on the
120th calendar day prior to such annual meeting and not later than the close of
business on the later of the 90th calendar day prior to such annual meeting or
the 10th calendar day following the calendar day on which public announcement of
the date of such meeting is first made by the Corporation. In no event shall the
public announcement of an adjournment of an annual meeting of shareholders
commence a new time period for the giving of a shareholder's notice as described
above. Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
3
<PAGE>
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11
thereunder (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (b) as to any
other business that the shareholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; and as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (i)
the name and address of such shareholder, as they appear on the Corporation's
books, and of such beneficial owner and (ii) the class and number of shares of
the Corporation which are owned beneficially and of record by such shareholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this
By-Law to the contrary, in the event that the number of directors to be elected
to the Board of Directors of the Corporation is increased and there is no public
announcement by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 100 calendar
days prior to the first anniversary of the preceding year's annual meeting of
shareholders, a shareholder's notice required by this By-Law shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th calendar day following the day on which such public
announcement is first made by the Corporation.
(B) Special Meetings of Shareholders. Only such business shall be conducted at a
special meeting of shareholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting under Section 2.4 of these
By-Laws. Nominations of persons for election to the Board of Directors may be
made at a special meeting of shareholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (a) by or at the direction of
the Board of Directors, or (b) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by any shareholder
of the Corporation who is a shareholder of record at the time of giving of
notice provided for in this By-Law, who shall be entitled to vote at the meeting
and who complies with the notice procedures set forth in this By-Law. In the
event the Corporation calls a special meeting of shareholders for the purpose of
electing one or more directors to the Board of Directors, any shareholder may
nominate a person or persons (as the case may be) for election to such
position(s) as specified in the Corporation's notice of meeting pursuant to such
clause (b), if the shareholder's notice required by paragraph (A)(2) of this By-
Law shall be delivered to the Secretary at the principal executive offices of
the Corporation not earlier than the close of business on the 120th calendar day
prior to such special meeting and not later than the close of business on the
later of the 90th calendar day prior to such special meeting or the 10th
calendar day following the day on which public announcement is first made of the
date of such special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event
4
<PAGE>
shall the public announcement of an adjournment of a special meeting of
shareholders commence a new time period for the giving of a shareholder's notice
as described above.
(C) General. (1) Only such persons who are nominated in accordance with the
procedures set forth in this By-Law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of shareholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-Law. Except as otherwise provided by law, the Articles of Incorporation
or these By-Laws, the chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this By-Law and, if any proposed nomination or business
is not in compliance with this By-Law, to declare that such defective proposal
or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean disclosure in
a press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a shareholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this By-Law.
Nothing in this By-Law shall be deemed to affect any rights (i) of shareholders
to request inclusion of proposals in the Corporation's proxy statement pursuant
to Rule 14a-8 under the Exchange Act or (ii) of the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation to elect directors under specified circumstances.
Section 2.10. Conduct of Meetings. The Board of Directors may to the extent not
prohibited by law adopt such rules and regulations for the conduct of the
meeting of shareholders as it shall deem appropriate. Except to the extent
inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of shareholders shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may to
the extent not prohibited by law include, without limitation, the following: (i)
the establishment of an agenda or order of business for the meeting; (ii) rules
and procedures for maintaining order at the meeting and the safety of those
present; (iii) limitations on attendance at or participation in the meeting to
shareholders of record of the Corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. The date and time of the opening and the closing of
the polls for each matter upon which the shareholders will vote at a meeting
shall be announced at the
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meeting by the person presiding over the meeting. Unless, and to the extent,
determined by the Board of Directors or the chairman of the meeting, meetings of
shareholders shall not be required to be held in accordance with the rules of
parliamentary procedure.
Section 2.11. Inspectors of Elections. The Board of Directors may appoint, or
may authorize the Chairman of the Board to appoint, one or more inspectors,
which inspector or inspectors may include individuals who serve the Corporation
in other capacities, including, without limitation, as officers, employees,
agents or representatives, to act at the meetings of shareholders and make a
written report thereof. If no inspector has been appointed to act or is able to
act at a meeting of shareholders, the chairman of the meeting shall appoint one
or more inspectors to act at the meeting. Each inspector, before discharging
such person's duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of such
person's ability. The inspectors shall, by majority vote, resolve all questions
regarding voting of shares, including the shares represented at the meeting, the
qualification of voters, the validity of proxies, the existence of a quorum as
to any voting group, and the acceptance, rejection and tabulation of votes.
Section 2.12. Shareholders' List. Before each meeting of shareholders, the
Secretary of the Corporation shall prepare an alphabetical list of the
shareholders entitled to notice of such meeting. The list shall be arranged by
voting group (and within each voting group by class or series of shares) and
show the address of and number of shares held by each shareholder. The list
shall be kept on file at the principal office of the Corporation, or at a place
identified in the meeting notice in the city where the meeting will be held, for
the period beginning two business days after notice of the meeting is given and
continuing through the meeting, and shall be available for inspection on written
demand by any shareholder, personally or by or with such shareholder's
representative, at any time during regular business hours. The list shall also
be available at the meeting and shall be subject to inspection on written demand
by any shareholder, personally or by or with such shareholder's representative,
at any time during the meeting or any adjournment thereof.
ARTICLE III
Board of Directors
Section 3.1. General Powers. The business and affairs of the Corporation shall
be managed under the direction of the Board of Directors. In addition to the
powers and authorities by these By-Laws expressly conferred upon them, the Board
of Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Articles of Incorporation
or by these By-Laws required to be exercised or done by the shareholders.
Section 3.2. Number and Qualifications. The number of directors constituting
the Board of Directors shall be not less than twelve nor more than twenty-four,
as may be fixed from time to time by the Board of Directors. A director must be
a shareholder of the
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Corporation.
Section 3.3. Election of Directors; Classes. The directors, other than those who
may be elected by the holders of any class of stock having a preference over the
Common Stock as to dividends or upon liquidation to elect directors under
specified circumstances, shall be classified, with respect to the time for which
they severally hold office into three classes, as nearly equal in number as
possible. Such classes shall originally consist of one class (Class I) of seven
directors who shall be elected at the annual meeting of shareholders held in
1991 for a term expiring at the annual meeting of shareholders held in 1992; a
second class (Class II) of six directors who shall be elected at the annual
meeting of shareholders held in 1991 for a term expiring at the annual meeting
of shareholders to be held in 1993; and a third class (Class III) of six
directors who shall be elected at the annual meeting of shareholders held in
1991 for a term expiring at the annual meeting of shareholders to be held in
1994; with each class to hold office until its successor is elected and
qualified. The Board of Directors shall increase or decrease the number of
directors in one or more classes as may be appropriate whenever it increases or
decreases the number of directors pursuant to the Articles of Incorporation and
Section 3.2 of these By-Laws, in order to ensure that the three classes shall be
as nearly equal in number as possible. At each annual meeting of shareholders,
the successors of the class of directors whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
shareholders held in the third year following the year of their election.
Section 3.4. Removal. Subject to the rights of any class of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, a director may be removed from office
only with cause. "Cause" for removal of a director under this Section 3.4 means
fraudulent or dishonest acts, or gross abuse of authority in the discharge of
duties to the Corporation, and must be established after written notice of
specific charges and an opportunity to meet and refute such charges.
Section 3.5. Newly Created Directorships; Vacancies. Except as may be otherwise
provided for or fixed by or pursuant to any provisions of the Articles of
Incorporation relating to the rights of the holders of any class of stock having
a preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, newly created directorships resulting
from any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled only by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Any director elected in accordance with the preceding sentence
shall hold office until the expiration of the full term of the class for which
such director is elected and until such director's successor shall have been
elected and qualified. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
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Section 3.6. Compensation of Directors. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
ARTICLE IV
Meetings of Directors
Section 4.1. Regular Meetings. A regular meeting of the Board of Directors shall
be held without other notice than this By-Law as soon as practicable after the
annual meeting of shareholders. The Board of Directors may, by resolution,
provide the time and place for the holding of additional regular meetings
without other notice than such resolution.
Section 4.2. Special Meetings. Special meetings of the Board of Directors shall
be called at the request of the Chairman of the Board or a majority of the Board
of Directors then in office. The person or persons authorized to call special
meetings of the Board of Directors may fix the place and time of the meetings.
Section 4.3. Notice. Notice of any special meeting of directors shall be given
to each director at such director's business or residence in writing by hand
delivery, first-class or overnight mail or courier service, facsimile
transmission or orally by telephone. If mailed by first-class mail, such notice
shall be deemed adequately delivered when deposited in the United States mails
so addressed, with postage thereon prepaid, at least 5 calendar days before such
meeting. If by overnight mail or courier service, such notice shall be deemed
adequately delivered when the notice is delivered to the overnight mail or
courier service company at least 24 hours before such meeting. If by facsimile
transmission, such notice shall be deemed adequately delivered when the notice
is transmitted at least 12 hours before such meeting. If by telephone or by hand
delivery, the notice shall be given at least 12 hours prior to the time set for
the meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice of such meeting.
Section 4.4. Quorum and Manner of Acting. Unless the Articles of Incorporation
or these By-Laws provide otherwise, a majority of the number of directors fixed
pursuant to these By-Laws shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors. Unless required by law or the
Articles of Incorporation or these By-Laws provide otherwise, the affirmative
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 4.5. Action by Consent of Board of Directors. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, whether before or after such action, and the writing or writings are
included with the minutes or
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filed with the corporate records.
Section 4.6. Conference Telephone Meetings. Members of the Board of Directors
may participate in a meeting of the Board of Directors by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
ARTICLE V
Committees of the Board
Section 5.1. Management and Other Committees. The Board of Directors may
designate a Management Committee consisting of two or more directors of the
Corporation which shall include the Chairman of the Board who shall act as
chairman. Subject to delegations of authority or any other restrictions adopted
by the Board of Directors, the Management Committee may exercise all of the
authority of the Board of Directors when it is not in session, except that the
Management Committee may not (i) authorize distributions; (ii) approve, or
propose to shareholders, action that is required by law to be approved by
shareholders; (iii) fill vacancies on the Board of Directors or on any of its
Committees; (iv) amend the Articles of Incorporation; (v) adopt, amend or repeal
By-Laws; (vi) approve a plan of merger not requiring shareholder approval; (vii)
authorize or approve reacquisition of shares, except according to a formula or
method prescribed by the Board of Directors; or (viii) authorize or approve the
issuance or sale or contract for the sale of shares, or determine the
designation and relative rights, preferences and limitations of a class or
series of shares, except within limits specifically prescribed by the Board of
Directors. Any resolutions adopted or other action taken by the Management
Committee within the scope of its authority shall be deemed for all purposes to
be adopted or taken by the Board of Directors.
The Board of Directors may also designate one or more other Committees of the
Board of Directors which shall consist of two or more directors of the
Corporation. Any such Committee, other than the Management Committee (the powers
of which are expressly provided for herein), may to the extent permitted by law
exercise such powers and shall have such responsibilities as shall be specified
in the designating resolution. The Board of Directors shall have power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
Committee. Nothing herein shall be deemed to prevent the Board of Directors from
appointing one or more Committees consisting in whole or in part of persons who
are not directors of the Corporation; provided, however, that no such Committee
shall have or may exercise any authority of the Board of Directors.
Section 5.2. Each Committee shall keep written minutes of its proceedings and
shall report such proceedings to the Board when required. A majority of the
members of a
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Committee of the Board of Directors shall be necessary to constitute a quorum
and the affirmative vote of the majority of the members present at a meeting at
which a quorum is present shall be necessary to constitute action by the
Committee. A Committee may also act by the written consent of all members
thereof although not convened in a meeting provided that such written consent is
filed with the Minute Books of the Committee.
Section 5.3. Each Committee shall fix the time and place of its meetings, unless
the Board of Directors shall otherwise provide. Notice of meetings of any
Committee shall be given to each member of the Committee in the manner provided
for in Section 4.3 of these By-Laws.
ARTICLE VI
Officers
Section 6.1. Elected Officers. The elected officers of the Corporation shall be
a Chairman of the Board, a President, a Secretary, a Treasurer, a Controller and
such other officers (including, without limitation, Executive Vice Presidents
and Senior Vice Presidents and Vice Presidents) as the Board of Directors or the
Management Committee from time to time may deem proper. The Chairman of the
Board and the President shall be chosen from among the directors. Elected
officers shall have such powers and duties as generally pertain to their
respective offices, subject to the specific provisions of this Article VI. Such
officers shall also have such powers and duties as from time to time may be
conferred by the Board of Directors or by any committee thereof. The Board of
Directors or the Management Committee may from time to time appoint such other
officers (including one or more Vice Presidents, Assistant Secretaries and
Assistant Treasurers), as may be necessary or desirable for the conduct of the
business of the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as shall be provided in these
By-Laws or, to the extent consistent with these By-Laws, as may be prescribed by
the Board of Directors or the Management Committee. The Executive Officers of
the Corporation shall consist of the members of the Policy Committee of the
Corporation, the Controller, the Chief Financial Officer, the Secretary, the
Treasurer, and such other officers as the Board of Directors may designate as
Executive Officers from time to time.
Section 6.2. Election and Term of Office. Executive Officers of the Corporation
shall be elected by the Board of Directors at the regular meeting of the Board
of Directors held after the annual meeting of shareholders. Officers who are not
Executive Officers may be elected by either the Board of Directors or the
Management Committee at the first regular meeting of the Board of Directors (or
the Management Committee) held after the annual meeting of shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as practicable. Each officer shall hold office until
such person's successor shall have been duly elected and shall have qualified or
until
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such person's death or until he or she shall resign or shall be removed pursuant
to Section 6.10.
Section 6.3. Chairman of the Board and Chief Executive Officer. The Chairman
of the Board shall be the Chief Executive Officer of the Corporation and shall
be responsible for the general management of the affairs of the Corporation and
shall perform all duties incidental to such person's office which may be
required by law and all such other duties as are properly required of the
Chairman of the Board by the Board of Directors. The Chairman of the Board
shall preside at all meetings of shareholders and of the Board of Directors and
shall make reports to the Board of Directors and the shareholders, and shall see
that all orders and resolutions of the Board of Directors and of any committee
thereof are carried into effect. The Chairman of the Board may also serve as
President, if so elected by the Board.
Section 6.4. President. The President shall act in a general executive capacity
and shall assist the Chairman of the Board in the administration and operation
of the Corporation's business and general supervision of its policies and
affairs. The President shall in the absence of or because of the inability to
act of the Chairman of the Board, perform all duties of the Chairman of the
Board and preside at all meetings of shareholders and of the Board of Directors.
Section 6.5. Vice Presidents. The Executive Vice Presidents, the Senior Vice
Presidents and the Vice Presidents shall have such powers and duties as may be
prescribed for them, respectively, by the Board of Directors, the Management
Committee or the Chairman of the Board. Each of such officers shall report to
the Chairman of the Board or such other officer as the Chairman of the Board
shall direct.
Section 6.6. Secretary. The Secretary shall attend all meetings of the
shareholders and of the Board of Directors, shall keep a true and faithful
record thereof in proper books and shall have the custody and care of the
corporate seal, records, minute books and stock books of the Corporation and of
such other books and papers as in the practical business operations of the
Corporation shall naturally belong in the office or custody of the Secretary or
as shall be placed in the Secretary's custody by order of the Board of Directors
or the Management Committee. The Secretary shall keep a suitable record of the
addresses of shareholders and shall, except as may be otherwise required by
statute or these By-Laws, sign and issue all notices required for meetings of
shareholders or of the Board of Directors. The Secretary shall sign all papers
to which the Secretary's signature may be necessary or appropriate, shall affix
and attest the seal of the Corporation to all instruments requiring the seal,
shall have the authority to certify the By-Laws, resolutions of the shareholders
and Board of Directors and other documents of the Corporation as true and
correct copies thereof and shall have such other powers and duties as are
commonly incidental to the office of Secretary and as may be prescribed by the
Board of Directors, the Management Committee or the Chairman of the Board.
Section 6.7. Treasurer. The Treasurer shall have charge of and supervision over
and be responsible for the funds, securities, receipts and disbursements of the
Corporation;
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cause the moneys and other valuable effects of the Corporation to
be deposited in the name and to the credit of the Corporation in such banks or
trust companies or with such bankers or other depositories as shall be selected
in accordance with resolutions adopted by the Board of Directors; cause the
funds of the Corporation to be disbursed by checks or drafts upon the authorized
depositories of the Corporation, and cause to be taken and preserved proper
vouchers for all moneys disbursed; render to the proper officers and to the
Board of Directors, the Management Committee and the Finance Committee, whenever
requested, a statement of the financial condition of the Corporation and of all
his or her transactions as Treasurer; cause to be kept at the principal
executive offices of the Corporation correct books of account of all its
business and transactions; and, in general, perform all duties incident to the
office of Treasurer and such other duties as are given to him or her by the
By-Laws or as may be assigned to him or her by the Chairman of the Board or the
Board of Directors.
Section 6.8. Controller. The Controller shall be the chief accounting officer of
the Corporation; shall keep full and accurate accounts of all assets,
liabilities, commitments, revenues, costs and expenses, and other financial
transactions of the Corporation in books belonging to the Corporation, and
conform them to sound accounting principles with adequate internal control;
shall cause regular audits of these books and records to be made; shall see that
all expenditures are made in accordance with procedures duly established, from
time to time, by the Corporation; shall render financial statements upon the
request of the Board of Directors; and, in general, shall perform all the duties
ordinarily connected with the office of Controller and such other duties as may
be assigned to him or her by the Chairman of the Board or the Board of
Directors.
Section 6.9. Assistant Secretaries, Assistant Treasurers and Assistant
Controllers . Assistant Secretaries, Assistant Treasurers and Assistant
Controllers, when elected or appointed, shall respectively assist the Secretary,
the Treasurer and the Controller in the performance of the respective duties
assigned to such principal officers, and in assisting such principal officer,
each of such assistant officers shall for such purpose have the powers of such
principal officer; and, in case of the absence, disability, death, resignation
or removal from office of any principal officer, such principal officer's duties
shall, except as otherwise ordered by the Board of Directors or the Management
Committee, temporarily devolve upon such assistant officer as shall be
designated by the Chairman of the Board.
Section 6.10. Removal. Any officer or agent may be removed by the affirmative
vote of a majority of the directors then in office whenever, in their judgment,
the best interests of the Corporation would be served thereby. In addition, any
officer or agent appointed by the Management Committee may be removed by the
Management Committee whenever, in its judgment, the best interests of the
Corporation would be served thereby. Any removal shall be without prejudice to
the contract rights, if any, of the person so removed.
Section 6.11. Vacancies. A newly created elected office and a vacancy in any
elected office because of death, resignation or removal may be filled by the
Board of Directors for the unexpired portion of the term at any meeting of the
Board of Directors. Any vacancy
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in an office appointed by the Management Committee because of death, resignation
or removal may be filled by the Management Committee.
ARTICLE VII
Stock Certificates and Transfers
Section 7.1. Certificates for Shares. The Board of Directors may authorize the
issuance of some or all of the shares of the Corporation's classes or series
without issuing certificates to represent such shares. If shares are represented
by certificates, the certificates shall be in such form as required by law and
as determined by the Board of Directors. Certificates shall be signed, either
manually or in facsimile, by the Chairman of the Board, the President or a Vice
President and by the Secretary or Treasurer or an Assistant Secretary or an
Assistant Treasurer. In case any officer or officers who shall have signed, or
whose facsimile signature or signatures shall have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures shall
have been used thereon had not ceased to be such officer or officers of the
Corporation and the issuance and delivery of any such certificate or
certificates shall be conclusive evidence of such adoption. All certificates for
shares shall be consecutively numbered or otherwise identified and entered into
the stock transfer books of the Corporation. When shares are represented by
certificates, the Corporation shall issue and deliver to each shareholder to
whom such shares have been issued or transferred certificates representing the
shares owned by such shareholder. When shares are not represented by
certificates, then within a reasonable time after the issuance or transfer of
such shares, the Corporation shall send the shareholder to whom such shares have
been issued or transferred a written statement of the information required by
law to be on certificates.
Section 7.2. Share Transfer Records. The Corporation shall maintain share
transfer records, containing the name and address of each shareholder of record
and the number and class or series of shares held by such shareholder. Transfers
of shares of the Corporation shall be made only on the share transfer records of
the Corporation by the holder of record thereof or by a duly authorized agent,
transferee or legal representative and only upon surrender for cancellation of
the certificate for such shares (if the shares are represented by certificates).
Section 7.3. Lost, Stolen or Destroyed Certificates. No certificate for shares
of stock in the Corporation shall be issued in place of any certificate alleged
to have been lost, destroyed or stolen, except on production of such evidence of
such loss, destruction or theft and on delivery to the Corporation of a bond of
indemnity in such amount, upon such terms and secured by such surety, as the
Board of Directors or any financial officer may
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in its or such person's discretion require. A new certificate may be issued
without requiring any bond if the Board of Directors or such financial officer
so determines.
Section 7.4. Fixing Record Date. The Board of Directors may fix a future date as
the record date for one or more voting groups in order to determine the
shareholders entitled to notice of a meeting of shareholders, to vote or to take
any other action. Such record date may not be more than 70 days before the
meeting or action requiring a determination of shareholders. A determination of
shareholders entitled to notice of or to vote at a meeting of shareholders is
effective for any adjournment of the meeting unless the Board of Directors fixes
a new record date for the adjourned meeting, which it must do if the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting. If no record date is fixed by the Board of Directors for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, the close of business on the day before the first notice of the
meeting is delivered to shareholders shall be the record date for such
determination of shareholders. The Board of Directors may fix a date as the
record date for determining shareholders entitled to a distribution or share
dividend. If no record date is fixed by the Board of Directors for such
determination, it is the date the Board of Directors authorizes the distribution
or share dividend.
Section 7.5. Holder of Record. Except as otherwise required by law, the
Corporation may treat the person in whose name the shares stand of record on its
books as the absolute owner of the shares and the person exclusively entitled to
receive notification and distributions, to vote and to otherwise exercise the
rights, powers and privileges of ownership of such shares.
ARTICLE VIII
Contracts, Checks and Drafts, Deposits and Proxies
Section 8.1. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
Section 8.2. Checks and Drafts. All checks, drafts or other orders for the
payment of money, issued in the name of the Corporation, shall be signed by such
officer or officers, agent or agents of the Corporation and in such manner as
shall from time to time be determined by the Board of Directors.
Section 8.3. Deposits. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such
depositories as may be selected by or under the authority of the Board of
Directors.
Section 8.4. Proxies. Unless otherwise provided by the Board of Directors, the
Chairman of the Board, the President or any Executive Vice President, Senior
Vice
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President or Vice President may from time to time appoint an attorney or
attorneys or agent or agents of the Corporation, in the name and on behalf of
the Corporation, to cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other corporation, any of
whose stock or other securities may be held by the Corporation, at meetings of
the holders of the stock or other securities of such other corporation, or to
consent in writing, in the name of the Corporation as such holder, to any action
by such other corporation, and may instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent, and may execute
or cause to be executed in the name and on behalf of the Corporation and under
its corporate seal or otherwise, all such written proxies or other instruments
as he or she may deem necessary or proper in the premises.
ARTICLE IX
Indemnification
Section 9.1. Indemnification. Any person who is or was serving as a director,
officer, employee or agent of the Corporation or who, at the request of the
Corporation, is or was serving as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise or as
a trustee or administrator under an employee benefit plan, shall be indemnified
by the Corporation, to the fullest extent permitted by law, against (a)
litigation expenses, including costs, expenses and reasonable attorneys' fees
incurred by any such person in connection with any threatened, pending or
completed action, suit or proceedings, whether civil, criminal, administrative
or investigative, whether formal or informal, and whether or not brought by or
on behalf of the Corporation, arising out of such person's status as such or
such person's activities in any of the foregoing capacities, (b) liability,
including payments made by such person in satisfaction of any judgment, money
decree, fine (including an excise tax assessed with respect to an employee
benefit plan), penalty or settlement for which such person may have become
liable in any such action, suit or proceeding, and (c) reasonable costs,
expenses and attorneys' fees incurred by such person in connection with the
enforcement of the indemnification rights provided herein. Any person who is or
was serving in any of the foregoing capacities for or on behalf of the
Corporation shall be conclusively deemed to be doing or to have done so in
reliance upon, and as consideration for, the indemnification rights provided
herein.
Any such litigation expenses shall be paid by the Corporation in advance of the
final disposition of any action, suit or proceeding upon receipt of an unsecured
written promise by or on behalf of any such person to repay such amount unless
it shall ultimately be determined that such person is entitled to be indemnified
by the Corporation against such expenses.
The rights of indemnification provided herein (which shall be deemed to be a
contract between any such person and the Corporation enforceable on the part of
such person notwithstanding any subsequent amendment or repeal of this By-Law)
shall inure to the
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benefit of the estates or legal representatives of any such person and shall not
be exclusive of any other rights to which such person may be entitled apart from
this By-Law, by contract, resolution or otherwise.
ARTICLE X
Miscellaneous
Section 10.1. Fiscal Year. The fiscal year of the Corporation shall begin on the
first day of January in each year and shall end on the thirty-first day of
December of such year.
Section 10.2. Distributions. The Board of Directors may from time to time
authorize, and the Corporation may grant, distributions and share dividends to
its shareholders pursuant to law and subject to the provisions of the Articles
of Incorporation.
Section 10.3. Seal. The corporate seal of the Corporation shall be circular in
form and shall consist of two concentric circles between which is the name of
the Corporation and the location of its principal office and in the center of
which is inscribed the word "SEAL". The corporate seal may be used by causing it
or a facsimile thereof to be impressed or reproduced or otherwise.
Section 10.4. Waiver of Notice. Whenever any notice is required to be given to
any shareholder or director of the Corporation under the provisions of the North
Carolina Business Corporation Law or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at, nor the purpose of, any annual
or special meeting of the shareholders or the Board of Directors or committee
thereof need be specified in any waiver of notice of such meeting.
Section 10.5. Time Periods. In applying any provision of these By-Laws which
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
Section 10.6. Resignations. Any director or any officer, whether elected or
appointed, may resign at any time by giving written notice of such resignation
to the Chairman of the Board or the Secretary, and such resignation shall be
deemed to be effective when communicated unless the notice specifies a later
effective date. No formal action shall be required on behalf of the Corporation
to make any such resignation effective.
Section 10.7. Definitions. Unless the context otherwise requires, terms used in
these By-Laws shall have the meanings assigned to them in the North Carolina
Business Corporation Act to the extent defined therein.
16
<PAGE>
ARTICLE XI
Emergency Provisions
Section 11.1. General. The provisions of this Article shall be operative only
during a national emergency declared by the President of the United States or
the person performing the President's functions, or in the event of a nuclear,
atomic or other attack on the United States or on a locality in which the
Corporation conducts its principal business or customarily holds meetings of its
Board of Directors or its shareholders, or during the existence of any other
catastrophic event or similar emergency, as a result of which a quorum of the
Board of Directors cannot readily be assembled for action. Said provisions in
such event shall override all other By-Laws of the Corporation in conflict with
any provisions of this Article, and shall remain operative during such
emergency, but thereafter shall be inoperative; provided that all actions taken
in good faith pursuant to such provisions shall thereafter remain in full force
and effect unless and until revoked by action taken pursuant to the provisions
of the By-Laws other than those contained in this Article.
Section 11.2. Unavailable Directors. All directors of the Corporation who are
not available to perform their duties as directors by reason of physical or
mental incapacity or for any other reason or who are unwilling to perform their
duties or whose whereabouts are unknown shall automatically cease to be
directors, with like effect as if such persons had resigned as directors, so
long as such unavailability continues.
Section 11.3. Authorized Number of Directors. The authorized number of directors
shall be the number of directors remaining after eliminating those who have
ceased to be directors pursuant to Section 11.2, or the minimum number required
by law, whichever number is greater.
Section 11.4. Quorum. The number of directors necessary to constitute a quorum
shall be one-third of the authorized number of directors as specified in Section
11.3, or such other minimum number as, pursuant to the law or lawful decree then
in force, it is possible for the by-laws of a corporation to specify.
Section 11.5. Creation of Emergency Committee. In the event the number of
directors remaining after eliminating those who have ceased to be directors
pursuant to Section 11.2 is less than the minimum number of authorized directors
required by law, then until the appointment of additional directors to make up
such required minimum, all the powers and authorities which the Board of
Directors could by law delegate, including all powers and authorities which the
Board of Directors could delegate to a committee, shall be automatically vested
in an emergency committee, and the emergency committee shall thereafter manage
the affairs of the Corporation pursuant to such powers and authorities and shall
have all other powers and authorities as may by law or lawful decree be
conferred on any person or body of persons during a period of emergency.
17
<PAGE>
Section 11.6. Constitution of Emergency Committee. The emergency committee shall
consist of all the directors remaining after eliminating those who have ceased
to be directors pursuant to Section 11.2, provided that such remaining directors
are not less than three in number. In the event such remaining directors are
less than three in number, the emergency committee shall consist of three
persons, who shall be the remaining director or directors and either one or two
officers or employees of the Corporation, as the remaining director or directors
may in writing designate. If there is no remaining director, the emergency
committee shall consist of the three most senior officers of the Corporation who
are available to serve, and if and to the extent that officers are not
available, the most senior employees of the Corporation. Seniority shall be
determined in accordance with any designation of seniority in the minutes of the
proceedings of the Board of Directors, and in the absence of such designation,
shall be determined by rate of remuneration.
Section 11.7. Powers of Emergency Committee. The emergency committee, once
appointed, shall govern its own procedures and shall have power to increase the
number of members thereof beyond the original number, and in the event of a
vacancy or vacancies therein, arising at any time, the remaining member or
members of the emergency committee shall have the power to fill such vacancy or
vacancies. In the event at any time after its appointment all members of the
emergency committee shall die or resign or become unavailable to act for any
reason whatsoever, a new emergency committee shall be appointed in accordance
with the foregoing provisions of this Article 11.
Section 11.8. Directors Becoming Available. Any person who has ceased to be a
director pursuant to the provisions of Section 11.2 and who thereafter becomes
available to serve as a director shall automatically become a member of the
emergency committee.
Section 11.9. Election of Board of Directors. The emergency committee shall, as
soon after its appointment as is practicable, take all requisite action to
secure the election of a board of directors, and upon such election all the
powers and authorities of the emergency committee shall cease.
Section 11.10. Termination of Emergency Committee. In the event, after the
appointment of an emergency committee, a sufficient number of persons who ceased
to be directors pursuant to Section 11.2 become available to serve as directors,
so that if they had not ceased to be directors as aforesaid, there would be
sufficient directors to constitute the minimum number of directors required by
law, then all such persons shall automatically be deemed to be reappointed as
directors and the powers and authorities of the emergency committee shall
terminate.
Section 11.11. Nonexclusive Powers. The emergency powers provided in this
Article 11 shall be in addition to any powers provided by law.
18
<PAGE>
ARTICLE XII
Amendments
Section 12.1. Amendments. Except as required by law or as otherwise provided in
the Articles of Incorporation or in a By-Law adopted by the shareholders, these
By-Laws may be amended or repealed and new By-Laws may be adopted by the Board
of Directors. No By-Law adopted, amended or repealed by the shareholders shall
be readopted, amended or repealed by the Board of Directors, unless the Articles
of Incorporation or a By-Law adopted by the shareholders authorizes the Board of
Directors to adopt, amend or repeal that particular By-Law or the By-Laws
generally.
19
<PAGE>
Exhibit 10N
BY-LAWS
OF
DUKE ENERGY CORPORATION
Date of Adoption:
July 28, 1997
Amended February 17, 1999, April 15, 1999
and December 16, 1999
<PAGE>
EXHIBIT 10-N
[CONFORMED COPY]
$600,000,000
364-DAY
CREDIT AGREEMENT
dated as of
August 23, 1999
among
Duke Capital Corporation,
The Banks Listed Herein
and
The Chase Manhattan Bank,
as Administrative Agent
------------------------------------------
Morgan Guaranty Trust Company of New York,
Syndication Agent
Chase Securities Inc.
J.P. Morgan Securities Inc.,
Co-Lead Arrangers and Co-Book Managers
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1 Definitions
Section 1.01. Definitions................................................. 1
Section 1.02. Accounting Terms and Determinations......................... 10
Section 1.03. Types and Classes of Borrowings............................. 11
ARTICLE 2 The Credits
Section 2.01. Commitments to Lend......................................... 11
Section 2.02. Notice of Committed Borrowings.............................. 12
Section 2.03. Bid Rate Borrowings......................................... 13
Section 2.04. Notice to Banks; Funding of Loans........................... 17
Section 2.05. Registry; Notes............................................. 18
Section 2.06. Maturity of Loans........................................... 18
Section 2.07. Interest Rates.............................................. 19
Section 2.08. Fees........................................................ 20
Section 2.09. Optional Termination or Reduction of Commitments............ 21
Section 2.10. Method of Electing Interest Rates........................... 21
Section 2.11. Mandatory Termination of Commitments........................ 22
Section 2.12. Optional Prepayments........................................ 22
Section 2.13. General Provisions as to Payments........................... 23
Section 2.14. Funding Losses.............................................. 24
Section 2.15. Computation of Interest and Fees............................ 24
Section 2.16. Regulation D Compensation................................... 24
Section 2.17. Increased Commitments; Additional Banks..................... 25
ARTICLE 3 Conditions
Section 3.01. Effectiveness............................................... 26
Section 3.02. Borrowings.................................................. 27
ARTICLE 4 Representations and Warranties
Section 4.01. Corporate Existence and Power............................... 28
Section 4.02. Corporate and Governmental Authorization; No Contravention.. 28
Section 4.03. Binding Effect.............................................. 28
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 4.04. Financial Information....................................... 29
Section 4.05. Litigation.................................................. 29
Section 4.06. Compliance with Laws........................................ 29
Section 4.07. Taxes....................................................... 30
Section 4.08. Public Utility Holding Company Act.......................... 30
Section 4.09. Year 2000................................................... 30
ARTICLE 5 Covenants
Section 5.01. Information................................................ 30
Section 5.02. Payment of Taxes........................................... 32
Section 5.03. Maintenance of Property; Insurance......................... 32
Section 5.04. Maintenance of Existence................................... 33
Section 5.05. Compliance with Laws....................................... 33
Section 5.06. Books and Records.......................................... 33
Section 5.07. Maintenance of Ownership of Principal Subsidiaries......... 34
Section 5.08. Negative Pledge............................................ 34
Section 5.09. Consolidations, Mergers and Sales of Assets................ 35
Section 5.10. Use of Proceeds............................................ 35
Section 5.11. Transactions with Affiliates............................... 36
Section 5.12. Indebtedness/Capitalization Ratio.......................... 36
ARTICLE 6 Defaults
Section 6.01. Events of Default........................................... 36
Section 6.02. Notice of Default........................................... 38
ARTICLE 7 The Administrative Agent
Section 7.01. Appointment and Authorization............................... 38
Section 7.02. Administrative Agent and Affiliates......................... 38
Section 7.03. Action by Administrative Agent.............................. 39
Section 7.04. Consultation with Experts................................... 39
Section 7.05. Liability of Administrative Agent........................... 39
Section 7.06. Indemnification............................................. 40
Section 7.07. Credit Decision............................................. 40
Section 7.08. Successor Administrative Agent.............................. 40
Section 7.09. Administrative Agent's Fee.................................. 40
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 8 Change in Circumstances
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair.... 41
Section 8.02. Illegality.................................................. 41
Section 8.03. Increased Cost and Reduced Return........................... 42
Section 8.04. Taxes....................................................... 43
Section 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans... 46
Section 8.06. Substitution of Bank Termination Option..................... 46
ARTICLE 9 Miscellaneous
Section 9.01. Notices..................................................... 47
Section 9.02. No Waivers.................................................. 48
Section 9.03. Expenses; Indemnification................................... 48
Section 9.04. Sharing of Set-offs......................................... 48
Section 9.05. Amendments and Waivers...................................... 49
Section 9.06. Successors and Assigns...................................... 49
Section 9.07. Collateral.................................................. 51
Section 9.08. Confidentiality............................................. 51
Section 9.09. Governing Law; Submission to Jurisdiction................... 51
Section 9.10. Counterparts; Integration................................... 51
Section 9.11. WAIVER OF JURY TRIAL........................................ 52
</TABLE>
iii
<PAGE>
<TABLE>
PAGE
----
<S> <C>
PRICING SCHEDULE
EXHIBIT A - Note
EXHIBIT B - Form of Bid Rate Quote Request
EXHIBIT C - Form of Invitation for Bid Rate Quotes
EXHIBIT D - Form of Bid Rate Quote
EXHIBIT E - Opinion of General Counsel for the Borrower
EXHIBIT F - Opinion of Davis Polk & Wardwell, Special Counsel for the
Administrative Agent
EXHIBIT G - Assignment and Assumption Agreement
EXHIBIT H - Extension Agreement
</TABLE>
iv
<PAGE>
364-DAY
CREDIT AGREEMENT
364-DAY CREDIT AGREEMENT dated as of August 23, 1999 among DUKE CAPITAL
CORPORATION, the BANKS listed on the signature pages hereof and THE CHASE
MANHATTAN BANK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Additional Bank" means any financial institution that becomes a Bank for
purposes hereof in connection with (i) an increase in the aggregate amount of
the Commitments pursuant to Section 2.17 or (ii) the replacement of a Bank
pursuant to Section 8.06.
"Administrative Agent" means The Chase Manhattan Bank in its capacity as
administrative agent for the Banks hereunder, and its successors in such
capacity.
"Administrative Questionnaire" means, with respect to each Bank, the
administrative questionnaire in the form submitted to such Bank by the
Administrative Agent and submitted to the Administrative Agent (with a copy to
the Borrower) duly completed by such Bank.
"Affiliate" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls the Borrower (a "Controlling Person") or (ii)
any Person (other than the Borrower or a Subsidiary) which is controlled by or
is under common control with a Controlling Person. As used herein, the term
"control" means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"Applicable Lending Office" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its
Bid Rate Loans, its Bid Rate Lending Office.
<PAGE>
"Approved Officer" means the president, a vice president or the treasurer
or assistant treasurer of the Borrower or such other representative of the
Borrower as may be designated by any one of the foregoing with the consent of
the Administrative Agent.
"Assignee" has the meaning set forth in Section 9.06(c).
"Bank" means each bank or other financial institution listed on the
signature pages hereof, each Additional Bank, each Assignee which becomes a Bank
pursuant to Section 9.06(c), and their respective successors.
"Base Rate" means, for any day, a rate per annum equal to the higher of (i)
the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds
Rate for such day.
"Base Rate Loan" means (i) a Committed Loan which bears interest at the
Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or the provisions of Article 8 or (ii) an overdue amount
which was a Base Rate Loan immediately before it became overdue.
"Bid Rate (General)" has the meaning set forth in Section 2.03(d).
"Bid Rate (General) Auction" means a solicitation of Bid Rate Quotes
setting forth Bid Rates (General) pursuant to Section 2.03.
"Bid Rate (General) Loan" means a loan made or to be made by a Bank
pursuant to a Bid Rate (General) Auction.
"Bid Rate (Indexed) Auction" means a solicitation of Bid Rate Quotes
setting forth Bid Rate (Indexed) Margins based on the London Interbank Offered
Rate pursuant to Section 2.03.
"Bid Rate Lending Office" means, as to each Bank, its Domestic Lending
Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Bid Rate Lending Office by notice to the Borrower and
the Administrative Agent; provided that any Bank may from time to time by notice
to the Borrower and the Administrative Agent designate separate Bid Rate Lending
Offices for its Bid Rate (Indexed) Loans, on the one hand, and its Bid Rate
(General) Loans, on the other hand, in which case all references herein to the
Bid Rate Lending Office of such Bank shall be deemed to refer to either or both
of such offices, as the context may require.
"Bid Rate (Indexed) Loan" means a loan made or to be made by a Bank
pursuant to a Bid Rate (Indexed) Auction (including such a loan bearing interest
at the Base Rate pursuant to Section 8.01(a)).
2
<PAGE>
"Bid Rate Loan" means a Bid Rate (Indexed) Loan or a Bid Rate (General)
Loan.
"Bid Rate (Indexed) Margin" has the meaning set forth in Section 2.03(d).
"Bid Rate Quote" means an offer by a Bank to make a Bid Rate Loan in
accordance with Section 2.03.
"Borrower" means Duke Capital Corporation, a Delaware corporation, and its
successors.
"Borrowing" has the meaning set forth in Section 1.03.
"Class" refers to the determination whether a Loan is a Committed Loan
(and, if a Committed Loan, whether a Revolving Credit Loan or a Term Loan) or a
Bid Rate Loan.
"Commitment" means (i) with respect to each Bank listed on the signature
pages hereof, the amount set forth opposite the name of such Bank on the
signature pages hereof, and (ii) with respect to each Additional Bank or
Assignee which becomes a bank pursuant to Sections 2.17(a), 2.01(c) and 9.06(c),
the amount of the Commitment thereby assumed by it, in each case as such amount
may from time to time be reduced pursuant to Section 2.09, 2.11 or 9.06(c) or
increased pursuant to Section 2.17(a), 8.06 or 9.06(c).
"Commitment Termination Date" means, for each Bank, August 21, 2000, as
such date may be extended from time to time with respect to such Bank pursuant
to Section 2.01(c) or, if any such day is not a Euro-Dollar Business Day, the
next preceding Euro-Dollar Business Day.
"Committed Loan" means a Revolving Credit Loan or a Term Loan made by a
Bank pursuant to Section 2.01.
"Consolidated Capitalization" means the sum of (i) Consolidated
Indebtedness, (ii) consolidated common stockholders' equity as would appear on a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries
prepared in accordance with generally accepted accounting principles, and (iii)
the aggregate liquidation preference of preferred stocks (other than preferred
stocks subject to mandatory redemption or repurchase) of the Borrower and its
Consolidated Subsidiaries upon involuntary liquidation.
"Consolidated Indebtedness" means, at any date, all Indebtedness of
Borrower and its Consolidated Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles.
3
<PAGE>
"Consolidated Subsidiary" means, for any Person, at any date any Subsidiary
or other entity the accounts of which would be consolidated with those of such
Person in its consolidated financial statements if such statements were prepared
as of such date; unless otherwise specified "Consolidated Subsidiary" means a
Consolidated Subsidiary of the Borrower.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City are authorized by law to close.
"Domestic Lending Office" means, as to each Bank, its office located at its
address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.01.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment including, without
limitation, ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Group" means all members of a controlled group of corporations and
all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
4
<PAGE>
"Euro-Dollar Lending Office" means, as to each Bank, its office, branch or
affiliate located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Euro-Dollar Lending
Office) or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower
and the Administrative Agent.
"Euro-Dollar Loan" means (i) a Committed Loan which bears interest at a
Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or
Notice of Interest Rate Election or (ii) an overdue amount which was a Euro-
Dollar Loan immediately before it became overdue.
"Euro-Dollar Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
"Euro-Dollar Rate" means a rate of interest determined pursuant to Section
2.07(b) on the basis of a London Interbank Offered Rate.
"Euro-Dollar Reference Banks" means the principal London offices of The
Chase Manhattan Bank and Morgan Guaranty Trust Company of New York.
"Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.16.
"Event of Default" has the meaning set forth in Section 6.01.
"Existing Credit Agreement" means the $600,000,000 364-Day Credit Agreement
dated as of August 24, 1998 among the Borrower, the lenders party thereto and
The Chase Manhattan Bank, as administrative agent.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to The Chase Manhattan Bank (or its
successor as Administrative Agent) on such day on such transactions as
determined by the Administrative Agent.
5
<PAGE>
"Final Maturity Date" means, for each Bank, the first anniversary of its
Commitment Termination Date or, if such day is not a Euro-Dollar Business Day,
the next preceding Euro-Dollar Business Day; provided that the Final Maturity
Date for all Banks shall be no later than August 16, 2004.
"Fixed Rate Loans" means Euro-Dollar Loans or Bid Rate Loans (excluding Bid
Rate (Indexed) Loans bearing interest at the Base Rate) or any combination of
the foregoing.
"Group of Loans" means at any time a group of Committed Loans of the same
Class consisting of (i) all Base Rate Loans of such Class outstanding at such
time or (ii) all Euro-Dollar Loans of such Class having the same Interest Period
at such time, provided that, if a Committed Loan of any particular Bank is
converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall
be included in the same Group or Groups of Loans from time to time as it would
have been if it had not been so converted or made.
"Indebtedness" of any Person means at any date, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all indebtedness of such
Person for the deferred purchase price of property or services purchased, (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired, (iv) all indebtedness
under leases which shall have been or should be, in accordance with generally
accepted accounting principles, recorded as capital leases in respect of which
such Person is liable as lessee, (v) the face amount of letter of credit
indebtedness available or to be available to be drawn (other than letter of
credit obligations relating to indebtedness included in Indebtedness pursuant to
another clause of this definition) and, without duplication, the unreimbursed
amount of all drafts drawn thereunder, (vi) indebtedness secured by any Lien on
property or assets of such Person, whether or not assumed (but in any event not
exceeding the fair market value of the property or asset), (vii) all direct
guarantees of Indebtedness referred to above of another Person, (viii) all
amounts payable in connection with mandatory redemptions or repurchases of
preferred stock and (ix) any obligations of such Person (in the nature of
principal or interest) in respect of acceptances or similar obligations issued
or created for the account of such Person.
"Interest Period" means: (1) with respect to each Euro-Dollar Loan, the
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in an applicable Notice of Interest Rate
Election and ending one, two, three or six, or, if deposits of a corresponding
maturity are generally available in the London interbank market, nine or twelve,
months thereafter, as the Borrower may elect in such notice; provided that:
6
<PAGE>
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day; and
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Euro-Dollar Business Day of a
calendar month;
(2) with respect to each Bid Rate (Index) Loan, the period commencing on
the date of borrowing specified in the applicable Notice of Borrowing and ending
such number of months thereafter (but not less than one month) as the Borrower
may elect in accordance with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day; and
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Euro-Dollar Business Day of a
calendar month; and
(3) with respect to each Bid Rate (General) Loan, the period commencing
on the date of borrowing specified in the applicable Notice of Borrowing and
ending such number of days thereafter (but not less than 7 days) as the Borrower
may elect in accordance with Section 2.03; provided that any Interest Period
which would otherwise end on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business Day; and
provided further that: (x) any Interest Period applicable to any Loan of any
Bank which begins before such Bank's Commitment Termination Date and would
otherwise end after such Bank's Commitment Termination Date shall end on such
Bank's Commitment Termination Date; and (y) any Interest Period applicable to
any Loan of any Bank which would otherwise end after such Bank's Final Maturity
Date shall end on such Bank's Final Maturity Date.
7
<PAGE>
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment Grade Status" exists as to any Person at any date if all
senior debt securities of such Person outstanding at such date which had been
rated by S&P or Moody's are rated BBB- or higher by S&P or Baa3 or higher by
Moody's, as the case may be.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
"Loan" means a Base Rate Loan or a Euro-Dollar Loan or a Bid Rate Loan
and "Loans" means Base Rate Loans or Euro-Dollar Loans or Bid Rate Loans or any
combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in Section
2.07(b).
"Material Adverse Effect" means a material adverse effect on the
business, financial position, results of operations or prospects of the
Borrower.
"Material Debt" means Indebtedness of the Borrower or any of its
Subsidiaries in an aggregate principal amount exceeding $100,000,000.
"Material Plan" has the meaning set forth in Section 6.01(i).
"Material Subsidiary" means at any time any Subsidiary of the Borrower
having, together with its Subsidiaries, consolidated assets in excess of 10% of
the total assets of the Borrower and its Consolidated Subsidiaries, determined
on a consolidated basis as of such time.
"Moody's" means Moody's Investor Service, Inc.
"Notes" means promissory notes of the Borrower, in the form required
by Section 2.05, evidencing the obligation of the Borrower to repay the Loans,
and "Note" means any one of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing (as
defined in Section 2.02) or a Notice of Bid Rate Borrowing (as defined in
Section 2.03(f)).
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"Notice of Interest Rate Election" has the meaning set forth in
Section 2.10(b).
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Internal Revenue Code and is either (i) maintained by a
member of the ERISA Group for employees of a member of the ERISA Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions.
"Prime Rate" means the rate of interest publicly announced by The
Chase Manhattan Bank in New York City from time to time as its Prime Rate. Each
change in the Prime Rate shall be effective from and including the day such
change is publicly announced.
"Principal Subsidiary" means each of Texas Eastern Transmission
Corporation, Algonquin Gas Transmission Company, PanEnergy Corp, and their
respective successors.
"Quarterly Payment Date" means the first Domestic Business Day of each
January, April, July and October.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Required Banks" means at any time Banks (i) having at least 51% of
the sum of the aggregate amount of the Commitments and the aggregate outstanding
principal amount of the Term Loans or (ii) if the Commitments shall have been
terminated, having at least 51% of the aggregate unpaid principal amount of the
Loans.
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"Revolving Credit Loan" means a loan made or to be made by a Bank
pursuant to Section 2.01(a); provided that, if any such loan or loans (or
portions thereof) are combined or subdivided pursuant to a Notice of Interest
Rate Election, the term "Revolving Credit Loan" shall refer to the combined
principal amount resulting from such combination or to each of the separate
principal amounts resulting from such subdivision, as the case may be.
"Revolving Credit Period" means, with respect to any Bank, the period
from and including the Effective Date to but not including its Commitment
Termination Date.
"S&P" means Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc.
"Subsidiary" means, as to any Person, any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person; unless
otherwise specified, "Subsidiary" means a Subsidiary of the Borrower.
"Substantial Assets" means assets sold or otherwise disposed of in a
single transaction or a series of related transactions representing 25% or more
of the consolidated assets of the Borrower and its Consolidated Subsidiaries,
taken as a whole.
"Term Loan" means a loan made or to be made by a Bank pursuant to
Section 2.01(b); provided that, if any such loan or loans (or portions thereof)
are combined or subdivided pursuant to a Notice of Interest Rate Election, the
term "Term Loan" shall refer to the combined principal amount resulting from
such combination or to each of the separate principal amounts resulting from
such subdivision, as the case may be.
"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
"Unfunded Vested Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all benefits under
such Plan exceeds (ii) the fair market value of all Plan assets allocable to
such benefits, all determined as of the then most recent valuation date for such
Plan, but only to the extent that such excess represents a potential liability
of a member of the ERISA Group to the PBGC or the Plan under Title IV of ERISA.
Section 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
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required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Banks.
Section 1.03. Types and Classes of Borrowings. The term "Borrowing"
denotes the aggregation of Loans of one or more Banks to be made to the Borrower
pursuant to Article 2 on a single date and for a single Interest Period.
Borrowings are classified for purposes of this Agreement either by reference to
the pricing of Loans comprising such Borrowing (e.g., a "Fixed Rate Borrowing"
is a Euro-Dollar Borrowing or a Bid Rate Borrowing (excluding any such Borrowing
consisting of Bid Rate (Indexed) Loans bearing interest at the Base Rate), and a
"Euro-Dollar Borrowing" is a Borrowing comprised of Euro- Dollar Loans) or by
reference to the provisions of Article 2 under which participation therein is
determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in
which all Banks participate in proportion to their Commitments, while a "Bid
Rate Borrowing" is a Borrowing under Section 2.03 in which the Bank participants
are determined on the basis of their bids in accordance therewith) or by
reference to the Class of Loans comprising such Borrowing (e.g. a "Term
Borrowing" is a Borrowing comprised of Term Loans).
ARTICLE 2
The Credits
Section 2.01. Commitments to Lend. (a) Revolving Credit Loans. During its
Revolving Credit Period, each Bank severally agrees, on the terms and conditions
set forth in this Agreement, to make loans to the Borrower pursuant to this
subsection from time to time in amounts such that the aggregate principal amount
of Revolving Credit Loans by such Bank at any one time outstanding shall not
exceed the amount of its Commitment. Each Borrowing under this subsection shall
be in an aggregate principal amount of $10,000,000 or any larger multiple of
$1,000,000 (except that any such Borrowing may be in the aggregate amount
available in accordance with Section 3.02(b)) and shall be made from the several
Banks ratably in proportion to their respective Commitments in effect on the
date of Borrowing; provided that, if the Interest Period selected by the
Borrower for a Borrowing would otherwise end after the Commitment Termination
Dates of some but not all Banks, the Borrower may in its Notice of Committed
Borrowing elect not to borrow from those Banks whose Commitment Termination
Dates fall prior to the end of such Interest Period. Within the foregoing
limits, the Borrower may borrow under this subsection (a), or to the
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extent permitted by Section 2.12, prepay Loans and reborrow at any time during
the Revolving Credit Periods under this subsection (a).
(b) Term Loans. Each Bank severally agrees, on the terms and conditions
set forth in this Agreement, to make a loan to the Borrower on its Commitment
Termination Date in an amount up to but not exceeding the amount of its
Commitment. Each Borrowing under this subsection (b) shall be made from the
several Banks having the same Commitment Termination Date ratably in proportion
to their respective Commitments.
(c) Extension of Commitments. On no more than four separate occasions,
the Borrower may, upon not less than 45 days but no earlier than 60 days notice
prior to the then current Commitment Termination Dates to the Administrative
Agent (which shall notify each Bank of receipt of such request), propose to
extend the Revolving Credit Periods for an additional 364 days measured from the
Commitment Termination Dates then in effect. Each Bank shall endeavor to
respond to such request, whether affirmatively or negatively (such determination
in the sole discretion of such Bank), by notice to the Borrower and the
Administrative Agent not more than 45 days nor less than 30 days prior to such
Bank's Commitment Termination Date. Subject to the execution by the Borrower,
the Administrative Agent and such Banks of a duly completed Extension Agreement
in substantially the form of Exhibit H, the Commitment Termination Date
applicable to the Commitment of each Bank so affirmatively notifying the
Borrower and the Administrative Agent shall be extended for the period specified
above; provided that no Commitment Termination Date of any Bank shall be
extended unless Banks having at least 66*% in aggregate amount of the
Commitments in effect at the time any such extension is requested shall have
elected so to extend their Commitments. Any Bank which does not give such
notice to the Borrower and the Administrative Agent shall be deemed to have
elected not to extend as requested, and the Commitment of each non-extending
Bank shall terminate on its Commitment Termination Date determined without
giving effect to such requested extension. The Borrower may, in accordance with
Section 8.06, designate another bank or other financial institution (which may
be, but need not be, an extending Bank) to replace a non-extending Bank.
Section 2.02. Notice of Committed Borrowings. The Borrower shall give the
Administrative Agent notice (a "Notice of Committed Borrowing") not later than
10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing and
(y) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing,
specifying:
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(a) the date of such Borrowing, which shall be a Domestic Business Day
in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of
a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to bear interest
initially at the Base Rate or a Euro-Dollar Rate,
(d) the Class of Loans comprising such Borrowing, and
(e) in the case of a Euro-Dollar Borrowing, the duration of the initial
Interest Period applicable thereto, subject to the provisions of the definition
of Interest Period.
Section 2.03. Bid Rate Borrowings. (a) The Bid Rate Option. In addition
to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth
in this Section, request the Banks at any time prior to their respective
Commitment Termination Dates to make offers to make Bid Rate Loans to the
Borrower. The Banks may, but shall have no obligation to, make such offers and
the Borrower may, but shall have no obligation to, accept any such offers in the
manner set forth in this Section.
(b) Bid Rate Quote Request. When the Borrower wishes to request offers
to make Bid Rate Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile transmission a Bid Rate Quote Request
substantially in the form of Exhibit B hereto so as to be received no later than
10:00 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day prior
to the date of Borrowing proposed therein, in the case of a Bid Rate (Indexed)
Auction or (y) the Domestic Business Day next preceding the date of Borrowing
proposed therein, in the case of a Bid Rate (General) Auction (or, in either
case, such other time or date as the Borrower and the Administrative Agent shall
have mutually agreed and shall have notified to the Banks not later than the
date of the Bid Rate Quote Request for the first Bid Rate (Indexed) Auction or
Bid Rate (General) Auction for which such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day,
(ii) the aggregate amount of such Borrowing, which shall be
$10,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period, and
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(iv) whether the Bid Rate Quotes requested are to set forth a Bid
Rate (Indexed) or a Bid Rate (General) Rate.
The Borrower may request offers to make Bid Rate Loans for more than one
Interest Period in a single Bid Rate Quote Request.
(c) Invitation for Bid Rate Quotes. Promptly upon receipt of a Bid Rate
Quote Request, the Administrative Agent shall send to the Banks by telex or
facsimile transmission an Invitation for Bid Rate Quotes substantially in the
form of Exhibit C hereto, which shall constitute an invitation by the Borrower
to each Bank to submit Bid Rate Quotes offering to make the Bid Rate Loans to
which such Bid Rate Quote Request relates in accordance with this Section.
(d) Submission and Contents of Bid Rate Quotes. (i) Each Bank may
submit a Bid Rate Quote containing an offer or offers to make Bid Rate Loans in
response to any Invitation for Bid Rate Quotes. Each Bid Rate Quote must comply
with the requirements of this subsection (d) and must be submitted to the
Administrative Agent by telex or facsimile transmission at its offices specified
in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time)
on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing,
in the case of a Bid Rate (Indexed) Auction or (y) 9:30 A.M. (New York City
time) on the proposed date of Borrowing, in the case of an Bid Rate (General)
Auction (or, in either case, such other time or date as the Borrower and the
Administrative Agent shall have mutually agreed and shall have notified to the
Banks not later than the date of the Bid Rate Quote Request for the first Bid
Rate (Indexed) Auction or Bid Rate (General) Auction for which such change is to
be effective); provided that Bid Rate Quotes submitted by the Administrative
Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank
may be submitted, and may only be submitted, if the Administrative Agent or such
affiliate notifies the Borrower of the terms of the offer or offers contained
therein not later than (x) 1:00 P.M. (New York City time) on the fourth Euro-
Dollar Business Day prior to the proposed date of Borrowing, in the case of a
Bid Rate (Indexed) Auction or (y) 9:15 A.M. (New York City time) on the proposed
date of Borrowing, in the case of an Bid Rate (General) Auctions. Subject to
Articles 3 and 6, any Bid Rate Quote so made shall be irrevocable except with
the written consent of the Administrative Agent given on the instructions of the
Borrower.
(ii) Each Bid Rate Quote shall be in substantially the form of Exhibit
D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
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(B) the principal amount of the Bid Rate Loan for which each
such offer is being made, which principal amount (w) may be greater
than or less than the Commitment of the quoting Bank, (x) must be
$5,000,000 or a larger multiple of $1,000,000 and (y) may not exceed
the principal amount of Bid Rate Loans for each Interest Period for
which offers were requested and (z) may be subject to an aggregate
limitation as to the principal amount of Bid Rate Loans for which
offers being made by such quoting Bank may be accepted,
(C) in the case of a Bid Rate (Indexed) Auction, the margin
above or below the applicable London Interbank Offered Rate (the "Bid
Rate (Indexed) Margin") offered for each such Bid Rate Loan, expressed
as a percentage (specified to the nearest 1/10,000th of 1%) to be
added to or subtracted from such base rate,
(D) in the case of a Bid Rate (General)Auction, the rate of
interest per annum (specified to the nearest 1/10,000th of 1%) (the
"Bid Rate (General)") offered for each such Bid Rate Loan, and
(E) the identity of the quoting Bank.
A Bid Rate Quote may set forth up to five separate offers by the quoting Bank
with respect to each Interest Period specified in the related Invitation for Bid
Rate Quotes.
(iii) Any Bid Rate Quote shall be disregarded if:
(A) it is not substantially in conformity with Exhibit D
hereto or does not specify all of the information required by
subsection 2.03(d)(ii);
(B) it contains qualifying, conditional or similar language
beyond that contemplated by Exhibit D;
(C) it proposes terms other than or in addition to those set
forth in the applicable Invitation for Bid Rate Quotes;
(D) it arrives after the time set forth in subsection
2.03(d)(i); or
(E) the Commitment Termination Date of the Bank submitting
such Bid Rate Quote falls prior to the last day of the requested
Interest Period for which such Bank offers to make a Bid Rate Loan.
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(e) Notice to Borrower. The Administrative Agent shall promptly but in
no event later than 10:00 A.M. (New York City time) notify the Borrower of the
terms (x) of any Bid Rate Quote submitted by a Bank that is in accordance with
subsection (d) and (y) of any Bid Rate Quote that amends, modifies or is
otherwise inconsistent with a previous Bid Rate Quote submitted by such Bank
with respect to the same Bid Rate Quote Request. Any such subsequent Quote
shall be disregarded by the Administrative Agent unless such subsequent Quote is
submitted solely to correct a manifest error in such former Quote. The
Administrative Agent's notice to the Borrower shall specify (A) the aggregate
principal amount of Loans for which offers have been received for each Interest
Period specified in the related Bid Rate Quote Request, (B) the respective
principal amounts and Bid Rate (Indexed) Margins or Bid Rate (General) Rates, as
the case may be, so offered and (C) if applicable, limitations on the aggregate
principal amount of Bid Rate Loans for which offers in any single Bid Rate Quote
may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New
York City time) on (x) the third Euro-Dollar Business Day prior to the proposed
date of Borrowing, in the case of a Bid Rate (Indexed) Auction or (y) the
proposed date of Borrowing, in the case of an Bid Rate (General) Auction (or, in
either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Bid Rate Quote Request for the first Bid Rate (Indexed)
Auction or Bid Rate (General) Auction for which such change is to be effective),
the Borrower shall notify the Administrative Agent of its acceptance or non-
acceptance of the offers so notified to it pursuant to subsection (e). In the
case of acceptance, such notice (a "Notice of Bid Rate Borrowing") shall specify
the aggregate principal amount of offers for each Interest Period that are
accepted. The Borrower may accept any Bid Rate Quote in whole or in part;
provided that:
(i) the aggregate principal amount of each Bid Rate Borrowing may
not exceed the applicable amount set forth in the related Bid Rate Quote
Request,
(ii) the principal amount of each Bid Rate Borrowing must be
$10,000,000 or a larger multiple of $1,000,000, and
(iii) acceptance of offers may only be made on the basis of
ascending Bid Rate (Indexed) Margins or Bid Rate (General) Rates, as the
case may be.
(g) Allocation by Administrative Agent. If offers are made by two more
Banks with the same Bid Rate (Indexed) Margins or Bid Rate (General), as the
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case may be, for a greater aggregate principal amount than the amount in respect
of which such offers are accepted for the related Interest Period, the principal
amount of Bid Rate Loans in respect of which such offers are accepted shall be
allocated by the Administrative Agent among such Banks as nearly as possible (in
multiples of $1,000,000, as the Administrative Agent may deem appropriate) in
proportion to the aggregate principal amounts of such offers. Determinations by
the Administrative Agent of the amounts of Bid Rate Loans shall be conclusive in
the absence of manifest error.
Section 2.04. Notice to Banks; Funding of Loans. (a) Upon receipt of a
Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of
the contents thereof and of such Bank's share (if any) of such Borrowing and
such Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of each
Borrowing, each Bank participating therein shall (except as provided in
subsection (c) of this Section) make available its share of such Borrowing, in
Federal or other funds immediately available in New York City, to the
Administrative Agent at its address specified in or pursuant to Section 9.01.
Unless the Administrative Agent determines that any applicable condition
specified in Article 3 has not been satisfied, the Administrative Agent will
make the funds so received from the Banks available to the Borrower at the
Administrative Agent's aforesaid address.
(c) Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsection (b) of this Section 2.04 and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the Administrative Agent, such Bank and, if such
Bank shall not have made such payment within two Domestic Business Days of
demand therefor, the Borrower severally agree to repay to the Administrative
Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to the
Borrower until the date such amount is repaid to the Administrative Agent, at
(i) in the case of the Borrower, a rate per annum equal to the higher of the
Federal Funds Rate and the interest rate applicable thereto pursuant to Section
2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank
shall repay to the Administrative Agent such corresponding amount, such amount
so repaid shall constitute such Bank's Loan included in such Borrowing for
purposes of this Agreement.
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(d) The failure of any Bank to make the Loan to be made by it as part
of any Borrowing shall not relieve any other Bank of its obligation, if any,
hereunder to make a Loan on the date of such Borrowing, but no Bank shall be
responsible for the failure of any other Bank to make a Loan to be made by such
other Bank.
Section 2.05. Registry; Notes. (a) The Administrative Agent shall
maintain a register (the "Register") on which it will record the Commitment of
each Bank, each Loan made by such Bank and each repayment of any Loan made by
such Bank. Any such recordation by the Administrative Agent on the Register
shall be conclusive, absent manifest error. Failure to make any such
recordation, or any error in such recordation, shall not affect the Borrower's
obligations hereunder.
(b) The Borrower hereby agrees that, promptly upon the request of any
Bank at any time, the Borrower shall deliver to such Bank a duly executed Note,
in substantially the form of Exhibit A hereto, payable to the order of such Bank
and representing the obligation of the Borrower to pay the unpaid principal
amount of the Loans made to the Borrower by such Bank, with interest as provided
herein on the unpaid principal amount from time to time outstanding.
(c) Each Bank shall record the date, amount and maturity of each Loan
made by it and the date and amount of each payment of principal made by the
Borrower with respect thereto, and each Bank receiving a Note pursuant to this
Section, if such Bank so elects in connection with any transfer or enforcement
of its Note, may endorse on the schedule forming a part thereof appropriate
notations to evidence the foregoing information with respect to each such Loan
then outstanding; provided that the failure of such Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Notes. Such Bank is hereby irrevocably authorized by the
Borrower so to endorse its Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
Section 2.06. Maturity of Loans. (a) Each Revolving Credit Loan made by
any Bank shall mature, and the principal amount thereof shall be due and payable
together with accrued interest thereon, on the Commitment Termination Date of
such Bank.
(b) The Term Loans of each Bank shall mature, and the principal amount
thereof shall be due and payable, together with accrued interest thereon, on the
Final Maturity Date of such Bank.
(c) Each Bid Rate Loan included in any Bid Rate Borrowing shall mature,
and the principal amount thereof shall be due and payable (together with
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interest accrued thereon), on the last day of the Interest Period applicable to
such Bid Rate Borrowing.
Section 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest
on the outstanding principal amount thereof, for each day from the date such
Loan is made until it becomes due, at a rate per annum equal to the Base Rate
for such day. Such interest shall be payable quarterly in arrears on each
Quarterly Payment Date, at maturity and on the date of termination of the
Commitments in their entirety. Any overdue principal of or overdue interest on
any Base Rate Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day plus the London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
The "London Interbank Offered Rate" applicable to any Interest Period
means the rate appearing on Page 3750 of the Telerate Service (or on any
successor or substitute page of such service, or any successor to or substitute
for such service, providing rate quotations comparable to those currently
provided on such page of the Telerate Service, as may be nominated by the
British Bankers' Association for purposes of providing quotations of interest
rates applicable to dollar deposits in the London interbank market) as of 11:00
A.M. (London time) two Euro-Dollar Business Days prior to the commencement of
such Interest Period, as the rate for dollar deposits with a maturity comparable
to such Interest Period. In the event that such rate is not so available at
such time for any reason, then the "London Interbank Offered Rate" for such
Interest Period shall be the average (rounded upward, if necessary, to the next
higher 1/16 of 1%) of the respective rates per annum at which deposits in
dollars are offered to each of the Euro-Dollar Reference Banks in the London
interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar
Business Days before the first day of such Interest Period in an amount
approximately equal to the principal amount of the Loan of such Euro-Dollar
Reference Bank to which such Interest Period is to apply and for a period of
time comparable to such Interest Period. If any Euro-Dollar Reference Bank does
not furnish a timely quotation, the Administrative Agent shall determine the
relevant interest rate on the basis of the quotation furnished by the remaining
Euro-Dollar Reference Bank or, if none of such quotations is available on a
timely basis, the provisions of Section 8.01 shall apply.
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(c) Any overdue principal of or overdue interest on any Euro-Dollar
Loan shall bear interest, payable on demand, for each day from and including the
date payment thereof was due to but excluding the date of actual payment, at a
rate per annum equal to the sum of 1% plus the higher of (i) the sum of the
Euro-Dollar Margin for such day plus the London Interbank Offered Rate
applicable to such Loan at the date such payment was due and (ii) the Base Rate
for such day.
(d) Subject to Section 8.01(a), each Bid Rate (Indexed) Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the London Interbank
Offered Rate for such Interest Period (determined in accordance with Section
2.07(b) as if each Euro-Dollar Reference Bank were to participate in the related
Bid Rate (Indexed) Borrowing ratably in proportion to its Commitment) plus (or
minus) the Bid Rate (Indexed) Margin quoted by the Bank making such Loan in
accordance with Section 2.03. Each Bid Rate (General) Loan shall bear interest
on the outstanding principal amount thereof, for the Interest Period applicable
thereto, at a rate per annum equal to the Bid Rate (General) quoted by the Bank
making such Loan in accordance with Section 2.03. Such interest shall be
payable for each Interest Period on the last day thereof and, if such Interest
Period is longer than three months, at intervals of three months after the first
day thereof. Any overdue principal of or overdue interest on any Bid Rate Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the sum of 1% plus the Base Rate for such day.
(e) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the participating Banks by telecopy, telex or cable
of each rate of interest so determined, and its determination thereof shall be
conclusive in the absence of manifest error unless the Borrower raises an
objection thereto within five Domestic Business Days after receipt of such
notice.
Section 2.08. Fees. (a) Facility Fee. The Borrower shall pay to the
Administrative Agent for the account of each Bank a facility fee at the Facility
Fee Rate (determined daily in accordance with the Pricing Schedule). Such
facility fee shall accrue (i) from and including the Effective Date to but
excluding such Bank's Commitment Termination Date, on the daily average
aggregate amount of such Bank's Commitment (whether used or unused) and (ii)
from and including such Bank's Commitment Termination Date to but excluding the
date such Bank's Loans shall be repaid in their entirety, on the daily average
aggregate outstanding principal amount of such Bank's Committed Loans.
(b) Payments. Accrued fees under this Section for the account of any
Bank shall be payable quarterly in arrears on each Quarterly Payment Date and
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upon such Bank's Commitment Termination Date and Final Maturity Date (and, if
later, the date the Loans of such Bank shall be repaid in their entirety);
provided, that accrued facility fees shall be paid in equal quarterly
installments on the Quarterly Payment Date following each full quarter during
which the aggregate amount of Commitments remains unchanged.
Section 2.09. Optional Termination or Reduction of Commitments. The
Borrower may, upon at least three Domestic Business Days' notice to the
Administrative Agent, (i) terminate the Commitments at any time, if no Loans are
outstanding at such time or (ii) ratably reduce from time to time by an
aggregate amount of $10,000,000 or any larger multiple of $1,000,000 the
aggregate amount of the Commitments in excess of the aggregate outstanding
principal amount of the Revolving Credit and Bid Rate Loans.
Section 2.10. Method of Electing Interest Rates. (a) The Loans included
in each Committed Borrowing shall bear interest initially at the type of rate
specified by the Borrower in the applicable Notice of Committed Borrowing.
Thereafter, the Borrower may from time to time elect to change or continue the
type of interest rate borne by each Group of Loans (subject in each case to the
provisions of Article 8 and the last sentence of this subsection (a)), as
follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day;
and
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect
to convert such Loans to Base Rate Loans or elect to continue such Loans as
Euro-Dollar Loans for an additional Interest Period, subject to Section
2.14 in the case of any such conversion or continuation effective on any
day other than the last day of the then current Interest Period applicable
to such Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Administrative Agent not later than 10:30 A.M. (New York
City time) on the third Euro-Dollar Business Day before the conversion or
continuation selected in such notice is to be effective. A Notice of Interest
Rate Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans, provided that (i) such portion
is allocated ratably among the Loans comprising such Group and (ii) the portion
to which such notice applies, and the remaining portion to which it does not
apply, are each $10,000,000 or any larger multiple of $1,000,000.
(b) Each Notice of Interest Rate Election shall specify:
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(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of subsection 2.10(a) above;
(iii) if the Loans comprising such Group are to be converted, the
new type of Loans and, if the Loans being converted are to be Fixed Rate
Loans, the duration of the next succeeding Interest Period applicable
thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of the term "Interest Period".
(c) Promptly after receiving a Notice of Interest Rate Election from the
Borrower pursuant to subsection 2.10(a) above, the Administrative Agent shall
notify each Bank of the contents thereof and such notice shall not thereafter be
revocable by the Borrower. If no Notice of Interest Rate Election is timely
received prior to the end of an Interest Period for any Group of Loans, the
Borrower shall be deemed to have elected that such Group of Loans be converted
to Base Rate Loans as of the last day of such Interest Period.
(d) An election by the Borrower to change or continue the rate of
interest applicable to any Group of Loans pursuant to this Section shall not
constitute a "Borrowing" subject to the provisions of Section 3.02.
Section 2.11. Mandatory Termination of Commitments. The Commitment of
each Bank shall terminate on such Bank's Commitment Termination Date, and any
Revolving Credit or Bid Rate Loans of such Bank then outstanding (together with
accrued interest thereon) shall be due and payable on such date.
Section 2.12. Optional Prepayments. (a) The Borrower may (i) upon notice
to the Administrative Agent not later than 10:30 A.M. (New York City time) on
any Domestic Business Day prepay on such Domestic Business Day any Group of Base
Rate Loans or any Bid Rate Borrowing bearing interest at the Base Rate pursuant
to Section 8.01(a) and (ii) upon at least three Euro-Dollar Business Days'
notice to the Administrative Agent not later than 10:30 A.M. (New York City
time) prepay any Group of Euro-Dollar Loans, in each case in whole at any time,
or from time to time in part in amounts aggregating $5,000,000 or any larger
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multiple of $1,000,000, by paying the principal amount to be prepaid together
with accrued interest thereon to the date of prepayment and together with any
additional amounts payable pursuant to Section 2.14. Each such optional
prepayment shall be applied to prepay ratably the Loans of the several Banks
included in such Group or Borrowing.
(b) Except as provided in subsection 2.12(a), the Borrower may not
prepay all or any portion of the principal amount of any Bid Rate Loan prior to
the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to this Section, the
Administrative Agent shall promptly notify each Bank of the contents thereof and
of such Bank's share (if any) of such prepayment and such notice shall not
thereafter be revocable by the Borrower.
Section 2.13. General Provisions as to Payments. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the
Administrative Agent at its address referred to in Section 9.01. The
Administrative Agent will promptly distribute to each Bank its ratable share of
each such payment received by the Administrative Agent for the account of the
Banks. Whenever any payment of principal of, or interest on, the Base Rate
Loans, or of fees shall be due on a day which is not a Domestic Business Day,
the date for payment thereof shall be extended to the next succeeding Domestic
Business Day. Whenever any payment of principal of, or interest on, the Euro-
Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the
date for payment thereof shall be extended to the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another calendar
month, in which case the date for payment thereof shall be the next preceding
Euro-Dollar Business Day. Whenever any payment of principal of, or interest on,
the Bid Rate Loans shall be due on a day which is not a Euro-Dollar Business
Day, the date for payment thereof shall be extended to the next succeeding Euro-
Dollar Business Day. If the date for any payment of principal is extended by
operation of law or otherwise, interest thereon shall be payable for such
extended time.
(b) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Banks hereunder
that the Borrower will not make such payment in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Bank on such due date an amount
equal to the amount then due such Bank. If and to the extent that the
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Borrower shall not have so made such payment, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
Section 2.14. Funding Losses. If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or any Euro-Dollar Loan is
converted to a Base Rate Loan or continued as a Euro-Dollar Loan for a new
Interest Period (pursuant to Article 2, 6 or 8 or otherwise) on any day other
than the last day of an Interest Period applicable thereto, or if the Borrower
fails to borrow, prepay, convert or continue any Fixed Rate Loans after notice
has been given to any Bank in accordance with Section 2.04(a), 2.10(c) or
2.12(c), the Borrower shall reimburse each Bank within 15 days after demand for
any resulting loss or expense incurred by it (or by an existing or prospective
Participant in the related Loan), including (without limitation) any loss
incurred in obtaining, liquidating or employing deposits from third parties, but
excluding loss of margin for the period after any such payment or conversion or
failure to borrow, prepay, convert or continue, provided that such Bank shall
have delivered to the Borrower a certificate setting forth in reasonable detail
the calculation of the amount of such loss or expense, which certificate shall
be conclusive in the absence of manifest error.
Section 2.15. Computation of Interest and Fees. Interest based on the
Prime Rate and facility fees hereunder shall be computed on the basis of a year
of 365 days (or 366 days in a leap year) and paid for the actual number of days
elapsed (including the first day but excluding the last day); provided that
facility fees for the account of any Bank shall be paid in equal quarterly
installments for each full quarter in which the Commitment of such Bank remains
unchanged. All other interest shall be computed on the basis of a year of 360
days and paid for the actual number of days elapsed (including the first day but
excluding the last day).
Section 2.16. Regulation D Compensation. In the event that a Bank is
required to maintain reserves of the type contemplated by the definition of
"Euro-Dollar Reserve Percentage", such Bank may require the Borrower to pay,
contemporaneously with each payment of interest on the Euro-Dollar Loans,
additional interest on the related Euro-Dollar Loan of such Bank at a rate per
annum determined by such Bank up to but not exceeding the excess of (i) (A) the
applicable London Interbank Offered Rate divided by (B) one minus the Euro-
Dollar Reserve Percentage over (ii) the applicable London Interbank Offered
Rate. Any Bank wishing to require payment of such additional interest (x)
shall so notify the Borrower and the Administrative Agent, in which case such
additional interest on the Euro-Dollar Loans of such Bank shall be payable to
such
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Bank at the place indicated in such notice with respect to each Interest Period
commencing at least three Euro-Dollar Business Days after the giving of such
notice and (y) shall notify the Borrower at least three Euro-Dollar Business
Days prior to each date on which interest is payable on the Euro-Dollar Loans of
the amount then due it under this Section. Each such notification shall be
accompanied by such information as the Borrower may reasonably request.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
Section 2.17. Increased Commitments; Additional Banks. (a) Subsequent to
the Effective Date, the Borrower may, on no more than three occasions, upon at
least 30 days' notice to the Administrative Agent (which shall promptly provide
a copy of such notice to the Banks), propose to increase the aggregate amount of
the Commitments by an amount not to exceed in the aggregate for all such
increases $60,000,000 (the amount of any such increase, the "Increased
Commitments"). Each Bank party to this Agreement at such time shall have the
right (but no obligation), for a period of 15 days following receipt of such
notice, to elect by notice to the Borrower and the Administrative Agent to
increase its Commitment by a principal amount which bears the same ratio to the
Increased Commitments as its then Commitment bears to the aggregate Commitments
then existing.
(b) If any Bank party to this Agreement shall not elect to increase its
Commitment pursuant to subsection (a) of this Section, the Borrower may
designate one or more banks or other financial institutions (which may be, but
need not be, one or more of the existing Banks) which at the time agree in the
case of any existing Bank to increase its Commitment and, in the case of any
other such bank (an "Additional Bank"), to become a party to this Agreement and
assume a Commitment hereunder. The sum of the increases in the Commitments of
the existing Banks pursuant to this subsection (b) plus the Commitments of the
Additional Banks shall not in the aggregate exceed the unsubscribed amount of
the Increased Commitments.
(c) An increase in the aggregate amount of the Commitments pursuant to
this Section 2.17 shall become effective upon the receipt of the Administrative
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Agent of an agreement in form and substance satisfactory to the Administrative
Agent signed by the Borrower, by each Additional Bank and by each other Bank
whose Commitment is to be increased, setting forth the new Commitments of such
Banks and setting forth the agreement of each Additional Bank to become a party
to this Agreement and to be bound by all the terms and provisions hereof,
together with such evidence of appropriate corporate authorization on the part
of the Borrower with respect to the Increased Commitments and such opinions of
counsel for the Borrower with respect to the Increased Commitments as the
Administrative Agent may reasonably request.
(d) Upon any increase in the aggregate amount of the Commitments
pursuant to this Section 2.17, within five Domestic Business Days, in the case
of Base Rate Loans then outstanding, and at the end of the then current Interest
Period with respect thereto, in the case of Euro-Dollar Loans then outstanding,
the Borrower shall prepay or repay such Loans in their entirety and, to the
extent the Borrower elects to do so and subject to the conditions specified in
Article 3, the Borrower shall reborrow Committed Loans from the Banks in
proportion to their respective Commitments after giving effect to such increase,
until such time as all outstanding Committed Loans are held by the Banks in such
proportion.
ARTICLE 3
Conditions
Section 3.01. Effectiveness. This Agreement shall become effective on the
date that each of the following conditions shall have been satisfied (or waived
in accordance with Section 9.05):
(a) receipt by the Administrative Agent of counterparts hereof signed by
each of the parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Administrative Agent in
form satisfactory to it of telegraphic, telecopy, telex or other written
confirmation from such party of execution of a counterpart hereof by such
party);
(b) receipt by the Administrative Agent of an opinion of the General
Counsel of the Borrower substantially in the form of Exhibit E hereto and
covering such additional matters relating to the transactions contemplated
hereby as the Required Banks may reasonably request;
(c) receipt by the Administrative Agent of an opinion of Davis Polk &
Wardwell, special counsel for the Administrative Agent, substantially in the
form of Exhibit F hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably request;
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(d) receipt by the Administrative Agent of a certificate signed by a
Vice President, the Treasurer or the Controller of the Borrower, dated the
Effective Date, to the effect set forth in clauses (c) and (d) of Section 3.02;
(e) receipt by the Administrative Agent of all documents it may have
reasonably requested prior to the date hereof relating to the existence of the
Borrower, the corporate authority for and the validity of this Agreement and the
Notes, and any other matters relevant hereto, all in form and substance
satisfactory to the Administrative Agent; and
(f) receipt by the Administrative Agent of evidence satisfactory to it of
the payment of all principal of and interest on any loans outstanding under, and
all accrued commitment fees under, the Existing Credit Agreement and the
cancellation or the expiration of any letter of credit issued thereunder;
provided that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
August 23, 1999. The Administrative Agent shall promptly notify the Borrower
and the Banks of the Effective Date, and such notice shall be conclusive and
binding on all parties hereto. The Borrower and the Banks party to the Existing
Credit Agreement, comprising the "Required Banks" as defined therein, hereby
agree that (i) the commitments of the lenders under the Existing Credit
Agreement shall terminate in their entirety immediately and automatically upon
the effectiveness of this Agreement, without further action by any party to the
Existing Credit Agreement, (ii) all accrued fees under the Existing Credit
Agreement shall be due and payable at such time and (iii) subject to the funding
loss indemnities in the Existing Credit Agreement, the Borrower may prepay any
and all loans outstanding thereunder on the date of effectiveness of this
Agreement.
Section 3.02. Borrowings. The obligation of any Bank to make a Loan on the
occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.02 or 2.03;
(b) the facts that, immediately after such Borrowing the aggregate
outstanding principal amount of the Revolving Credit Loans and the Bid Rate
Loans will not exceed the aggregate amount of the Commitments (exclusive of
Commitments terminating on the date of such Borrowing);
(c) the fact that, immediately after such Borrowing, no Default shall
have occurred and be continuing; and
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(d) the fact that the representations and warranties of the Borrower
contained in this Agreement (except the representations and warranties set forth
in Sections 4.04(c) and 4.05) shall be true on and as of the date of such
Borrowing.
Each Borrowing hereunder shall be deemed to be a representation and
warranty by the Borrower on the date of such Borrowing as to the facts specified
in clauses (b), (c) and (d) of this Section .
ARTICLE 4
Representations and Warranties
The Borrower represents and warrants that:
Section 4.01. Corporate Existence and Power. The Borrower is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware, and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and is duly qualified to do business as a foreign corporation in each
jurisdiction where such qualification is required, except where the failure so
to qualify would not have a material adverse effect on the business, financial
position or results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole.
Section 4.02. Corporate and Governmental Authorization; No Contravention.
The execution, delivery and performance by the Borrower of this Agreement and
the Notes are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, require no action by or in respect of, or
filing with, any governmental body, agency or official and do not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the articles of incorporation or by-laws of the Borrower or of any agreement,
judgment, injunction, order, decree or other instrument binding upon the
Borrower or result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Material Subsidiaries.
Section 4.03. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower and each Note, if and when executed and
delivered in accordance with this Agreement, will constitute a valid and binding
obligation of the Borrower, in each case enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by general principles of equity.
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Section 4.04. Financial Information. (a) The consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as of December 31, 1998 and
the related consolidated statements of income, cash flows, capitalization and
retained earnings for the fiscal year then ended, reported on by Deloitte &
Touche, copies of which have been delivered to each of the Banks, fairly
present, in conformity with generally accepted accounting principles, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations and
cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of June 30, 1999 and the related unaudited
consolidated statements of income and cash flows for the six months then ended,
copies of which have been delivered to each of the Banks, fairly present, in
conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in subsection (a) of this
Section, the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and changes in financial position for such six month period (subject
to normal year-end adjustments and the absence of footnotes).
(c) Since the respective dates set forth above, there has been no
material adverse change in the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole.
Section 4.05. Litigation. (a) Except as disclosed in the reports
referred to in Section 4.04, or in reports hereafter filed by the Borrower with
the Securities and Exchange Commission, copies of which have been made available
to each of the Banks, there is no action, suit or proceeding pending against, or
to the knowledge of the Borrower threatened against or affecting, the Borrower
or any of its Subsidiaries before any court or arbitrator or any governmental
body, agency or official which would be likely to be decided adversely to
Borrower and, as a result, have a material adverse effect upon the business,
consolidated financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or which in any manner draws
into question the validity of this Agreement or any Note.
Section 4.06. Compliance with Laws. The Borrower and each Material
Subsidiary is in compliance in all material respects with all applicable laws,
ordinances, rules, regulations and requirements of governmental authorities
(including, without limitation, ERISA and Environmental Laws) except where (i)
non-compliance would not have a material adverse affect on the business,
financial position or results of operations of the Borrower and its Consolidated
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Subsidiaries, considered as a whole, or (ii) the necessity of compliance
therewith is contested in good faith by appropriate proceedings.
Section 4.07. Taxes. The Borrower and its Material Subsidiaries have
filed all United States Federal income tax returns and all other material tax
returns which are required to be filed by them and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by the Borrower
or any Material Subsidiary except (i) where nonpayment would not have a material
adverse effect on the business, financial position or results of operations of
the Borrower and its Consolidated Subsidiaries, considered as a whole or (ii)
where the same are contested in good faith by appropriate proceedings. The
charges, accruals and reserves on the books of the Borrower and its Material
Subsidiaries in respect of taxes or other governmental charges are, in the
opinion of the Borrower, adequate.
Section 4.08. Public Utility Holding Company Act. The Borrower is not a
holding company under the Public Utility Holding Company Act of 1935, as
amended.
Section 4.09. Year 2000. The cost to the Borrower of (i) any
reprogramming required to permit the proper functioning, in and following year
2000 of (a) the Borrower's critical computer systems and (b) Borrower's critical
equipment containing embedded microchips (including systems and equipment
supplied by others), (ii) the testing of all such systems and equipment, as so
reprogrammed, and (iii) the reasonably foreseeable consequences of year 2000 to
the Borrower (including, without limitation, reprogramming errors and the
failure of others' systems or equipment) will not result in a Default or a
Material Adverse Effect. Except for such of the reprogramming referred to in the
preceding sentence as may be necessary, the computer and management information
systems of the Borrower and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement, to be
sufficient to permit the Borrower to conduct its business without Material
Adverse Effect.
ARTICLE 5
Covenants
The Borrower agrees that, so long as any Bank has any Commitment hereunder
or any amount payable hereunder remains unpaid:
Section 5.01. Information. The Borrower will deliver to each of the
Banks:
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(a) as soon as available and in any event within 120 days after the end
of each fiscal year of the Borrower, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income, cash flows, capitalization and
retained earnings for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on in a
manner consistent with the requirements of the Securities and Exchange
Commission by Deloitte & Touche or other independent public accountants of
nationally recognized standing;
(b) as soon as available and in any event within 60 days after the end
of each of the first three quarters of each fiscal year of the Borrower, a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as
of the end of such quarter and the related consolidated statements of income and
cash flows for such quarter and for the portion of the Borrower's fiscal year
ended at the end of such quarter, setting forth in each case in comparative form
the figures for the corresponding quarter and the corresponding portion of the
Borrower's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, generally accepted accounting
principles and consistency by an Approved Officer of the Borrower;
(c) simultaneously with the delivery of each set of financial statements
referred to in clauses (a) and (b) above, a certificate of an Approved Officer
of the Borrower stating whether any Default exists on the date of such
certificate and, if any Default then exists, setting forth the details thereof
and the action which the Borrower is taking or proposes to take with respect
thereto;
(d) within five days after any officer of the Borrower with
responsibility relating thereto obtains knowledge of any Default, if such
Default is then continuing, a certificate of an Approved Officer of the Borrower
setting forth the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
(e) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Borrower shall have filed with the Securities and
Exchange Commission;
(f) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in Section 4043
of ERISA) with respect to any Material Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Material Plan has given or is required to give notice of
any such reportable event, a copy of the notice of such reportable event given
or required to be given to the PBGC; (ii) receives notice of complete or partial
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withdrawal liability under Title IV of ERISA or notice that any Material Plan is
in reorganization, is insolvent or has been terminated, a copy of such notice;
(iii) receives notice from the PBGC under Title IV of ERISA of an intent to
terminate, impose material liability (other than for premiums under Section 4007
of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Material Plan under Section 4041(c) of ERISA,
a copy of such notice and other information filed with the PBGC; (vi) gives
notice of withdrawal from any Material Plan pursuant to Section 4063 of ERISA, a
copy of such notice; or (vii) fails to make any payment or contribution to any
Material Plan or makes any amendment to any Material Plan which has resulted or
could result in the imposition of a Lien or the posting of a bond or other
security, a certificate of the chief financial officer or the chief accounting
officer of the Borrower setting forth details as to such occurrence and action,
if any, which the Borrower or applicable member of the ERISA Group is required
or proposes to take; and
(g) from time to time such additional information regarding the financial
position or business of the Borrower and its Subsidiaries as the Administrative
Agent, at the request of any Bank, may reasonably request.
Information required to be delivered pursuant to this Sections 5.01(a),
5.01(b) and 5.01(e) shall be deemed to have been delivered on the date on which
the Borrower provides notice to the Banks that such information has been posted
on the Securities and Exchange Commission website on the Internet at
sec.gov/edaux/searches.htm or at another website identified in such notice and
accessible by the Banks without charge; provided that (i) such notice may be
included in a certificate delivered pursuant to Section 5.01(c) and (ii) the
Borrower shall deliver paper copies of the information referred to in Sections
5.01(a), 5.01(b) and 5.01(e) to any Bank which requests such delivery.
Section 5.02. Payment of Taxes. The Borrower will pay and discharge, and
will cause each Material Subsidiary to pay and discharge, at or before maturity,
all their tax liabilities, except where (i) nonpayment would not have a material
adverse effect on the business, financial position or results of operations of
the Borrower and its Consolidated Subsidiaries, considered as a whole, or (ii)
the same may be contested in good faith by appropriate proceedings, and will
maintain, and will cause each Material Subsidiary to maintain, in accordance
with generally accepted accounting principles, appropriate reserves for the
accrual of any of the same.
Section 5.03. Maintenance of Property; Insurance. (a) The Borrower will
keep, and will cause each Material Subsidiary to keep, all property useful and
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necessary in its business in good working order and condition, ordinary wear and
tear excepted.
(b) The Borrower will, and will cause each of its Material Subsidiaries
to, maintain (either in the name of the Borrower or in such Subsidiary's own
name) with financially sound and responsible insurance companies, insurance on
all their respective properties in at least such amounts and against at least
such risks (and with such risk retention) as are usually insured against in the
same general area by companies of established repute engaged in the same or a
similar business; provided that self-insurance by the Borrower or any such
Material Subsidiary shall not be deemed a violation of this covenant to the
extent that companies engaged in similar businesses and owning similar
properties in the same general areas in which the Borrower or such Material
Subsidiary operates self-insure; and will furnish to the Banks, upon request
from the Administrative Agent, information presented in reasonable detail as to
the insurance so carried.
Section 5.04. Maintenance of Existence. The Borrower will preserve, renew
and keep in full force and effect, and will cause each Material Subsidiary to
preserve, renew and keep in full force and effect their respective corporate
existence and their respective rights, privileges and franchises material to the
normal conduct of their respective businesses; provided that nothing in this
Section 5.04 shall prohibit the termination of any right, privilege or franchise
of the Borrower or any Material Subsidiary or of the corporate existence of any
Material Subsidiary if the Borrower in good faith determines that such
termination is in the best interest of the Borrower and is not materially
disadvantageous to the Banks.
Section 5.05. Compliance with Laws. The Borrower will comply, and cause
each Material Subsidiary to comply, in all material respects with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, ERISA and Environmental Laws) except
where (i) noncompliance would not have a material adverse effect on the
business, financial position or results of operations of the Borrower and its
Consolidated Subsidiaries, considered as a whole, or (ii) the necessity of
compliance therewith is contested in good faith by appropriate proceedings.
Section 5.06. Books and Records. The Borrower will keep, and will cause
each Material Subsidiary to keep, proper books of record and account in which
full, true and correct entries shall be made of all financial transactions in
relation to its business and activities in accordance with its customary
practices; and will permit, and will cause each Material Subsidiary to permit,
representatives of any Bank at such Bank's expense (accompanied by a
representative of the Borrower, if the Borrower so desires) to visit any of
their respective properties, to examine any of their respective books and
records and to discuss their respective affairs,
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finances and accounts with their respective officers, employees and independent
public accountants, all upon such reasonable notice, at such reasonable times
and as often as may reasonably be desired.
Section 5.07. Maintenance of Ownership of Principal Subsidiaries. The
Borrower will maintain ownership of all shares of the common stock of each
Principal Subsidiary, directly or indirectly through Subsidiaries, free and
clear of all Liens, provided that any Principal Subsidiary may merge with and
into the Borrower or another Subsidiary.
Section 5.08. Negative Pledge. The Borrower will not create, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired by it,
except:
(a) Liens granted by the Borrower existing on the date of this Agreement
securing Indebtedness outstanding on the date of this Agreement in an aggregate
principal amount not exceeding $100,000,000;
(b) any Lien on any asset of any corporation existing at the time such
corporation is merged or consolidated with or into the Borrower and not created
in contemplation of such event;
(c) any Lien existing on any asset prior to the acquisition thereof by
the Borrower and not created in contemplation of such acquisition;
(d) any Lien on any asset securing Indebtedness incurred or assumed for
the purpose of financing all or any part of the cost of acquiring such asset,
provided that such Lien attaches to such asset concurrently with or within 180
days after the acquisition thereof;
(e) any Lien arising out of the refinancing, extension, renewal or
refunding of any Indebtedness secured by any Lien permitted by any of the
foregoing clauses of this Section, provided that such Indebtedness is not
increased and is not secured by any additional assets;
(f) Liens for taxes, assessments or other governmental charges or levies
not yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with generally accepted accounting
principles;
(g) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law, created in the ordinary
course of business and for amounts not past due for more than 60 days or which
are being contested in good faith by appropriate proceedings which are
sufficient
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to prevent imminent foreclosure of such Liens, are promptly instituted and
diligently conducted and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with generally
accepted accounting principles;
(h) Liens incurred or deposits made in the ordinary course of business
(including, without limitation, surety bonds and appeal bonds) in connection
with workers' compensation, unemployment insurance and other types of social
security benefits or to secure the performance of tenders, bids, leases,
contracts (other than for the repayment of Indebtedness), statutory obligations
and other similar obligations or arising as a result of progress payments under
government contracts;
(i) easements (including, without limitation, reciprocal easement
agreements and utility agreements), rights-of-way, covenants, consents,
reservations, encroachments, variations and other restrictions, charges or
encumbrances (whether or not recorded) affecting the use of real property;
(j) Liens with respect to judgments and attachments which do not result
in an Event of Default;
(k) Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal, indemnity, performance or other obligations arising in the
ordinary course of business; and
(l) other Liens including Liens imposed by Environmental Laws arising in
the ordinary course of its business which (i) do not secure Indebtedness, (ii)
do not secure any obligation in an amount exceeding $100,000,000 at any time at
which Investment Grade Status does not exist as to the Borrower and (iii) do not
in the aggregate materially detract from the value of its assets or materially
impair the use thereof in the operation of its business.
Section 5.09. Consolidations, Mergers and Sales of Assets. The Borrower
will not (i) consolidate or merge with or into any other Person or (ii) sell,
lease or otherwise transfer, directly or indirectly, Substantial Assets to any
Person (other than a Subsidiary); provided that the Borrower may merge with
another Person if the Borrower is the corporation surviving such merger and,
after giving effect thereto, no Default shall have occurred and be continuing.
Section 5.10. Use of Proceeds. The proceeds of the Loans made under this
Agreement will be used by the Borrower for its general corporate purposes,
including liquidity support for outstanding commercial paper. None of such
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proceeds will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of buying or carrying any "margin stock"
within the meaning of Regulation U.
Section 5.11. Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary to, directly or indirectly, pay any funds to or
for the account of, make any investment in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, to, or participate in, or effect,
any transaction with, any Affiliate unless all such transactions between the
Borrower and its Subsidiaries on the one hand and any Affiliate on the other,
taken in the aggregate and not individually, shall be on an arms-length basis on
terms no less favorable to the Borrower or such Subsidiary than could have been
obtained from a third party who was not an Affiliate; provided that the
foregoing provisions of this Section shall not prohibit the Borrower and each
Subsidiary from declaring or paying any lawful dividend so long as, after giving
effect thereto, no Default shall have occurred and be continuing.
Section 5.12. Indebtedness/Capitalization Ratio. The ratio of
Consolidated Indebtedness to Consolidated Capitalization will at no time exceed
65%.
ARTICLE 6
Defaults
Section 6.01. Events of Default. If one or more of the following events
("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of any Loan or
shall fail to pay, within five days of the due date thereof, any interest, fees
or any other amount payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant contained
in Sections 5.08, 5.09, 5.12 or the second sentence of 5.10, inclusive;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a) or
(b) above) for 30 days after notice thereof has been given to the Borrower by
the Administrative Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by the
Borrower in this Agreement or in any certificate, financial statement or other
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document delivered pursuant to this Agreement shall prove to have been incorrect
in any material respect when made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment in
respect of Material Debt (other than the Loans) when due or within any
applicable grace period;
(f) any event or condition shall occur and shall continue beyond the
applicable grace or cure period, if any, provided with respect thereto so as to
result in the acceleration of the maturity of Material Debt;
(g) the Borrower or any Material Subsidiary shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced against
the Borrower or any Material Subsidiary seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against the Borrower or any Material Subsidiary under
the federal bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $25,000,000 which it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of
intent to terminate a Plan or Plans having aggregate Unfunded Vested Liabilities
in excess of $50,000,000 (collectively, a "Material Plan") shall be filed under
Title IV of ERISA by any member of the ERISA Group, any plan administrator or
any combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any Material Plan or a proceeding shall be instituted by a fiduciary
of any Material Plan against any member of the ERISA Group to enforce Section
515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed
within 90 days thereafter; or a condition shall exist by reason of
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which the PBGC would be entitled to obtain a decree adjudicating that any
Material Plan must be terminated;
(j) a judgment or other court order for the payment of money in excess
of $50,000,000 shall be rendered against the Borrower or any Material Subsidiary
and such judgment or order shall continue without being vacated, discharged,
satisfied or stayed or bonded pending appeal for a period of 45 days; or
(k) the Borrower shall cease to be a Subsidiary of Duke Energy
Corporation;
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 66*% in aggregate amount of the Commitments, by notice
to the Borrower terminate the Commitments and they shall thereupon terminate and
(ii) if requested by Banks holding more than 66% in aggregate principal amount
of the Loans, by notice to the Borrower declare the Loans (together with accrued
interest thereon) to be, and the Loans shall thereupon become, immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower; provided that in the case of any
of the Events of Default specified in clause (g) or (h) above with respect to
the Borrower, without any notice to the Borrower or any other act by the
Administrative Agent or the Banks, the Commitments shall thereupon terminate and
the Loans (together with accrued interest thereon) shall become immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
Section 6.02. Notice of Default. The Administrative Agent shall give
notice to the Borrower under Section 6.01(c) promptly upon being requested to do
so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE 7
The Administrative Agent
Section 7.01. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the Notes as are
delegated to the Administrative Agent by the terms hereof or thereof, together
with all such powers as are reasonably incidental thereto.
Section 7.02. Administrative Agent and Affiliates. The Chase Manhattan
Bank shall have the same rights and powers under this Agreement as any other
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Bank and may exercise or refrain from exercising the same as though it were not
the Administrative Agent, and The Chase Manhattan Bank and its affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Subsidiary or affiliate of the Borrower as if
it were not the Administrative Agent hereunder.
Section 7.03. Action by Administrative Agent. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.
Section 7.04. Consultation with Experts. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
Section 7.05. Liability of Administrative Agent. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable to any Bank for any
action taken or not taken by it in connection herewith (i) with the consent or
at the request of the Required Banks or (ii) in the absence of its own gross
negligence or willful misconduct. Neither the Administrative Agent nor any of
its affiliates nor any of their respective directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
this Agreement or any borrowing hereunder; (ii) the performance or observance of
any of the covenants or agreements of the Borrower; (iii) the satisfaction of
any condition specified in Article 3, except receipt of items required to be
delivered to the Administrative Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or writing
furnished in connection herewith. The Administrative Agent shall not incur any
liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire, telex or similar writing)
believed by it in good faith to be genuine or to be signed by the proper party
or parties. Without limiting the generality of the foregoing, the use of the
term "agent" in this Agreement with reference to the Administrative Agent is not
intended to connote any fiduciary or other implied (or express) obligations
arising under agency doctrine of any applicable law. Instead, such term is used
merely as a matter of market custom and is intended to create or reflect only an
administrative relationship between independent contracting parties.
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Section 7.06. Indemnification. Each Bank shall, ratably in accordance
with its Commitment, indemnify the Administrative Agent, its affiliates and
their respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from the such indemnitees' gross negligence or willful misconduct) that
such indemnitees may suffer or incur in connection with this Agreement or any
action taken or omitted by such indemnitees thereunder.
Section 7.07. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under this Agreement.
Section 7.08. Successor Administrative Agent. The Administrative Agent
may resign at any time by giving notice thereof to the Banks and the Borrower.
Upon any such resignation, the Borrower, with the consent of the Required Banks,
(such consent not to be unreasonably withheld or delayed), shall have the right
to appoint a successor Administrative Agent. If no successor Administrative
Agent shall have been so appointed, and shall have accepted such appointment,
within 30 days after the retiring Administrative Agent gives notice of
resignation, then the retiring Administrative Agent may, on behalf of the Banks,
appoint a successor Administrative Agent, which shall be a commercial bank
organized or licensed under the laws of the United States of America or of any
State thereof and having a combined capital and surplus of at least
$250,000,000. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder; provided
that if such successor Administrative Agent is appointed without the consent of
the Borrower, such successor Administrative Agent may be replaced by the
Borrower with the consent of the Required Banks. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Article shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent.
Section 7.09. Administrative Agent's Fee. The Borrower shall pay to the
Administrative Agent for its own account fees in the amounts and at the times
previously agreed upon between the Borrower and the Administrative Agent.
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ARTICLE 8
Change in Circumstances
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period for any Euro-Dollar
Borrowing or Bid Rate (Indexed) Borrowing:
(a) the Administrative Agent is advised by the Euro-Dollar Reference
Banks that deposits in dollars (in the applicable amounts) are not being offered
to the Euro-Dollar Reference Banks in the relevant market for such Interest
Period, or
(b) in the case of a Euro-Dollar Borrowing, Banks having 66*% or more
of the aggregate amount of the affected Loans advise the Administrative Agent
that the London Interbank Offered Rate as determined by the Administrative Agent
will not adequately and fairly reflect the cost to such Banks of funding their
Euro-Dollar Loans for such Interest Period, the Administrative Agent shall
forthwith give notice thereof to the Borrower and the Banks, whereupon until the
Administrative Agent notifies the Borrower that the circumstances giving rise to
such suspension no longer exist, (i) the obligations of the Banks to make Euro-
Dollar Loans or to continue or convert outstanding Loans as or into Euro-Dollar
Loans shall be suspended and (ii) each outstanding Euro-Dollar Loan shall be
converted into a Base Rate Loan on the last day of the then current Interest
Period applicable thereto. Unless the Borrower notifies the Administrative Agent
at least one Domestic Business Day before the date of any Fixed Rate Borrowing
for which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing,
such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such
Borrowing is a Bid Rate (Indexed) Borrowing, the Loans comprising such Borrowing
shall bear interest for each day from and including the first day to but
excluding the last day of the Interest Period applicable thereto at the Base
Rate for such day.
Section 8.02. Illegality. If, on or after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable
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agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar
Lending Office) to make, maintain or fund any of its Euro-Dollar Loans and such
Bank shall so notify the Administrative Agent, the Administrative Agent shall
forth with give notice thereof to the other Banks and the Borrower, whereupon
until such Bank notifies the Borrower and the Administrative Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Bank to make Euro-Dollar Loans, or to continue or convert outstanding Loans
as or into Euro-Dollar Loans, shall be suspended. Before giving any notice to
the Administrative Agent pursuant to this Section, such Bank shall designate a
different Euro-Dollar Lending Office if such designation will avoid the need for
giving such notice and will not be otherwise disadvantageous to such Bank in the
good faith exercise of its discretion. If such notice is given, each Euro-Dollar
Loan of such Bank then outstanding shall be converted to a Base Rate Loan either
(a) on the last day of the then current Interest Period applicable to such Euro-
Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan to
such day or (b) immediately if such Bank shall determine that it may not
lawfully continue to maintain and fund such Loan to such day.
Section 8.03. Increased Cost and Reduced Return. (a) If on or after (x) the
date of this Agreement, in the case of any Committed Loan or any obligation to
make Committed Loans or (y) the date of any related Bid Rate Quote, in the case
of any Bid Rate Loan, the adoption of any applicable law, rule or regulation, or
any change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) issued on or after
such date of any such authority, central bank or comparable agency shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
(including, without limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System, but excluding with respect to any Euro-
Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve
Percentage) against assets of, deposits with or for the account of, or credit
extended by, any Bank (or its Applicable Lending Office) or shall impose on any
Bank (or its Applicable Lending Office) or on the London interbank market any
other condition (other than in respect of Taxes or Other Taxes) affecting its
Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans and the
result of any of the foregoing is to increase the cost to such Bank (or its
Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to
reduce the amount of any sum received or receivable by such Bank (or its
Applicable Lending Office) under this Agreement or under its Note with respect
thereto, by an amount deemed by such Bank to be material, then, within 15 days
after demand by such Bank (with a copy to the Administrative Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate
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such Bank for such increased cost or reduction; provided that no such
amount shall be payable with respect to any period commencing more than 90 days
prior to the date such Bank first notifies the Borrower of its intention to
demand compensation therefor under this Section 8.03(a).
(b) If any Bank shall have determined that, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change in any such law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency given or made after the date of this Agreement, has or would
have the effect of reducing the rate of return on capital of such Bank (or its
Parent) as a consequence of such Bank's obligations hereunder to a level below
that which such Bank (or its Parent) could have achieved but for such adoption,
change, request or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Bank to be material,
then from time to time, within 15 days after demand by such Bank (with a copy to
the Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank (or its Parent) for such
reduction; provided that no such amount shall be payable with respect to any
period commencing less than 30 days after the date such Bank first notifies the
Borrower of its intention to demand compensation under this Section 8.03(b).
(c) Each Bank will promptly notify the Borrower and the Administrative
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate
of any Bank claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount, such Bank may use
any reasonable averaging and attribution methods.
Section 8.04. Taxes. (a) For purposes of this Section 8.04, the following
terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies,
imports, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or any Note, and all liabilities with
respect thereto, excluding (i) in the case of each Bank and the Administrative
Agent, taxes imposed on its income, net worth or gross receipts and franchise or
similar taxes
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imposed on it by a jurisdiction under the laws of which such Bank or the
Administrative Agent (as the case may be) is organized or in which its principal
executive office is located or, in the case of each Bank, in which its
Applicable Lending Office is located and (ii) in the case of each Bank, any
United States withholding tax imposed on such payments except to the extent that
such Bank is subject to United States withholding tax by reason of a U.S. Tax
Law Change.
"Other Taxes" means any present or future stamp or documentary taxes and
any other excise or property taxes, or similar charges or levies, which arise
from any payment made pursuant to this Agreement or under any Note or from the
execution or delivery of, or otherwise with respect to, this Agreement or any
Note.
"U.S. Tax Law Change" means with respect to any Bank or Participant the
occurrence (x) in the case of each Bank listed on the signature pages hereof,
after the date of its execution and delivery of this Agreement and (y) in the
case of any other Bank, after the date such Bank shall have become a Bank
hereunder, and (z) in the case of each Participant, after the date such
Participant became a Participant hereunder, of the adoption of any applicable
U.S. federal law, U.S. federal rule or U.S. federal regulation relating to
taxation, or any change therein, or the entry into force, modification or
revocation of any income tax convention or treaty to which the United States is
a party.
(b) Any and all payments by the Borrower to or for the account of any Bank
or the Administrative Agent hereunder or under any Note shall be made without
deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be
required by law to deduct any Taxes or Other Taxes from any such payments, (i)
the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 8.04) such Bank or the Administrative Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law and (iv) the Borrower shall
furnish to the Administrative Agent, at its address referred to in Section 9.01,
the original or a certified copy of a receipt evidencing payment thereof.
(c) The Borrower agrees to indemnify each Bank and the Administrative
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 8.04) paid by such Bank or the Administrative
Agent (as the case may be) and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. This indemnification shall
be paid
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within 15 days after such Bank or the Administrative Agent (as the case may be)
makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter as required by law (but only so long as such
Bank remains lawfully able to do so), shall provide the Borrower two completed
and duly executed copies of Internal Revenue Service form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
or other documentation reasonably requested by the Borrower, certifying that
such Bank is entitled to benefits under an income tax treaty to which the United
States is a party which exempts the Bank from United States withholding tax or
reduces the rate of withholding tax on payments of interest for the account of
such Bank or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States.
(e) For any period with respect to which a Bank has failed to provide
the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such
failure is due to a U.S. Tax Law Change), such Bank shall not be entitled to
indemnification under Section 8.04(b) or 8.04(c) with respect to any Taxes or
Other Taxes which would not have been payable had such form been so provided,
provided that if a Bank, which is otherwise exempt from or subject to a reduced
rate of withholding tax, becomes subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as such
Bank shall reasonably request to assist such Bank to recover such Taxes (it
being understood, however, that the Borrower shall have no liability to such
Bank in respect of such Taxes).
(f) If the Borrower is required to pay additional amounts to or for the
account of any Bank pursuant to this Section 8.04, then such Bank will take such
action (including changing the jurisdiction of its Applicable Lending Office) as
in the good faith judgment of such Bank (i) will eliminate or reduce any such
additional payment which may thereafter accrue and (ii) is not otherwise
disadvantageous to such Bank.
(g) If any Bank or the Administrative Agent receives a refund (including
a refund in the form of a credit against taxes that are otherwise payable by the
Bank or the Administrative Agent) of any Taxes or Other Taxes for which the
Borrower has made a payment under Section 8.04(b) or (c) and such refund was
received from the taxing authority which originally imposed such Taxes or Other
Taxes, such Bank or the Administrative Agent agrees to reimburse the Borrower to
the extent of such refund, provided that nothing contained in this
45
<PAGE>
paragraph (g) shall require any Bank or the Administrative Agent to make
available its tax returns (or any other information relating to its taxes which
it deems to be confidential).
Section 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans.
If (i) the obligation of any Bank to make or to continue or convert outstanding
Loans as or into Euro-Dollar Loans has been suspended pursuant to Section 8.02
or (ii) any Bank has demanded compensation under Section 8.03(a) or 8.04 with
respect to its Euro-Dollar Loans and the Borrower shall, by at least five Euro-
Dollar Business Days' prior notice to such Bank through the Administrative
Agent, have elected that the provisions of this Section shall apply to such
Bank, then, unless and until such Bank notifies the Borrower that the
circumstances giving rise to such suspension or demand for compensation no
longer apply:
(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted to) Euro-Dollar Loans, as the case may be, shall
instead be Base Rate Loans (on which interest and principal shall be payable
contemporaneously with the related Euro-Dollar Loans of the other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all payments of
principal which would otherwise be applied to repay such Loans shall be applied
to repay its Base Rate Loans instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
suspension or demand for compensation no longer exist, the principal amount of
each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first
day of the next succeeding Interest Period applicable to the related Euro-Dollar
Loans of the other Banks.
Section 8.06. Substitution of Bank Termination Option. If (i) the
obligation of any Bank to make or to convert or continue outstanding Loans as or
into Euro-Dollar Loans has been suspended pursuant to Section 8.02, (ii) any
Bank has demanded compensation under Section 8.03 or 8.04, or (iii) any Bank
exercises its right not to extend its Commitment Termination Date pursuant to
Section 2.01(c) or (iv) Investment Grade Status ceases to exist as to any Bank,
then:
(a) the Borrower shall have the right, with the assistance of the
Administrative Agent, to designate a substitute bank or banks (which may be one
or more of the Banks) mutually satisfactory to the Borrower and the
Administrative Agent (whose consent shall not be unreasonably withheld or
delayed) to purchase for cash, pursuant to an Assignment and Assumption
Agreement in substantially the form of Exhibit G hereto, the outstanding Loans
of such Bank and assume the Commitment of such Bank, without recourse to or
46
<PAGE>
warranty by, or expense to, such Bank, for a purchase price equal to the
principal amount of all of such Bank's outstanding Loans plus any accrued but
unpaid interest thereon and the accrued but unpaid fees in respect of such
Bank's Commitment hereunder plus such amount, if any, as would be payable
pursuant to Section 2.14 if the outstanding Loans of such Bank were prepaid in
their entirety on the date of consummation of such assignment; and
(b) if at the time Investment Grade Status exists as to the Borrower,
the Borrower may elect to terminate this Agreement as to such Bank, provided
that (i) the Borrower notifies such Bank through the Administrative Agent of
such election at least three Euro-Dollar Business Days before the effective date
of such termination and (ii) the Borrower repays or prepays the principal amount
of all outstanding Loans made by such Bank plus any accrued but unpaid interest
thereon and the accrued but unpaid fees in respect of such Bank's Commitment
hereunder plus all other amounts payable by the Borrower to such Bank hereunder,
not later than the effective date of such termination. Upon satisfaction of the
foregoing conditions, the Commitment of such Bank shall terminate on the
effective date specified in such notice.
ARTICLE 9
Miscellaneous
Section 9.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
transmission or similar writing) and shall be given to such party: (x) in the
case of the Borrower or the Administrative Agent, at its address or telecopy or
telex number set forth on the signature pages hereof, (y) in the case of any
Bank, at its address or telecopy or telex number set forth in its Administrative
Questionnaire or (z) in the case of any party, such other address or telecopy or
telex number as such party may hereafter specify for the purpose by notice to
the Administrative Agent and the Borrower. Each such notice, request or other
communication shall be effective (i) if given by telecopy or telex, when such
telecopy or telex is transmitted to the telecopy or telex number specified in
this Section and the appropriate answerback or confirmation slip, as the case
may be, is received, (ii) if given by mail, 84 hours after such communication is
deposited in the mails with first class postage prepaid, addressed as aforesaid
or (iii) if given by any other means, when delivered at the address specified in
this Section; provided that notices to the Administrative Agent under Article 2
or Article 3 shall not be effective until delivered.
47
<PAGE>
Section 9.02. No Waivers. No failure or delay by the Administrative Agent
or any Bank in exercising any right, power or privilege hereunder or under any
Note shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
Section 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i)
all reasonable out-of-pocket expenses of the Administrative Agent, including
reasonable fees and disbursements of special counsel for the Administrative
Agent, in connection with the preparation of this Agreement, any waiver or
consent hereunder or any amendment hereof or any Default or alleged Default
hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket
expenses incurred by the Administrative Agent or any Bank, including reasonable
fees and disbursements of counsel, in connection with such Event of Default and
collection and other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify the Administrative Agent and each
Bank, their respective affiliates and the respective directors, officers, agents
and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) relating to or arising out
of this Agreement or any actual or proposed use of proceeds of Loans hereunder;
provided that no Indemnitee shall have the right to be indemnified hereunder for
such Indemnitee's own gross negligence or willful misconduct as determined by a
court of competent jurisdiction.
Section 9.04. Sharing of Set-offs. Each Bank agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment of
a proportion of the aggregate amount then due with respect to the Loans held by
it which is greater than the proportion received by any other Bank in respect of
the aggregate amount then due with respect to the Loans held by such other Bank,
the Bank receiving such proportionately greater payment shall purchase such
participations in the Loans held by the other Banks, and such other adjustments
shall be made, as may be required so that all such payments with respect to the
Loans held by the Banks shall be shared by the Banks pro rata; provided that
nothing in this Section shall impair the right of any Bank to exercise any right
of set-off or counterclaim it may have and to apply the amount subject to such
exercise to the payment of indebtedness of the Borrower other than its
indebtedness under this Agreement.
48
<PAGE>
Section 9.05. Amendments and Waivers. Any provision of this Agreement or
the Notes may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Borrower and the Required Banks (and, if the
rights or duties of the Administrative Agent, are affected thereby, by the
Administrative Agent); provided that no such amendment or waiver shall, unless
signed by all the Banks, (i) increase or decrease the Commitment of any Bank
(except (x) as contemplated by Section 2.17 or (y) for a ratable decrease in the
Commitments of all Banks) or subject any Bank to any additional obligation, (ii)
reduce the principal of or rate of interest on any Loan or any fees hereunder,
(iii) postpone the date fixed for any payment of principal of or interest on any
Loan or interest thereon or any fees hereunder or for termination of any
Commitment or (iv) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans, or the number of Banks, which shall be
required for the Banks or any of them to take any action under this Section or
any other provision of this Agreement.
Section 9.06. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Banks.
(b) Any Bank may, with the consent of the Borrower (such consent not to
be unreasonably withheld or delayed), at any time grant to one or more banks or
other institutions (each a "Participant") participating interests in its
Commitment or any or all of its Loans. In the event of any such grant by a
Bank of a participating interest to a Participant, whether or not upon notice to
the Administrative Agent, such Bank shall remain responsible for the performance
of its obligations hereunder, and the Borrower and the Administrative Agent
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement. Any agreement
pursuant to which any Bank may grant such a participating interest shall provide
that such Bank shall retain the sole right and responsibility to enforce the
obligations of the Borrower hereunder including, without limitation, the right
to approve any amendment, modification or waiver of any provision of this
Agreement; provided that such participation agreement may provide that such Bank
will not agree to any modification, amendment or waiver of this Agreement
described in clause (i), (ii) or (iii) of Section 9.05 without the consent of
the Participant. The Borrower agrees that each Participant shall, to the
extent provided in its participation agreement, be entitled to the benefits of
Article 8 with respect to its participating interest, subject to the performance
by such Participant of the obligations of a Bank thereunder. An assignment or
other transfer which is not permitted by subsection (c) or (d) below shall be
given effect for purposes of this Agreement
49
<PAGE>
only to the extent of a participating interest granted in accordance with this
subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
financial institutions (each an "Assignee") all, or a proportionate part
(equivalent to an initial Commitment of not less than $20,000,000 (unless the
Borrower and the Administrative Agent shall otherwise agree)) of all, of its
rights and obligations under this Agreement and its Note (if any), and such
Assignee shall assume such rights and obligations, pursuant to an Assignment and
Assumption Agreement in substantially the form of Exhibit G hereto executed by
such Assignee and such transferor Bank, with (and only with and subject to) the
prior written consent of the Borrower (given in its sole discretion) and the
Administrative Agent (which shall not be unreasonably withheld or delayed),
provided that unless such assignment is of the entire right, title and interest
of the transferor Bank hereunder, after making any such assignment such
transferor Bank shall have a Commitment of at least $20,000,000 (unless the
Borrower and the Administrative Agent shall otherwise agree). Upon execution and
delivery of such instrument of assumption and payment by such Assignee to such
transferor Bank of an amount equal to the purchase price agreed between such
transferor Bank and such Assignee, such Assignee shall be a Bank party to this
Agreement and shall have all the rights and obligations of a Bank with a
Commitment as set forth in such instrument of assumption, and the transferor
Bank shall be released from its obligations hereunder to a corresponding extent,
and no further consent or action by any party shall be required. Upon the
consummation of any assignment pursuant to this subsection (c), the transferor
Bank, the Administrative Agent and the Borrower shall make appropriate
arrangements so that, if required by the Assignee, a Note is issued to the
Assignee. If the Assignee is not incorporated under the laws of the United
States of America or a state thereof, it shall, prior to the first date on which
interest or fees are payable hereunder for its account, deliver to the Borrower
and the Administrative Agent certification as to exemption from deduction or
withholding of any United States federal income taxes in accordance with Section
8.04. All assignments shall be subject to a transaction fee established by, and
payable by the transferor Bank to, the Administrative Agent for its own account
(which shall not exceed $5,000).
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note (if any) to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder or
modify any such obligations.
(e) No Assignee, Participant or other transferee of any Bank's rights
(including any Applicable Lending Office other than such Bank's initial
Applicable Lending Office) shall be entitled to receive any greater payment
under Section 8.03 or 8.04 than such Bank would have been entitled to receive
with
50
<PAGE>
respect to the rights transferred, unless such transfer is made by reason
of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate
a different Applicable Lending Office under certain circumstances or at a time
when the circumstances giving rise to such greater payment did not exist.
Section 9.07. Collateral. Each of the Banks represents to the
Administrative Agent and each of the other Banks that it in good faith is not
relying upon any "margin stock" (as defined in Regulation U) as collateral in
the extension or maintenance of the credit provided for in this Agreement.
Section 9.08. Confidentiality. The Administrative Agent and each Bank
agrees to keep any information delivered or made available by the Borrower
pursuant to this Agreement confidential from anyone other than persons employed
or retained by such Bank and its affiliates who are engaged in evaluating,
approving, structuring or administering the credit facility contemplated hereby;
provided that nothing herein shall prevent any Bank from disclosing such
information (a) to any other Bank or to the Administrative Agent, (b) to any
other Person if reasonably incidental to the administration of the credit
facility contemplated hereby, (c) upon the order of any court or administrative
agency, (d) upon the request or demand of any regulatory agency or authority,
(e) which had been publicly disclosed other than as a result of a disclosure by
the Administrative Agent or any Bank prohibited by this Agreement, (f) in
connection with any litigation to which the Administrative Agent, any Bank or
its subsidiaries or Parent may be a party, (g) to the extent necessary in
connection with the exercise of any remedy hereunder, (h) to such Bank's or
Administrative Agent's legal counsel and independent auditors and (i) subject to
provisions substantially similar to those contained in this Section 9.08, to any
actual or proposed Participant or Assignee.
Section 9.09. Governing Law; Submission to Jurisdiction. This Agreement and
each Note (if any) shall be construed in accordance with and governed by the law
of the State of New York. The Borrower hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of any New York State court sitting in New York City for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. The Borrower irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
Section 9.10. Counterparts; Integration. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and understanding among the
parties hereto and supersedes any and all prior agreements and understandings,
oral or
51
<PAGE>
written, relating to the subject matter hereof.
Section 9.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE BANKS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO
SO UNDER APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
- --------------------------------------------------------------------------------
DUKE CAPITAL CORPORATION
By: /s/ David L. Hauser
--------------------------------
Title: Vice President & Treasurer
Address: 422 South Church Street
Charlotte, NC 28202-1904
Attention: David L. Hauser
Telecopy number: (704) 382-1452
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
52
<PAGE>
- --------------------------------------------------------------------------------
Commitment
- ----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$55,000,000 THE CHASE MANHATTAN BANK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Paul V. Farrell
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$55,000,000 MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Robert Bottamedi
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$30,000,000 BANK OF AMERICA, NA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Michelle Schoenfeld
Title: Associate
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$30,000,000 BARCLAYS BANK PLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Jonathan Berman
Title: Director
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Commitment
- ----------
- --------------------------------------------------------------------------------
$30,000,000 CITIBANK, N.A.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ J. Nicholas McKee
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$30,000,000 FIRST UNION NATIONAL BANK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Michael J. Kolosowsky
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$30,000,000 WACHOVIA BANK, N.A.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Christopher L. Fincher
Title: Senior Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$30,000,000 THE FIRST NATIONAL BANK OF CHICAGO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Madeleine N. Pember
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Commitment
- ----------
- --------------------------------------------------------------------------------
Title: Assistant Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$30,000,000 THE BANK OF NEW YORK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Steven Kalachman
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Elizabeth M. Waters
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 BANK OF MONTREAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Mary Lee Latta
Title: Director
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 BANKBOSTON, N.A.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Michael M. Parker
Title: Managing Director
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Commitment
- ----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 CIBC INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Denis P. O'Meara
Title: Executive Director
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 DRESDNER BANK AG, NEW
YORK AND GRAND CAYMAN BRANCHES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Andrew Schroeder
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Robert Preminger
Title: Assistant Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 THE INDUSTRIAL BANK OF JAPAN, LIMITED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Minami Miura
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 NATIONAL AUSTRALIA BANK LIMITED
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Commitment
- ----------
- --------------------------------------------------------------------------------
By: /s/ R. Adams Perry III
Title: Senior Vice President &
Head of Corporate Banking
& Finance
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 THE NORTHERN TRUST COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Lisa M. Taylor
Title: Second Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 SUNTRUST BANK, ATLANTA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ John A. Fields, Jr.
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 TORONTO DOMINION (TEXAS), INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Carol Brandt
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 UBS AG, STAMFORD BRANCH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Commitment
- ----------
- --------------------------------------------------------------------------------
By: /s/ Paul R. Morrison
Title: Executive Director
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Andrew N. Taylor
Title: Associate Director
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 WESTPAC BANKING CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Tony Smith
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 MELLON BANK, N.A.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ Roger E. Howard
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$20,000,000 SOCIETE GENERALE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
By: /s/ David Bird
Title: Vice President
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
__________________
<PAGE>
Total Commitments
$600,000,000
==================
<PAGE>
THE CHASE MANHATTAN BANK,
as Administrative Agent
--------------------------
By: /s/ Paul V. Farrell
Title: Vice President
Address: 270 Park Avenue
New York, NY 10017
Attention: Paul V. Farrell
Telecopy number: (212) 270-3089
<PAGE>
Pricing Schedule
----------------
The "Facility Fee Rate" and the "Euro-Dollar Margin" for any day are the
respective percentages set forth below in the applicable row under the column
corresponding to the Status that exists on such day:
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Facility Fee .055% .060% .065% .070% .085% .100%
- -------------------------------------------------------------------------------------------
Euro-Dollar Margin
Utilization *25% .145% .165% .185% .205% .215% .250%
Utilization **25% .270% .290% .310% .330% .340% .375%
- -------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"Level I Status" exists at any date if, at such date, the Borrower is rated
"AA-" or higher by S&P or "Aa3" or higher by Moody's.
"Level II Status" exists at any date if, at such date, (i) the Borrower is
rated "A+" or higher by S&P or "A1" or higher by Moody's and (ii) Level I Status
does not exist.
"Level III Status" exists at any date if, at such date, (i) the Borrower is
rated "A" or higher by S&P or "A2" or higher by Moody's and (ii) neither Level I
Status nor Level II Status exists.
"Level IV Status" exists at any date if, at such date, (i) the Borrower is
rated "A-" by S&P or "A3" by Moody's and (ii) neither Level I Status, Level II
Status nor Level III Status exists.
"Level V Status" exists at any date if, at such date, (i) the Borrower is
rated "BBB+" by S&P or "Baa1" by Moody's and (ii) neither Level I Status, Level
II Status, Level III Status nor Level IV Status exists.
"Level VI Status" exists at any date if, at such date, no other Status
exists.
"Status" refers to the determination of which of Level I Status, Level II
Status, Level III Status, Level IV Status, Level V Status or Level VI Status
exists at any date.
"Utilization" means, at any date, the percentage equivalent of a fraction
(i) the numerator of which is the aggregate outstanding principal amount of the
* = less than
** = greater than or equal to
<PAGE>
Loans at such date and (ii) the denominator of which is the aggregate amount of
the Commitments at such date. If for any reason any Loans remain outstanding
following termination of the Commitments, Utilization shall be deemed to be in
excess of 25%.
The credit ratings to be utilized for purposes of this Schedule are those
indicated for or assigned to the senior unsecured long-term debt securities of
the Borrower without third-party credit enhancement, and any rating indicated
for or assigned to any other debt security of the Borrower shall be disregarded.
The ratings in effect for any day are those in effect at the close of business
on such day. A change in credit rating will result in an immediate change in
the applicable Status. In the case of split ratings from S&P and Moody's, the
rating to be used to determine the applicable Status is the higher of the two.
<PAGE>
EXHIBIT A
NOTE
New York, New York
August __, 1999
For value received, Duke Capital Corporation, a Delaware corporation (the
"Borrower"), promises to pay to the order of _______________________ (the
"Bank"), for the account of its Applicable Lending Office, the unpaid principal
amount of each Loan made by the Bank to the Borrower pursuant to the Credit
Agreement referred to below on the date specified in the Credit Agreement. The
Borrower promises to pay interest on the unpaid principal amount of each such
Loan on the dates and at the rate or rates provided for in the Credit Agreement.
All such payments of principal and interest shall be made in lawful money of the
United States in Federal or other immediately available funds at the office of
The Chase Manhattan Bank, 270 Park Avenue, New York, New York.
All Loans made by the Bank, the respective types and maturities thereof and
all repayments of the principal thereof shall be recorded by the Bank and, the
Bank, if the Bank so elects in connection with any transfer or enforcement of
its Note, may endorse on the schedule attached hereto appropriate notations to
evidence the foregoing information with respect to the Loans then outstanding;
provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Credit Agreement.
This note is one of the Notes referred to in the 364-Day Credit Agreement
dated as of August 23, 1999 among the Borrower, the banks listed on the
signature pages thereof and The Chase Manhattan Bank, as Administrative Agent
(as the same may be amended from time to time, the "Credit Agreement"). Terms
defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the prepayment
hereof and the acceleration of the maturity hereof.
DUKE CAPITAL CORPORATION
By___________________________
Title:
<PAGE>
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Date Amount Type Amount of Maturity Notation
of Loan of Loan Principal Date Made By
Repaid
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
FORM OF BID RATE QUOTE REQUEST
------------------------------
[Date]
To: The Chase Manhattan Bank
(the "Administrative Agent")
From: Duke Capital Corporation
Re: 364-Day Credit Agreement (the "Credit Agreement") dated as of August __,
1999 among the Borrower, the Banks listed on the signature pages thereof
and the Administrative Agent
We hereby give notice pursuant to Section 2.03 of the Credit Agreement
that we request Bid Rate Quotes for the following proposed Bid Rate
Borrowing(s):
Date of Borrowing: __________________
Principal Amount* Interest Period**
- ---------------- ---------------
$
Such Bid Rate Quotes should offer a Bid Rate [(General), (Indexed) or
both]. [The applicable base rate is the London Interbank Offered Rate.]
Terms used herein have the meanings assigned to them in the Credit
Agreement.
DUKE CAPITAL CORPORATION
By______________________
Title:
___________________
*Amount must be $10,000,000 or a larger multiple of $1,000,000.
**Not less than one month (Bid Rate (Indexed) Auction) or not less than 7
days (Bid Rate (General) Auction), subject to the provisions of the definition
of Interest Period.
<PAGE>
EXHIBIT C
FORM OF INVITATION FOR BID RATE QUOTES
--------------------------------------
To: [Name of Bank]
Re: Invitation for Bid Rate Quotes to Duke Capital Corporation (the "Borrower")
Pursuant to Section 2.03 of the 364-Day Credit Agreement dated as of August
__, 1999 among the Borrower, the Banks parties thereto and the undersigned, as
Administrative Agent, we are pleased on behalf of the Borrower to invite you to
submit Bid Rate Quotes to the Borrower for the following proposed Bid Rate
Borrowing(s):
Date of Borrowing: __________________
Principal Amount Interest Period
- ---------------- ---------------
$
Such Bid Rate Quotes should offer a Bid Rate [(Indexed) (General) or both].
[The applicable base rate is the London Interbank Offered Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.]
(New York City time) on [date].
THE CHASE MANHATTAN BANK
By________________________
Authorized Officer
<PAGE>
EXHIBIT D
FORM OF BID RATE QUOTE
----------------------
To: The Chase Manhattan Bank,
as Administrative Agent
270 Park Avenue
New York, New York 10017
Attention:
Re: Bid Rate Quote to Duke Capital Corporation (the "Borrower")
In response to your invitation on behalf of the Borrower dated
_____________, 19__, we hereby make the following Bid Rate Quote on the
following terms:
1. Quoting Bank: ________________________________
2. Person to contact at Quoting Bank:
_____________________________
3. Date of Borrowing: ____________________*
4. We hereby offer to make Bid Rate Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
Principal Interest Bid Rate
Amount** Period*** [(Indexed)****] [(General)*****]
- -------- --------- --------------- ----------------
__________________
*As specified in the related Invitation.
**Principal amount bid for each Interest Period may not exceed principal
amount requested. Specify aggregate limitation if the sum of the individual
offers exceeds the amount the Bank is willing to lend. Bids must be made for
$5,000,000 or a larger of multiple of $1,000,000.
***Not less than one month or less than 30 days, as specified in the
related Invitation, but no bid may be submitted for an Interest Period extending
beyond bidder's Commitment Termination Date. No more than five bids are
permitted for each Interest Period.
<PAGE>
$
$
provided, that the aggregate principal amount of Bid Rate Loans for which the
above offers may be accepted shall not exceed $____________.]**
We understand and agree that the offer(s) set forth above, subject to the
satisfaction of the applicable conditions set forth in the 364-Day Credit
Agreement dated as of August __, 1999 among the Borrower, the Banks listed on
the signature pages thereof and yourselves, as Administrative Agent, irrevocably
obligates us to make the Bid Rate Loan(s) for which any offer(s) are accepted,
in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: By:_________________________
Authorized Officer
________________________________________________________________________________
****Margin over or under the London Interbank Offered Rate determined for
the applicable Interest Period. Specify percentage (rounded to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS".
*****Specify rate of interest per annum (rounded to the nearest 1/10,000th
of 1%).
<PAGE>
EXHIBIT E
OPINION OF GENERAL
COUNSEL FOR THE BORROWER
[Effective Date]
To the Banks and the Administrative Agent
Referred to Below
c/o The Chase Manhattan Bank
as Administrative Agent
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
I am the General Counsel of Duke Capital Corporation (the "Borrower") and
have acted as its counsel in connection with the 364-Day Credit Agreement (the
"Credit Agreement") dated as of August 23, 1999 among the Borrower, the banks
listed on the signature pages thereof and The Chase Manhattan Bank, as
Administrative Agent. Terms defined in the Credit Agreement are used herein as
therein defined.
In such capacity, I or attorneys under my direct supervision have examined
originals or copies, certified or otherwise identified to my satisfaction, of
such documents, corporate records, certificates of public officials and other
instruments and have conducted such other investigations of fact and law as I
have deemed necessary or advisable for purposes of this opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing and
in good standing under the laws of Delaware and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of the Credit
Agreement and any Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the certificate of incorporation or by-laws of the Borrower or,
to
<PAGE>
my knowledge, of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Borrower or, to my knowledge, result in the creation
or imposition of any Lien on any asset of the Borrower or any of its Material
Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement of the
Borrower and the Notes, if and when issued, will constitute valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms, except as the same may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by general principles of equity.
4. Except as disclosed in the reports referred to in Section 4.04 of the
Credit Agreement, to my knowledge (but without independent investigation), there
is no action, suit or proceeding pending or threatened against or affecting, the
Borrower or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official, which would be likely to be decided
adversely to Borrower or such Subsidiary and, as a result, to have a material
adverse effect upon the business, consolidated financial position or
consolidated results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole or which in any manner draws into question
the validity of the Credit Agreement or any Notes.
5. Borrower is not a holding company under the Public Utility Holding
Company Act of 1935, as amended.
The phrase "to my knowledge", as used in the foregoing opinion, refers to
my actual knowledge without any independent investigation as to any such
matters.
I am a member of the Bar of the State of North Carolina and do not express
any opinion herein concerning any law other than the law of the State of North
Carolina, the General Corporation Law of the State of Delaware and the federal
law of the United States of America. Without limiting the generality of the
foregoing, I note that the governing law of the Loan Documents is expressed to
be the law of the State of New York; in giving the opinion set forth in
paragraph 3 above I have assumed, with your permission, that instead the
governing law is the law of the State of North Carolina.
2
<PAGE>
This opinion is rendered to you in connection with the above matter and may
not be relied upon by you for any other purpose, or relied upon by, or furnished
to, any other person, firm or corporation without my prior written consent,
except for Additional Banks and Participants.
Very truly yours,
3
<PAGE>
EXHIBIT F
OPINION OF DAVIS POLK & WARDWELL,
SPECIAL COUNSEL FOR THE ADMINISTRATIVE AGENT
[Effective Date]
To the Banks and the Administrative Agent
Referred to Below
c/o The Chase Manhattan Bank,
as Administrative Agent
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
We have participated in the preparation of the 364-Day Credit Agreement
(the "Credit Agreement") dated as of August __, 1999 among Duke Capital
Corporation, a Delaware corporation (the "Borrower"), the banks listed on the
signature pages thereof (the "Banks") and The Chase Manhattan Bank, as
Administrative Agent (the "Administrative Agent"), and have acted as special
counsel for the Administrative Agent for the purpose of rendering this opinion
pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the
Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as we have deemed necessary or advisable for purposes of this
opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of the Credit
Agreement and the Notes are within the Borrower's corporate powers and have been
duly authorized by all necessary corporate action.
2. The Credit Agreement constitutes a valid and binding agreement of the
Borrower and the Notes, if and when issued, constitute valid and binding
obligations of the Borrower enforceable in accordance with their respective
terms, except as the same may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by general principles of equity.
<PAGE>
In giving the foregoing opinion, we express no opinion as to the effect (if
any) of any law of any jurisdiction (except the State of New York) in which any
Bank is located which limits the rate of interest that such Bank may charge or
collect.
This opinion is rendered solely to you in connection with the above matter.
This opinion may not be relied upon by you for any other purpose or relied upon
by or furnished to any other person, firm or corporation without our prior
written consent, except for Additional Banks and all Participants.
Very truly yours,
2
<PAGE>
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"),
[ASSIGNEE] (the "Assignee"), DUKE CAPITAL CORPORATION (the "Company") and THE
CHASE MANHATTAN BANK, as Administrative Agent (the "Administrative Agent").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates
to the 364-Day Credit Agreement dated as of August __, 1999 among the Company,
the Assignor and the other Banks party thereto, as Banks, and the Administrative
Agent (the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans in an aggregate principal amount at any time
outstanding not to exceed $__________;*
WHEREAS, Committed Loans made to the Borrower by the Assignor under the
Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the rights
of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"),
together with a corresponding portion of its outstanding Committed Loans, and
the Assignee proposes to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms;*
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Credit Agreement.
Section 2. Assignment. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
_______________________
*The asterisked provisions shall be appropriately revised in the event of
an assignment after the Commitment Termination Date.
<PAGE>
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
from the Assignor of the corresponding portion of the principal amount of the
Committed Loans made by the Assignor outstanding at the date hereof. Upon the
execution and delivery hereof by the Assignor, the Assignee, the Company and the
Administrative Agent and the payment of the amounts specified in Section 3
required to be paid on the date hereof (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Bank under the Credit Agreement with a Commitment in an amount equal to the
Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date
hereof, be reduced by a like amount and the Assignor released from its
obligations under the Credit Agreement to the extent such obligations have been
assumed by the Assignee. The assignment provided for herein shall be without
recourse to the Assignor.
Section 3. Payments. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the
date hereof in Federal funds the amount heretofore agreed between them.* It is
understood that facility fees accrued to the date hereof in respect of the
Assigned Amount are for the account of the Assignor and such fees accruing from
and including the date hereof are for the account of the Assignee. Each of the
Assignor and the Assignee hereby agrees that if it receives any amount under the
Credit Agreement which is for the account of the other party hereto, it shall
receive the same for the account of such other party to the extent of such other
party's interest therein and shall promptly pay the same to such other party.
Section 4. Consent of the Borrower and the Administrative Agent. This
Agreement is conditioned upon the consent of the Borrower and the Administrative
Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of
this Agreement by the Borrower and the Administrative Agent is evidence of this
consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver
a Note, if required by the Assignee, payable to the order of the Assignee to
evidence the assignment and assumption provided for herein.
______________________
*Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee. It may be preferable
in an appropriate case to specify these amounts generically or by formula rather
than as a fixed sum.
2
<PAGE>
Section 5. Non-reliance on Assignor. The Assignor makes no representation
or warranty in connection with, and shall have no responsibility with respect
to, the solvency, financial condition, or statements of any Borrower, or the
validity and enforceability of the obligations of any Borrower in respect of the
Credit Agreement or any Note. The Assignee acknowledges that it has,
independently and without reliance on the Assignor, and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and will continue to be responsible for
making its own independent appraisal of the business, affairs and financial
condition of the Borrowers.
Section 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
Section 7. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
Section 8. Administrative Questionnaire. Attached is an Administrative
Questionnaire duly completed by the Assignee.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers as of the date first above
written.
______________________________
[ASSIGNOR]
By
Title:
______________________________
[ASSIGNEE]
By
Title:
3
<PAGE>
DUKE CAPITAL CORPORATION
By
______________________________________
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent
By
______________________________________
Title:
4
<PAGE>
EXHIBIT H
EXTENSION AGREEMENT
The Chase Manhattan Bank, as Administrative
Agent under the Credit Agreement
referred to below
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
Effective as of [date], the undersigned hereby agrees to extend its
Commitment and Commitment Termination Date under the 364-Day Credit Agreement
dated as of August __, 1999 among Duke Capital Corporation (the "Borrower"), the
banks parties thereto and The Chase Manhattan Bank, as Administrative Agent (the
"Credit Agreement") for 364 days to [date to which its Commitment Termination
Date is to be extended] pursuant to Section 2.01(c) of the Credit Agreement.
Terms defined in the Credit Agreement are used herein as therein defined.
This Extension Agreement shall be construed in accordance with and governed
by the law of the State of New York. This Extension Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
[NAME OF BANK]
By
___________________________________
Title:
<PAGE>
Agreed and Accepted:
DUKE CAPITAL CORPORATION,
as Borrower
By
_____________________________________
Title:
THE CHASE MANHATTAN BANK,
as Administrative Agent
By
_____________________________________
Title:
2
<PAGE>
CROSS-REFERENCE TARGET LIST
NOTE: Due to the number of targets some target names may not appear in the
target pull-down list. (This list is for the use of the wordprocessor only, is
not a part of this document and may be discarded.)
<TABLE>
<CAPTION>
ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME
=============== =========== =============== =========== =============== =========== =============== ===========
<S> <C> <C> <C>
1.03..............types.borrowing 9.01.............notices.requests
2.........................credits 9.05...............amends.waivers
2.01..................commit.lend 9.06(b).....................grant
2.01(a)..........syndicated.loans 9.06(c)........rights.obligations
2.01(b)...........swingline.loans
2.01(c).................extension EXHIBIT G REFERENCES:
2.02.......................notice 2......................assignment
2.02(b).........borrow.aggreg.amt 3........................payments
2.03..........money.market.borrow 8............change.circumstances
2.03(d)................submission 6.01(i).............material.plan
2.03(d)(i)........bank.may.submit
2.03(d)(ii)....money.market.quote
2.03(f)................acceptance
2.04....notice.banks.funding.loan
2.04(a)..............notice.banks
2.05........................notes
2.07...............interest.rates
2.07(b)........euro.bear.interest
2.07(c).........overdue.principal
2.09..............opt.termination
2.10(a)....synd.bor.loan.interest
2.10(b)........notice.of.interest
2.11........mandatory.termination
2.12...................opt.prepay
2.12(a)...........borrower.prepay
2.12(c)..............upon.receipt
2.13...........general.provisions
2.14..................fund.losses
2.15..................computation
?.....................with.tax.ex
?...............letters.of.credit
?...............bank.issue.credit
?..................borr.give.bank
?.......................no.letter
?.................receipt.benefic
?.....................obliga.borr
?................borr.indemnifies
2.16...........reg.d.compensation
?..........takeout.of.swngln.loan
?................unrefunded.swing
2.17................increased.com
2.17(a)...........increased.com.a
3......................conditions
3.01................effectiveness
3.01(a)...........effectiveness.d
3.02...................borrowings
3.02(a).......receipt by AA or IB
3.02(b)........aggregate.outstand
4.04...................finan.info
4.04(c)..............finan.info.c
4.05...................litigation
5.04...................main.exist
5.08...................neg.pledge
5.09..............con.merge.sales
5.10..............use.of.proceeds
5.12.............indebt/cap.ratio
6........................defaults
6.01...............events.default
6.01(c)..........events.default.c
7.....................admin.agent
8.............change.circumstance
8.01....................... basis
8.01(a)...................advised
8.02...................illegality
8.03.............inc.cost.red.ret
8.03(a)........inc.cost.red.ret.a
8.03(b)........inc.cost.red.ret.b
8.05....................base.rate
8.06............substitution.bank
2.03(g)......alloc.by.admin.agent
8.04........................taxes
</TABLE>
<PAGE>
Exhibit 10.BB
KEY EMPLOYEE SEVERANCE
AGREEMENT AND RELEASE
This Severance Agreement and Release ("Agreement") is made and entered
into this day of _____________ (the "Effective Date"), by and between DUKE
ENERGY CORPORATION ("Duke"), a North Carolina corporation with its principal
executive offices in Charlotte, North Carolina, and ___________________________
(the "Employee").
W I T N E S S E T H:
WHEREAS, Duke has determined that it is in the best interests of Duke,
its affiliates and its stockholders to assure that Duke will have the continued
undivided time, attention, loyalty and dedication of the Employee,
notwithstanding the possibility or anticipation of a termination of employment;
WHEREAS, Duke believes it is imperative to diminish the inevitable
distraction of the Employee by virtue of the personal uncertainties and risks
created by any pending or threatened termination of employment and to encourage
the Employee's full undivided time, attention, loyalty, and dedication to Duke
currently and in the event of any pending or threatened termination of
employment; and
WHEREAS, it is Duke's intention that the Employee be assured of
compensation and benefit arrangements if his or her employment terminates which
are competitive with those of peer executive or management employees of
similarly situated corporations, and the Employee is willing to enter into an
agreement to that end, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Term of Agreement. The term of this Agreement (the "Agreement
-----------------
Term") shall commence on the date first written above (the "Commencement Date")
and shall terminate on ______, in the event a termination of the Employee's
employment shall not have occurred by such date; provided, however, that such
-------- -------
termination date shall be automatically extended for consecutive one-month
periods effective on the first day of each month (each, a "Renewal Date")
following the Commencement Date unless either party gives written notice to the
other party not less than ten (10) days prior to a Renewal Date of its intention
to terminate the Agreement at the end of the then-current Agreement Term. In the
event a termination of the Employee's employment shall have occurred prior to
the expiration of the Agreement Term, this Agreement will continue in force and
effect until the satisfaction of all of the parties' obligations hereunder.
<PAGE>
2. Severance Benefits.
------------------
(a) General. In the event the Employee's employment by Duke and/or
-------
any entity that controls, is controlled by, or is under common control with Duke
(a "Duke Affiliate") is terminated during the Agreement Term (so that the
Employee is no longer employed by Duke or any Duke Affiliate), the Employee
shall be entitled to the compensation and termination benefits set forth in this
Section 2; provided, however, that the obligations of Duke under Section 2(c)
-------- -------
hereof shall be subject to the forfeiture and repayment provisions of Section
3(e) hereof and to the regulations regarding a release of claims under Section
16 hereof. Any lump-sum payments required under this Section 2 will be made by
Duke in cash as soon as practicable after the effective date of the Employee's
termination of employment. This Agreement does not grant the Employee any right
or entitlement to be retained by Duke or any Duke Affiliate and shall not affect
or prejudice the right of Duke or any Duke Affiliate to terminate the employment
of the Employee at any time for any reason, subject to the payment and benefit
provisions of this Section 2. In the event of the termination of Employee's
employment with Duke and all Duke Affiliates, the Employee agrees to immediately
resign all of his positions as an officer or director of Duke and any Duke
Affiliates.
(b) Termination on Account of Death, Disability, Cause or Voluntary
---------------------------------------------------------------
Quit. In the event that the Employee's employment hereunder is terminated:
- ----
(i) due to the death of the Employee,
(ii) due to any mental or physical impairment which prevents the
Employee from performing the essential functions of his or her position
with Duke for a period of 180 days during any 12-month period, or which
has resulted in the Employee's becoming eligible for benefits under any
long-term disability income program maintained by Duke or any Duke
Affiliate,
(iii) for "Cause," which is defined as the occurrence of any one of
the following (provided the Employee receives written notice from Duke
identifying the acts or omissions constituting Cause and is given a 30-
day opportunity to cure, if such acts or omissions are capable of
cure): (A) a final conviction of a felony or a crime involving moral
turpitude; (B) an egregious act of dishonesty (including, without
limitation, theft or embezzlement) in connection with employment, or a
malicious action by the Employee toward the customers or employees of
Duke or any Duke Affiliate; (C) a violation of the provisions of
Section 3 or Section 4 hereof; or (D) material failure to carry out, or
malfeasance or gross insubordination in carrying out, reasonably
assigned duties or instructions consistent with his or her position
(provided that material failure to carry out reasonably assigned duties
shall be deemed to constitute Cause only after a finding by Duke's
Chief Executive Officer of material failure on the part of the
Employee), or
2
<PAGE>
(iv) voluntarily by the Employee,
then the Employee shall be entitled only to salary amounts payable in the normal
course for service through the date of his or her termination of employment and
any rights or payments that have become vested or that are otherwise due in
accordance with the terms of any employee benefit, incentive or compensation
plan or arrangement maintained by Duke or any Duke Affiliate that the Employee
participated in at the time of his or her termination of employment (together,
the "Accrued Rights").
(c) Termination by Duke other than for Cause. In the event that the
----------------------------------------
Employee's employment is terminated by Duke or the applicable Duke Affiliate
other than as described in clauses (b)(i), (ii) or (iii) above, the Employee
will be paid and entitled to the following:
(i) the payments and benefits representing the Employee's
Accrued Rights;
(ii) a lump-sum payment equal to (A) the Employee's annual bonus
payment earned for any completed bonus year prior to termination of
employment, if not previously paid, plus (B) a pro-rata amount of the
Employee's target bonus under any Bonus Plan (as defined below) for
the year in which the termination occurs, determined as if all
program goals had been met (the "Target Bonus"), pro-rated based on
the number of days of service during the bonus year occurring prior
to termination of employment;
(iii) a lump-sum payment equal to two (2) times the sum of the
Employee's then-current Base Salary and Target Bonus;
(iv) continued coverage for the Severance Period (as defined
below) under the medical and dental (but not medical spending account
or employee assistance) and basic life insurance plans that the
Employee participated in at the time of his or her termination, or
their equivalent, under the same terms and at the same cost to the
Employee as though the Employee had not terminated employment;
provided, however, that in the event the Employee becomes covered or
-------- -------
eligible for coverage under substitute medical or life insurance
plans of another employer during this period, subject to applicable
requirements of the Consolidated Omnibus Budget Reconsiliation Act of
1985, as amended and the regulations thereunder ("COBRA"), Duke will
no longer be obligated to provide such coverage to the Employee under
this Section 2(c)(iv); and, provided, further, that in lieu of
-------- -------
providing medical coverage (as described above) hereunder, Duke may
make a lump-sum payment to the Employee in an amount equal to the
aggregate cost of such coverage for the Severance Period, based on
the premium costs being utilized for the provision of such coverage
to former employees under COBRA at the time of the Employee's
termination of employment, and/or in lieu of providing basic life
insurance coverage hereunder, Duke may make a lump-sum payment to the
Employee in an amount equal to the anticipated cost of such coverage
for the Severance Period, based on Duke's assumed costs for such
3
<PAGE>
coverage for internal accounting purposes at the time of the
Employee's termination of employment;
(v) a lump-sum payment equal to the present value (determined
based on a six (6) percent interest rate assumption and, in the case
of any pension plan accrual, the applicable mortality table for
calculating optional forms of benefits under such plan) of any
employer contribution (other than a contribution under section 401(k)
of the Internal Revenue Code of 1986, as amended), benefit accrual or
employer-financed account allocation that would have been made or
accrued during the Severance Period under any qualified or non-
qualified pension or savings plan maintained by Duke or any Duke
Affiliate in which the Employee participated at the time of his or
her termination, determined using the Employee's Base Salary and
Target Bonus (if relevant) at the time of termination and assuming
the maximum elective deferral by the Employee permitted by such
plans, if applicable;
(vi) notwithstanding the terms of any award agreement or plan
document to the contrary, continued vesting of any long term
incentive awards (excluding Chairman's Awards), including awards of
stock options or restricted stock, held by the Employee at the time
of his or her termination of employment that are not vested or
exercisable on such date, in accordance with their terms as if the
Employee's employment had not terminated, for the duration of the
Severance Period, with any options or similar rights to remain
exercisable (to the extent exercisable at the end of the Severance
Period) for a period of 90 days following the close of the Severance
Period, but not beyond the maximum original term of such options or
rights; and
(vii) in the event that the Employee would have satisfied the
eligibility requirements of any retiree medical plan or program
maintained by Duke or any Duke Affiliate generally for its retirees
(a "Retiree Plan") within two years after the date of his or her
termination of employment, the provision of such retiree medical
benefits to the Employee from and after the date he or she would have
satisfied such requirements (assuming continued employment) on a
basis substantially equivalent to the retiree medical benefits
provided generally under the Retiree Plan, subject to such terms and
conditions and requirements for participation as apply under the
Retiree Plan from time to time and as such Retiree Plan may be
amended or terminated by Duke or a Duke Affiliate, as the case may
be, at any time.
(d) Definitions. For purposes of this Agreement, the terms below shall
-----------
have the following definitions:
(1) "Bonus Plan" shall mean any bonus plan, program or
arrangement in which the Employee participates where bonus payments are
based upon achievement of performance targets by Duke, a Duke Affiliate,
any business unit thereof or the Employee.
4
<PAGE>
(2) "Base Salary" shall mean the annualized amount of the
Employee's regular salary during any payroll period reductions for
elective deferrals or salary reductions but excluding any overtime,
incentive or other special compensation.
(3) "Severance Period" shall be the 24-month period following the
Employee's termination of employment.
3. Restrictive Covenants.
---------------------
(a) Noncompetition and Nonsolicitation. The Employee agrees that he or
----------------------------------
she shall not, during the "Restricted Period" (as defined below), without Duke's
prior written consent, for any reason, directly or indirectly, either as
principal, agent, manager, employee, partner, shareholder, director, officer,
consultant or otherwise (A) become engaged or involved in any business (other
than as a less-than 3% equity owner of any corporation traded on any national,
international or regional stock exchange or in the over-the-counter market) that
competes with Duke or any Duke Affiliate in the business of production,
transmission, distribution or retail or wholesale marketing or selling of
electricity, gathering, processing or transmission of natural gas, resale or
arranging for the purchase or for resale, brokering, marketing or trading of
natural gas, electricity or derivatives thereof, energy management and energy
solution provision, or national or international energy development; or (B)
induce or attempt to induce any customer, client, supplier, employee, agent or
independent contractor of Duke or any Duke Affiliate to reduce, terminate,
restrict or otherwise alter its business relationship with Duke or any Duke
Affiliate. The provisions of this Section 3(a) shall be limited in scope and
effective only within the following geographical areas: (i) any country in the
world where Duke or any Duke Affiliate has $25 million in capital deployed as of
the date of termination; (ii) the Continent of North America; (iii) the United
States of America; and (iv) the states of North Carolina, South Carolina,
Virginia, Georgia, Florida, Texas, California, Massachusetts, Illinois, Michigan
and New York. The parties intend the above geographical areas to be completely
severable and independent, and any invalidity or unenforceability of this
Agreement with respect to any one area shall not render this Agreement
unenforceable as applied to any one or more of the other areas.
(b) Restricted Period. For purposes hereof, the "Restricted Period" shall
-----------------
be the period of the Employee's employment during the Agreement Term and, in the
event of a termination of the Employee's employment that is covered by Section
2(c) hereof, the twelve-month period following the such termination of
employment.
(c) Severability. If any provision or part of this Section 3 is held to be
------------
unenforceable because of the duration of such provision or the area covered
thereby, the parties hereto agree to modify such provision, or that the court
making such determination shall have the power to modify such provision, to
reduce the duration or area of such provision or both, or to delete specific
words or phrases therefrom ("blue-penciling"), and in its reduced or blue-
penciled form, such provision shall then be enforceable and shall be enforced.
The parties intend the above restrictions on competition to be completely
severable and independent, and any invalidity
5
<PAGE>
or unenforceability of any one or more of such restrictions shall not render
invalid or unenforceable any one or more of the other restrictions.
(d) Enforcement. The Employee acknowledges that Duke may have no adequate
-----------
means to protect its rights under this Section 3 other than by securing an
injunction (a court order prohibiting the Employee from violating this
Agreement). The Employee agrees that Duke may enforce this Agreement by
obtaining a preliminary and permanent injunction and any other appropriate
equitable relief in any court of competent jurisdiction. The Employee
acknowledges that the recovery of damages will not be an adequate means to
redress a breach of this Agreement, but nothing in this Section 3 shall prohibit
Duke from pursuing any remedies in addition to injunctive relief, including
recovery of damages and/or any forfeiture or repayment obligations provided for
herein.
(e) Forfeitures and Repayments. The Employee agrees that, in the event he
--------------------------
or she violates the provisions of Section 3(a) hereof during the Restricted
Period, he or she will forfeit and not be entitled to any cash severance
payments or any non-cash benefits or rights (including, without limitation,
stock option rights), other than Accrued Rights, to which he or she would
otherwise be entitled to under Section 2(c) hereof (together, the "Termination
Benefits"). The Employee further agrees that, in the event he or she violates
the provisions of Section 3(a) hereof following the payment or commencement of
any Termination Benefits, (i) he or she will forfeit and not be entitled to any
further Termination Benefits, and (ii) he or she will be obligated to repay to
Duke an amount in respect of the cash payments previously made to him or her
under Section 2(c) hereof (the "Repayment Amount"). The Repayment Amount shall
be determined by aggregating the cash severance payments made to the Employee
under Sections 2(c)(ii), 2(c)(iii),2(c)(iv) and 2(c)(v) hereof, and multiplying
the resulting amount by a fraction, the numerator of which is the number of full
and partial calendar months remaining in the Severance Period at the time of the
violation (rounded to the nearest quarter of a month), and the denominator of
which is twenty-four (24). The Repayment Amount shall be paid to Duke in cash in
a single sum within ten (10) business days after the first date of the
violation, whether or not Duke has knowledge of the violation or has made a
demand for payment. Any such payment made following such date shall bear
interest at a rate equal to six (6) percent. Furthermore, in the event the
Employee violates the provisions of Section 3(a) hereof, and notwithstanding the
terms of any award agreement or plan document to the contrary (which shall be
considered to be amended to the extent necessary to reflect the terms hereof),
the Employee shall immediately forfeit the right to exercise any stock option or
similar rights that are outstanding at the time of the violation, and the
Repayment Amount, calculated as provided above, shall be increased by the amount
of any gains (measured by the difference between the aggregate fair market value
on the date of exercise of shares underlying the stock option or similar right
and the aggregate exercise price of such stock option or similar right) realized
by the Employee upon the exercise of stock options or similar rights within the
one-year period prior to the first date of the violation.
(f) Permissive Release. The Employee may request that Duke release him or
------------------
her from the restrictive covenants of Section 3(a) hereof upon the occurrence of
the forfeiture and repayment of termination benefits and rights provided for in
Section 3(e) hereof. Duke may, in its sole discretion, grant such a release in
whole or in part or may reject such request and continue to enforce its rights
under this Section 3.
6
<PAGE>
(g) Consideration; Survival. The Employee acknowledges and agrees
-----------------------
that the compensation and benefits provided in this Agreement constitute
adequate and sufficient consideration for the covenants made by the Employee in
this Section 3 and in the remainder of this Agreement. The Employee's
obligations under this Section 3 shall survive any termination of his or her
employment as specified herein.
4. Confidentiality. The Employee acknowledges that during the
---------------
Employee's employment with Duke or any Duke Affiliate, the Employee will
acquire, be exposed to and have access to, material, data and information of
Duke and the Duke Affiliates and/or their customers or clients that is
confidential, proprietary, and/or a trade secret. At all times, both during and
after the Agreement Term, the Employee shall keep and retain in confidence and
shall not disclose, except as required and authorized in the course of the
Employee's employment with Duke or any Duke Affiliate, to any person, firm or
corporation, or use for his or her own purposes, any of this proprietary,
confidential or trade secret information. For purposes of this paragraph, such
information shall include, but shall not be limited to: sales methods,
information concerning principals or customers, advertising methods, financial
affairs or methods of procurement, marketing and business plans, strategies,
projections, business opportunities, client lists, sales and cost information
and financial results and performance. The Employee acknowledges that the
obligations pertaining to the confidentiality and non-disclosure of information
shall remain in effect for a period of five (5) years after termination of
employment, or until Duke or a Duke Affiliate has released any such information
into the public domain, in which case the Employee's obligation hereunder shall
cease with respect only to such information so released into the public domain.
The Employee's obligations under this Section 4 shall survive any termination of
his or her employment. If the Employee receives a subpoena or other judiciary
process requiring that he or she produce, provide or testify about information
that is confidential property and/or a trade secret, the Employee shall notify
Duke and cooperate fully with Duke in resisting disclosure of confidential
information. Duke at its expense has the right either in the name of the
Employee or in its own name to oppose or move to quash any subpoena or other
legal process directed to the Employee regarding confidential information. If
Duke does not successfully oppose or move successfully to quash any subpoena or
other legal process directed to the Employee after being notified of it by him
or her, he or she shall be free to respond to the subpoena as he or she
determines to be appropriate.
5. Post-Employment Obligations.
---------------------------
(a) Duke Property. All records, files, lists, including, computer
-------------
generated lists, drawings, documents, equipment and similar items relating to
the business of Duke and the Duke Affiliates which the Employee shall prepare or
receive from Duke or the Duke Affiliates shall remain the sole and exclusive
property of Duke and the Duke Affiliates. Upon termination of the Employee's
employment for any reason, the Employee shall promptly return all property of
Duke or any Duke Affiliate in his or her possession. The Employee further
represents that he or she will not copy or cause to be copied, print out or
cause to be printed out any software, documents or other materials originating
with or belonging to Duke or any Duke Affiliate. The Employee additionally
represents that, upon termination of his or her employment with Duke or a Duke
Affiliate, he or she will not retain in his or her possession any such software,
documents or other materials.
7
<PAGE>
(b) Cooperation. The Employee agrees to cooperate with and provide
-----------
assistance to Duke and the Duke Affiliates and their legal counsel in connection
with any litigation (including arbitration or administrative hearings) or
investigation affecting Duke or any Duke Affiliate, in which, in the reasonable
judgment of the counsel of Duke or any Duke Affiliate, the Employee's assistance
or cooperation is needed. The Employee shall, when requested by Duke or any Duke
Affiliate, provide testimony or other assistance and shall travel at the request
of Duke or any Duke Affiliate in order to fulfill this obligation; provided,
--------
however, that, in connection with such litigation or investigation, Duke or the
- -------
Duke Affiliate, as the case may be, shall attempt to accommodate the Employee's
schedule, shall provide him or her with reasonable notice in advance of the
times in which his or her cooperation or assistance is needed, and shall
reimburse the Employee for any reasonable expenses incurred in connection with
such matters, as well as for any actual lost wages suffered as a result from
absences from employment.
6. Tax Withholding. Duke may withhold from any amounts payable under
---------------
this Agreement such federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
7. Notice. Any notices to be given hereunder by either party to the
------
other may be effectuated either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested. Mailed
notices shall be addressed to the parties at the following addresses:
If to Duke or any other
Duke Affiliate: Mr. Richard Priory
Chairman, President and CEO
Duke Energy Corporation
Post Office Box 1006, EC3XB
Charlotte, North Carolina 28201-1006
cc: Mr. Christopher C. Rolfe
Vice President, Corporate Human Resources
Duke Energy Corporation
Post Office Box 1244, PB04J
Charlotte, North Carolina 28201-1244
8. Waiver of Breach. The waiver by any party to a breach of any
----------------
provision in this Agreement cannot operate or be construed as a waiver of any
subsequent breach by a party. Any waiver or consent from Duke with respect to
any term or provision of this Agreement or any other aspect of the Employee's
conduct or employment shall be effective only in the specific instance and for
the specific purpose for which given and shall not be deemed, regardless of
frequency given, to be a further or continuing waiver or consent. The failure or
delay of Duke at any time or times to require performance of, or to exercise any
of its powers, rights or remedies with respect to, any term or provision of this
Agreement or any other aspect of the Employee's conduct or employment shall in
no manner (except as otherwise expressly provided herein) affect Duke's right at
a later time to enforce any such term or provision.
8
<PAGE>
9. Severability. The validity or unenforceability of any particular
------------
provision in this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if the invalid or
unenforceable provision were omitted.
10. Entire Agreement. Except as otherwise provided herein, this
----------------
Agreement covers the entire understanding of the parties with respect to the
subject matter hereof, superseding all prior understandings and agreements
[including, without limitation, the Employment Agreement between the Employee
and Duke dated November 24, 1996, as amended]. No modifications or amendments of
the terms and conditions herein shall be effective unless in writing and signed
by the parties or their respective duly authorized agents.
11. Applicability of Change in Control Agreement. Notwithstanding
--------------------------------------------
anything to the contrary in this Agreement, if a termination of employment by
the Employee shall be covered by a "Change in Control Agreement" (or similar
change in control severance agreement) between the Employee and Duke, the
provisions of such Change in Control Agreement shall be controlling and this
Agreement shall cease to be of any further effect.
12. Governing Law. This Agreement shall be interpreted, construed and
-------------
governed according to the laws of the State of North Carolina, without reference
to conflicts of law principles thereof.
13. Successors and Assigns. Neither this Agreement, nor any of the
----------------------
parties' respective rights, powers, duties or obligations hereunder, may be
assigned by either party without the prior written consent of the other party.
This Agreement shall be binding upon and inure to the benefit of the Employee
and his or her heirs and legal representatives of Duke and its successors.
Successors of Duke shall include, without limitation, any company or companies
acquiring, directly or indirectly, all or substantially all of the assets of
Duke, whether by merger, consolidation, purchase, lease or otherwise, and such
successor shall thereafter be deemed "Duke" for the purpose hereof.
14. Forum Selection. The Employee agrees that any claim against Duke
---------------
or any Duke Affiliate arising out of or relating in any way to this Agreement or
to the Employee's employment with Duke or any Duke Affiliate (including without
limitation any claim arising under the federal civil rights statutes) shall be
brought exclusively in the Superior Court of Mecklenburg County, North Carolina,
or the United States District Court for the Western District of North Carolina,
and in no other forum. The Employee hereby consents to the personal and subject
matter of jurisdiction of these courts for the purpose of adjudicating any
claims subject to this forum selection clause. The Employee also agrees that any
dispute of any kind arising out of or relating to this Agreement or to the
Employee's employment (including without limitation any claim arising under the
federal civil rights statutes) shall at the sole election or demand of Duke or
the applicable Duke Affiliate be submitted to final, conclusive and binding
arbitration before and according to the rules then prevailing of the American
Arbitration Association in Mecklenburg County, North Carolina, which election or
demand may be made by Duke or the applicable Duke Affiliate at any time prior to
the last day to answer and/or respond to a summons and/or complaint made by the
Employee. The results of any such arbitration proceeding shall be final and
binding both upon Duke or the applicable Duke Affiliate and upon the Employee,
and shall be subject to judicial confirmation as provided by the Federal
9
<PAGE>
Arbitration Act or the North Carolina Arbitration Act, including specifically
the terms of N.C. Gen. Stat. (S) 1-567.2, which are incorporated herein by
reference.
15. Legal Fees. To provide the Employee with reasonable assurance
----------
that the purposes of this Agreement will not be frustrated by the cost of
enforcement, Duke shall pay and be solely responsible for reasonable attorneys'
fees and expenses incurred by the Employee as a result of a claim that Duke has
breached or otherwise failed to perform its obligations under this Agreement or
any provision hereof, regardless of which party, if any, prevails in the
contest; provided, however, that Duke shall not be responsible for such fees and
-------- -------
expenses to the extent incurred in connection with a claim made by the Employee
that the trier of fact in any such contest finds to be frivolous.
16. Release of Claims. In consideration of the obligations of Duke
-----------------
under this Agreement, the Employee agrees to execute and honor the release of
claims in the form attached as Exhibit A hereto upon a termination of employment
that is covered by Section 2(c) hereof. The obligations of Duke under Section
2(c) hereof shall be contingent upon the execution, nonrevocation and continued
compliance by the Employee with this release of claims.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
_____________.
DUKE ENERGY CORPORATION
By:_______________________________
Title:____________________________
EMPLOYEE
__________________________
10
<PAGE>
EXHIBIT A
---------
RELEASE OF CLAIMS AND COVENANT NOT TO SUE
-----------------------------------------
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE (the "Release") is
executed and delivered by _____________ (the "Employee") to DUKE ENERGY
CORPORATION ("Duke").
In consideration of the agreement by Duke to provide the Employee with
the rights, payments and benefits under the Severance Agreement between the
Employee and Duke dated _____________ (the "Severance Agreement"), the Employee
hereby agrees as follows:
Section 1. Release and Covenant. The Employee, of his or her own
--------------------
free will, voluntarily releases and forever discharges Duke, its subsidiaries,
affiliates, their directors, officers, employees, agents, stockholders,
successors and assigns (both individually and in their official capacities with
Duke) from, and covenants not to sue or proceed against any of the foregoing on
the basis of, any and all past or present causes of action, suits, agreements or
other claims which the Employee, his or her dependents, relatives, heirs,
executors, administrators, successors and assigns has or may hereafter have from
the beginning of time to the date hereof against Duke upon or by reason of any
matter, cause or thing whatsoever, including, but not limited to, any matters
arising out of his or her employment by Duke and the cessation of said
employment, and including, but not limited to, any alleged violation of the
Civil Rights Acts of 1964 and 1991, the Equal Pay Act of 1963, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Older Workers Benefit Protection Act of 1990, the Americans with Disabilities
Act of 1990, the Family and Medical Leave Act of 1993 and any other federal,
state or local law, regulation or ordinance, or public policy, contract or tort
law having any bearing whatsoever on the terms and conditions of employment or
termination of employment. This Release shall not, however, constitute a waiver
of any of the Employee's rights under the Severance Agreement.
Section 2. Due Care. The Employee acknowledges that he or she has
--------
received a copy of this Release prior to its execution and has been advised
hereby of his or her opportunity to review and consider this Release for 21 days
prior to its execution. The Employee further acknowledges that he or she has
been advised hereby to consult with an attorney prior to executing this Release.
The Employee enters into this Release having freely and knowingly elected, after
due consideration, to execute this Release and to fulfill the promises set forth
<PAGE>
herein. This Release shall be revocable by the Employee during the 7-day period
following its execution, and shall not become effective or enforceable until the
expiration of such 7-day period. In the event of such a revocation, the Employee
shall not be entitled to the consideration for this Release set forth above.
Section 3. Nonassignment of Claims. The Employee represents and
-----------------------
warrants that there has been no assignment or other transfer of any interest in
any claim which the Employee may have against Duke. The Employee agrees to
indemnify and hold Duke harmless from any liability, claims, demands, damages,
costs, expenses and attorneys' fees incurred as a result of any person asserting
such assignment or transfer of any rights or claims under any such assignment or
transfer. It is the intention of the Employee and Duke that this indemnity does
not require payment as a condition precedent to recovery by Duke from the
Employee under this indemnity.
Section 4. Reliance by Employee. The Employee acknowledges that, in
--------------------
his or her decision to enter into this Release, he or she has not relied on any
representations, promises or agreements of any kind, including oral statements
by representatives of Duke, except as set forth in this Release.
This RELEASE OF CLAIMS AND COVENANT NOT TO SUE is executed by the
Employee and delivered to Duke on _____________________.
EMPLOYEE
____________________________________________________
[not to be signed upon execution of Severance Agreement]
A-2
<PAGE>
Exhibit 10.CC
CHANGE IN CONTROL AGREEMENT
CHANGE IN CONTROL AGREEMENT (the "Agreement"), effective as of __________,
by and between _____________ (the "Employee") and DUKE ENERGY CORPORATION
("Duke"), a North Carolina corporation with its principal executive offices in
Charlotte, North Carolina.
WHEREAS, Duke has determined that it is in the best interests of Duke, its
affiliates and its stockholders to assure that Duke will have the continued
undivided time, attention, loyalty and dedication of the Employee,
notwithstanding the possibility, threat or occurrence of a Change in Control (as
defined below);
WHEREAS, Duke believes it is imperative to diminish the inevitable
distraction of the Employee by virtue of the personal uncertainties and risks
created by any pending or threatened Change in Control and to encourage the
Employee's full undivided time, attention, loyalty, and dedication to Duke
currently and in the event of any pending or threatened Change in Control; and
WHEREAS, it is Duke's intention that the Employee be assured of
compensation and benefit arrangements if his or her employment terminates as a
result of a Change in Control which are competitive with those of peer executive
or management employees of similarly situated corporations, and the Employee is
willing to enter into an agreement to that end, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Term of Agreement.
-----------------
The term of this Agreement (the "Agreement Term") shall commence on the
date first written above (the "Commencement Date") and shall terminate on
August 19, 2001, in the event a Change in Control shall not have occurred by
such date; provided, however, that such termination date shall be automatically
-------- -------
extended for consecutive one-month periods effective on the first date of each
month (each, a "Renewal Date") following the Commencement Date unless either
party gives written notice to the other party not less than ten (10) days prior
to a Renewal Date of its intention to terminate the Agreement at the end of the
then-current Agreement Term. In the event a Change in Control shall have
occurred prior to the expiration of the Agreement Term, this Agreement will
continue in force and effect until the satisfaction of all of the parties'
obligations hereunder.
2. Covered Termination.
-------------------
(a) General. The Employee shall be treated as having incurred a "Covered
-------
Termination" if during the period beginning on the date of a Change in Control
that occurs during the Agreement Term and ending on the close of the 24th full
calendar month following
<PAGE>
such Change in Control (the "Covered Period"), either (i) Duke and/or any entity
that controls, is controlled by, or is under common control with Duke (a "Duke
Affiliate") terminates his or her employment other than for Cause (as defined
below)(so that the Employee is no longer employed by Duke or any Duke Affiliate)
or (ii) the Employee terminates his or her employment with Duke and all Duke
Affiliates for Good Reason (as defined below). The Employee shall not be treated
as having incurred a Covered Termination if his or her employment shall
terminate on account of his or her death, disability, a termination by Duke or
any Duke Affiliate for Cause, a termination by the Employee other than for Good
Reason, or a termination for any reason other than during the Covered Period.
(b) Cause. For purposes of this Agreement, "Cause" shall mean the
-----
occurrence of any one of the following (provided the Employee receives written
notice from Duke identifying the acts or omissions constituting Cause and is
given a 30-day opportunity to cure, if such acts or omissions are capable of
cure): (A) a final conviction of a felony or a crime involving moral turpitude;
(B) an egregious act of dishonesty (including, without limitation, theft or
embezzlement) in connection with employment, or a malicious action by the
Employee toward the customers or employees of Duke or any Duke Affiliate; or (C)
a material failure to carry out, or malfeasance or gross insubordination in
carrying out, reasonably assigned duties or instructions consistent with his or
her position (provided that material failure to carry out reasonably assigned
duties shall be deemed to constitute Cause only after a finding by Duke's Chief
Executive Officer of material failure on the part of the Employee).
(c) Good Reason. For purposes of this Agreement, "Good Reason" shall
-----------
mean the occurrence of any one of the following, without the written consent of
the Employee, during the Covered Period (provided Duke receives written notice
from the Employee, within 60 days of the occurrence of the event that gives rise
to Good Reason, which identifies the acts or omissions constituting Good Reason
and Duke is given a 30-day opportunity to cure): (i) any reduction in the
Employee's Base Salary (as defined below) as in effect immediately prior to the
Change in Control; (ii) any reduction in the Employee's annual bonus opportunity
(as a percentage of Base Salary) from that which was in effect under the
applicable Bonus Plan (as defined below) at the time of the Change in Control;
(iii) any material diminution in the Employee's overall level of authority or
responsibility with Duke and all Duke Affiliates (or their successors) as in
effect immediately prior to the Change in Control; or (iv) any requirement that
the Employee relocate his principal place of business, as in effect immediately
prior to a Change in Control, by more than 50 miles.
(d) Change in Control. For purposes of this Agreement, a "Change in
-----------------
Control" shall be deemed to have occurred upon the first to occur of one of the
following events prior to the Expiration Date:
(i) an acquisition subsequent to the date hereof by any
individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty
percent (30%) or more of either (A) the then outstanding shares of
Duke common stock (the "Common Stock") or (B) the combined voting
power of the then outstanding voting securities of Duke entitled to
vote generally in the election of directors (the "Outstanding
Corporation Voting Securities");
2
<PAGE>
excluding, however, the following: (1) any acquisition directly from
Duke, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself
acquired directly from Duke, (2) any acquisition by Duke and (3) any
acquisition by an Employee benefit plan (or related trust) sponsored
or maintained by Duke or any of its subsidiaries;
(ii) during any period of two (2) consecutive years (not
including any period prior to the date hereof), individuals who at the
beginning of such period constitute the Board (and any new directors
whose election by the Board or nomination for election by Duke's
shareholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was so approved) cease for any reason (except for death, disability or
voluntary retirement) to constitute a majority thereof;
(iii) the approval by the shareholders of Duke and consummation
of a merger, consolidation, reorganization or similar corporate
transaction, whether or not Duke is the surviving corporation in such
transaction, other than a merger, consolidation, or reorganization
that would result in the voting securities of Duke outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting
power of the voting securities of Duke (or such surviving entity)
outstanding immediately after such merger, consolidation, or
reorganization;
(iv) the approval by the shareholders of Duke and consummation
of (A) the sale or other disposition of all or substantially all of
the assets of Duke or (B) a complete liquidation or dissolution of
Duke; or
(v) adoption by the Board of a resolution to the effect that
any person has acquired effective control of the business and affairs
of Duke.
3. Termination Benefits.
--------------------
(a) General. In the event of a Covered Termination, the Employee
-------
shall be entitled to the compensation and termination benefits set forth in
Section 3(b) hereof. Any lump-sum payments required under this Section 3 will be
made by Duke in cash within 10 business days after the effective date of the
Employee's Covered Termination. This Agreement does not grant the Employee any
right or entitlement to be retained by Duke or any Duke Affiliate and shall not
affect or prejudice the right of Duke or any Duke Affiliate to terminate the
employment of the Employee at any time for any reason, subject to the
termination payments described in this Section 3. In the event of the
termination of the Employee's employment with Duke and all Duke Affiliates, the
Employee agrees to immediately resign all of his or her positions as an officer
or director of Duke or any Duke Affiliate.
3
<PAGE>
(b) Covered Termination Payments and Benefits. In the event that the
-----------------------------------------
Employee's employment hereunder is terminated on account of a Covered
Termination, the Employee will be paid and entitled to the following:
(i) any salary or compensation earned through the date of
termination and any rights or payments that have become vested or that
are otherwise due under any employee benefit, incentive or
compensation plan or arrangement maintained by Duke or a Duke
Affiliate that the Employee participated in at the time of his or her
termination of employment;
(ii) a lump-sum payment equal to (A) the Employee's annual bonus
payment earned for any completed bonus year to termination of
employment, if not previously paid, plus (B) a pro-rata amount of the
Employee's target bonus under any Bonus Plan (as defined below) for
the year in which the termination occurs, determined as if all program
goals had been met (the "Target Bonus"), pro-rated based on the number
of days of service during the bonus year occurring prior to
termination of employment;
(iii) a lump-sum payment equal to the sum of the Employee's then-
current Base Salary and Target Bonus for each year of the Severance
Period (as defined below), including a pro-rata amount (determined on
a daily basis) for any partial years during this period;
(iv) continued coverage for the Severance Period (as defined
below) under the medical and dental (but not medical spending account
or employee assistance) and basic life insurance plans that the
Employee participated in at the time of his or her termination, or
their equivalent, under the same terms and at the same cost to the
Employee as though the Employee had not terminated employment;
provided, however, that in the event the
-------- -------
Employee becomes covered or eligible for coverage under substitute
medical or life insurance plans of another employer during this
period, subject to applicable requirements of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended and the regulations
thereunder ("COBRA"), Duke will no longer be obligated to provide such
coverage to the Employee under this subparagraph; and, provided,
--------
further, that in lieu of providing medical coverage (as described
--------
above) hereunder, Duke may make a lump-sum payment to the Employee in
an amount equal to the aggregate cost of such coverage for the
Severance Period, based on the premium costs being utilized for the
provision of such coverage to former employees under COBRA at the time
of the Employee's termination of employment, and/or in lieu of
providing basic life insurance coverage hereunder, Duke may make a
lump-sum payment to the Employee in an amount equal to the anticipated
cost of such coverage for the Severance Period, based on Duke's
assumed costs for such coverage for internal accounting purposes at
the time of the Employee's termination of employment;
(v) a lump-sum payment equal to the present value (determined
based on a six (6) percent interest rate assumption and, in the case
of any pension plan accrual, the applicable mortality table for
calculating optional forms of benefits
4
<PAGE>
under such plan) of any employer contribution (other than a
contribution under section 401(k) of the Internal Revenue Code of
1986, as amended), benefit accrual or employer-financed account
allocation that would have been made or accrued during the Severance
Period under any qualified or non-qualified pension or savings plan
maintained by Duke or any Duke Affiliate in which the Employee
participated at the time of his or her termination, determined using
the Employee's Base Salary and Target Bonus (if relevant) at the time
of termination and assuming the maximum elective deferral by the
Employee permitted by such plans, if applicable;
(vi) notwithstanding the terms of any award agreement or plan
document to the contrary, continued vesting of any long term incentive
awards, including awards of stock options or restricted stock (but
excluding any award that is designated by Duke as a "Chairman's
Award"), held by the Employee at the time of his or her termination of
employment that are not vested or exercisable on such date, in
accordance with their terms as if the Employee's employment had not
terminated, for the duration of the Severance Period, with any options
or similar rights to remain exercisable (to the extent exercisable at
the end of the Severance Period) for a period of 90 days following the
close of the Severance Period, but not beyond the maximum original
term of such options or rights; and
(vii) in the event that the Employee would have satisfied the
eligibility requirements of any retiree medical plan or program
maintained by Duke or any Duke Affiliate generally for its retirees (a
"Retiree Plan") within two years after the date of his or her
termination of employment, the provision of such retiree medical
benefits to the Employee from and after the date he or she would have
satisfied such requirements (assuming continued employment) on a basis
substantially equivalent to the retiree medical benefits provided
generally under the Retiree Plan, subject to such terms and conditions
and requirements for participation as apply under the Retiree Plan
from time to time and as such Retiree Plan may be amended or
terminated by Duke or a Duke Affiliate, as the case may be, at any
time.
(c) Definitions. For purposes of this Agreement, the terms below
-----------
shall have the following definitions:
(1) "Bonus Plan" shall mean any bonus plan, program or
arrangement in which the Employee participates where bonus payments are
based upon achievement of performance targets by Duke, Duke Affiliates, any
business unit thereof or the Employee.
(2) "Base Salary" shall mean the annualized amount of the
Employee's regular salary during any payroll period, prior to any
reductions for elective deferrals or salary reductions but excluding any
overtime, incentive or other special compensation.
(3) "Severance Period" shall be the period beginning on the date
of the Covered Termination and ending on the earlier of (i) the end of the
__th month following
5
<PAGE>
such Covered Termination or (ii) the Employee's attainment of age 65 (with
any fraction of a month to be rounded to the nearest whole month).
(d) Other Termination Benefits. In the event of a termination of the
--------------------------
Employee's employment that does not constitute a Covered Termination, the
Employee will not be due any payments, rights or benefits under this Agreement
other than those provided for in Section 3(b)(i) hereof.
4. Excise Tax Provision.
--------------------
(a) If it shall be determined that any amount, right or benefit paid,
distributed or treated as paid or distributed by Duke or any Duke Affiliate to
or for the Employee's benefit (whether paid or payable or distributed or
distributable hereunder or otherwise, but determined without regard to any
additional payments required under this Section 4) (a "Payment") would be
subject to the excise tax imposed by section 4999 of the Code, or any interest
or penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, collectively, the
"Excise Tax"), then the Employee shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Employee of all federal, state and local taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) All determinations required to be made under this Section 4,
including whether and when a Gross-Up Payment is required, the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm
designated jointly by the Employee and Duke (the "Accounting Firm"), which shall
be permitted to designate an independent counsel to advise it for this purpose.
The Accounting Firm shall provide detailed supporting calculations both to Duke
and the Employee within 15 business days of the receipt of notice from the
Employee or Duke that there has been a Payment, or such earlier time as is
requested by Duke. All fees and expenses of the Accounting Firm and its legal
counsel shall be paid by Duke. Any Gross-Up Payment, as determined pursuant to
this Section 4, shall be paid by Duke to the Employee (or to the Internal
Revenue Service on the Employee's behalf) within five days of the receipt of the
Accounting Firm's determination. All determinations made by the Accounting Firm
shall be binding upon Duke and the Employee. As a result of the uncertainty
regarding the application of section 4999 of the Code hereunder, it is possible
that the Internal Revenue Service may assert that an Excise Tax is due that was
not included in the Accounting Firm's calculation of the Gross-Up Payments (an
"Underpayment"). In the event that Duke exhausts its remedies pursuant to this
Section 4 and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any additional Gross-Up Payments that are due as a result
thereof shall be promptly paid by Duke to the Employee (or to the Internal
Revenue Service on the Employee's behalf).
6
<PAGE>
(c) The Employee shall notify Duke in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by Duke
of the Gross-Up Payment. Such notification shall be given as soon as practicable
but no later than 10 business days after the Employee receives written
notification of such claim and shall apprise Duke of the nature of such claim
and the date on which such claim is requested to be paid. The Employee shall not
pay such claim prior to the expiration of the 30-day period following the date
on which it gives such notice to Duke (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If Duke notifies
the Employee in writing prior to the expiration of such period that it desires
to contest such claim, the Employee shall: (i) give Duke all information
reasonably requested by Duke relating to such claim; (ii) take such action in
connection with contesting such claim as Duke shall reasonably request in
writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney selected by Duke and
reasonably acceptable to the Employee and ceasing all efforts to contest such
claim; (iii) cooperate with Duke in good faith in order to effectively contest
such claim; and (iv) permit Duke to participate in any proceeding relating to
such claim; provided, however, that Duke shall bear and pay directly all
-------- -------
reasonable costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expense. Without limiting the
foregoing provisions of this Section 4, Duke shall control all proceedings taken
in connection with such contest and, at its sole option, may pursue or forego
any and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Employee to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Employee agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as Duke
shall determine and direct; provided, however, that if Duke directs the Employee
-------- -------
to pay such claim and sue for a refund, Duke shall advance the amount of such
payment to the Employee, on an interest-free basis, and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the Employee's taxable year with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, Duke's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Employee shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the Employee's receipt of an amount advanced by Duke
pursuant to this Section 4, the Employee becomes entitled to receive any refund
with respect to such claim, the Employee shall pay to Duke within 10 business
days the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the Employee's receipt of an
amount advanced by Duke pursuant to this Section 4, a determination is made that
the Employee shall not be entitled to any refund with respect to such claim and
Duke does not notify the Employee in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after Duke's receipt of
notice of such determination, then such advance shall be
7
<PAGE>
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
5. Lapse of Restrictive Covenants. Upon the occurrence of a Covered
------------------------------
Termination, the Employee will no longer be bound by any non-competition
restriction or other restrictive covenant to which he or she is a party with
respect to Duke or any Duke Affiliate.
6. Tax Withholding. Duke may withhold from any amounts payable under
---------------
this Agreement such federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
7. Notice. Any notices to be given hereunder by either party to the
------
other may be effectuated either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested. Mailed
notices shall be addressed to the parties at the following addresses:
If to Duke or any other
Duke Affiliate: Mr. Richard Priory
Chairman, President and CEO
Duke Energy Corporation
Post Office Box 1006, EC3XB
Charlotte, North Carolina 28201-1006
cc: Mr. Christopher C. Rolfe
Vice President, Corporate Human Resources
Duke Energy Corporation
Post Office Box 1244, PB04J
Charlotte, North Carolina 28201-1244
8. Waiver of Breach. The waiver by any party to a breach of any
----------------
provision in this Agreement cannot operate or be construed as a waiver of any
subsequent breach by a party. Any waiver or consent from Duke with respect to
any term or provision of this Agreement or any other aspect of the Employee's
conduct or employment shall be effective only in the specific instance and for
the specific purpose for which given and shall not be deemed, regardless of
frequency given, to be a further or continuing waiver or consent. The failure or
delay of Duke at any time or times to require performance of, or to exercise any
of its powers, rights or remedies with respect to, any term or provision of this
Agreement or any other aspect of the Employee's conduct or employment shall in
no manner (except as otherwise expressly provided herein) affect Duke's right at
a later time to enforce any such term or provision.
9. Severability. The validity or unenforceability of any particular
------------
provision in this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if the invalid or
unenforceable provision were omitted.
10. Entire Agreement. Except as otherwise provided herein, this
----------------
Agreement covers the entire understanding of the parties with respect to the
subject matter hereof, superseding all prior understandings and agreements. No
modifications or amendments of the
8
<PAGE>
terms and conditions herein shall be effective unless in writing and signed by
the parties or their respective duly authorized agents.
11. Applicability of Key Employee Severance Agreement. In the event
-------------------------------------------------
of a Covered Termination following a Change in Control, this Agreement will
supersede any "Key Employee Severance Agreement and Release" (or similar
severance agreement) to which the Employee is a party, but shall have no effect
on any such agreement in the event of a termination of employment that is not
treated as a Covered Termination under this Agreement.
12. Governing Law. This Agreement shall be interpreted, construed
-------------
and governed according to the laws of the State of North Carolina, without
reference to conflicts of law principles thereof.
13. Successors and Assigns. Neither this Agreement, nor any of the
----------------------
parties' respective rights, powers, duties or obligations hereunder, may be
assigned by either party without the prior written consent of the other party.
This Agreement shall be binding upon and inure to the benefit of the Employee
and his or her heirs and legal representatives and Duke and its successors.
Successors of Duke shall include, without limitation, any company or companies
acquiring, directly or indirectly, all or substantially all of the assets of
Duke, whether by merger, consolidation, purchase, lease or otherwise, and such
successor shall thereafter be deemed "Duke" for the purpose hereof.
14. Forum Selection. The Employee agrees that any claim against Duke
---------------
or any Duke Affiliate arising out of or relating in any way to this Agreement or
to the Employee's employment with Duke or any Duke Affiliate (including without
limitation any claim arising under the federal civil rights statutes) shall be
brought exclusively in the Superior Court of Mecklenburg County, North Carolina,
or the United States District Court for the Western District of North Carolina,
and in no other forum. The Employee hereby consents to the personal and subject
matter of jurisdiction of these courts for the purpose of adjudicating any
claims subject to this forum selection clause. The Employee also agrees that any
dispute of any kind arising out of or relating to this Agreement or to the
Employee's employment (including without limitation any claim arising under the
federal civil rights statutes) shall at the sole election or demand of Duke or
the applicable Duke Affiliate be submitted to final, conclusive and binding
arbitration before and according to the rules then prevailing of the American
Arbitration Association in Mecklenburg County, North Carolina, which election or
demand may be made by Duke or the applicable Duke Affiliate at any time prior to
the last day to answer and/or respond to a summons and/or complaint made by the
Employee. The results of any such arbitration proceeding shall be final and
binding both upon Duke or the applicable Duke Affiliate and upon the Employee,
and shall be subject to judicial confirmation as provided by the Federal
Arbitration Act or the North Carolina Arbitration Act, including specifically
the terms of N.C. Gen. Stat. (S) 1-567.2, which are incorporated herein by
reference.
15. Legal Fees. To provide the Employee with reasonable assurance
----------
that the purposes of this Agreement will not be frustrated by the cost of
enforcement, Duke shall pay and be solely responsible for reasonable attorneys'
fees and expenses incurred by the Employee as a result of a claim that Duke has
breached or otherwise failed to perform its obligations under this Agreement or
any provision hereof, regardless of which party, if any, prevails in the
contest;
9
<PAGE>
provided, however, that Duke shall not be responsible for such fees and
- -------- -------
expenses to the extent incurred in connection with a claim made by the Employee
that the trier of fact in any such contest finds to be frivolous.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
__________.
DUKE ENERGY CORPORATION
By:_____________________________
Title: ___________________________
EMPLOYEE
__________________________
10
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Dollars in Millions Year Ended December 31
- ------------------------------------------------------------------------------------------------------------
1999 1998 /a/ 1997 /a/ 1996 /a/ 1995 /a/
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes $1,300 $2,037 $1,613 $1,789 $1,682
Fixed charges 670 555 520 540 556
-----------------------------------------------------------------
Total $1,970 $2,592 $2,133 $2,329 $2,238
=================================================================
Fixed charges:
Interest on debt $ 644 $ 533 $ 497 $ 514 $ 536
Interest component of rentals 26 22 23 26 20
-----------------------------------------------------------------
Fixed charges $ 670 $ 555 $ 520 $ 540 $ 556
=================================================================
Ratio of earnings to fixed charges 2.9 4.7 4.1 4.3 4.0
- ------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Financial information reflects accounting for the 1997 merger with
PanEnergy Corp as a pooling of interests. As a result, the financial
information gives effect to the merger as if it had occurred January 1,
1995.
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
The following is a list of certain subsidiaries of the registrant and their
respective states of incorporation (100% owned unless otherwise indicated):
Crescent Resources, Inc. (South Carolina)
Duke Capital Corporation (Delaware)
Duke Energy Natural Gas Corporation (Delaware)
Texas Eastern Transmission Corporation (Delaware)
PanEnergy Corp (Delaware)
<PAGE>
Exhibit No. 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 333-
79065, 333-81573, 33-50543, 33-50617, 33-50715, 333-02571, 333-02575, 333-14209,
333-30263, 333-40679 and 333-59327 of Duke Energy Corporation on Form S-3 and
Registration Statement Nos. 333-29563, 333-29585, 333-29587, 333-34655, 333-
12093, 333-50317 and 333-59279 of Duke Energy Corporation on Form S-8 of our
report dated February 11, 2000, appearing in this Annual Report on Form 10-K of
Duke Energy Corporation for the year ended December 31, 1999.
Deloitte & Touche LLP
Charlotte, North Carolina
March 20, 2000
<PAGE>
Exhibit 24(a)
DUKE ENERGY CORPORATION
Power of Attorney
-----------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
(Annual Report)
The undersigned Duke Energy Corporation, a North Carolina corporation and
certain of its officers and/or directors, do each hereby constitute and appoint
Richard J. Osborne, Ellen T. Ruff, and Sandra P. Meyer, and each of them, to act
as attorneys-in-fact for and in the respective names, places, and stead of the
undersigned, to execute, seal, sign, and file with the Securities and Exchange
Commission the Annual Report of said Duke Energy Corporation on Form 10-K and
any and all amendments thereto, hereby granting to said attorneys-in-fact, and
each of them, full power and authority to do and perform all and every act and
thing whatsoever requisite, necessary, or proper to be done in and about the
premises, as fully to all intents and purposes as the undersigned, or any of
them, might or could do if personally present, hereby ratifying and approving
the acts of said attorneys-in-fact.
Executed as of the 6th day of March, 2000.
DUKE ENERGY CORPORATION
By /s/ R.B. Priory
-----------------------------------
Chairman, President and
Chief Executive Officer
(Corporate Seal)
ATTEST:
/s/ Robert T. Lucas III
- ------------------------------
Assistant Secretary
<PAGE>
/s/ R. B. Priory Chairman, President and
- ---------------------------- Chief Executive Officer
R. B. Priory (Principal Executive Officer and Director)
/s/ Richard J. Osborne Executive Vice President and Chief Financial
- ---------------------------- Officer (Principal Financial Officer)
Richard J. Osborne
/s/ Sandra P. Meyer Vice President and Corporate Controller
- ---------------------------- (Principal Accounting Officer)
Sandra P. Meyer
/s/ G. Alex Bernhardt (Director)
- ----------------------------
G. Alex Bernhardt
/s/ Robert J. Brown (Director)
- ----------------------------
Robert J. Brown
/s/ William A. Coley (Director)
- ----------------------------
William A. Coley
/s/ William T. Esrey (Director)
- ----------------------------
William T. Esrey
/s/ Ann M. Gray (Director)
- ----------------------------
Ann M. Gray
/s/ Dennis R. Hendrix (Director)
- ----------------------------
Dennis R. Hendrix
/s/ Harold S. Hook (Director)
- ----------------------------
Harold S. Hook
/s/ George Dean Johnson, Jr. (Director)
- ----------------------------
George Dean Johnson, Jr.
<PAGE>
/s/ Max Lennon (Director)
- ----------------------------
Max Lennon
/s/ Leo E. Linbeck, Jr. (Director)
- ----------------------------
Leo E. Linbeck, Jr.
/s/ James G. Martin (Director)
- ----------------------------
James G. Martin
/s/ Russell M. Robinson, II (Director)
- ----------------------------
Russell M. Robinson, II
<PAGE>
Exhibit No. 24(B)
Certified Copy of Resolutions Adopted by
Unanimous Written Consent to Action without a Meeting
of the Management Committee of the Board of Directors
of Duke Energy Corporation Effective March 16, 2000
FURTHER RESOLVED, That the Power of Attorney as
presented to the meeting and executed by all the Directors
present be and hereby is approved in form and content for
purposes of filing the Form 10-K Annual Report with the
Securities and Exchange Commission.
* * * * * * * *
I, Robert T. Lucas III, Assistant Secretary of Duke Energy Corporation, do
hereby certify that the above is a full, true and complete extract from
resolutions adopted by unanimous written consent to action without a meeting of
the Management Committee of the Board of Directors of Duke Energy Corporation
effective on March 16, 2000.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Corporate
Seal of said Duke Energy Corporation this 16th day of March, 2000.
_____________________________
Robert T. Lucas III
Assistant Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME CONSOLIDATED STATEMENTS OF CASH FLOWS, AND
CONSOLIDATED BALANCE SHEETS AS OF AND FOR YEAR TO DATE 12/31/99 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000030371
<NAME> DUKE ENERGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 9,753,000
<OTHER-PROPERTY-AND-INVEST> 15,952,000
<TOTAL-CURRENT-ASSETS> 6,171,000
<TOTAL-DEFERRED-CHARGES> 1,533,000
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 33,409,000
<COMMON> 4,603,000
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 4,397,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 8,998,000
71,000
209,000
<LONG-TERM-DEBT-NET> 8,683,000
<SHORT-TERM-NOTES> 3,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 1,763,000
<LONG-TERM-DEBT-CURRENT-PORT> 482,000
33,000
<CAPITAL-LEASE-OBLIGATIONS> 214,000
<LEASES-CURRENT> 32,000
<OTHER-ITEMS-CAPITAL-AND-LIAB> 14,666,000
<TOT-CAPITALIZATION-AND-LIAB> 33,409,000
<GROSS-OPERATING-REVENUE> 21,742,000
<INCOME-TAX-EXPENSE> 453,000
<OTHER-OPERATING-EXPENSES> 19,947,000
<TOTAL-OPERATING-EXPENSES> 20,400,000
<OPERATING-INCOME-LOSS> 1,795,000
<OTHER-INCOME-NET> 248,000
<INCOME-BEFORE-INTEREST-EXPEN> 2,108,000
<TOTAL-INTEREST-EXPENSE> 601,000
<NET-INCOME> 1,507,000
20,000
<EARNINGS-AVAILABLE-FOR-COMM> 1,487,000
<COMMON-STOCK-DIVIDENDS> 802,000
<TOTAL-INTEREST-ON-BONDS> 187,000
<CASH-FLOW-OPERATIONS> 2,684,000
<EPS-BASIC> 4.08<F1>
<EPS-DILUTED> 4.07
<FN>
<F1>REPRESENTS BASIC EARNINGS PER SHARE
</FN>
</TABLE>
