Filed pursuant to Rule 424(b)(3)
Registration No. 333-81940
PROSPECTUS
36,000,000 SHARES
DUKE LOGO
DUKE ENERGY CORPORATION
COMMON STOCK
This prospectus relates to the shares of our common stock issuable upon
exchange or redemption of the exchangeable shares of Duke Energy Canada
Exchangeco Inc., our indirect subsidiary that we call Exchangeco in this
prospectus. The exchangeable shares are being issued to the former shareholders
of Westcoast Energy Inc. who are residents of Canada and who elect to receive
the exchangeable shares in connection with our acquisition of Westcoast Energy.
Each exchangeable share may be exchanged for one share of our common stock, plus
all payable and unpaid dividends, if any, on the exchangeable share. Because the
shares of our common stock offered by this prospectus will be issued only in
exchange for, or upon the redemption of, the exchangeable shares, we will not
receive any cash proceeds from this offering. We are paying all expenses of
registration incurred in connection with this offering.
Our common stock is listed on the New York Stock Exchange, or NYSE, under
the trading symbol "DUK." On March 12, 2002, the last reported sale price of our
common stock on the NYSE was $35.79 per share.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy and accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
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The date of this prospectus is March 14, 2002
TABLE OF CONTENTS
PAGE
----
About This Prospectus....................................... 1
Where You Can Find More Information......................... 1
Duke Energy Corporation..................................... 2
Use of Proceeds............................................. 3
Description of the Common Stock............................. 3
Plan of Distribution........................................ 6
Income Tax Considerations................................... 6
Experts..................................................... 12
Legal Matters............................................... 12
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ABOUT THIS PROSPECTUS
This prospectus constitutes part of the registration statement on Form S-3
filed with the Securities and Exchange Commission under the Securities Act of
1933 utilizing a "shelf" registration or continuous offering process. It omits
some of the information contained in the registration statement, and reference
is made to the registration statement for further information with respect to us
and the securities we are offering. Any statement contained in this prospectus
concerning the provisions of any document filed as an exhibit to the
registration statement or otherwise filed with the Securities and Exchange
Commission is not necessarily complete, and in each instance reference is made
to the copy of the document filed.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We will not issue these
securities in any jurisdiction where such issuance is not permitted. You should
assume that the information in this prospectus is accurate only as of the date
on the cover page or earlier dates as specified herein. Our business, financial
condition, results of operations and prospects may have changed since those
dates.
This prospectus provides you with a general description of the common stock
that will be issued pursuant to this prospectus. The registration statement
filed with the Securities and Exchange Commission includes exhibits that provide
more details about the matters discussed in this prospectus. You should read
this prospectus and the related exhibits filed with the Securities and Exchange
Commission, together with the additional information described under "Where You
Can Find More Information."
Unless we have indicated otherwise, or the context otherwise requires,
references to "Duke Energy," "we," "us" and "our" or similar terms are to Duke
Energy Corporation and its subsidiaries.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with
the Securities and Exchange Commission (File No. 1-4928). You may read and copy
any documents that are filed at the Securities and Exchange Commission Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
You may also obtain copies of these documents at prescribed rates from the
Public Reference Section of the Securities and Exchange Commission at its
Washington address.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information.
Our filings are also available to the public through:
- the Securities and Exchange Commission web site at http://www.sec.gov;
and
- The New York Stock Exchange 20 Broad Street New York, New York 10005.
Information about us is also available on our web site at
http://www.duke-energy.com. Such web site is not a part of this prospectus.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus
and should be read with the same care. Information that we file later with the
Securities and Exchange Commission will automatically update and supersede that
information. The following documents are incorporated in and made a part of this
prospectus by reference:
- Our annual report on Form 10-K for the year ended December 31, 2000;
- Our quarterly reports on Form 10-Q for the quarters ended March 31, 2001,
June 30, 2001 and September 30, 2001; and
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- Our current reports on Form 8-K dated March 5, 2001, March 13, 2001,
September 21, 2001 (excluding the information furnished in Item 9
thereof, which is not deemed filed and which is not incorporated by
reference herein), November 20, 2001 and January 9, 2002.
We will provide without charge a copy of these filings, other than any
exhibits unless the exhibits are specifically incorporated by reference into
this prospectus. You may request your copy by writing us at the following
address or telephoning one of the following numbers:
Investor Relations Department
Duke Energy Corporation
P.O. Box 1005
Charlotte, North Carolina 28201
(704) 382-3853 or (800) 488-3853 (toll-free)
DUKE ENERGY CORPORATION
Duke Energy, together with its subsidiaries, 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 United States and
abroad. Duke Energy, directly or through its subsidiaries, provides these and
other services through seven business segments:
- Franchised Electric
- Natural Gas Transmission
- Field Services
- North American Wholesale Energy
- International Energy
- Other Energy Services
- Duke Ventures
Franchised Electric generates, transmits, distributes and sells electric
energy in central and western North Carolina and the western portion of South
Carolina. Its operations are conducted primarily through Duke Power and
Nantahala Power and Light. These electric operations are subject to the rules
and regulations of the United States Federal Energy Regulatory Commission
("FERC"), the North Carolina Utilities Commission and the Public Service
Commission of South Carolina.
Natural Gas Transmission provides interstate transportation and storage of
natural gas for customers primarily in the Mid-Atlantic, New England and
southeastern United States. Its operations are conducted primarily through Duke
Energy Gas Transmission Corporation. The interstate natural gas transmission and
storage operations are subject to the rules and regulations of the FERC.
Field Services gathers, processes, transports, markets and stores natural
gas and produces, transports, markets and stores natural gas liquids. Its
operations are conducted primarily through Duke Energy Field Services, LLC, a
limited liability company that is approximately 30% owned by Phillips Petroleum
Company. Field Services operates gathering systems in western Canada and eleven
contiguous states that serve major natural gas-producing regions in the Rocky
Mountains, Permian Basin, Mid-Continent, East Texas-Austin Chalk-North Louisiana
areas and onshore and offshore Gulf Coast areas.
North American Wholesale Energy's activities include asset development,
operation and management of electric power generation facilities, primarily
through Duke Energy North America, LLC, and commodity sales and services related
to natural gas and electricity, primarily through Duke Energy Trading and
Marketing, LLC, a limited liability company that is approximately 40% owned by
Exxon Mobil Corporation. This segment also includes Duke Energy Merchants, which
develops new business lines in the
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evolving energy commodity markets. North American Wholesale Energy conducts its
business throughout the United States and Canada.
International Energy conducts its operations through Duke Energy
International, LLC. International Energy's activities include asset development,
operation and management of natural gas and electric power generation facilities
and energy trading and marketing of natural gas and electricity. These
activities are focused on the Latin American, Asia Pacific and European regions.
Other Energy Services is a combination of businesses that provide
engineering, consulting, construction and integrated energy solutions worldwide,
primarily through Duke Engineering & Services, Inc., Duke/Fluor Daniel and
DukeSolutions, Inc. Duke/Fluor Daniel is a 50/50 partnership between Duke Energy
and Fluor Enterprises, Inc.
Duke Ventures is comprised of our other diverse businesses, primarily
operating through Crescent Resources, Inc., DukeNet Communications, LLC and Duke
Capital Partners. Crescent Resources develops high quality commercial,
residential and multi-family real estate projects and manages land holdings
primarily in the southeastern United States. DukeNet Communications provides
fiber optic networks for industrial, commercial and residential customers. Duke
Capital Partners, a wholly owned merchant finance company, provides financing,
investment banking and asset management services to wholesale and commercial
energy markets.
The foregoing information about us and our business segments is only a
general summary and is not intended to be comprehensive. For additional
information about us and our business segments you should refer to the
information described under the caption "Where You Can Find More Information."
Our principal executive offices are located at 526 South Church Street,
Charlotte, North Carolina 28202 (telephone (704) 594-6200).
USE OF PROCEEDS
Because the shares of common stock will be issued in exchange for or upon
the redemption of the exchangeable shares, we will not receive any cash proceeds
upon the issuance of the common stock.
DESCRIPTION OF THE COMMON STOCK
The following description of the common stock is only a summary and is not
intended to be comprehensive. For additional information you should refer to the
applicable provisions of the North Carolina Business Corporation Act and our
Restated Articles of Incorporation ("Articles") and By-Laws. The Articles and
By-Laws are exhibits to the registration statement, of which this prospectus is
a part.
GENERAL
We are authorized to issue up to 2,000,000,000 shares of common stock. At
February 28, 2002, 778,199,474 shares of common stock were outstanding. We are
also authorized to issue up to 12,500,000 shares of Preferred Stock, 10,000,000
shares of Preferred Stock A and 1,500,000 shares of Preference Stock. At
February 28, 2002, 2,154,984 shares of Preferred Stock, 1,257,185 shares of
Preferred Stock A and no shares of Preference Stock were outstanding. The
Preferred Stock, Preferred Stock A and Preference Stock together are sometimes
called the "Preferred Stocks."
DIVIDENDS
Holders of common stock are entitled to such dividends as may be declared
from time to time by the Board of Directors from legally available funds but
only if full dividends on all outstanding series of the Preferred Stocks for the
then current and all prior dividend periods and any required sinking fund
payments with respect to any outstanding series of such securities have been
paid or provided for.
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VOTING RIGHTS
Subject to the rights, if any, of the holders of the Preferred Stocks which
may be outstanding or as otherwise provided by law, the holders of common stock
have exclusive voting rights, each share being entitled to one vote. Holders of
common stock have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of directors can elect 100%
of the directors and the holders of the remaining shares voting for the election
of directors will not be able to elect any directors.
Whenever dividends on any part of any outstanding Preferred Stock or
Preferred Stock A are in arrears in an amount equivalent to the total dividends
required to be paid on that Preferred Stock or Preferred Stock A in any period
of 12 calendar months, the holders of the Preferred Stock as a class have the
exclusive right to elect a majority of the authorized number of directors and
the holders of the Preferred Stock A as a class have the exclusive right to
elect two directors. Those rights cease whenever we pay all accrued and unpaid
dividends in full. Whenever six quarterly dividends on any outstanding series of
the Preference Stock are in arrears or any required sinking fund payments are in
default, the holders of the Preference Stock as a class have the exclusive right
to elect two directors. This right ceases whenever all dividends and required
sinking fund obligations in default have been paid in full or provided for. In
addition, the consent of the holders of specified percentages of any outstanding
Preferred Stock, Preferred Stock A or Preference Stock, or some or all of the
holders of such classes, is required in connection with certain increases in
authorized amounts of or changes in stock senior to the common stock or in
connection with any sale of substantially all of our assets or certain mergers.
RIGHTS UPON LIQUIDATION
The holders of common stock are entitled in liquidation to share ratably in
our assets after payment of all debts and liabilities and after required
preferential payments to the holders of outstanding Preferred Stocks.
MISCELLANEOUS
The outstanding shares of common stock are, and the shares of common stock
issued hereunder will be, upon payment for them, fully paid and nonassessable.
Holders of common stock have no preemptive rights and no conversion rights. The
common stock is not subject to redemption and is not entitled to the benefit of
any sinking fund provisions.
TRANSFER AGENT AND REGISTRAR
We act as transfer agent and registrar for the common stock.
PREFERENCE STOCK PURCHASE RIGHTS
Each share of common stock has attached to it a Preference Stock Purchase
Right. The Preference Stock Purchase Rights initially are represented only by
the certificates for the shares of common stock and will not trade separately
from those shares unless and until:
- ten days after it is publicly announced that a person or group (with
certain exceptions) has acquired, or has obtained the right to acquire,
the beneficial ownership of 15% or more of the outstanding common stock
(an "acquiring person"); or
- ten business days (or a later date determined by our Board of Directors)
after the date a person or group commences, or public announcement is
made that the person or group intends to commence, a tender or exchange
offer that would result in the person or group becoming an acquiring
person.
If and when the Preference Stock Purchase Rights separate, each Preference Stock
Purchase Right will entitle the holder to purchase 1/10,000 of a share of our
Series A Participating Preference Stock for an exercise price that is presently
$190.
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In the event that a person or group becomes an acquiring person, each
Preference Stock Purchase Right (except for Preference Stock Purchase Rights
beneficially owned by the acquiring person or its transferees, which Preference
Stock Purchase Rights become void) will entitle its holder to purchase, for the
exercise price, a number of shares of common stock having a market value of
twice the exercise price. Also, if, after ten days following the date of the
announcement that a person or group has become an acquiring person:
- we are involved in a merger or similar form of business combination in
which we are not the surviving corporation or in which we are the
surviving corporation but the common stock is changed or exchanged; or
- more than 50% of our assets or earning power is sold or transferred;
then each Preference Stock Purchase Right (except for voided Preference Stock
Purchase Rights) will entitle its holder to purchase, for the exercise price, a
number of shares of common stock of the acquiring company having a value of
twice the exercise price. If any person or group acquires from 15% to but
excluding 50% of the outstanding common stock, our Board of Directors may, at
its option, exchange each outstanding Preference Stock Purchase Right (except
for those held by an acquiring person or its transferees) for one share of
common stock or 1/10,000 of a share of Series A Participating Preference Stock.
Our Board of Directors may redeem the Preference Stock Purchase Rights for
$0.01 per Preference Stock Purchase Right prior to ten business days after the
date of the public announcement that a person or group has become an acquiring
person.
The Preference Stock Purchase Rights will not prevent a takeover of us.
However, the existence of the Preference Stock Purchase Rights may cause
substantial dilution to a person or group that acquires 15% or more of the
common stock unless the Board of Directors first redeems those Preference Stock
Purchase Rights.
CERTAIN ANTI-TAKEOVER MATTERS
Our Articles and By-Laws include a number of provisions that may have the
effect of encouraging persons considering unsolicited tender offers or other
unilateral takeover proposals to negotiate with the Board of Directors rather
than pursue non-negotiated takeover attempts. Those provisions include:
CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS; VACANCIES
Our Articles provide for a Board of Directors divided into three classes,
with one class being elected each year to serve for a three-year term. As a
result, at least two annual meetings of shareholders may be required for
shareholders to change a majority of the Board of Directors. Our shareholders
may remove directors only for cause. Vacancies and newly created directorships
on the Board of Directors may be filled only by the affirmative vote of a
majority of the directors remaining in office, and no decrease in the number of
directors may shorten the term of an incumbent director. The classification of
directors and the inability of shareholders to remove directors without cause or
to fill vacancies and newly created directorships on the Board of Directors will
make it more difficult to change the composition of the Board of Directors, but
will promote continuity of existing management.
ADVANCE NOTICE REQUIREMENTS
Our By-Laws establish advance notice procedures with regard to shareholder
proposals relating to the nomination of persons for election as directors or new
business to be brought before annual meetings of shareholders. These procedures
provide that shareholders must give timely notice of such proposals in writing
to the Secretary of Duke Energy. Generally, to be timely with respect to an
annual meeting of shareholders, notice must be received at our principal
executive offices not less than 90 days nor more than 120 days prior to the
first anniversary date of the annual meeting for the preceding year. The notice
must contain certain information specified in the By-Laws.
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SPECIAL MEETINGS OF SHAREHOLDERS
Neither our Articles nor our By-Laws give shareholders the right to call a
special meeting of shareholders. The By-Laws provide that special meetings of
shareholders may be called only by the Board of Directors or the Chairman of the
Board.
AMENDMENT OF CERTAIN CHARTER PROVISIONS
Our Articles require the approval of not less than 80% of the voting power
of all outstanding shares of Duke Energy capital stock entitled to vote
generally in the election of directors, voting together as a single class, to
amend provisions relating to the minimum and maximum size of the Board of
Directors, the classification of the Board of Directors, the removal of
directors, the filling of vacancies and newly created directorships on the Board
of Directors and the requirement that a decrease in the number of directors
constituting the Board of Directors may not shorten the term of any incumbent
director. This amendment provision will make it more difficult to dilute the
anti-takeover effects of our Articles and By-Laws.
PLAN OF DISTRIBUTION
We will distribute the shares of common stock covered by this prospectus
only upon exchange or redemption of the exchangeable shares of Exchangeco, and
no broker, dealer or underwriter has been engaged in connection with the
exchange or redemption. Each exchangeable share of Exchangeco may be exchanged
or redeemed for one share of common stock. We will pay all expenses incurred in
connection with the distribution described in this prospectus.
INCOME TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Stikeman Elliott, our Canadian counsel, the following is
an accurate summary of the principal Canadian federal income tax considerations
under the Canadian Income Tax Act generally applicable to you if you hold
exchangeable shares or acquire common stock on the redemption, retraction or
exchange of exchangeable shares and if, for purposes of the Canadian Income Tax
Act, you are or are deemed to be resident in Canada at all relevant times, you
deal with us at arm's length, you are not affiliated with us and you hold your
exchangeable shares and will hold the common stock as capital property. This
discussion does not apply to you if you are a "financial institution," as
defined in the Canadian Income Tax Act, and are therefore subject to the
mark-to-market rules of the Canadian Income Tax Act. This summary also does not
apply to you if Duke Energy is or will be a "foreign affiliate" of you for
purposes of the Canadian Income Tax Act.
The exchangeable shares and common stock will generally be considered to be
capital property to you unless the shares are held by you in the course of
carrying on a business or the shares are acquired in a transaction considered to
be an adventure in the nature of trade. If the exchangeable shares might not
otherwise qualify as capital property, you may be entitled to obtain this
qualification by making the irrevocable election provided under subsection 39(4)
of the Canadian Income Tax Act. If you do not hold your exchangeable shares or
will not hold common stock as capital property, you should consult your own tax
advisors for information and advice having regard to your particular
circumstances.
This summary is based on the current provisions of the Canadian Income Tax
Act and regulations, the current provisions of the Convention Between the United
States of America and Canada with Respect to Taxes on Income and on Capital,
signed September 26, 1980, as amended and our Canadian counsel's understanding
of the current published administrative practices of the Canada Customs and
Revenue Agency (the "CCRA"). This summary takes into account all specific
proposals to amend the Canadian Income Tax Act and regulations that have been
publicly announced by or on behalf of the Minister of Finance (Canada) prior to
the date hereof and assumes that all of these proposed amendments will be
enacted in their present form. No assurances can be given that any proposed
amendments will be enacted
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in the form proposed, or at all. This summary is not exhaustive of all possible
Canadian federal income tax considerations and, except for the foregoing, does
not take into account or anticipate any changes in law, whether by legislative,
administrative or judicial decision or action, nor does it take into account
provincial, territorial or foreign income tax legislation or considerations,
which may differ from the Canadian federal income tax considerations described
below. No advance income tax ruling has been sought or obtained from the CCRA to
confirm the tax consequences of any of the transactions relating to the
exchangeable shares or the acquisition of the common stock on the redemption,
retraction or exchange of exchangeable shares.
For purposes of the Canadian Income Tax Act, all amounts relating to the
acquisition, holding or disposition of common stock, including dividends,
adjusted cost base amounts and proceeds of disposition, must be converted into
Canadian dollars based on the prevailing United States dollar exchange rate
generally at the time these amounts arise.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO YOU. THEREFORE,
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO YOUR PARTICULAR
CIRCUMSTANCES.
REDEMPTION OR EXCHANGE OF EXCHANGEABLE SHARES
On a redemption (including a retraction) of your exchangeable shares by
Exchangeco, you will be deemed to have received a dividend equal to the amount,
if any, by which the redemption proceeds exceed the paid-up capital (for
purposes of the Canadian Income Tax Act) of the exchangeable shares so redeemed.
For these purposes, the redemption proceeds will be the fair market value of the
common stock received from Exchangeco on the redemption plus the amount, if any,
of all payable and unpaid dividends on the exchangeable shares paid on the
redemption. The amount of any such deemed dividend will be subject to the tax
treatment described below under "Dividends on Exchangeable Shares."
On a redemption (including a retraction) of your exchangeable shares, you
will also be considered to have disposed of your exchangeable shares, but the
amount of the deemed dividend will be excluded in computing your proceeds of
disposition for purposes of computing any capital gain or capital loss arising
on the disposition. If you are a corporation, in some circumstances the amount
of any such deemed dividend may be treated as proceeds of disposition and not as
a dividend. The taxation of capital gains and capital losses is described below.
On an exchange of your exchangeable shares with our indirect wholly-owned
subsidiary, Duke Energy Canada Call Co. (hereinafter referred to as "Callco"),
or with us for the common stock, you will generally realize a capital gain (or a
capital loss) equal to the amount by which the proceeds of disposition of your
exchangeable shares, net of any reasonable costs of disposition, exceed (or are
less than) the adjusted cost base to you of the exchangeable shares immediately
before the exchange. For these purposes, the proceeds of disposition will be the
fair market value at the time of the exchange of the common stock which you
receive plus any other amounts received from us as part of the exchange, but
less any amount paid in satisfaction of declared and unpaid dividends owed to
you by Exchangeco. The taxation of capital gains and capital losses is described
below.
On October 18, 2000, the Minister of Finance announced that the Department
of Finance will consider future amendments to the Canadian Income Tax Act to
allow holders of shares of a Canadian corporation to exchange such shares for
shares of a non-Canadian corporation on a tax-deferred basis. It is possible
that the tax proposals described in this announcement, if enacted into law,
could, from the time any such change takes effect, allow you to exchange
exchangeable shares for common stock on a tax-deferred basis. However, no
specifics have been announced regarding what the requirements for such treatment
may be.
BECAUSE OF THE EXISTENCE OF CERTAIN CALL RIGHTS HELD BY CALLCO WHICH GIVE
CALLCO THE OVERRIDING RIGHT TO PURCHASE YOUR EXCHANGEABLE SHARES UPON A
REDEMPTION (INCLUDING A RETRACTION) BY EXCHANGING A SHARE OF COMMON STOCK FOR
EACH EXCHANGEABLE SHARE AS WELL AS CERTAIN RIGHTS OF HOLDERS OF EXCHANGEABLE
SHARES
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TO FORCE THE EXCHANGE OF EXCHANGEABLE SHARES WITH DUKE ENERGY FOR COMMON STOCK
UPON THE OCCURRENCE OF THE LIQUIDATION, DISSOLUTION OR WINDING-UP OF EXCHANGECO
OR DUKE ENERGY, YOU CANNOT CONTROL WHETHER YOU WILL RECEIVE COMMON STOCK BY WAY
OF A REDEMPTION (INCLUDING A RETRACTION) OF YOUR EXCHANGEABLE SHARES BY
EXCHANGECO OR BY WAY OF PURCHASE OF THE EXCHANGEABLE SHARES BY DUKE ENERGY OR
CALLCO. AS DESCRIBED ABOVE, THE CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF A
REDEMPTION (INCLUDING A RETRACTION) DIFFER FROM THOSE OF A PURCHASE.
DISPOSITION OF EXCHANGEABLE SHARES OTHER THAN ON REDEMPTION OR EXCHANGE
A disposition or deemed disposition of your exchangeable shares, other than
on the redemption or exchange of your exchangeable shares, will generally result
in a capital gain (or capital loss) to the extent that the proceeds of
disposition, net of any reasonable costs of disposition, exceed (or are less
than) the adjusted cost base to you immediately before the disposition. The
taxation of capital gains and capital losses is described below.
ACQUISITION AND DISPOSITION OF THE COMMON STOCK
The cost of the common stock received on a retraction, redemption or
exchange of exchangeable shares will be equal to the fair market value of the
common stock at the time of that event, and will be averaged with the adjusted
cost base of any other shares of common stock held by you at that time as
capital property (other than common stock considered to have been continually
held by you since 1971) for the purpose of determining the adjusted cost base of
your common stock.
A disposition or deemed disposition of the common stock by you will
generally result in a capital gain (or a capital loss) equal to the amount by
which the proceeds of disposition, net of any reasonable costs of disposition,
exceed (or are less than) the adjusted cost base to you of such shares
immediately before the disposition. The taxation of capital gains and capital
losses is described below.
DIVIDENDS ON EXCHANGEABLE SHARES
If you are an individual, dividends received or deemed to be received on
the exchangeable shares will be included in computing your income, and will be
subject to the gross-up and dividend tax credit rules normally applicable to
taxable dividends received from a corporation resident in Canada. Subject to the
discussion below, if you are a corporation, other than a "specified financial
institution" as defined in the Canadian Income Tax Act, dividends received or
deemed to be received on the exchangeable shares normally will be included in
your income and deductible in computing your taxable income.
The exchangeable shares will be "term preferred shares," as defined in the
Canadian Income Tax Act. Consequently, if you are a "specified financial
institution," as defined in the Canadian Income Tax Act, a dividend received or
deemed to be received on a redemption of the exchangeable shares will be
deductible in computing your taxable income only if:
- you did not acquire the exchangeable shares in the ordinary course of
carrying on your business; or
- at the time the dividend is received, the exchangeable shares are listed
on a prescribed stock exchange in Canada (which currently includes the
Toronto Stock Exchange (TSE), on which it is expected that the
exchangeable shares will be listed) and you, either alone or together
with persons with whom you do not deal at arm's length, do not receive
(or are not deemed to receive) dividends in respect of more than 10% of
the issued and outstanding exchangeable shares.
In addition, if you are a corporation and if we or any other person with
whom we do not deal at arm's length (including Exchangeco) are a "specified
financial institution" (for purposes of the Canadian
8
Income Tax Act) at the time that dividends are paid on the exchangeable shares,
subject to the exemption described below, dividends received or deemed to be
received by you will be included in your taxable income but will not be
deductible by you in computing your taxable income. We have advised Canadian
counsel that we will be a specified financial institution for purposes of the
Canadian Income Tax Act immediately after our acquisition of Westcoast Energy.
This denial of the dividend deduction will not apply if, at the time the
dividends are received or deemed to be received by you, the exchangeable shares
are listed on a prescribed stock exchange in Canada (which currently includes
the TSE, on which it is expected that the exchangeable shares will be listed),
we and Callco are "related" to Exchangeco for the purposes of the Canadian
Income Tax Act and dividends are not paid to you (together with persons with
whom you do not deal at arm's length or any trust or partnership of which you or
any such person is a beneficiary or member) in respect of more than 10% of the
issued and outstanding exchangeable share held by persons other than us and our
affiliates.
If you are a "private corporation," as defined in the Canadian Income Tax
Act, or any other corporation resident in Canada and controlled or deemed to be
controlled by or for the benefit of an individual or a related group of
individuals, you may be liable under Part IV of the Canadian Income Tax Act to
pay a refundable tax of 33 1/3% of any dividends received or deemed to be
received on your exchangeable shares to the extent that these dividends are
deductible in computing your taxable income.
If you are throughout the relevant taxation year a "Canadian-controlled
private corporation," as defined in the Canadian Income Tax Act, you may be
liable to pay an additional refundable tax of 6 2/3% on dividends received or
deemed to be received on your exchangeable shares that are not deductible in
computing taxable income.
DIVIDENDS ON THE COMMON STOCK
Dividends on the common stock will be included in your income for the
purposes of the Canadian Income Tax Act. If you are an individual, you will not
be subject to the gross-up and dividend tax credit rules in the Canadian Income
Tax Act applicable to dividends received from corporations resident in Canada.
If you are a corporation, you will be required to include these dividends in
computing your income and will not be entitled to deduct the amount of these
dividends in computing your taxable income. If you are a "Canadian-controlled
private corporation," as defined in the Canadian Income Tax Act, you may be
liable to pay an additional refundable tax of 6 2/3% on such dividends. If there
is United States non-resident withholding tax on any dividends you receive on
the common stock, you will generally be eligible for foreign tax credit or
deduction treatment where applicable under the Canadian Income Tax Act.
TAXATION OF CAPITAL GAINS AND CAPITAL LOSSES
One-half of any capital gain (the "taxable capital gain") realized by you
on a disposition or deemed disposition of exchangeable shares or the common
stock must be included in your income for the year of the disposition. One-half
of any capital loss (the "allowable capital loss") realized by you may be
deducted by you against taxable capital gains realized in the year of the
disposition. Any allowable capital losses in excess of taxable capital gains in
the year of disposition may be carried back up to three taxation years or
forward indefinitely and deducted against net taxable capital gains in those
other years to the extent and in the circumstances prescribed in the Canadian
Income Tax Act.
Capital gains realized by an individual or trust, other than certain
trusts, may give rise to alternative minimum tax under the Canadian Income Tax
Act.
If you are a "Canadian-controlled private corporation," as defined in the
Canadian Income Tax Act, you may be liable to pay an additional refundable tax
of 6 2/3% on taxable capital gains.
If you are a corporation, the amount of any capital losses arising from a
disposition or deemed disposition of exchangeable shares may be reduced by the
amount of any dividends received or deemed to have been received by you on the
exchangeable shares to the extent and under circumstances prescribed
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by the Canadian Income Tax Act. Similar rules may apply where you are a
corporation that is a member of a partnership or a beneficiary of a trust that
owns exchangeable shares or where a trust or partnership of which a corporation
is a beneficiary or a member is a member of a partnership or a beneficiary of a
trust that owns any of these shares. You should consult your own tax advisors if
these rules may be relevant to you.
FOREIGN PROPERTY INFORMATION REPORTING
If you are a "specified Canadian entity" (as defined in the Canadian Income
Tax Act), you may be required to file an information return relating to any
"specified foreign property" (as defined in the Canadian Income Tax Act) owned
by you, which would include the common stock, the exchangeable shares and
certain exchange and voting rights relating thereto. You should consult you own
advisors about whether you must comply with these rules with respect to the
ownership of exchangeable shares or common stock.
FOREIGN INVESTMENT ENTITY DRAFT LEGISLATION
Draft legislation regarding the taxation of investments in "foreign
investment entities" was released on August 2, 2001. In general, if the draft
legislation applies, a holder of an interest in a foreign investment entity
generally will be required to take into account in computing income changes in
the value of that interest. A corporation is not a foreign investment entity if
the "carrying value" of all of its "investment property" is not greater than
one-half of the "carrying value" of all of its property or if its principal
business is not an "investment business" within the meaning of those terms in
the draft legislation. We believe that we are not currently a "foreign
investment entity" within the meaning of the draft legislation, however, no
assurances can be given in this regard or as to our status in the future. In any
event, in general, these proposed rules will not apply to the common stock or
the exchangeable shares so long as the common stock is widely held and actively
traded and listed on a prescribed stock exchange, unless it is reasonable to
conclude that you had a tax avoidance motive for the acquisition of the shares
in the terms contemplated by the draft legislation.
It was originally announced that the draft legislation would be applicable
for taxation years commencing after 2001. However, on December 17, 2001, the
Department of Finance (Canada) issued a press release announcing that the
effective date for the proposed rules will be delayed one year, generally to
take effect for taxation years commencing after 2002, in order to allow for a
full consideration of submissions on the draft legislation. It is possible that
the draft legislation may be amended before it is enacted in final form.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Vinson & Elkins L.L.P., our United States counsel, the
following is an accurate summary of the principal United States federal income
tax considerations under the United States Internal Revenue Code of 1986, as
amended (the "Code"), generally applicable to you if you are a holder of
exchangeable shares and you are not:
- a citizen or resident of the United States;
- a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or of any political
subdivision thereof;
- an estate, the income of which is subject to United States federal income
taxation regardless of its source; or
- a trust if a United States court is able to exercise primary supervision
over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the
trust.
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This summary does not discuss all United States federal income tax
considerations that may be relevant to you in light of your particular
circumstances or if you are subject to special treatment under the Code. This
summary is applicable to you only if you hold exchangeable shares as capital
assets and does not consider your tax treatment if you hold exchangeable shares
through a partnership or other pass-through entity. Furthermore, this summary
does not discuss any aspects of foreign, state or local taxation. This summary
is based on current provisions of the Code, existing, temporary and proposed
regulations promulgated under the Code and administrative and judicial
interpretations of the Code, all of which are subject to change, possibly with
retroactive effect. No advance income tax ruling has been sought or obtained
from the Internal Revenue Service (the "IRS") regarding the tax consequences of
the transactions described herein.
YOU ARE ADVISED TO CONSULT YOUR TAX ADVISORS WITH RESPECT TO THE UNITED
STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE TRANSACTIONS
DESCRIBED HEREIN.
SALE OR EXCHANGE OF EXCHANGEABLE SHARES
You generally will not be subject to United States federal income tax on
any gain realized on the sale or exchange of exchangeable shares, including the
exchange of exchangeable shares for common stock, unless the gain is effectively
connected with your United States trade or business or, if you are an
individual, you are present in the United States for 183 days or more during the
taxable year of disposition and certain other conditions are satisfied.
DIVIDENDS ON THE COMMON STOCK
Dividends paid to you as a holder of common stock generally will be subject
to withholding of United States federal income tax at a rate of 30% (or such
lower rate as may be specified by an applicable income tax treaty) unless the
dividend is effectively connected with the conduct of your trade or business
within the United States (or if a tax treaty applies, is attributable to your
United States permanent establishment), in which case the dividend will be taxed
at ordinary United States federal income tax rates. If you are a corporation,
such effectively connected income may also be subject to an additional "branch
profits tax." You will be required to satisfy certain certification requirements
to claim treaty benefits or otherwise claim a reduction of, or exemption from,
the withholding tax described above.
SALE OR EXCHANGE OF COMMON STOCK
You generally will not be subject to United States federal income tax on
any gain realized on the sale or exchange of shares of common stock unless:
- the gain is effectively connected with your United States trade or
business;
- you are an individual and you are present in the United States for 183
days or more during the taxable year of disposition and certain other
conditions are satisfied; or
- you have owned (actually or constructively) more than 5% of our
outstanding common stock.
BACKUP WITHHOLDING AND INFORMATION REPORTING
You are generally subject to information reporting requirements with
respect to dividends paid by us to you and any tax withheld with respect to such
dividends. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which you reside under the provisions of an applicable income tax treaty. You
will be subject to backup withholding unless applicable certification
requirements are met. Payment of the proceeds of a sale of shares of the common
stock within the United States or through certain United States brokers is
subject to both backup withholding and information reporting unless you as
beneficial owner certify under penalties of perjury that you are not a United
States person for purposes of the Code (and the payor does
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not have actual knowledge or reason to know that you are a United States person)
or otherwise establishes an exemption.
Backup withholding tax is not a separate tax. Any amounts withheld under
the backup withholding rules are generally allowable as a credit against your
United States federal income tax liability (if any), which may entitle you to a
refund, provided that the required information is furnished to the IRS.
The discussion of United States federal income tax consequences set forth
above is for general information only and does not purport to be a complete
analysis or listing of all potential tax effects that may apply to you. You are
strongly encouraged to consult your tax adviser to determine the particular tax
consequences to you, including the application and effect of United States
federal, state, local and foreign tax laws.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from our annual report on
Form 10-K for the year ended December 31, 2000 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters with respect to the offering of the securities will
be passed on for us by Edward M. Marsh, Jr., Esq., who is our Deputy General
Counsel and Assistant Secretary. As of December 31, 2001, Mr. Marsh owned 9,918
shares of our common stock or common stock units and options to purchase 36,350
shares, 5,850 of which were exercisable. Certain federal Canadian and U.S. tax
matters will be passed upon for us by Stikeman Elliott, Toronto, Canada, and
Vinson & Elkins L.L.P., Houston, Texas, as set forth under "Income Tax
Considerations."
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