UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from to
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Commission file number 1-3382
CAROLINA POWER & LIGHT COMPANY
------------------------------
(Exact name of registrant as specified in its charter)
North Carolina
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(State or other jurisdiction of incorporation or
organization)
56-0165465
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(I.R.S. Employer Identification No.)
411 Fayetteville Street, Raleigh, North Carolina 27601-1748
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(Address of principal executive offices) (Zip Code)
919-546-6111
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(Registrant's telephone number, including area code)
NONE
----
(Former name, former address and former fiscal year,
if changed since last report)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock (Without Par
Value) shares outstanding at October 31, 1998: 151,330,894.
<PAGE>
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
------------------------------------------
The matters discussed throughout this Form 10-Q that are not historical
facts are forward-looking and, accordingly, involve estimates,
projections, goals, forecasts, assumptions and uncertainties that could
cause actual results or outcomes to differ materially from those
expressed in the forward-looking statements.
Examples of forward-looking statements discussed in this Form 10-Q,
PART 1, ITEM 2, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", include, but are not limited to,
statements under the heading "Other Matters" concerning the effects of
deregulation and the outcome of the Company's Year 2000 Project.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update
any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made.
Examples of factors that should be considered with respect to any
forward-looking statements made throughout this document include, but
are not limited to, the following: Governmental policies and regulatory
actions (including those of the Federal Energy Regulatory Commission,
the Environmental Protection Agency, the Nuclear Regulatory Commission,
the Department of Energy, the North Carolina Utilities Commission and
the South Carolina Public Service Commission); general industry trends;
operation of nuclear power facilities; nuclear storage facilities;
nuclear decommissioning costs; general economic growth; weather
conditions and catastrophic weather-related damage; deregulation;
market demand for energy; inflation; capital market conditions;
unanticipated changes in operating expenses and capital expenditures
and legal and administrative proceedings. All such factors are
difficult to predict, contain uncertainties that may materially affect
actual results, and may be beyond the control of the Company. New
factors emerge from time to time and it is not possible for management
to predict all of such factors, nor can it assess the effect of each
such factor on the Company.
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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Carolina Power & Light Company
(ORGANIZED UNDER THE LAWS OF NORTH CAROLINA)
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1998
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STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
(In thousands except per share amounts) 1998 1997 1998 1997 1998 1997
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<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $ 946,188 $ 906,841 $2,434,635 $2,288,948 $ 3,169,776 $ 2,983,519
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Operating Expenses
Fuel 162,925 145,524 442,630 397,774 579,125 521,165
Purchased power 113,323 120,242 301,375 294,406 394,265 386,662
Other operation and maintenance 144,033 152,801 466,433 494,610 633,290 685,864
Depreciation and amortization 121,377 119,590 366,987 358,590 490,046 465,348
Taxes other than on income 39,798 36,761 109,249 105,286 143,441 135,744
Income tax expense 128,789 115,213 256,621 198,078 311,591 241,452
Harris Plant deferred costs, net 1,644 5,429 5,451 19,173 10,573 25,687
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Total Operating Expenses 711,889 695,560 1,948,746 1,867,917 2,562,331 2,461,922
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Operating Income 234,299 211,281 485,889 421,031 607,445 521,597
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Other Income (Expense)
Allowance for equity funds used during 4 2 11 118 (108) (2,097)
construction
Income tax benefit 7,361 4,789 29,574 9,914 38,992 9,443
Harris Plant carrying costs 940 1,107 2,860 3,610 3,876 5,021
Interest income 1,536 3,227 6,010 15,412 8,933 16,610
Other, net (14,737) (6,695) (53,649) (11,173) (61,751) 11,795
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Total Other Income (Expense) (4,896) 2,430 (15,194) 17,881 (10,058) 40,772
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Income Before Interest Charges 229,403 213,711 470,695 438,912 597,387 562,369
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Interest Charges
Long-term debt 42,437 40,630 129,257 121,778 170,947 163,962
Other interest charges 3,050 6,191 8,380 16,508 10,614 19,925
Allowance for borrowed funds used during (2,108) (939) (5,006) (3,754) (6,174) (7,014)
construction
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Net Interest Charges 43,379 45,882 132,631 134,532 175,387 176,873
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Net Income 186,024 167,829 338,064 304,380 422,000 385,496
Preferred Stock Dividend Requirements (742) (2,167) (2,225) (5,310) (2,966) (7,713)
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Earnings for Common Stock $ 185,282 $ 165,662 $ 335,839 $ 299,070 $ 419,034 $ 377,783
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Average Common Shares Outstanding 144,001 143,800 143,887 143,591 143,866 143,522
Basic Earnings per Common Share $ 1.29 $ 1.15 $ 2.33 $ 2.08 $ 2.91 $ 2.63
Diluted Earnings per Common Share (Note 5) $ 1.28 $ 1.15 $ 2.33 $ 2.08 $ 2.91 $ 2.63
Dividends Declared per Common Share $ 0.485 $ 0.470 $ 1.455 $ 1.410 $ 1.940 $ 1.880
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See Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Carolina Power & Light Company
BALANCE SHEETS
<CAPTION>
September 30 December 31
(In thousands) 1998 1997 1997
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ASSETS
Electric Utility Plant
<S> <C> <C> <C>
Electric utility plant in service $ 10,238,675 $ 10,039,131 $ 10,113,334
Accumulated depreciation (4,436,187) (4,057,913) (4,181,417)
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Electric utility plant in service, net 5,802,488 5,981,218 5,931,917
Held for future use 11,886 12,734 12,255
Construction work in progress 255,005 155,098 158,347
Nuclear fuel, net of amortization 205,881 184,643 190,991
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Total Electric Utility Plant, Net 6,275,260 6,333,693 6,293,510
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Current Assets
Cash and cash equivalents 24,571 14,736 14,426
Accounts receivable 498,632 396,167 406,872
Fuel 61,311 46,715 47,551
Materials and supplies 140,254 130,604 136,253
Deferred fuel cost 42,240 11,260 20,630
Prepayments 58,269 59,273 62,040
Other current assets 17,691 43,271 47,034
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Total Current Assets 842,968 702,026 734,806
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Deferred Debits and Other Assets
Income taxes recoverable through future rates 290,278 342,976 328,818
Abandonment costs 19,531 45,461 38,557
Harris Plant deferred costs 61,134 67,834 63,727
Unamortized debt expense 32,348 53,767 48,407
Nuclear decommissioning trust funds 298,280 179,682 245,523
Miscellaneous other property and investments 269,636 213,638 256,291
Other assets and deferred debits 272,497 215,030 211,089
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Total Deferred Debits and Other Assets 1,243,704 1,118,388 1,192,412
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Total Assets $ 8,361,932 $ 8,154,107 $ 8,220,728
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CAPITALIZATION AND LIABILITIES
Capitalization
Common stock equity $ 2,957,164 $ 2,805,515 $ 2,818,807
Preferred stock - redemption not required 59,376 59,376 59,376
Long-term debt, net 2,535,409 2,389,251 2,415,656
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Total Capitalization 5,551,949 5,254,142 5,293,839
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Current Liabilities
Current portion of long-term debt 73,172 188,529 207,979
Accounts payable 224,491 160,344 290,352
Taxes accrued 124,659 134,257 13,666
Interest accrued 29,360 33,810 43,620
Dividends declared 72,206 69,901 72,266
Other current liabilities 106,237 96,950 102,943
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Total Current Liabilities 630,125 683,791 730,826
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Deferred Credits and Other Liabilities
Accumulated deferred income taxes 1,671,677 1,743,092 1,722,908
Accumulated deferred investment tax credits 214,374 224,587 222,028
Other liabilities and deferred credits 293,807 248,495 251,127
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Total Deferred Credits and Other Liabilities 2,179,858 2,216,174 2,196,063
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Commitments and Contingencies (Notes 2, 3 and 4)
Total Capitalization and Liabilities $ 8,361,932 $ 8,154,107 $ 8,220,728
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SCHEDULES OF COMMON STOCK EQUITY
(In thousands)
Common stock $ 1,372,267 $ 1,371,520 $ 1,371,520
Unearned ESOP common stock (154,356) (165,805) (165,804)
Capital stock issuance expense (790) (790) (790)
Retained earnings 1,740,043 1,600,590 1,613,881
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Total Common Stock Equity $ 2,957,164 $ 2,805,515 $ 2,818,807
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See Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Carolina Power & Light Company
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
(In thousands) 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C> <C> <C> <C> <C>
Net income $ 186,024 $ 167,829 $ 338,064 $ 304,380 $ 422,000 $ 385,496
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 145,655 141,085 435,702 420,038 580,876 524,187
Harris Plant deferred costs 704 4,322 2,591 15,563 6,697 20,666
Deferred income taxes (8,193) (16,507) (44,795) (57,788) (53,551) 54,788
Investment tax credit (2,551) (2,558) (7,654) (7,675) (10,213) (10,286)
Deferred fuel cost (credit) (16,326) (16,362) (21,610) (15,599) (30,980) (20,014)
Net(increase)decrease in receivables,
inventories and prepaid expenses 11,216 (50,849) (129,176) (86,366) (154,026) (133,007)
Net increase (decrease)in payables and accrued
expenses 29,217 104,574 123,228 37,510 79,304 (72,003)
Miscellaneous 40,631 30,128 37,584 49,914 46,863 37,272
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Net Cash Provided by Operating Activities 386,377 361,662 733,934 659,977 886,970 787,099
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Investing Activities
Gross property additions (124,512) (87,332) (296,310) (227,458) (391,057) (346,786)
Nuclear fuel additions (24,796) (16,474) (96,079) (50,278) (107,310) (72,940)
Contributions to external decommissioning trust (7,720) (7,556) (25,659) (25,577) (30,808) (30,725)
Contributions to retiree benefit trusts - - - (21,096) - (21,096)
Net cash flow of company-owned life insurance program 119 179 (2,405) 137,708 (1,605) 137,688
Miscellaneous (32,899) (14,174) (72,954) (35,026) (92,661) (41,802)
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Net Cash Used in Investing Activities (189,808) (125,357) (493,407) (221,727) (623,441) (375,661)
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Financing Activities
Proceeds from issuance of long-term debt 2,789 199,075 3,790 199,075 3,790 199,075
Net increase (decrease) in short-term debt
(maturity less than 90 days) - (93,900) - (62,224) - (74,722)
Net increase (decrease) in commercial paper classified
as long-term debt 2,000 (189,600) 166,400 (189,600) 251,900 (115,857)
Retirement of long-term debt (146,513) (1,420) (187,989) (62,847) (228,552) (32,569)
Redemption of preferred stock - (85,850) - (85,850) - (85,850)
Purchase of Company common stock - - - (23,418) - (27,558)
Dividends paid on common and preferred stock (70,620) (70,260) (211,960) (209,591) (280,209) (277,241)
Miscellaneous 10 - (623) - (623) -
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Net Cash Used in Financing Activities (212,334) (241,955) (230,382) (434,455) (253,694) (414,722)
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Net Increase (Decrease) in Cash and Cash Equivalents (15,765) (5,650) 10,145 3,795 9,835 (3,284)
Cash and Cash Equivalents at Beginning of the Period 40,336 20,386 14,426 10,941 14,736 18,020
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Cash and Cash Equivalents at End of the Period $ 24,571 $ 14,736 $ 24,571 $ 14,736 $ 24,571 $ 14,736
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Supplemental Disclosures of Cash Flow Information
Cash paid during the period - interest $ 57,868 $ 48,616 $ 148,995 $ 138,653 $ 181,853 $ 178,344
income taxes $ 67,232 $ 36,599 $ 194,026 $ 133,893 $ 349,826 $ 226,493
Noncash Activities
In June 1997, Strategic Resource Solutions Corp., a wholly-owned subsidiary,
purchased all remaining shares of Knowledge Builders, Inc. (KBI). In connection
with the purchase of KBI, the Company issued $20.5 million in common stock and
paid $1.9 million in cash.
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See Supplemental Data and Notes to Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Carolina Power & Light Company
SUPPLEMENTAL DATA
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential $ 341,459 $ 310,251 $ 821,272 $ 750,113 $1,057,995 $ 974,134
Commercial 205,188 193,713 526,417 493,684 681,173 643,087
Industrial 202,709 206,230 555,126 561,735 731,476 740,723
Government and municipal 22,673 21,766 60,546 58,667 79,028 76,382
Power Agency contract requirements 34,933 28,672 77,748 57,418 91,648 75,238
NCEMC 69,931 68,666 174,895 169,365 231,480 214,447
Other wholesale 25,964 23,041 70,938 67,301 95,722 91,672
Other utilities 27,364 40,314 104,153 89,158 144,080 111,629
Miscellaneous revenue 15,967 14,188 43,540 41,507 57,174 56,207
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Total Operating Revenues $ 946,188 $ 906,841 $2,434,635 $ 2,288,948 $3,169,776 $ 2,983,519
- ------------------------------------------------------------------------------------------------------------------------------------
Energy Sales (millions of kWh)
Residential 4,074 3,697 10,380 9,416 13,451 12,290
Commercial 3,189 2,984 8,187 7,612 10,585 9,889
Industrial 3,843 3,953 11,226 11,345 14,954 15,027
Government and municipal 405 379 1,037 989 1,343 1,274
Power Agency contract requirements 791 779 1,792 1,619 2,245 2,064
NCEMC 1,504 1,359 3,489 3,131 4,532 4,004
Other wholesale 538 484 1,594 1,531 2,184 2,097
Other utilities 1,106 1,339 4,381 3,524 6,390 4,632
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Total Energy Sales 15,450 14,974 42,086 39,167 55,684 51,277
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Energy Supply (millions of kWh)
Generated - coal 7,889 7,424 21,454 18,683 28,317 24,517
nuclear 5,865 5,491 16,523 16,106 22,107 21,100
hydro 73 105 714 677 836 886
combustion turbines 212 95 371 145 416 156
Purchased 1,907 2,251 4,478 4,832 5,965 6,418
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Total Energy Supply (Company Share) 15,946 15,366 43,540 40,443 57,641 53,077
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Detail of Income Taxes (in thousands)
Included in Operating Expenses
Income tax expense (credit) - current $ 139,849 $ 134,217 $ 308,763 $ 264,040 $ 376,603 $ 206,756
deferred (8,509) (16,446) (44,488) (58,287) (54,799) 44,982
investment tax
credit adjustments (2,551) (2,558) (7,654) (7,675) (10,213) (10,286)
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Subtotal 128,789 115,213 256,621 198,078 311,591 241,452
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Harris Plant deferred costs - investment tax
credit adjustments - (30) - (130) (21) (193)
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Total Included in Operating Expenses 128,789 115,183 256,621 197,948 311,570 241,259
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Included in Other Income
Income tax expense (credit) - current (7,677) (4,728) (29,267) (10,413) (40,240) (19,249)
deferred 316 (61) (307) 499 1,248 9,806
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Total Included in Other Income (7,361) (4,789) (29,574) (9,914) (38,992) (9,443)
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Total Income Tax Expense $ 121,428 $ 110,394 $ 227,047 $ 188,034 $ 272,578 $ 231,816
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FINANCIAL STATISTICS
Ratio of earnings to fixed charges 4.57 4.11
Return on average common stock equity 14.63 % 13.79 %
Book value per common share $ 20.55 $ 19.51
Capitalization ratios
Common stock equity 53.26 % 53.40 %
Preferred stock - redemption not required 1.07 1.13
Long-term debt, net 45.67 45.47
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Total 100.00 % 100.00 %
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See Notes to Consolidated Interim Financial Statements.
</TABLE>
<PAGE>
Carolina Power & Light Company
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
A. Organization. Carolina Power & Light Company (the Company) is
a public service corporation primarily engaged in the
generation, transmission, distribution and sale of electricity
in portions of North and South Carolina. The Company has no
other material segments of business.
B. Basis of Presentation. These consolidated interim financial
statements should be read in conjunction with the Company's
consolidated financial statements included in the Company's
1997 Annual Report on Form 10-K. The amounts are unaudited
but, in the opinion of management, reflect all adjustments
necessary to fairly present the Company's financial position
and results of operations for the interim periods. Due to
temperature variations between seasons of the year and the
timing of outages of electric generating units, especially
nuclear-fueled units, the results of operations for interim
periods are not necessarily indicative of amounts expected for
the entire year. Certain amounts for 1997 have been
reclassified to conform to the 1998 presentation, with no
effect on previously reported net income or common stock
equity.
In preparing financial statements that conform with generally
accepted accounting principles, management must make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities
at the date of the financial statements and amounts of
revenues and expenses reflected during the reporting period.
Actual results could differ from those estimates.
2. NUCLEAR DECOMMISSIONING
In the Company's retail jurisdictions, provisions for nuclear
decommissioning costs are approved by the North Carolina Utilities
Commission (NCUC) and the South Carolina Public Service Commission and
are based on site-specific estimates that include the costs for removal
of all radioactive and other structures at the site. In the wholesale
jurisdiction, the provisions for nuclear decommissioning costs are
based on amounts agreed upon in applicable rate agreements. Based on
the site-specific estimates discussed below, and using an assumed
after-tax earnings rate of 8.5% and an assumed cost escalation rate of
4%, current levels of rate recovery for nuclear decommissioning costs
are adequate to provide for decommissioning of the Company's nuclear
facilities.
The Company's most recent site-specific estimates of decommissioning
costs were developed in 1993, using 1993 cost factors, and are based on
prompt dismantlement decommissioning, which reflects the cost of
removal of all radioactive and other structures currently at the site,
with such removal occurring shortly after operating license expiration.
These estimates, in 1993 dollars, are $258 million for Robinson Unit
No. 2, $235 million for Brunswick Unit No. 1, $221 million for
Brunswick Unit No. 2 and $284 million for the Harris Plant. The
estimates are subject to change based on a variety of factors
including, but not limited to, cost escalation, changes in technology
applicable to nuclear decommissioning and changes in federal, state or
local regulations. The cost estimates exclude the portion attributable
to North Carolina Eastern Municipal Power Agency, which holds an
undivided ownership interest in the Brunswick and Harris nuclear
generating facilities. Operating licenses for the Company's nuclear
units expire in the year 2010 for Robinson Unit No. 2, 2016 for
Brunswick Unit No. 1, 2014 for Brunswick Unit No. 2 and 2026 for the
Harris Plant.
The Financial Accounting Standards Board has reached several tentative
conclusions with respect to its project regarding accounting practices
related to obligations associated with the retirement of long-lived
assets (formerly referred to as liabilities for closure and removal of
long-lived assets). It is uncertain when the final statement will be
issued and what effects it may ultimately have on the Company's
accounting for nuclear decommissioning and other retirement costs.
3. RETAIL RATE MATTERS
A petition was filed in July 1996 by the Carolina Industrial Group for
Fair Utility Rates (CIGFUR) with the NCUC, requesting that the NCUC
conduct an investigation of the Company's base rates or treat its
petition as a complaint against the Company. The petition alleged that
the Company's return on equity (which was authorized by the NCUC in the
Company's last general rate proceeding in 1988) and earnings are too
high. In December 1996, the NCUC issued an order denying CIGFUR's
petition and stating that it tentatively found no reasonable grounds to
proceed with CIGFUR's petition as a complaint. In January 1997, CIGFUR
filed its Comments and Motion for Reconsideration, to which the Company
responded. In February 1997, the NCUC issued an order denying CIGFUR's
Motion for Reconsideration. CIGFUR filed a Notice of Appeal of the NCUC
Order with the North Carolina Court of Appeals. The Company filed its
brief in this matter in July 1997, and oral argument was held before
the North Carolina Court of Appeals (Court of Appeals) in November
1997. On September 1, 1998 the Court of Appeals filed its decision
affirming the NCUC Orders dismissing CIGFUR's petition. On September 6,
1998 CIGFUR filed a petition for Discretionary Review with the North
Carolina Supreme Court (Supreme Court) asking the Supreme Court to
review the Court of Appeals decision. The Company cannot predict the
outcome of this matter.
4. COMMITMENTS AND CONTINGENCIES
Contingencies existing as of the date of these statements are described
below. No significant changes have occurred since December 31, 1997,
with respect to the commitments discussed in Note 11 of the financial
statements included in the Company's 1997 Annual Report on Form 10-K.
A. Applicability of SFAS-71. As a regulated entity, the Company
is subject to the provisions of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS-71). Accordingly, the
Company records certain assets and liabilities resulting from
the effects of the ratemaking process, which would not be
recorded under generally accepted accounting principles for
unregulated entities. The Company's ability to continue to
meet the criteria for application of SFAS-71 may be affected
in the future by competitive forces, deregulation and
restructuring in the electric utility industry. In the event
that SFAS-71 no longer applied to a separable portion of the
Company's operations, related regulatory assets and
liabilities would be eliminated unless an appropriate
regulatory recovery mechanism is provided. Additionally, these
factors could result in an impairment of electric utility
plant assets as determined pursuant to Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." At September 30, 1998, the Company's regulatory assets
totaled $464 million.
B. Claims and Uncertainties. 1) The Company is subject to
federal, state and local regulations addressing air and water
quality, hazardous and solid waste management and other
environmental matters.
Various organic materials associated with the production of
manufactured gas, generally referred to as coal tar, are
regulated under various federal and state laws. There are
several manufactured gas plant (MGP) sites to which the
Company and certain entities that were later merged into the
Company had some connection. In this regard, the Company,
along with others, is participating in a cooperative effort
with the North Carolina Department of Environment and Natural
Resources, Division of Waste Management (DWM), which has
established a uniform framework to address MGP sites. The
investigation and remediation of specific MGP sites will be
addressed pursuant to one or more Administrative Orders on
Consent (AOC) between the DWM and the potentially responsible
party or parties. The Company has signed AOC's to investigate
certain sites. The Company continues to investigate the
identities of parties connected to individual MGP sites, the
relative relationships of the Company and other parties to
those sites and the degree to which the Company will undertake
efforts with others at individual sites. The Company does not
expect these costs to be material to the financial position
and results of operations of the Company.
The Company has been notified by regulators of its involvement
or potential involvement in several sites, other than MGP
sites, that may require remedial action. The Company cannot
predict the outcome of these matters.
The Company carries a liability, in accordance with Statement
of Financial Accounting Standards No. 5, "Accounting for
Contingencies", for the estimated costs associated with
certain remedial activities. This liability is not material to
the financial position of the Company.
2) As required under the Nuclear Waste Policy Act of 1982, the
Company entered into a contract with the U.S. Department of
Energy (DOE) under which the DOE agreed to dispose of the
Company's spent nuclear fuel by January 31, 1998. The DOE
defaulted on its January 31, 1998, obligation to begin taking
spent nuclear fuel, and a group of utilities, including the
Company, has undertaken measures to force the DOE to take
spent nuclear fuel and/or to pay damages. To date, the courts
have rejected attempts to force DOE to take spent nuclear
fuel. The Company cannot predict the outcome of this matter.
With certain modifications, the Company's spent fuel storage
facilities will be sufficient to provide storage space for
spent fuel generated on the Company's system through the
expiration of the current operating licenses for all of the
Company's nuclear generating units. Subsequent to the
expiration of these licenses, dry storage may be necessary.
3) On October 27, 1998, the Environmental Protection Agency
(EPA) published a final rule addressing the issue of regional
transport of ozone. This rule is commonly known as the NOx SIP
call. The rule requires utilities to make reductions in
nitrogen oxides (NOx) in 22 states, including North and South
Carolina, by May 2003. The Company is evaluating necessary
measures to comply with the rule. The Company is also
participating in litigation challenging the NOx SIP call. The
Company cannot predict the outcome of this matter.
4) In the opinion of management, liabilities, if any, arising
under other pending claims would not have a material effect on
the financial position and results of operations of the
Company.
5. EARNINGS PER COMMON SHARE
Restricted stock awards and contingently issuable shares had a dilutive
effect on earnings per share and increased the weighted-average number
of common shares outstanding for dilutive purposes by 274,825, 248,026
and 189,819 for the three, nine and twelve months ended September 30,
1998, respectively, and by 20,672 for the three, nine and twelve months
ended September 30, 1997. The weighted-average number of common shares
outstanding for dilutive purposes was 144.3 million, 144.1 million, and
144.1 million, for the three, nine and twelve months ended September
30, 1998, respectively, and 143.8 million, 143.6 million and 143.5
million, for the three, nine and twelve months ended September 30,
1997, respectively.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
For the Three, Nine and Twelve Months Ended September 30, 1998,
As Compared With the Corresponding Periods One Year Earlier
<TABLE>
Operating Revenues
For the three, nine and twelve months ended September 30, 1998,
operating revenues were affected by the following factors (in
millions):
<CAPTION>
Three Months Nine Months Twelve Months
<S> <C> <C> <C>
Weather $ 29 $ 81 $ 110
Customer growth/changes in usage patterns 23 54 60
Sales to other utilities (13) 15 33
Price (8) (26) (34)
Sales to Power Agency 6 20 16
Other 2 2 1
--- --- ---
Total $ 39 $ 146 $ 186
=== === ===
</TABLE>
The increase in the weather component of revenue for all periods is the
result of more favorable temperatures in the current periods as
compared to prior periods. The increase in the customer growth/changes
in usage patterns component of revenue for all comparison periods
reflects continued growth in the number of customers served by the
Company, partially offset by the effect of lost revenues caused by
Hurricane Bonnie in the current periods. While residential and
commercial sales increased for all periods, industrial sales have
decreased slightly primarily reflecting downturns in the chemical and
textile industries. Sales to other utilities increased for the nine-
and twelve-month periods as a result of the Company's active pursuit of
opportunities in the wholesale power market. During the three-month
period, however, sales to other utilities have declined due to the
recent volatility of the wholesale market in comparison to that of the
prior period. The price-related decrease for the three months and nine
months ended September 30, 1998, is primarily attributable to a
decrease in the fuel cost component of revenue. The price-related
decrease for the twelve months ended September 30, 1998, is due to a
combination of a decrease in the fuel cost component of revenue and
changes to the Power Coordination Agreement, which were effective
January 1, 1997, between the Company and North Carolina Electric
Membership Corporation (NCEMC). The increase in revenue related to
sales to the North Carolina Eastern Municipal Power Agency (Power
Agency) for all periods is primarily due to more favorable temperatures
in the current periods, in addition to the timing of supplemental
capacity adjustments.
Operating Expenses
Fuel expense increased for all periods primarily due to an increase in
generation of approximately 7.1%, 9.7% and 10.8% for the three, nine
and twelve months ended September 30, 1998, respectively. The increase
in fuel expense for the nine- and twelve-month periods is also related
to a change in the generation mix. These increases were partially
offset by a decrease in fuel prices during the nine- and twelve-month
periods.
Other operation and maintenance expense decreased during the three and
nine months ended September 30, 1998, due to the timing of plant
outages and continued cost reduction efforts, which more than offset
expenses of approximately $10.4 million incurred in the current periods
related to Hurricane Bonnie. In the prior twelve-month period, other
operation and maintenance expense was reduced by the reversal of
approximately $30 million of Hurricane Fran expenses. These expenses
were incurred during the third quarter of 1996 and were reversed during
the fourth quarter of 1996 when the Company received regulatory
approval to defer and amortize expenses related to Hurricane Fran.
Excluding this reversal, other operation and maintenance expense
decreased approximately $82 million for the twelve-month period. This
decrease primarily reflects lower expenses resulting from the Company's
cost reduction efforts and a reduction in expenses related to plant
outages.
Depreciation and amortization increased approximately $25 million for
the twelve months ended September 30, 1998, of which approximately $17
million was a result of the accelerated amortization of certain
regulatory assets in accordance with orders from the commissions in the
Company's retail jurisdictions.
Income tax expense increased for all comparison periods primarily due
to an increase in pretax operating income. In addition, the increase
for the nine- and twelve-month periods reflects tax provision
adjustments recorded for potential audit issues in open tax years which
decreased income tax expense in the prior periods.
Harris Plant deferred costs, net decreased for all comparison periods
primarily due to the completion, in late 1997, of the amortization of
the Harris Plant phase-in costs related to the North Carolina retail
jurisdiction.
Other Income
The income tax benefit related to other income increased for all
comparison periods primarily as a result of a decrease in other income.
Interest income decreased for all comparison periods primarily as a
result of a decrease in tax refund-related interest income recognized
in the current periods.
Approximately $6 million, $30 million, and $37 million of the decrease
in other, net for the three-, nine- and twelve-month periods,
respectively, is due to the combined pre-tax start-up losses of two of
the Company's subsidiaries, Strategic Resource Solutions Corp. (SRS)
and Interpath Communications, Inc. (Interpath). Management has
projected losses for these subsidiaries as they evolve through start-up
phases; however, 1998 losses for SRS have been higher than management's
expectations. Accordingly, the Company has initiated cost-cutting and
revenue enhancing efforts at SRS to mitigate the effects of these
losses. Although not significantly affecting period-to-period
comparisons, Interpath's results for all reported periods include
losses recorded from its 10% limited partnership interest in BellSouth
Carolinas PCS, LP (a wireless communications technology company). The
decrease in the twelve-month period was also due to an adjustment of
$23 million to the unamortized balance of abandonment costs related to
the Harris Plant, which positively affected other, net in the prior
period.
Interest Charges
Interest charges relating to long-term debt increased for all
comparison periods due to an increase in commercial paper borrowings
classified as long-term debt in the current periods. For the nine and
twelve months ended September 30, 1998, the increase was also due to
the issuance of $200 million principal amount of first mortgage bonds
in August, 1997. Other interest charges decreased for all reported
periods primarily as a result of a decrease in commercial paper
borrowings classified as short-term debt.
Preferred Stock Dividend Requirements
The decrease in the preferred stock dividend requirements for all
comparison periods is the result of the redemption of two preferred
stock series in July 1997.
MATERIAL CHANGES IN LIQUIDITY AND CAPITAL RESOURCES
For the Nine and Twelve months ended September 30, 1998
Cash Flow and Financing
The proceeds from commercial paper borrowings and/or internally
generated funds financed the redemption or retirement of long-term debt
totaling $188 million and $229 million during the nine and twelve
months ended September 30, 1998, respectively.
As of September 30, 1998, the Company's long-term revolving credit
facilities, which support its commercial paper borrowings, totaled $750
million. The Company is required to pay minimal annual commitment fees
to maintain its credit facilities. Consistent with management's intent
to maintain all or a portion of its commercial paper on a long-term
basis, and as supported by its long-term revolving credit facilities,
the Company included in long-term debt $412 million and $160 million of
commercial paper outstanding as of September 30, 1998 and 1997,
respectively.
The Company's capital structure as of September 30 was as follows:
1998 1997
---- ----
Common Stock Equity 53.26% 53.40%
Long-term Debt, net 45.67% 45.47%
Preferred Stock 1.07% 1.13%
The Company's First Mortgage Bonds are currently rated "A2" by Moody's
Investors Service, "A" by Standard and Poor's and "A+" by Duff and
Phelps. Moody's Investors Service, Standard and Poor's and Duff and
Phelps have rated the Company's commercial paper "P-1", "A-1" and
"D-1", respectively.
OTHER MATTERS
Competition
Wholesale Competition
During the last week of June 1998, some wholesale power markets
experienced sharp increases in prices. That upsurge in power costs was
due, in part, to the unavailability of generating capacity and
unusually hot weather in the Midwestern portion of the country. The
relatively sudden movement in wholesale power prices disrupted certain
power transactions, including some to which the Company was a party.
The monetary damages the Company incurred as a result of those
disrupted transactions did not have a material adverse effect on the
Company's results of operations. The Company is taking steps to
mitigate those monetary damages. The Company anticipates increased
volatility in the wholesale power market during peak demand periods;
however, due to the risk management processes the Company has in place,
the Company does not expect this volatility to have a material adverse
effect on its financial position and results of operations.
North Carolina Activities
The 23-member study commission established to evaluate the future of
electric service in North Carolina met on November 10, 1998. A
consultant's report on the stranded costs that would be associated with
the deregulation of North Carolina's utilities is currently due to the
study commission in December of 1998. The commission will make its
final report to the 1999 Session of the North Carolina General
Assembly. The Company cannot predict the outcome of this matter.
South Carolina Activities
A report issued by the South Carolina Public Service Commission (SCPSC)
on September 30, 1998, estimates that in a deregulated generation
market, South Carolina's three investor-owned electric utilities would
face approximately $1.4 billion in stranded costs in connection with
their South Carolina operations. The report estimates the Company's
potential stranded costs, for its South Carolina operations, would be
approximately $410 million in 2003 dollars. On October 29, 1998, the
South Carolina Senate Judiciary Committee appointed a 13-member task
force to study the deregulation issue and make a report to the South
Carolina General Assembly during the 1999 legislative session. The
Company cannot predict the outcome of these matters.
Federal Activities
At the federal level, additional bills regarding deregulation were
introduced this year, but Congress adjourned in October without taking
any action on the issue. The deregulation debate is expected to
continue in Congress next year. The Company cannot predict the outcome
of this matter.
Company Activities
In 1996, Power Agency notified the Company that it would discontinue
certain contractual purchases of power from the Company effective
September 1, 2001; however, the Company won the right to continue
supplying this power by being selected from a number of bidders. On
September 11, 1998, the Company and Power Agency entered into a revised
agreement that extends the period during which Power Agency will
continue to purchase all of its supplemental power from the Company
through at least December 31, 2002. The new agreement also includes
options for Power Agency to purchase supplemental power from the
Company for the year 2003 and beyond. (The load served by supplemental
power under that agreement will include all of Power Agency's power
needs in excess of the load served by Power Agency through its
ownership interest in generation units that it jointly owns with the
Company and other smaller resources that are currently in place.) The
revised agreement was filed with the Federal Energy Regulatory
Commission (FERC) for approval or acceptance on October 30, 1998. The
Company cannot predict the outcome of this matter.
On October 9, 1998, the Company and its largest customer, NCEMC entered
into an agreement under which NCEMC will purchase a total of 800
megawatts of peaking capacity and associated energy from the Company
during the period from January 1, 2001 through December 31, 2003. The
agreement, which provides NCEMC with an option to extend all or part of
the purchase through 2005, provides capacity to meet NCEMC's growing
peaking power needs. A portion of this purchase is intended to serve
load located in the Company's service area that is currently served by
purchases from the Company under a contract that will expire on
December 31, 2000. During the period 2001 through 2003, this agreement
also will serve up to 450 MWs of NCEMC load that is located in the Duke
Power service area that has not previously been served by the Company.
The agreement will be filed with FERC for approval or acceptance. The
Company cannot predict the outcome of this matter.
On October 30, 1998, the Company and NCEMC also entered into agreements
that supersede the 1993 Power Coordination Agreement between the
Company and NCEMC, as amended (the PCA). The primary effect of the new
agreements is to unbundle the generation and transmission service for
the load previously served under the PCA. To that end, the parties
executed a Network Integration Transmission Service Agreement and a
Network Operating Agreement under which NCEMC will receive transmission
services from the Company pursuant to the Company's Open Access
Transmission Tariff. The parties also entered into a new Power Supply
Agreement, which provides for the Company to sell capacity and energy
to NCEMC under terms and conditions and in amounts that are
substantially the same as those that were set forth in the PCA. The
parties agreed to a modification of the calculation of certain capacity
charges; however, the net effect of the changes is intended to be
essentially revenue neutral under expected load conditions. The Network
Transmission Agreement, the Network Operating Agreement, and the new
Power Supply Agreement were filed with FERC for approval or acceptance
on November 3, 1998. The Company also expects the new Power Supply
Agreement to be submitted by NCEMC to the Rural Utilities Service for
approval. The Company cannot predict the outcome of these matters.
On September 28, 1998, the Company and the South Carolina Public
Service Authority (Santee Cooper) entered into an agreement under which
the Company will provide peaking capacity and associated energy to
Santee Cooper for the period January 1, 1999 through December 31, 2003.
Under the terms of the agreement, the Company will provide 100 MW of
generation capacity in 1999, 150 MW in 2000 and 200 MW from 2001 to
2003. Santee Cooper needs the additional capacity to accommodate its
expected load growth over the next several years. The agreement was
filed with FERC for approval or acceptance on October 23, 1998. The
Company cannot predict the outcome of this matter.
Year 2000
Background
The Company's overall goal is to be Year 2000 ready. "Year 2000 ready"
means that critical systems, devices, applications or business
relationships have been evaluated and are expected to be suitable for
continued use into and beyond the Year 2000, or contingency plans are
in place.
The Company began addressing the Year 2000 issue in 1994 by beginning
to assess its business computer systems, such as general ledger,
payroll, customer billing and inventory control. The majority of these
systems have been corrected and running in the Company's day-to-day
computing environment since 1996. Also, by the mid-1990s, two major
accounting systems were replaced with systems that were designed to be
Year 2000 ready. The Company plans to complete corrections to the
remaining business systems by the end of 1998.
During mid-1997 a Corporate Year 2000 Project was established to
provide leadership and direction to the Year 2000 efforts throughout
the Company and its subsidiaries. Also, the project scope was expanded
to include "embedded' systems (such as process control computers, chart
recorders, data loggers, calibration equipment and chemical analysis
equipment), end-user computing hardware and software (including
personal computers, spreadsheets, word processing and other personal
and workgroup applications), plant and corporate facilities (such as
security systems, elevators and heating and cooling systems) and
business relationships with key suppliers and customers.
The Company is using a multi-step approach in conducting its Year 2000
Project. These steps are: inventory, assessment, remediation and
testing, and contingency planning. The first step, an inventory of all
systems and devices with potential Year 2000 problems, was completed in
January 1998. The next step, completed in the first half of 1998, was
to conduct an initial assessment of the inventory to determine the
state of its Year 2000 readiness. As part of the assessment phase,
remediation strategies were identified and remediation cost estimates
were developed. The Company is utilizing both internal and external
resources to remediate and test for Year 2000 readiness. The Company is
actively conducting formal communications with the suppliers with which
it has active contracts to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year
2000 issue. The Company cannot predict the outcome of other companies'
remediation efforts.
Costs
The Company currently plans to complete the Year 2000 Project by August
1999. The total remaining cost of the Year 2000 Project is estimated at
$13 million. (This estimate excludes Year 2000 Project costs
attributable to recent subsidiary acquisitions, which the Company does
not expect to be material to its financial position and results of
operations.) Approximately $6 million is for new software and hardware
purchases and will be capitalized. The remaining $7 million will be
expensed as incurred over the next two years. To date, the Company has
incurred and expensed approximately $4 million related to the
inventory, assessment and remediation of non-compliant systems,
equipment and applications. The costs of the project and the date on
which the Company plans to complete the Year 2000 modifications are
based on management's best estimates, which were derived using
assumptions of future events including the continued availability of
certain resources, third parties' Year 2000 readiness and other
factors.
Risk Assessment
At this time, the Company believes its most reasonably likely worst
case scenario is that key customers could experience significant
reductions in their power needs due to their own Year 2000 issues.
Although the Company does not believe that this scenario will occur, it
has assessed the effect of such a scenario by using current financial
data. In the event that this scenario does occur, the Company does not
expect that it would have a material adverse effect on the Company's
financial position and results of operations.
The Company believes a more likely scenario is a temporary disruption
of service to its electric customers, including the effect of cascading
disruptions caused by other entities whose electrical systems are
connected to the Company's. The Company has assessed the risk of this
scenario, and believes that its contingency plans would mitigate the
long-term effect of such a scenario. In the event that a temporary
disruption does occur, the Company does not expect that it would have a
material adverse effect on its financial position and results of
operations.
Contingency Plans
Contingency plans will be prepared so that the Company's critical
business processes can be expected to continue to function on January
1, 2000 and beyond. The Company's contingency plans will be structured
to address both remediation of systems and their components and overall
business operating risk. These plans are intended to mitigate both
internal risks as well as potential risks in the supply chain of the
Company's suppliers and customers.
One of the Company's emergency contingency plans specifically addresses
emergency scenarios that may arise due to the fact that electric
utility systems throughout the southeast region of the United States
are interconnected. The Company has been working actively with the
North American Electric Reliability Council and the Southeastern
Electric Reliability Council to address the issue of overall grid
reliability and protection. In order to mitigate the risk of cascading
regional electric failures, the Company can, as a last resort, isolate
its transmission system either automatically or manually. The Company's
emergency readiness contingency plan includes the performance of
regular training exercises that include simulated disaster recovery
scenarios. As part of its Year 2000 contingency planning, the Company
will review its disaster recovery scenarios to identify those that can
be used specifically for Year 2000 readiness training.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", effective for fiscal
years beginning after June 15, 1999. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities. It requires the recognition of all
derivative instruments as assets or liabilities in the statement of
financial position and measurement of those instruments at fair value.
The accounting treatment of changes in fair value is dependent upon
whether or not an instrument is designated as a hedge and, if so, the
type of hedge. The Company has not fully analyzed the provisions of
SFAS No. 133.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk exposure has not changed materially from the
exposure as disclosed in the Company's 1997 Annual Report on Form 10-K.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Legal aspects of certain matters are set forth in Part I, Item 1, Notes
3 and 4 of the Company's financial statements.
Item 2. Changes in Securities and Use of Proceeds
ACQUISITION OF JACK WALTERS, INC. AND JACK WALTERS SERVICE, INC.:
(a) Securities Delivered. Pursuant to a merger agreement and plan
of reorganization effective September 1, 1998, 62,304 shares
of the Company's common stock (Common Shares) that had been
recently purchased in the open market by the Company's
wholly-owned subsidiary, Strategic Resource Solutions Corp., a
North Carolina Enterprise Corporation (SRS), were delivered by
SRS as part of the merger consideration due to the
shareholders of Jack Walters, Inc. and Jack Walters Service,
Inc., both North Carolina corporations, (collectively JWI).
JWI merged into SRS effective September 1, 1998. All Common
Shares delivered by SRS pursuant to the JWI merger agreement
and plan of reorganization were acquired in market
transactions, and do not represent newly-issued shares of the
Company.
(b) Underwriters and Other Purchasers. No underwriters were used
in connection with the transactions identified above. The
shareholders of JWI were the only recipients of the Common
Shares.
(c) Consideration. The consideration for the Common Shares was the
acquisition of all assets and assumption of all liabilities of
JWI by SRS as successor by merger pursuant to the merger
agreement and plan of reorganization.
(d) Exemption from Registration Claimed. The Common Shares
described in this Item were delivered on the basis of an
exemption from registration under Section 4(2) of the
Securities Act of 1933. The Common Shares were received by
four individuals and are subject to restrictions on resale
typical for private placements. Appropriate disclosure was
made to the recipients of the Common Shares.
Item 5. Other Information
Recent Developments
On November 10, 1998, the Company, North Carolina Natural Gas
Corporation, a Delaware corporation (NCNG) and Carolina Acquisition
Corporation, a newly formed Delaware corporation, wholly owned by the
Company (Carolina), entered into an Agreement and Plan of Merger
(Merger Agreement) providing for the strategic business combination of
the Company and NCNG. Pursuant to the Merger Agreement, Carolina will
be merged with and into NCNG (the "Merger") and NCNG will become a
wholly owned subsidiary of the Company. The Merger is intended to
constitute a tax-free reorganization for federal income tax purposes
and to be accounted for as a pooling-of-interests. The joint press
release issued by the Company and NCNG with respect to the Merger is
filed herewith as Exhibit 2(a).
In accordance with the Merger Agreement, each share of NCNG Common
Stock, par value $2.50, issued and outstanding immediately prior to the
effective time of the Merger, including the rights attached thereto
issued pursuant to the Rights Agreement dated October 7, 1997, between
NCNG and Wachovia Bank, N.A., will be converted into the right to
receive shares of the Company's Common Stock, without par value, equal
to the Exchange Ratio. The Exchange Ratio will be determined by
dividing $35 by the average closing price of a share of the Company's
Common Stock for each of the twenty consecutive trading days prior to
and including the fifth trading day prior to the closing of the Merger.
The Exchange Ratio will not exceed 0.8594 nor be less than 0.7032. The
Merger Agreement provides that if the Merger closes after November 10,
1999, the Exchange Ratio will be subject to further adjustment. The
Company will issue approximately $354 million in stock to NCNG
shareholders to complete the Merger.
The Merger Agreement has been approved by the Boards of Directors of
the Company and NCNG. Consummation of the Merger is subject to certain
closing conditions, including approval by the shareholders of NCNG.
NCNG presently intends that the shareholders meeting to consider such
approval will be held as early as practicable. Consummation of the
Merger is also subject to (i) receipt by the Company and NCNG of a
favorable opinion of counsel that the Merger will constitute a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended, (ii) the receipt by the Company and NCNG of favorable
letters from their independent auditors that the Merger will qualify
for pooling-of-interests accounting treatment, (iii) the effectiveness
of a Registration Statement to be filed with the Securities Exchange
Commission by the Company with respect to its Common Stock to be issued
in the Merger, (iv) certain regulatory approvals or filings, including
approvals by or filings with the NCUC and the SCPSC, and the filing of
the requisite notifications with the Federal Trade Commission and the
Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the expiration of applicable
waiting periods thereunder, and (v) other customary conditions to
closing.
The Merger Agreement provides for termination by either the Company or
NCNG if the Merger has not been consummated by December 31, 1999 or if
the necessary shareholder approval is not obtained by NCNG at its
special shareholders' meeting. The Merger Agreement may be terminated
by NCNG if prior to the effective time a third party has made a bona
----
fide proposal which the Board of Directors of NCNG determines is a
----
Superior Proposal (as defined in the Merger Agreement) and the Company
does not make, within five business days of receiving notice of the
Superior Proposal, an offer that the Board of Directors of NCNG
believes is at least as favorable, from a financial point of view, to
NCNG's shareholders as the Superior Proposal. The Merger Agreement may
also be terminated by the Company if the Board of Directors of NCNG
fails to recommend to the NCNG shareholders (or withdraws its
recommendation of) approval of the transactions contemplated by the
Merger Agreement.
If the Company terminates the Merger Agreement because (i) the
effective time does not occur by December 31, 1999 as a consequence of
NCNG's failure to fulfill certain obligations under the Merger
Agreement, or because NCNG or its shareholders has received an
Alternative Proposal (as defined in the Merger Agreement) or (ii) the
Board of Directors of NCNG fails to recommend to NCNG's shareholders
(or withdraws its recommendation of) approval of the transactions
contemplated by the Merger Agreement; or if NCNG terminates due to its
acceptance of a Superior Proposal; or if either party terminates due to
the failure of NCNG's shareholders to approve the Merger and prior to
or during the special meeting of shareholders an Alternative Proposal
has been made and not revoked, then NCNG must pay the Company a
termination fee of $10 million; provided, however, that no payment will
be due where the Company terminates in connection with NCNG's receipt
of an Alternative Proposal unless within 12 months of termination NCNG,
or any of its subsidiaries, enters into a definitive agreement relating
to such Alternative Proposal, or a similar proposal.
The description of the Merger Agreement set forth herein does not
purport to be complete and is qualified in its entirety by the
provisions of the Merger Agreement, which is attached hereto as Exhibit
2(b) and incorporated herein by reference.
Deadline for Shareholder Proposals
The deadline by which the Company must receive notice of shareholder
proposals which are to be presented at its 1999 Annual Meeting of
Shareholders, but not included in its 1999 proxy materials is February
12, 1999. The Company's management proxies will be allowed to use their
discretionary voting authority in connection with proposals for which
this deadline is not met.
Item 6. Exhibits and Reports on Form 8-K
(a) See EXHIBIT INDEX
(b) Reports on Form 8-K filed during or with respect to the
quarter:
NONE
<PAGE>
SIGNATURES
Pursuant to requirements 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.
CAROLINA POWER & LIGHT COMPANY
(Registrant)
By /s/ Glenn E. Harder
-------------------
Glenn E. Harder
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By /s/ Bonnie V. Hancock
----------------------
Bonnie V. Hancock
Vice President and Controller
(Chief Accounting Officer)
Date: November 13, 1998
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
2(a) Press Release of Carolina Power & Light Company,
dated November 11, 1998.
2(b) Agreement and Plan of Merger By and Among
Carolina Power & Light Company, North Carolina
Natural Gas Corporation and Carolina Acquisition
Corporation, dated as of November 10, 1998.
4 Form of Carolina Power & Light Company First
Mortgage Bond, 6.80% Series Due August 15, 2007.
27 Financial Data Schedule
- ------------------------------------------------------------------------------
EXHIBIT 2(a)
Carolina Power & Light 24-Hour Media Line
Corporate Communications Tel 919 546-6189
PO Box 1551 Fax 919 546-6615
Raleigh NC 27602 Internet: www.cplc.com
- ------------------------------------------------------------------------------
CP&L Contacts: NCNG Contacts:
Media: Mike Hughes Media: Calvin Wells
(919) 546-6189 (910) 323-6201
Investors: Bob Drennan Investors: Gerald Teele
(919) 546-7474 (910) 323-6203
- ------------------------------------------------------------------------------
CP&L announces plan to acquire NCNG
RALEIGH, N.C. (Nov. 11, 1998) - As part of its strategy to become a total
energy provider for customers while growing earnings and securing gas
supplies for planned electric power plants, Carolina Power & Light (NYSE:
CPL) announced today that it has entered into a definitive agreement to
acquire North Carolina Natural Gas Corp. (NYSE: NCG) through a
stock-for-stock transaction and will add NCNG's natural gas and propane
products into CP&L's portfolio of electricity, energy services and
technology products and services.
Under the agreement, each common share of NCNG will be converted into
common shares of CP&L, based on an exchange ratio to be determined by
dividing $35 by the average price of CP&L stock during a 20-day period
before the closing of the transaction. The exchange ratio will not exceed
0.8594 nor be less than 0.7032. Based on CP&L's closing price of $47.56
Tuesday, Nov. 10, the exchange ratio would be 0.7359, which would represent
a premium of 48 percent to NCNG shareholders. CP&L will issue approximately
$354 million in stock to NCNG shareholders to complete the transaction. The
transaction is expected to be accretive to CP&L's earnings after
transaction expenses and consolidation costs; it will be accounted for as a
pooling of interests.
CP&L President and Chief Executive Officer William Cavanaugh III said the
acquisition of NCNG fits logically into CP&L's plan to become a total
energy provider.
-more-
<PAGE>
Carolina Power & Light
Page 2
"We have plans for significant additions of gas-fired power plants over the
next 10 years to meet our customers' needs. Access to a competitively
priced gas supply is integral to our long-term strategy," Cavanaugh said.
"To better serve our customers, we plan to create a larger regional
platform from which to expand our energy-related products and services
throughout the Carolinas and beyond. The ability to offer reasonably priced
natural gas to our customers has been a strategic priority for CP&L, and
our acquisition of NCNG advances that strategy.
"NCNG has enjoyed an extraordinary customer growth rate over the last few
years - about three times the national industry average - and we believe
there is even more opportunity to increase the penetration of gas to
customers in our service area. NCNG's low-cost structure and strong balance
sheet make it a perfect fit for CP&L, and our overlapping service areas
will provide increased growth opportunities between the two operations.
"For many years, NCNG has shared CP&L's commitment to economic development
in the region," Cavanaugh said. "Our goal is to help stimulate development
even further by enhancing the energy infrastructure in eastern North
Carolina.
"Today's announcement is another step in CP&L's focused strategy to become
a total energy provider in our region, which continues to enjoy strong
growth. Our objective is to provide a full array of energy-related services
to all of our current customers and to expand our market reach. Our
strategy and our employees are squarely focused on creating shareholder
value. As we have said before, we will pursue a disciplined strategy and
acquire only those companies, like NCNG, that offer profitable synergies
with our own."
CP&L's generation expansion plans include more than 600 megawatts in Wayne
County on the site of the existing Lee Steam Electric Plant. That planned
facility is in the current NCNG service area. It will include four
gas-fired combustion-turbine generators, and is scheduled to be on line in
mid-2000. The additional generation in Wayne County and elsewhere in North
Carolina is needed to accommodate the area's ongoing growth in population
and usage, to increase reserve capacity in the Southeast and to support
CP&L's strategy for additional sales in the wholesale energy market.
NCNG Chairman and Chief Executive Officer Calvin Wells said he believes the
combination is a great opportunity for customers, employees and
shareholders of both companies.
"CP&L and NCNG are not only neighbors, but we also share a similar
corporate culture," Wells said. "NCNG's gas expertise and growing customer
base will benefit CP&L, and NCNG will benefit by being part of a larger
organization in a consolidating industry. NCNG, like CP&L, has a history of
providing excellent service to its customers, and we will continue to
provide the same safe, reliable service our customers have come to expect."
-more-
<PAGE>
Carolina Power & Light
Page 3
NCNG will be operated as a wholly owned subsidiary of CP&L. Wells will
remain CEO of the subsidiary and will report directly to Cavanaugh and
participate on the CP&L senior management committee.
A transition plan is currently being developed to guide the integration of
NCNG employees, facilities and customer services into CP&L. The change is
not expected to have an immediate effect on the way customers currently do
business with either company, although the integration is expected to
provide opportunities for some consolidation of customer service functions
in the future.
Both companies' retail rates are regulated by the N.C. Utilities Commission
and would not be affected by the acquisition.
CP&L currently pays an annual dividend of $1.94 per share. Based on the
exchange ratio of 0.7359, NCNG's shareholders will receive an increase of
$0.4276 (or 43 percent) in dividends per share.
The acquisition is conditioned upon the approval of the N.C. Utilities
Commission and S.C. Public Service Commission, NCNG's shareholders, the
Securities and Exchange Commission and other customary conditions. CP&L
anticipates regulatory approvals can be obtained by mid-1999.
Headquartered in Fayetteville, NCNG provides natural gas, propane and
related services to more than 173,000 customers located in 86 towns and
cities and on four municipal gas distribution systems in south-central and
eastern North Carolina. The company has about 515 employees. NCNG's fiscal
1998 (ended Sept. 30, 1998) operating revenues totaled $232 million.
Headquartered in Raleigh, CP&L observed the 90th anniversary of its charter
in July. Today CP&L maintains 16 power plants and more than 60,000 miles of
power lines in providing service to nearly 1.2 million customers in central
and eastern North Carolina, the Asheville area and the Pee Dee Region of
South Carolina. Including subsidiaries, CP&L has about 6,900 full-time
employees.
# # #
Note to Editors: Today's news release, along with other news about CP&L and
NCNG, is available on the Internet at http://www.cplc.com and
http://www.ncng.com.
EXHIBIT 2 (b)
- ------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
By and Among
Carolina Power & Light Company,
North Carolina Natural Gas Corporation
and
Carolina Acquisition Corporation
- ----------------------------------------------------------------------------
Dated as of November 10th, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1. Agreement...............................................................1
1.2. Alternative Proposal....................................................1
1.3. Atomic Energy Act......................................................1
1.4. COBRA...................................................................2
1.5. Certificates............................................................2
1.6. Certificate of Merger...................................................2
1.7. CP&L Common Stock.......................................................2
1.8. CP&L Companies..........................................................2
1.9. CP&L Disclosure Letter..................................................2
1.10. CP&L SEC Reports.......................................................2
1.11. Closing; Closing Date..................................................2
1.12. Code...................................................................2
1.13. Confidentiality Agreement..............................................2
1.14. Contracts..............................................................2
1.15. DGCL...................................................................2
1.16. ERISA..................................................................3
1.17. Easements..............................................................3
1.18. Effective Time.........................................................3
1.19. Environmental Claim and Environmental Laws.............................3
1.20. Environmental Permits..................................................3
1.21. Exchange Act...........................................................3
1.22. Exchange Agent.........................................................3
1.23. Exchange Ratio.........................................................3
1.24. FERC...................................................................3
1.25. GAAP...................................................................3
1.26. Governmental Authority.................................................3
1.27. Hazardous Material.....................................................3
1.28. HSR Act................................................................3
1.29. IRS....................................................................3
1.30. Knowledge of CP&L......................................................4
1.31. Knowledge of NCNG......................................................4
1.32. Law....................................................................4
1.33. Material Adverse Effect................................................4
1.34. Merger.................................................................4
1.35. Merger Subsidiary......................................................4
1.36. Morgan Stanley.........................................................4
1.37. NCNG Benefit Plans.....................................................4
1.38. NCNG Common Stock......................................................4
1.39. NCNG Companies.........................................................4
1.40. NCNG Disclosure Letter.................................................4
1.41. NCNG Pension Plan......................................................4
1.42. NCNG Qualified Plan....................................................5
1.43. NCNG Rights............................................................5
1.44. NCNG Rights Agreement..................................................5
1.45. NCNG SEC Reports.......................................................5
1.46. NCNG Share.............................................................5
1.47. NCUC...................................................................5
1.48. NYSE...................................................................5
1.49. PSCSC..................................................................5
1.50. PUHCA..................................................................5
1.51. Partnership; Partnerships..............................................5
1.52. Permits................................................................5
1.53. Power Act..............................................................5
1.54. Properties.............................................................6
1.55. Proxy Statement/Prospectus.............................................6
1.56. Registration Statement.................................................6
1.57. Release................................................................6
1.58. SEC....................................................................6
1.59. Salomon Smith Barney...................................................6
1.60. Securities Act.........................................................6
1.61. Special Meeting........................................................6
1.62. Subsidiary; Subsidiaries...............................................6
1.63. Surviving Corporation..................................................6
1.64. Tax Returns............................................................6
1.65. Taxes..................................................................6
ARTICLE II
THE MERGER
2.1. The Merger..............................................................7
2.2. Effective Time; Closing.................................................7
2.3. Effect of the Merger....................................................7
2.4. Articles of Incorporation and By-Laws...................................7
2.5. Directors and Officers of the Surviving Corporation.....................8
ARTICLE III
CONVERSION OF SECURITIES IN THE MERGER
3.1. Effect of Merger on NCNG Capital Stock..................................8
3.2. Exchange of Certificates................................................9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CP&L
4.1. Organization and Authority of CP&L....................................11
4.2. Capitalization........................................................11
4.3. Authority Relative to this Agreement..................................11
4.4. Consents and Approvals; No Violations.................................12
4.5. Reports...............................................................13
4.6. Absence of Certain Events.............................................13
4.7. Proxy Statement/Prospectus............................................13
4.8. Fees and Expenses of Brokers and Others...............................14
4.9. Operations of Nuclear Power Plants....................................14
4.10. No Default...........................................................14
4.11. Compliance with Law..................................................14
4.12. Regulation as Utility................................................15
4.13. Accounting Matters...................................................15
4.14. No Impairment of Tax Free Status.....................................15
4.15. Insurance............................................................15
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NCNG
5.1. Organization and Authority of the NCNG Companies......................15
5.2. Capitalization........................................................16
5.3. Authority Relative to this Agreement..................................16
5.4. Consents and Approvals; No Violations.................................17
5.5. Reports...............................................................17
5.6. Absence of Certain Events.............................................18
5.7. Proxy Statement/Prospectus............................................18
5.8. Litigation............................................................19
5.9. Assets; Easements.....................................................19
5.10. Contracts; No Default................................................20
5.11. Labor Matters........................................................20
5.12. Employee Benefit Plans...............................................21
5.13. Tax Matters..........................................................23
5.14. Compliance with Law..................................................24
5.15. Environmental Matters................................................24
5.16. NCNG Action..........................................................26
5.17. Vote Required........................................................27
5.18. Material Interests of Certain Persons................................27
5.19. Insurance............................................................27
5.20. [Omitted.]...........................................................27
5.21. Fees and Expenses of Brokers and Others..............................27
5.22. Regulation as Utility................................................28
5.23. Absence of Undisclosed Liabilities...................................28
5.24. Opinion of Financial Advisor.........................................28
5.25. Accounting Matters...................................................28
5.26. Intellectual Property................................................28
5.27. Year 2000 Matters....................................................29
5.28. No Impairment of Tax Free Status.....................................29
ARTICLE VI
COVENANTS
6.1. Conduct of the Business of NCNG; Meetings and Notices................30
6.2. No Solicitation......................................................32
6.3. The Registration Statement; Listing..................................33
6.4. Special Meeting......................................................34
6.5. Access to Information; Confidentiality Agreement.....................35
6.6. Best Efforts.........................................................35
6.7. Approvals............................................................35
6.8. Public Announcements.................................................36
6.9. Employee Agreements; Workforce Matters and Employee Benefits.........36
6.10. Letter of NCNG's Accountants........................................38
6.11. Letter of CP&L's Accountants........................................38
6.12. Opinions of Financial Advisors......................................38
6.13. Indemnification; Insurance..........................................38
6.14. Affiliate Agreements................................................39
6.15. Nuclear Facilities..................................................39
ARTICLE VII
CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER
7.1. Conditions Precedent to Each Party's Obligation to Effect the Merger.39
7.2. Conditions Precedent to Obligations of NCNG..........................40
7.3. Conditions Precedent to Obligations of CP&L..........................41
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
8.1. Termination..........................................................42
8.2. Effect of Termination................................................43
8.3. Termination Fee......................................................43
8.4. Amendment............................................................44
8.5. Extension; Waiver....................................................44
ARTICLE IX
MISCELLANEOUS.....
9.1. Survival of Representations and Warranties...........................44
9.2. Brokerage Fees and Commissions.......................................44
9.3. Entire Agreement; Assignment.........................................44
9.4. Notices..............................................................45
9.5. Governing Law........................................................45
9.6. Descriptive Headings.................................................46
9.7. Parties in Interest..................................................46
9.8. Counterparts.........................................................46
9.9. Specific Performance.................................................46
9.10. Fees and Expenses...................................................46
9.11. Severability........................................................46
EXHIBITS
6.14 Form of NCNG Affiliate Letter
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
November 10th, 1998, is by and among CAROLINA POWER & LIGHT COMPANY, a North
Carolina corporation ("CP&L"), NORTH CAROLINA NATURAL GAS CORPORATION, a
Delaware corporation ("NCNG") and CAROLINA ACQUISITION CORPORATION, a Delaware
corporation ("Merger Subsidiary").
RECITALS
A. CP&L and NCNG have each determined to engage in a strategic business
combination with each other.
B. Merger Subsidiary is a wholly-owned subsidiary of CP&L.
C. The respective Boards of Directors of CP&L and NCNG have approved,
and the Board of Directors of NCNG will recommend to its shareholders, the
merger of Merger Subsidiary into NCNG (the "Merger") pursuant to the terms and
conditions in this Agreement.
D. The parties intend that for federal income tax purposes, the Merger
will constitute a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement is
intended to be and is adopted as a plan of reorganization for purposes of
Section 368 of the Code.
E. The parties intend that for accounting purposes, the Merger will be
accounted for as a "pooling of interests" under GAAP (as defined below).
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, covenants, agreements and conditions set forth
herein, and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Agreement. "Agreement" will mean this Agreement and Plan
of Merger, together with the Exhibits attached hereto, as amended from time to
time in accordance with the terms hereof.
Section 1.2. Alternative Proposal. "Alternative Proposal" will have the
meaning given in Section 6.2 hereof.
Section 1.3. Atomic Energy Act. "Atomic Energy Act" will mean the
Atomic Energy Act of 1954, as amended.
Section 1.4. COBRA. "COBRA" will mean the Consolidated Omnibus Budget
Reconciliation Act of 1986.
Section 1.5. Certificates. "Certificates" will have the meaning given
in Section 3.2 hereof.
Section 1.6. Certificate of Merger. "Certificate of Merger" will have
the meaning given in Section 2.2 hereof.
Section 1.7. CP&L Common Stock. "CP&L Common Stock" will mean the
common stock, no par value, of CP&L.
Section 1.8. CP&L Companies. "CP&L Companies" will mean CP&L, its
Subsidiaries and its Partnerships.
Section 1.9. CP&L Disclosure Letter. "CP&L Disclosure Letter" will mean
the letter dated as of the date hereof and signed by an authorized officer of
CP&L and delivered to NCNG, hereby incorporated by reference into this
Agreement.
Section 1.10. CP&L SEC Reports. "CP&L SEC Reports" will mean (a) CP&L's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and (b)
CP&L's Reports on Form 10-Q for the quarters ended March 31 and June 30, 1998,
and (c) all other documents filed by CP&L with the SEC pursuant to Sections
13(a) and 13(c) of the Exchange Act, any definitive proxy statements filed
pursuant to Section 14 of the Exchange Act and any report filed pursuant to
Section 15(d) of the Exchange Act following the filing of CP&L's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997.
Section 1.11. Closing; Closing Date. "Closing" and "Closing Date" will
have the meanings given in Section 2.2 hereof.
Section 1.12. Code. "Code" will mean, as appropriate, the Internal
Revenue Code of 1954 or of 1986, each as amended.
Section 1.13. Confidentiality Agreement. "Confidentiality Agreement"
will mean the letter agreement, dated September 30, 1998, between NCNG and CP&L.
Section 1.14. Contracts. "Contracts" will mean contracts, agreements,
leases, licenses, arrangements, understandings, relationships and commitments,
written or oral.
Section 1.15. DGCL. "DGCL" will mean the Delaware General Corporation
Law, as amended.
Section 1.16. ERISA. "ERISA" will mean the Employee Retirement Income
Security Act of 1974, as amended.
Section 1.17. Easements. "Easements" will mean any easements, rights of
way, permits, servitudes, licenses, leasehold estates and similar rights
relating to real property.
Section 1.18. Effective Time. "Effective Time" will have the meaning
given in Section 2.2 hereof.
Section 1.19. Environmental Claim and Environmental Laws.
"Environmental Claim" and "Environmental Laws" will have the meanings given in
Section 5.15 hereof.
Section 1.20. Environmental Permits. "Environmental Permits" will have
the meaning given in Section 5.15 hereof.
Section 1.21. Exchange Act. "Exchange Act" will mean the Securities
Exchange Act of 1934, as amended.
Section 1.22. Exchange Agent. "Exchange Agent" will mean Wachovia Bank,
N.A.
Section 1.23. Exchange Ratio. "Exchange Ratio" will have the meaning
given in Section 3.1 hereto.
Section 1.24. FERC. "FERC" will mean the Federal Energy Regulatory
Commission.
Section 1.25. GAAP. "GAAP" will mean generally accepted accounting
principles as in effect in the United States of America.
Section 1.26. Governmental Authority. "Governmental Authority" will
mean any federal, state, provincial, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, or any court, in each case
whether of the United States, any of its possessions or territories, or of any
foreign nation.
Section 1.27. Hazardous Material. "Hazardous Material" will have the
meaning given in Section 5.15 hereof.
Section 1.28. HSR Act. "HSR Act" will mean the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Section 1.29. IRS. "IRS" will mean the U.S. Internal Revenue Service.
Section 1.30. Knowledge of CP&L. "Knowledge of CP&L" will mean the
actual knowledge, after due inquiry, of those officers of CP&L identified on the
CP&L Disclosure Letter.
Section 1.31. Knowledge of NCNG. "Knowledge of NCNG" will mean the
actual knowledge, after due inquiry, of those officers of NCNG identified on the
NCNG Disclosure Letter.
Section 1.32. Law. "Law" will mean any federal, state, provincial,
local or other law or governmental requirement of any kind, and the rules,
regulations and orders promulgated thereunder.
Section 1.33. Material Adverse Effect. "Material Adverse Effect" will
mean, with respect to CP&L or NCNG, as the case may be, a material adverse
effect (or any development which, insofar as reasonably can be foreseen, is
reasonably likely to have a material adverse effect), on the business, assets,
financial or other condition, results of operations or prospects of such entity,
together with its Subsidiaries and Partnerships, taken as a whole.
Section 1.34. Merger. "Merger" will have the meaning given in Section
2.1 hereof.
Section 1.35. Merger Subsidiary. "Merger Subsidiary" will mean Carolina
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
CP&L.
Section 1.36. Morgan Stanley. "Morgan Stanley" will mean Morgan Stanley
& Co. Incorporated, financial advisers to CP&L.
Section 1.37. NCNG Benefit Plans. "NCNG Benefit Plans" will have the
meaning given in Section 5.12 hereof.
Section 1.38. NCNG Common Stock. "NCNG Common Stock" will mean the
Common Stock, $2.50 par value, of NCNG.
Section 1.39. NCNG Companies. "NCNG Companies" will mean NCNG, its
Subsidiaries and its Partnerships.
Section 1.40. NCNG Disclosure Letter. "NCNG Disclosure Letter" will
mean the letter dated as of the date hereof and signed by an authorized officer
of NCNG and delivered to CP&L, hereby incorporated by reference into this
Agreement.
Section 1.41. NCNG Pension Plan. "NCNG Pension Plan" will have the
meaning given in Section 5.12 hereof.
Section 1.42. NCNG Qualified Plan. "NCNG Qualified Plan" will have the
meaning given in Section 5.12 hereof.
Section 1.43. NCNG Rights. "NCNG Rights" will mean the Rights defined
in and issued pursuant to the NCNG Rights Agreement.
Section 1.44. NCNG Rights Agreement. "NCNG Rights Agreement" will mean
the Rights Agreement dated as of October 7, 1997 between NCNG and Wachovia Bank,
N.A.
Section 1.45. NCNG SEC Reports. "NCNG SEC Reports" will mean (a) NCNG's
Annual Reports on Form 10-K for the fiscal year ended September 30, 1997, (b)
NCNG's Reports on Form 10-Q for the Quarters ending December 31, 1997 and March
31 and June 30, 1998, and (c) all other documents filed by NCNG with the SEC
pursuant to Sections 13(a) and 13(c) of the Exchange Act, any definitive proxy
statements filed pursuant to Section 14 of the Exchange Act and any report filed
pursuant to Section 15(d) of the Exchange Act following the filing of NCNG's
Annual Report on Form 10-K for the fiscal year ended September 30, 1997.
Section 1.46. NCNG Share. "NCNG Share" will mean a share of NCNG Common
Stock, including each associated NCNG Right.
Section 1.47. NCUC. "NCUC" will mean the North Carolina Utilities
Commission.
Section 1.48. NYSE. "NYSE" will mean The New York Stock Exchange, Inc.
Section 1.49. PSCSC. "PSCSC" will mean the Public Service Commission of
South Carolina.
Section 1.50. PUHCA. "PUHCA" will mean the Public Utility Holding
Company Act of 1935, as amended.
Section 1.51. Partnership; Partnerships. "Partnership" will mean any
limited or general partnership, joint venture, limited liability company, or
other business association, other than a Subsidiary, in which any party has a
direct or indirect interest (collectively, "Partnerships").
Section 1.52. Permits. "Permits" will mean permits, licenses and
governmental authorizations, registrations and approvals.
Section 1.53. Power Act. "Power Act" will mean the Federal Power Act,
as amended.
Section 1.54. Properties. "Properties" will have the meaning given in
Section 5.15 hereof.
Section 1.55. Proxy Statement/Prospectus. "Proxy Statement/Prospectus"
will mean the Proxy Statement/Prospectus of CP&L and NCNG included in the
Registration Statement and distributed to the shareholders of NCNG in connection
with the Special Meeting.
Section 1.56. Registration Statement. "Registration Statement" will
mean the Registration Statement on Form S-4, including the Proxy
Statement/Prospectus contained therein, to be filed by CP&L with the SEC with
respect to the CP&L Common Stock to be offered to the holders of NCNG Common
Stock in the Merger.
Section 1.57. Release. "Release" will have the meaning given in Section
5.15 hereof.
Section 1.58. SEC. "SEC" will mean the Securities and Exchange
Commission.
Section 1.59. Salomon Smith Barney. "Salomon Smith Barney" will mean
Salomon Smith Barney, Inc., financial advisors to NCNG.
Section 1.60. Securities Act. "Securities Act" will mean the Securities
Act of 1933, as amended.
Section 1.61. Special Meeting. "Special Meeting" will mean the special
meeting of shareholders of NCNG called to consider and approve the transactions
contemplated herein, and any adjournments thereof.
Section 1.62. Subsidiary; Subsidiaries. "Subsidiary" will mean (i) each
corporate entity with respect to which a party has the right to vote (directly
or indirectly through one or more other entities or otherwise) shares
representing 50% or more of the votes eligible to be cast in the election of
directors of such entity, and (ii) each other corporate entity which constitutes
a "significant subsidiary," as defined in Rule 1-02 of Regulation S-X adopted
under the Exchange Act (collectively, "Subsidiaries").
Section 1.63. Surviving Corporation. "Surviving Corporation" will have
the meaning given in Section 2.1 hereof.
Section 1.64. Tax Returns. "Tax Returns" will mean any report, return,
information statement, payee statement or other information required to be
provided to any federal, state, local or foreign taxing authority with respect
to Taxes or the NCNG Benefit Plans (as defined in Section 5.12 hereof).
Section 1.65. Taxes. "Taxes" will mean any and all taxes, levies,
imposts, duties, assessments, charges and withholdings imposed or required to be
collected by or paid over to any federal, state, local or foreign taxing
authority or any political subdivision thereof, including without limitation,
income, gross receipts, ad valorem, value added, minimum tax, franchise, sales,
use, excise, license, real or personal property, unemployment, disability, stock
transfer, mortgage recording, estimated, withholding or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, and including any
interest, penalties, fines, assessments or additions to tax imposed in respect
of the foregoing, or in respect of any failure to comply with any requirement
regarding Tax Returns.
ARTICLE II
THE MERGER
Section 2.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, Merger Subsidiary shall be merged with and
into NCNG in accordance with the provisions of, and with the effects provided
in, Subchapter IX of the DGCL (the "Merger"). As a result of the Merger, the
separate corporate existence of Merger Subsidiary will cease, and NCNG shall be
the surviving corporation resulting from the Merger (the "Surviving
Corporation") and as a result shall become a wholly-owned subsidiary of CP&L and
shall continue to be governed by the laws of the State of Delaware.
Section 2.2. Effective Time; Closing. Provided that this Agreement
shall not have been terminated in accordance with Section 8.1, the closing of
the Merger (the "Closing") shall take place on the first date practicable after
the satisfaction or, if permissible and effected as provided in Section 8.5,
waiver of the conditions to the consummation of the Merger (or such other date
as may be agreed to in writing by CP&L and NCNG) (the "Closing Date"). On the
Closing Date, the parties shall cause the Merger to be consummated by filing a
Certificate of Merger (the "Certificate of Merger") with the Secretary of State
of Delaware in such form as required by, and executed in accordance with, the
DGCL (the date and time of such filing, or such later date or time as set forth
therein, being the "Effective Time"). The Closing shall take place at the
offices of Hunton & Williams, One Hannover Square, 14th Floor, Raleigh, North
Carolina, at 10:00 a.m., local time, or such other place and time as the parties
shall agree.
Section 2.3. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in Section 259 of the DGCL. Subject to and
without limiting the generality of the foregoing, at the Effective Time all the
property, rights, privileges, powers and franchises of Merger Subsidiary and
NCNG shall be vested in the Surviving Corporation, and all debts, liabilities
and duties of Merger Subsidiary and NCNG shall become the debts, liabilities and
duties of the Surviving Corporation.
Section 2.4. Articles of Incorporation and By-Laws. At the Effective
Time, the Certificate of Incorporation and the By-Laws of the Surviving
Corporation as of the Effective Time shall be amended and restated in their
entirety to read as the Certificate of Incorporation and By-Laws of Merger
Subsidiary as in effect immediately prior to the Effective Time until amended
thereafter in accordance with the terms thereof and applicable law.
Section 2.5. Directors and Officers of the Surviving Corporation. The
directors of Merger Subsidiary at the Effective Time shall, from and after the
Effective Time, be the directors of the Surviving Corporation until their
successors shall have been elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and By-Laws. The officers of NCNG at
the Effective Time shall, from and after the Effective Time, be the officers of
the Surviving Corporation until their successors shall have been elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and
By-Laws.
ARTICLE III
CONVERSION OF SECURITIES IN THE MERGER
Section 3.1. Effect of Merger on NCNG Capital Stock. At the Effective
Time, by virtue of the Merger:
(a) Each NCNG Share issued and outstanding immediately prior
to the Effective Time (other than shares held by CP&L or shares held by NCNG as
treasury stock, which shall be canceled and cease to exist) shall be converted
into the right to receive a number of shares of CP&L Common Stock equal to the
Exchange Ratio. If the Closing Date occurs on or prior to November 10, 1999, the
"Exchange Ratio" shall be equal to $35.00 (the "Base Numerator") divided by
either (i) the Market Price of CP&L Common Stock (as defined below) if the
Market Price of CP&L Common Stock is no greater than $49.775 and no less than
$40.725, (ii) $49.775 if the Market Price of CP&L Common Stock is greater than
$49.775, in which case the Exchange Ratio shall equal 0.7032, or (iii) $40.725
if the Market Price of CP&L Common Stock is less than $40.725, in which case the
Exchange Ratio shall be 0.8594 (as applicable the "Denominator"). If the Closing
Date is after November 10, 1999, the "Exchange Ratio" shall be equal to the
Adjusted Numerator (as defined below) divided by the Denominator. The "Adjusted
Numerator" shall be equal to the Base Numerator increased by a rate of 3.7% per
annum (compounded daily) for each day after November 10, 1999 through the
Closing Date. The "Market Price" of CP&L Common Stock means the average closing
price per share of CP&L Common on the NYSE for each of the twenty consecutive
trading days prior to and including the fifth trading day prior to the Closing
Date.
(b) No fraction of a share of CP&L Common Stock shall be
issued in connection with the conversion of NCNG Common Stock in the Merger and
the distribution of CP&L Common Stock in respect thereof, but in lieu of such
fraction, the Exchange Agent shall make a cash payment (without interest) equal
to the same fraction of the Market Price.
(c) Each share of common stock of Merger Subsidiary issued and
outstanding immediately prior to the Effective Time will be converted into and
exchanged for one share of Common Stock of the Surviving Corporation.
Section 3.2 Exchange of Certificates. (a) Prior to the Effective Time,
CP&L shall appoint the Exchange Agent to act as the exchange agent in connection
with the Merger. From and after the Effective Time, each holder of a certificate
which immediately prior to the Effective Time represented outstanding shares of
NCNG Common Stock (the "Certificates") shall be entitled to receive in exchange
therefor, upon surrender thereof to the Exchange Agent, a certificate or
certificates representing the number of whole shares of CP&L Common Stock into
which such holder's shares were converted in the Merger (together with cash in
lieu of any fractional share and any dividends or other distributions with
respect to such whole shares of CP&L Common Stock with a record date after the
Effective Time). Immediately prior to the Effective Time, CP&L will deliver to
the Exchange Agent, in trust for the benefit of the holders of NCNG Common
Stock, shares of CP&L Common Stock (together with cash in immediately available
funds in an amount sufficient to pay cash in lieu of any fractional share, as
provided in Section 3.1 hereof and any dividends or other distributions with
respect to such whole shares of CP&L Common Stock with a record date after the
Effective Time) necessary to make the exchanges contemplated by Section 3.1
hereof on a timely basis.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to
each record holder of NCNG Common Stock as of the Effective Time, a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of Certificates in exchange for shares of CP&L Common Stock (together
with cash in lieu of any fractional share). Upon surrender to the Exchange Agent
of a Certificate, together with such letter of transmittal duly executed, and
any other required documents, the holder of such Certificate shall be entitled
to receive in exchange therefor shares of CP&L Common Stock as set forth herein
(together with cash in lieu of any fractional share and any dividends or other
distributions with respect to such whole shares of CP&L Common Stock with a
record date after the Effective Time), and such Certificate shall forthwith be
canceled. No holder of a Certificate or Certificates shall be entitled to
receive any dividend or other distribution from CP&L until the surrender of such
holder's Certificate for a certificate or certificates representing shares of
CP&L Common Stock. Upon such surrender, there shall be paid to the holder the
amount of any dividends or other distributions (without interest) which became
payable after the Effective Time, but which were not paid by reason of the
foregoing, with respect to the number of whole shares of CP&L Common Stock
represented by the certificates issued upon surrender. If delivery of CP&L
Common Stock is to be made to a person other than the person in whose name the
Certificate surrendered is registered or if any certificate for shares of CP&L
Common Stock is to be issued in a name other than that in which the Certificate
surrendered therefor is registered, it shall be a condition of such delivery or
issuance that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
delivery or issuance shall pay any transfer or other taxes required by reason of
such delivery or issuance to a person other than the registered holder of the
Certificate surrendered or establish to the satisfaction of CP&L that such tax
has been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 3.2, each Certificate shall represent for all
purposes only the right to receive shares of CP&L Common Stock (and cash in lieu
of any fractional share) as provided in Section 3.1 hereto, without any interest
thereon.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of NCNG of the shares of NCNG Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to CP&L or NCNG for transfer, they shall be canceled
and exchanged for shares of CP&L Common Stock (and cash in lieu of any
fractional share and any dividends or other distributions with respect to such
whole shares of CP&L Common Stock with a record date after the Effective Time)
as provided in Section 3.1 hereof, in accordance with the procedures set forth
in this Section 3.2.
(d) Any shares of CP&L Common Stock (and any accrued dividends and
distributions thereon), and any cash delivered to the Exchange Agent for payment
in lieu of fractional shares, that remain unclaimed by the former shareholders
of NCNG one hundred eighty (180) days after the Effective Time shall be
delivered by the Exchange Agent to CP&L. Any former shareholders of NCNG who
have not theretofore complied with this Section 3.2 shall thereafter look only
to CP&L for satisfaction of their claim for the consideration set forth herein,
without any interest thereon. Notwithstanding the foregoing, neither CP&L nor
NCNG shall be liable to any holder of shares of NCNG Common Stock for any shares
of CP&L Common Stock (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(e) In the event of any reclassification, stock split, stock dividend
or other transaction having a similar effect with respect to NCNG Common Stock
or CP&L Common Stock, any change or conversion of the NCNG Common Stock or CP&L
Common Stock into other securities or any other dividend or distribution with
respect thereto other than cash dividends and distributions permitted under this
Agreement (or if a record date with respect to any of the foregoing should
occur), prior to the Effective Time, appropriate and proportionate adjustments,
if any, shall be made to the Exchange Ratio and all references to the Exchange
Ratio in this Agreement shall be deemed to be to such Exchange Ratio as so
adjusted.
(f) CP&L shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of NCNG
Common Stock such amounts as it is required to deduct and withhold with respect
to the making of such payment under the Code, or any provision of state, local
or foreign tax law. To the extent that amounts are so withheld by CP&L, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of NCNG Common Stock in respect of which such deduction
and withholding was made by CP&L.
(g) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if required by CP&L, the posting by such
person of a bond, in such reasonable amount as CP&L may direct, as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate any CP&L Common Stock, any cash in lieu of fractional shares of CP&L
Common Stock and any dividends or other distributions to which the holders
thereof are entitled pursuant to this Section 3.2.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CP&L
CP&L represents and warrants to NCNG as follows:
Section 4.1. Organization and Authority of CP&L. Each of the CP&L
Companies is duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of organization or incorporation, has full
corporate or partnership power to carry on its respective business as it is now
being conducted and to own, operate and hold under lease its assets and
properties as, and in the places where, such properties and assets now are
owned, operated or held. Each of the CP&L Companies is duly qualified as a
foreign entity to do business, and is in good standing, in each jurisdiction
where the failure to be so qualified would, individually or in the aggregate,
have a Material Adverse Effect on CP&L. The CP&L Disclosure Letter contains a
true and complete list of all of the Subsidiaries of CP&L, and a true and
complete list of all of the Partnerships in which CP&L has an interest. The
copies of the Amended and Restated Articles of Incorporation and Bylaws of CP&L
which have been delivered to NCNG are complete and correct and in full force and
effect on the date hereof.
Section 4.2. Capitalization. (a) CP&L's authorized equity
capitalization consists of 200,000,000 shares of CP&L Common Stock, 300,000
shares of $5 Preferred Stock, 20,000,000 shares of Serial Preferred Stock,
5,000,000 shares of Preferred Stock A, and 10,000,000 shares of Preference
Stock. As of the close of business on October 31, 1998, 151,339,894 shares of
CP&L Common Stock, 237,259 shares of $5 Preferred Stock, and 350,000 shares of
Serial Preferred Stock were issued and outstanding. Such shares constituted all
of the issued and outstanding shares of capital stock of CP&L as of such date.
All issued and outstanding shares of CP&L Common Stock have been duly authorized
and validly issued and are fully paid and nonassessable, are not subject to and
have not been issued in violation of any preemptive rights and have not been
issued in violation of any federal or state securities laws. All of the
outstanding shares of capital stock of CP&L's Subsidiaries are validly issued,
fully paid and nonassessable and are, except as disclosed in the CP&L Disclosure
Letter, owned by CP&L, directly or indirectly, free and clear of all liens,
claims, charges or encumbrances. Except as set forth in the CP&L Disclosure
Letter, there are no outstanding options, warrants, subscriptions or other
rights to purchase or acquire any capital stock of CP&L or its Subsidiaries, and
there are no Contracts pursuant to which CP&L or any of its Subsidiaries is
bound to sell or issue any shares of its capital stock.
(b) All of the shares of CP&L Common Stock to be issued to holders of
NCNG Common Stock in the Merger have been duly authorized for issuance and, when
issued in accordance with this Agreement, will be validly issued, fully paid and
nonassessable, and will not be subject to and will not be issued in violation of
any preemptive rights.
Section 4.3. Authority Relative to this Agreement. The execution,
delivery and performance of this Agreement and of all of the other documents and
instruments required hereby by CP&L or Merger Subsidiary are within the
respective corporate power of CP&L or Merger Subsidiary. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the respective Boards of Directors of CP&L
and Merger Subsidiary and no other corporate proceedings on the part of CP&L or
Merger Subsidiary are necessary to authorize the execution and delivery of this
Agreement or to consummate the transactions contemplated herein. This Agreement
and all of the other documents and instruments required hereby have been or will
be duly and validly executed and delivered by CP&L and Merger Subsidiary and
(assuming the due authorization, execution and delivery hereof and thereof by
NCNG) constitute or will constitute valid and binding agreements of CP&L and
Merger Subsidiary, enforceable against CP&L and Merger Subsidiary in accordance
with their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights generally or equitable
principles.
Section 4.4. Consents and Approvals; No Violations. Except for (i) the
filing of a premerger notification report under the HSR Act and the expiration
or termination of the applicable waiting period with respect thereto; (ii) the
filing with the SEC of the Proxy Statement/Prospectus, the Registration
Statement, such reports under Section 13(a) of the Exchange Act and such other
compliance with the Securities Act and the Exchange Act and the rules and
regulations thereunder as may be required in connection with this Agreement and
the transactions contemplated hereby, and the obtaining from the SEC of such
orders as may be so required; (iii) the filing of a Certificate of Merger with
the Secretary of State of the State of Delaware; (iv) such filings and approvals
as may be required by any applicable state securities or "blue sky" laws; (v)
any required approvals of the NCUC, the PSCSC, and FERC; and (vi) the filing of
an exemption statement on Form U-3A-2 with the SEC pursuant to PUHCA, no filing
or registration with, and no permit, authorization, consent, order or approval
of, any Governmental Authority is necessary or required in connection with the
execution and delivery of this Agreement by CP&L or Merger Subsidiary or for the
consummation by CP&L or Merger Subsidiary of the transactions contemplated by
this Agreement. Assuming that all filings, registrations, permits,
authorizations, consents, orders and approvals contemplated by the immediately
preceding sentence have been duly made or obtained, neither the execution,
delivery and performance of this Agreement nor the consummation of the
transactions contemplated hereby by CP&L or Merger Subsidiary will (i) conflict
with or result in any breach of any provision of the Articles of Incorporation,
bylaws, partnership or joint venture agreements or other organizational
documents of any of the CP&L Companies, (ii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under,
or otherwise result in any diminution of any of the rights of the CP&L Companies
with respect to, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, Contract or other instrument or obligation to
which any of the CP&L Companies is a party or by which it or any of them or any
of their properties or assets may be bound or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to CP&L or any of
their properties or assets except, in the case of subsections (ii) or (iii)
above, for violations, breaches or defaults that would not, individually or in
the aggregate, have a Material Adverse Effect on CP&L and that will not prevent
or delay the consummation of the transactions contemplated hereby.
Section 4.5. Reports. The filings required to be made by CP&L since
January 1, 1996 under NYSE rules, the Securities Act, the Exchange Act, the
Power Act, the Atomic Energy Act, and applicable North Carolina and South
Carolina laws and regulations have been filed with the NYSE and each applicable
Governmental Authority, including the SEC, FERC, the Nuclear Regulatory
Commission, the NCUC and the PSCSC, and CP&L has complied in all material
respects with all requirements of such acts, laws and rules and regulations
thereunder except to the extent any such failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect on CP&L. As of
their respective dates, none of the CP&L SEC Reports, including without
limitation any financial statements or schedules included therein, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading in light of the circumstances under which they were made. Each of the
balance sheets (including the related notes and schedules) included in the CP&L
SEC Reports fairly presented in all material respects the consolidated financial
position of CP&L and its Subsidiaries as of the respective dates thereof, and
the other related financial statements (including the related notes and
schedules) included therein fairly presented in all material respects the
results of operations and cash flows of CP&L and its Subsidiaries for the
respective fiscal periods or as of the respective dates set forth therein. Each
of the financial statements (including the related notes and schedules) included
in the CP&L SEC Reports (i) complied in all material respects as to form with
the applicable accounting requirements and rules and regulations of the SEC and
(ii) was prepared in accordance with GAAP as in effect on the date thereof
consistently applied during the periods presented, except as otherwise noted
therein and subject to normal year-end and audit adjustments in the case of any
unaudited interim financial statements.
Section 4.6. Absence of Certain Events. Except as set forth in the CP&L
SEC Reports, since December 31, 1997 through the date of this Agreement, the
CP&L Companies have conducted their respective businesses only in the ordinary
course consistent with past practice and there has not been any change in their
business, financial condition or results of operations that has had or will have
a Material Adverse Effect upon CP&L. Except as disclosed in the CP&L SEC Reports
or as otherwise specifically contemplated by this Agreement, there has not been
since December 31, 1997 through the date of this Agreement any change in the
accounting policies or practices of CP&L.
Section 4.7. Proxy Statement/Prospectus. None of the information with
respect to the CP&L Companies to be included in the Proxy Statement/Prospectus
or the Registration Statement will, in the case of the Proxy
Statement/Prospectus or any amendments thereof or supplements thereto, at the
time of the mailing of the Proxy Statement/Prospectus or any amendments thereof
or supplements thereto, and at the time of the Special Meeting, or, in the case
of the Registration Statement, at the time it becomes effective and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder, except that no
representation is made by CP&L with respect to information supplied by NCNG or
any affiliate of NCNG for inclusion in the Proxy Statement/Prospectus.
Section 4.8. Fees and Expenses of Brokers and Others. None of the CP&L
Companies (a) has had any dealings, negotiations or communications with any
broker or other intermediary in connection with the transactions contemplated by
this Agreement, (b) is committed to any liability for any brokers' or finders'
fees or any similar fees in connection with the transactions contemplated by
this Agreement or (c) has retained any broker or other intermediary to act on
its behalf in connection with the transactions contemplated by this Agreement,
except that CP&L has engaged Morgan Stanley to represent it in connection with
such transactions and shall pay all of Morgan Stanley's fees and expenses in
connection with such engagement.
Section 4.9. Operations of Nuclear Power Plants. To the Knowledge of
CP&L, the operation of the nuclear generation plants (collectively, the "CP&L
Nuclear Facilities") currently owned by CP&L or any of its affiliates are being
conducted in substantial compliance with current laws and regulations governing
nuclear plant operations, except for such failures to comply as would not,
individually or in the aggregate, have a Material Adverse Effect on CP&L. To the
best of the Knowledge of CP&L, each of the CP&L Nuclear Facilities maintains and
is in substantial compliance with emergency evacuation plans as required by the
laws and regulations governing nuclear plant operations. As of the date of this
Agreement, to the Knowledge of CP&L, the storage of spent nuclear fuel and the
plans for the decommissioning of each of the CP&L Nuclear Facilities
substantially conform with the requirements of applicable law. No CP&L Nuclear
Facility is as of the date of this Agreement on the List of Nuclear Power Plants
Warranting Increased Regulatory Attention maintained by the NRC.
Section 4.10. No Default. No CP&L Company is in default or violation
(and no event has occurred which, with notice or the lapse of time or both,
would constitute a default or violation) of any term, condition or provision of
(i) their respective charters, bylaws or other governing documents, (ii) any
note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which any CP&L Company is now a party or by which any CP&L Company
or any of their respective properties or assets may be bound or (iii) any order,
writ, injunction, decree, statute, rule or regulation applicable to any CP&L
Company, except in the case of (ii) and (iii) for defaults or violations which
would not, individually or in the aggregate, have a Material Adverse Effect on
CP&L.
Section 4.11. Compliance with Law. The CP&L Companies hold all permits,
licenses, variances, exemptions, orders, franchises, consents and approvals of
all Governmental Authorities necessary for them to own, lease and operate their
properties and assets and to lawfully conduct their respective businesses (the
"CP&L Permits"), except where the failure so to hold would not have a Material
Adverse Effect on CP&L. The CP&L Companies are in compliance with the terms of
the CP&L Permits, except where the failure so to comply would not, individually
or in the aggregate, have a Material Adverse Effect on CP&L. Except as disclosed
in the CP&L SEC Reports, the businesses of the CP&L Companies is not being
conducted in violation of any law, ordinance or regulation of any Governmental
Authority, except for possible violations which would not, individually or in
the aggregate, have a Material Adverse Effect on CP&L. No complaint, action,
proceeding, investigation or review of any Governmental Authority with respect
to any CP&L Company is pending, and, to CP&L's Knowledge, no complaint, action,
proceeding, investigation or review by any Governmental Authority with respect
to any CP&L Company is threatened which would, or would be reasonably likely to,
have, individually or in the aggregate, a Material Adverse Effect on CP&L.
Section 4.12. Regulation as Utility. (a) As of the date of this
Agreement, neither CP&L nor any of its Subsidiaries is a "holding company," a
"subsidiary company," or an "affiliate" of any holding company within the
meaning of Section 2(a)(7), 2(a)(8) or 2(a)(11) of PUHCA, respectively, and none
of CP&L's Subsidiaries is a "public utility company" within the meaning of
Section 2(a)(5) of PUHCA.
(b) Neither CP&L nor any of its Subsidiaries is subject to regulation
as a public utility or public service company (or similar designation) in any
state other than North Carolina, South Carolina, or (solely with respect to
Interpath Communications, Inc.) Georgia and Virginia.
Section 4.13. Accounting Matters. To the Knowledge of CP&L, neither
CP&L nor any of its "affiliates" or "associates" (as such terms are defined in
Rule 12b-2 adopted under the Exchange Act) has taken or agreed to take any
action that (without giving effect to any action taken or agreed to be taken by
CP&L or any of its affiliates or associates) would prevent CP&L from accounting
for the business combination to be effected in accordance herewith as a pooling
of interests.
Section 4.14. No Impairment of Tax Free Status. None of the CP&L
Companies has taken any action, or failed to take any action, or has Knowledge
of any fact, agreement, plan or other circumstance, that is reasonably likely to
prevent the Merger from constituting a reorganization within the meaning of
Section 368(a) of the Code.
Section 4.15. Insurance. Except as set forth in the CP&L Disclosure
Letter, each CP&L Company is, and has been continuously since December 31, 1995,
insured by reputable and financially responsible insurers in such amounts and
against such risks and losses as are customary for companies conducting their
respective businesses during such time period. No CP&L Company has received any
notice of cancellation or termination with respect to any material insurance
policy thereof and no CP&L Company has received notice that any such policy is
invalid or unenforceable.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NCNG
NCNG represents and warrants to CP&L as follows:
Section 5.1. Organization and Authority of the NCNG Companies. Each of
the NCNG Companies is duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of organization or incorporation,
has full corporate or partnership power to carry on its respective business as
it is now being conducted and to own, operate and hold under lease its assets
and properties as, and in the places where, such properties and assets now are
owned, operated or held. Each of the NCNG Companies is duly qualified as a
foreign entity to do business, and is in good standing, in each jurisdiction
where the failure to be so qualified would have a Material Adverse Effect on
NCNG. The NCNG Disclosure Letter contains a true and complete list of all of the
Subsidiaries of NCNG, and a true and complete list of all of the Partnerships in
which NCNG has an interest. The copies of the Restated Certificate of
Incorporation and By-laws of NCNG which have been delivered to CP&L are complete
and correct and in full force and effect on the date hereof.
Section 5.2. Capitalization. (a) NCNG's authorized equity
capitalization consists of 24,000,000 shares of NCNG Common Stock. As of the
close of business on October 31, 1998, 10,127,628 shares of NCNG Common Stock
were issued and outstanding. Such shares constituted all of the issued and
outstanding shares of capital stock of NCNG as of such date. All issued and
outstanding shares of NCNG Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable, are not subject to and have not
been issued in violation of any preemptive rights and have not been issued in
violation of any federal or state securities laws. All of the outstanding shares
of capital stock of NCNG's Subsidiaries are validly issued, fully paid and
nonassessable and are, except as disclosed in the NCNG Disclosure Letter, owned
by NCNG, directly or indirectly, free and clear of all liens, claims, charges or
encumbrances. Except as set forth in the NCNG Disclosure Letter, there are no
outstanding options, warrants, subscriptions or other rights to purchase or
acquire any capital stock of NCNG or its Subsidiaries, and there are no
Contracts pursuant to which any of NCNG or its Subsidiaries is bound to sell or
issue any shares of its capital stock.
(b) The NCNG Disclosure Letter lists all Subsidiaries of NCNG, and all
Partnerships of NCNG or its Subsidiaries.
Section 5.3. Authority Relative to this Agreement. The execution,
delivery and performance of this Agreement and of all of the other documents and
instruments required hereby by NCNG are within the corporate power of NCNG. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of NCNG and no other corporate proceedings on the part of NCNG are
necessary to authorize the execution and delivery of this Agreement or to
consummate the transactions contemplated herein (other than, with respect to the
Merger, the approval of the Merger by a majority of the outstanding shares of
NCNG Common Stock at the NCNG Special Meeting). This Agreement and all of the
other documents and instruments required hereby have been or will be duly and
validly executed and delivered by NCNG and (assuming the due authorization,
execution and delivery hereof and thereof by CP&L and Merger Subsidiary)
constitute or will constitute valid and binding agreements of NCNG, enforceable
against NCNG in accordance with their respective terms, except as may be limited
by bankruptcy, insolvency, reorganization or other laws affecting creditors'
rights generally or equitable principles.
Section 5.4. Consents and Approvals; No Violations. Except for (i) the
filing of a premerger notification report under the HSR Act and the expiration
or termination of the applicable waiting period with respect thereto; (ii) the
filing with the SEC of the Proxy Statement/Prospectus, the Registration
Statement, such reports under Section 13(a) of the Exchange Act and such other
compliance with the Securities Act and the Exchange Act and the rules and
regulations thereunder as may be required in connection with this Agreement and
the transactions contemplated hereby, and the obtaining from the SEC of such
orders as may be so required; (iii) the filing of a Certificate of Merger with
the Secretary of State of the State of Delaware; (iv) such filings and approvals
as may be required by an applicable state securities or "blue sky" laws; and (v)
any required approvals of the NCUC and FERC, no filing or registration with, and
no permit, authorization, consent, order or approval of, any Governmental
Authority is necessary or required in connection with the execution and delivery
of this Agreement by NCNG or for the consummation by NCNG of the transactions
contemplated by this Agreement. Assuming that all filings, registrations,
permits, authorizations, consents and approvals contemplated by the immediately
preceding sentence have been duly made or obtained, neither the execution,
delivery and performance of this Agreement nor the consummation of the
transactions contemplated hereby by NCNG will (i) (assuming the requisite
approval of the stockholders of NCNG is obtained) conflict with or result in any
breach of any provision of the Certificates of Incorporation, by-laws,
partnership or joint venture agreements or other organizational documents of any
of the NCNG Companies, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, or otherwise
result in any diminution of any of the rights of the NCNG Companies with respect
to, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, Contract or other instrument or obligation to which any of
the NCNG Companies is a party or by which it or any of them or any of their
properties or assets may be bound or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to any of the NCNG Companies or
any of their properties or assets except, in the case of subsections (ii) or
(iii) above, for violations, breaches or defaults that would not, individually
or in the aggregate, have a Material Adverse Effect on NCNG and that will not
prevent or delay the consummation of the transactions contemplated hereby.
Section 5.5. Reports. The filings required to be made by NCNG since
January 1, 1996 under NYSE rules, the Securities Act, the Exchange Act, the
Power Act, and applicable North Carolina laws and regulations, have been filed
with the NYSE and each applicable Governmental Authority, including the SEC,
FERC and the NCUC, and NCNG has complied in all material respects with all
requirements of such acts, laws and rules and regulations thereunder except to
the extent any such failure to comply would not, individually or in the
aggregate, have a Material Adverse Effect on NCNG. As of their respective dates,
none of the NCNG SEC Reports, including without limitation any financial
statements or schedules included therein, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading in light of
the circumstances under which they were made. Each of the balance sheets
(including the related notes and schedules) included in the NCNG SEC Reports
fairly presented in all material respects the consolidated financial position of
NCNG and its Subsidiaries as of the respective dates thereof, and the other
related financial statements (including the related notes and schedules)
included therein fairly presented in all material respects the results of
operations and cash flows of NCNG and its Subsidiaries for the respective fiscal
periods or as of the respective dates set forth therein. Each of the financial
statements (including the related notes and schedules) included in the NCNG SEC
Reports (i) complied in all material respects as to form with the applicable
accounting requirements and rules and regulations of the SEC, and (ii) was
prepared in accordance with GAAP consistently applied during the periods
presented, except as otherwise noted therein and subject to normal year-end and
audit adjustments in the case of any unaudited interim financial statements.
Except for NCNG, none of the NCNG Companies is required to file any forms,
reports or other documents with the SEC, the NYSE or any other foreign or
domestic securities exchange or Governmental Authority with jurisdiction over
securities laws.
Section 5.6. Absence of Certain Events. Except as set forth in the NCNG
SEC Reports, since September 30, 1997, through the date of this Agreement, the
NCNG Companies have conducted their respective businesses only in the ordinary
course consistent with past practice and there has not been any change in its
business, financial condition or results of operations that has had or will have
a Material Adverse Effect upon NCNG. Except as disclosed in the NCNG SEC
Reports, or as otherwise specifically contemplated by this Agreement, there has
not been since September 30, 1997 through the date of this Agreement: (i) any
entry into any agreement or understanding or any amendment of any agreement or
understanding between any of the NCNG Companies on the one hand, and any of
their respective directors, officers or employees on the other hand, providing
for employment of any such director, officer or employee or any general or
material increase in the compensation, severance or termination benefits payable
or to become payable by any of the NCNG Companies to any of their respective
directors, officers or employees (except for normal increases in the ordinary
course of business that are consistent with past practices and that, in the
aggregate, do not result in a material increase in benefits or compensation
expense), or any adoption of or increase in any bonus, insurance, pension or
other employee benefit plan, payment or arrangement (including, without
limitation, the granting of stock options or stock appreciation rights or the
award of restricted stock) made to, for or with any such director, officer or
employee; (ii) any entry by any of the NCNG Companies into any material
commitment, agreement, license or transaction (including, without limitation,
any borrowing, capital expenditure, sale of assets or any mortgage, pledge, lien
or encumbrances made on any of the properties or assets of any of the NCNG
Companies) other than in the ordinary and usual course of business; (iii) any
declaration or payment of any dividend or other distribution with respect to
NCNG Common Stock, except for regular cash dividends consistent with past
practice; (iv) any change in the accounting policies or practices of NCNG; or
(v) any agreement to do any of the foregoing.
Section 5.7. Proxy Statement/Prospectus. None of the information to be
supplied by NCNG for inclusion or incorporation by reference with respect to the
NCNG Companies to be included in the Proxy Statement/Prospectus or the
Registration Statement will, in the case of the Proxy Statement/Prospectus or
any amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement/Prospectus or any amendments thereof or supplements thereto, and
at the time of the Special Meeting, or, in the case of the Registration
Statement, at the time it becomes effective and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of the Securities Act, the Exchange Act
and the rules and regulations promulgated thereunder, except that no
representation is made by NCNG with respect to information supplied by CP&L or
any affiliate of CP&L for inclusion in the Proxy Statement/Prospectus.
Section 5.8. Litigation. Except as set forth in the NCNG SEC Reports,
there is no action, suit, proceeding or, to the Knowledge of NCNG, investigation
pending or, to the Knowledge of NCNG, threatened against or relating to any of
the NCNG Companies at law or in equity, or before any federal, state,
provincial, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, whether in the United States or otherwise,
that is expected, in the reasonable judgment of NCNG, to have a Material Adverse
Effect upon NCNG or that seeks restraint, prohibition, damages or other relief
in connection with this Agreement or the consummation of the transactions
contemplated hereby.
Section 5.9. Assets; Easements. (a) The NCNG Companies have sufficient
title to all their material properties and assets, whether tangible or
intangible, real, personal or mixed, to permit the operation of their business
as currently conducted, free and clear of all liens, except for liens disclosed
in the NCNG SEC Reports, liens the existence of which would not, individually or
in the aggregate, have a Material Adverse Effect on NCNG, and liens arising in
the ordinary course of business after the date hereof.
(b) Subject to ordinary wear and tear and to scheduled or necessary
repairs in the ordinary course of business, all tangible assets of the NCNG
Companies are in good operating condition and repair, except as would not,
individually or in the aggregate, have a Material Adverse Effect on NCNG..
(c) The businesses of the NCNG Companies are being operated in a manner
which does not violate the terms of any Easements used by the NCNG Companies in
such businesses, except for violations which would not, individually or in the
aggregate, have a Material Adverse Effect on NCNG. All Easements are valid and
enforceable, except as the enforceability thereof may be affected by bankruptcy,
insolvency or other laws of general applicability affecting the rights of
creditors generally or principles of equity, and grant the rights purported to
be granted thereby and all rights necessary thereunder for the current operation
of such business and except where the failure of any such Easement to be valid
and enforceable or to grant the rights purposed to be granted thereby or
necessary thereunder would not, individually or in the aggregate, have a
Material Adverse Effect on NCNG. There are no spatial gaps in the Easements
which would impair the conduct of such business in a manner except for gaps that
would not, individually or in the aggregate, have a Material Adverse Effect on
NCNG, and no part of any asset used in connection with pipeline operations is
located on property which is not owned in fee by NCNG or a Subsidiary or subject
to an Easement in favor of NCNG or a Subsidiary, except where the failure of
such assets to be so located would not, individually or in the aggregate, have a
Material Adverse Effect on NCNG.
Section 5.10. Contracts; No Default. (a) The exhibits to the NCNG SEC
Reports include all of the Contracts to which any NCNG Company is a party that
are required to be filed with the SEC, or which could cause or result in a
Material Adverse Effect on NCNG (the "NCNG Contracts"). Each NCNG Contract is a
valid and binding agreement of such NCNG Company, enforceable in accordance with
its terms, except as may be limited by bankruptcy, insolvency, reorganization,
or other laws affecting creditors' rights generally or equitable principles. The
NCNG Companies have performed and, to the Knowledge of NCNG, every other party
has performed, each material term, covenant and condition of each of NCNG
Contracts that is to be performed by any of them at or before the date hereof,
except where nonperformance would not have a Material Adverse Effect on NCNG. No
event has occurred that would, with the passage of time or compliance with any
applicable notice requirements or both, constitute a default by any NCNG Company
or, to the Knowledge of NCNG, any other party under any of the NCNG Contracts
and, to the Knowledge of NCNG, no party to any of the NCNG Contracts intends to
cancel, terminate or exercise any option under any of such NCNG Contracts.
(b) No NCNG Company is in default or violation (and no event has
occurred which, with notice or the lapse of time or both, would constitute a
default or violation) of any term, condition or provision of (i) their
respective charters, bylaws or other governing documents, (ii) any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which any NCNG Company is now a party or by which any NCNG Company or any of
their respective properties or assets may be bound or (iii) any order, writ,
injunction, decree, statute, rule or regulation applicable to any NCNG Company,
except in the case of (ii) and (iii) for defaults or violations which in the
aggregate would not, individually or in the aggregate, have a Material Adverse
Effect on NCNG.
Section 5.11. Labor Matters. (a) Except as set forth in the NCNG SEC
Reports or except to the extent such matters would not, individually or in the
aggregate, have a Material Adverse Effect on NCNG, with respect to employees of
the NCNG Companies: (i) to the Knowledge of NCNG, without inquiry and as of the
date of this Agreement, no senior executive, key employee or group of employees
has any plans to terminate employment with any of the NCNG Companies; (ii) there
is no unfair labor practice charge or complaint against any NCNG Company pending
or, to the Knowledge of NCNG, threatened before the National Labor Relations
Board or any other comparable authority; (iii) no grievance or any arbitration
proceeding arising out of or under collective bargaining agreements is pending
and, to the Knowledge of NCNG, no claims therefor exist or have been threatened;
and (iv) there is no litigation, arbitration proceeding, governmental
investigation, administrative charge, citation or action of any kind pending or,
to the Knowledge of NCNG, proposed or threatened against any NCNG Company
relating to employment, employment practices, terms and conditions of employment
or wages and hours.
(b) Except as described in the NCNG SEC Reports, no NCNG Company has
any collective bargaining relationship or duty to bargain with any Labor
Organization (as such term is defined in Section 2(5) of the National Labor
Relations Act, as amended), and no NCNG Company has recognized any Labor
Organization as the collective bargaining representative of any of its
employees.
Section 5.12. Employee Benefit Plans.
(a) For purposes of this Section, the term "NCNG Benefit Plans" shall
mean all pension, retirement, profit-sharing, deferred compensation, stock
option, stock purchase, employee stock ownership, severance pay, vacation, bonus
or other incentive plans, all hospitalization or other medical, vision, dental
and other health plans, all life insurance plans, all disability plans, or other
insurance, and all other employee benefit plans or fringe benefit plans,
including, without limitation, any "employee benefit plan," as that term is
defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored in
whole or in part by, or contributed to by any of the NCNG Companies thereof for
the benefit of employees, retirees, dependents, spouses, directors, independent
contractors or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
are eligible to participate. Any of the NCNG Benefit Plans which is an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, is
referred to herein as a "NCNG Pension Plan."
(b) NCNG does not now and has never participated in or contributed to a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(c) All NCNG Benefit Plans are in compliance with the applicable
provisions (including, without limitation, any funding requirements or
limitations) of ERISA, the Code, COBRA, and any other applicable Laws, except
for breaches or violations that would not, individually or in the aggregate,
have a Material Adverse Effect on NCNG. To the Knowledge of NCNG, each NCNG
Benefit Plan has been administered substantially in accordance with its terms
and all reports, returns, and other documentation that are required to have been
filed with the IRS, the U.S. Department of Labor, the Pension Benefit Guaranty
Corporation or any other governmental agency (federal, state, or local) have
been filed with the appropriate governmental agency on a timely basis or
distributed in accordance with such requirements, in each case except for
failures to file or distribute such reports, returns, and other documents that
would not, individually or in the aggregate, have a Material Adverse Effect on
NCNG. No lawsuits or complaints to or by any person or governmental authority
have been filed, or to the Knowledge of NCNG, are contemplated or threatened,
with respect to any NCNG Benefit Plan that is expected, in the reasonable
judgment of NCNG, to have a Material Adverse Effect upon NCNG.
(d) Except as disclosed in the NCNG Disclosure Letter or except to the
extent such matters would not, individually or in the aggregate, have a Material
Adverse Effect on NCNG, no NCNG Benefit Plan provides for post-retirement
medical benefit obligations (without regard to COBRA obligations). NCNG does not
maintain a funded welfare benefit plan (as contemplated by Code section 419).
With respect to any NCNG Pension Plan which is a defined benefit pension plan,
the funded status thereof as discussed in the most recent NCNG SEC Report
including such disclosure is accurate and complete and, nothing has happened
since such date which would materially effect the funded status of any such
plan.
(e) The NCNG Disclosure Letter contains a true and correct list of all
NCNG Benefit Plans. The NCNG Disclosure Letter identifies each NCNG Pension Plan
and denotes those intended to be qualified under Section 401(a) of the Code (the
"NCNG Qualified Plans"). NCNG has provided CP&L with access to true and correct
copies of each governing document for each NCNG Benefit Plan or a summary of any
such NCNG Benefit Plan that is not evidenced by a written plan document,
together with the most recent summary plan description, the last three years'
annual reports and audited financial statements for each such plan and the
actuarial report for any NCNG Pension Plan that is a defined benefit pension
plan or funded welfare benefit plan.
(f) To the Knowledge of NCNG, each NCNG Qualified Plan complies in all
material respects with applicable law as of the date hereof except as to any
such noncompliance which would not have a Material Adverse Effect on NCNG, and
the IRS has issued favorable determination letters to the effect that the form
of each NCNG Qualified Plan satisfies the requirements of Section 401(a) and
related sections of the Code. To the Knowledge of NCNG, there are no facts or
circumstances that would jeopardize or adversely affect the qualification under
Section 401(a) of the Code of any NCNG Qualified Plan, except to the extent such
facts or circumstances would not result in a Material Adverse Effect on NCNG.
(g) No NCNG Company, and no organization to which NCNG is a successor
or parent corporation, within the meaning of Section 4069(b) of ERISA, has
engaged in any transaction within the meaning of Section 4069 of ERISA. None of
the NCNG Benefit Plans has experienced a "reportable event" (as defined in
Section 4043(b) of ERISA and its regulations) within the last five years for
which the 30-day notice period has not been waived.
(h) To the Knowledge of NCNG, no NCNG Company has engaged in any
prohibited transaction, as defined in Section 4975 of the Code or Section 406 of
ERISA, that could result in a Material Adverse Effect on NCNG. No NCNG Company
is subject to a requirement to provide security under Section 401(a)(29) of the
Code, nor shall any asset of a NCNG Company be subject to a lien by reason of
the provisions of Section 412(n) of the Code. NCNG currently complies and has in
the past complied with all applicable workers' compensation statutes, except for
such noncompliance as would not, individually or in the aggregate, have a
Material Adverse Effect on NCNG.
(i) Except as set forth in the NCNG Disclosure Letter, there are no
NCNG employment or severance agreements that cannot be terminated without
triggering severance or "parachute" obligations thereunder.
(j) Except as provided in Section 6.9 of the NCNG Disclosure Letter, no
employment contract, agreement or commitment currently binding on a NCNG Company
modifies or limits such NCNG Company's or its successor's right to amend,
modify, suspend, revoke or terminate it.
Section 5.13. Tax Matters. (a) Except as to any items that would not,
individually or in the aggregate, have a Material Adverse Effect on NCNG:
(i) NCNG and each of its Subsidiaries that is incorporated under the
laws of the United States or of any of the United States are members of the
affiliated group, within the meaning of Section 1504(a) of the Code, of which
NCNG is the common parent, such affiliated group files a consolidated federal
income Tax Return and neither NCNG nor any of its Subsidiaries has ever filed a
consolidated federal income tax return with (or been included in a consolidated
return of) a different affiliated group;
(ii) each of the NCNG Companies has timely filed or caused to be filed
all Tax Returns required to have been filed by or for it, and all information
set forth in such Tax returns is accurate and complete in all respects;
(iii) each of the NCNG Companies has paid or made adequate provision on
its books and records in accordance with GAAP for all Taxes covered by such Tax
Returns;
(iv) each of the NCNG Companies is in compliance with, and its records
contain all information and documents (including, without limitation, properly
completed IRS Forms W-8 and Forms W-9) necessary to comply with, all applicable
information reporting and tax withholding requirements under federal, state,
local and foreign Laws, and such records identify with specificity all accounts
subject to withholding under Section 1441, 1442 or 3406 of the Code or similar
provisions of state, local or foreign laws;
(v) there is no amount of unpaid Taxes due and payable by any of the
NCNG Companies or by any other person that is or could become a lien on any
asset of, or otherwise have a Material Adverse Effect on, the NCNG Companies;
(vi) each of the NCNG Companies has collected or withheld all Taxes
required to be collected or withheld by it, and all such Taxes have been paid to
the appropriate Governmental Authority or set aside in appropriate accounts for
future payment when due;
(vii) none of the NCNG Companies has granted (or is subject to) any
waiver, which is currently in effect, of the period of limitations for the
assessment of any Tax; no unpaid Tax deficiency has been assessed or asserted
against or with respect to any of the NCNG Companies by any Governmental
Authority; no power of attorney relating to Taxes that is currently in effect
has been granted by or with respect to any of the NCNG Companies; there are no
currently pending administrative or judicial proceedings, or any deficiency or
refund litigation, with respect to Taxes of any of the NCNG Companies;
(viii) none of the NCNG Companies has made or entered into, or holds
any asset subject to, a consent filed pursuant to Section 341(f) of the Code and
the regulations thereunder or a "safe harbor lease" subject to former Section
168(f)(8) of the Code and the regulations thereunder;
(ix) none of the NCNG Companies is required to include in income any
amount from an adjustment pursuant to Section 481 of the Code or the regulations
thereunder or any similar provision of state or local Law, and NCNG has no
Knowledge that any Governmental Authority has proposed any such adjustment;
(x) none of the NCNG Companies is obligated to make any payments, or is
a party to any Contract that could obligate it to make any payments, that would
not be deductible by reason of sections 162(m) or 280G of the Code;
(xi) there are no excess loss accounts or deferred intercompany gains
with respect to any member of the affiliated group of which NCNG is the common
parent which would have a Material Adverse Effect on NCNG if taken into account;
(xii) the most recent audited consolidated balance sheet included in
the NCNG SEC Reports fully and properly reflects, as of the date thereof, the
estimated liabilities of NCNG and its Subsidiaries for all accrued Taxes and
deferred liability for Taxes and, for periods ending after such date, the books
and records of each such corporation fully and properly reflect its estimated
liability for all accrued Taxes; and
(b) the NCNG Disclosure Letter describes all continuing Tax elections,
consents and agreements made by or affecting any of the NCNG Companies, lists
all types of material Taxes paid and Tax Returns filed by or on behalf of any of
the NCNG Companies and expressly indicates each Tax with respect to which any of
the NCNG Companies is or has been included in a consolidated, unitary or
combined return.
Section 5.14. Compliance with Law. The NCNG Companies hold all permits,
licenses, variances, exemptions, orders, franchises, consents and approvals of
all Governmental Authorities necessary for them to own, lease and operate their
properties and assets and to lawfully conduct their respective businesses (the
"NCNG Permits"), except where the failure so to hold would not, individually or
in the aggregate, have a Material Adverse Effect on NCNG. The NCNG Companies are
in compliance with the terms of the NCNG Permits, except where the failure so to
comply would not, individually or in the aggregate, have a Material Adverse
Effect on NCNG. Except as disclosed in the NCNG SEC Reports, the businesses of
the NCNG Companies is not being conducted in violation of any law, ordinance or
regulation of any Governmental Authority, except for possible violations which
would not have a Material Adverse Effect on NCNG.
Section 5.15. Environmental Matters. Except as disclosed in the NCNG
SEC Reports or except to the extent such matters, individually or in the
aggregate, would not have a Material Adverse Effect on NCNG:
(a) Each of the NCNG Companies is in compliance with all applicable
Environmental Laws. Except for matters that have been fully resolved, no NCNG
Company has received any written communication from any person or Governmental
Authority that alleges that it is not in compliance with applicable
Environmental Laws.
(b) The NCNG Companies have obtained all environmental, health and
safety permits and governmental authorizations (collectively, the "Environmental
Permits") necessary for the construction of their facilities or the conduct of
their operations, and all such permits are in good standing or, where
applicable, a renewal application has been timely filed and is pending agency
approval, and the NCNG Companies are in material compliance with all terms and
conditions of the Environmental Permits.
(c) There is no Environmental Claim pending or, to the best of NCNG's
Knowledge, threatened (i) against a NCNG Company, (ii) against any person or
entity whose liability for any Environmental Claim a NCNG Company has or may
have retained or assumed either contractually or by operation of law or (iii)
against or concerning any real or personal property or operations which a NCNG
Company owns, leases or manages, in whole or in part.
(d) No NCNG Company has Knowledge of the presence of any Releases of
any Hazardous Material that has occurred on any of the properties owned, leased
or occupied by a NCNG Company or any predecessor which requires investigation,
assessment, monitoring, remediation or cleanup under Environmental Laws.
(e) NCNG has disclosed to CP&L all material facts that NCNG reasonably
believes form the basis of a Material Adverse Effect on NCNG arising from the
cost of pollution control equipment currently required or known to be required
in the future, current remediation costs or remediation costs known to be
required in the future, or any other environmental matter affecting a NCNG
Company that would have a Material Adverse Effect on NCNG.
(f) CP&L shall have the right for ninety (90) days after the date of
this Agreement, at its own risk and expense, to conduct or have conducted an
environmental assessment of the properties of the NCNG Companies ("Properties")
and shall provide the results of any such environmental assessment to NCNG. NCNG
will provide CP&L (or its contractor) with reasonable access to the Properties
to conduct the environmental assessment, provided that CP&L or its contractor
complies with NCNG's safety and industrial hygiene procedures. Not later than
ninety (90) days after the date of this Agreement, CP&L shall advise NCNG of any
material environmental conditions of the Properties that CP&L finds unacceptable
and that CP&L believes would constitute a breach by NCNG of any provision of
this Agreement. For the purpose of this Section 5.15(f), such conditions shall
be "material" only if such conditions have not on or before the date of this
Agreement been disclosed to CP&L by NCNG, such conditions are not the subject of
agreements which have been disclosed to CP&L between a NCNG Company and a
responsible Governmental Authority, the cure or remedy costs for such conditions
would not reasonably be expected to be recoverable through NCNG's rates, and
such conditions are unacceptable because, excluding the plugging of abandoned
wells, removal and disposal of in-service equipment and waste, byproducts and
other materials generated in the course of operations and not released onto the
Properties, and similar matters encountered in the ordinary course of operations
in the business of the NCNG Companies on and after the date of the Agreement,
such conditions are subject to remediation, now or in the future, under
Environmental Laws, or because they create or would create with notice or the
passage of time or both, liability under Environmental Laws, which remediation
or liability would have a Material Adverse Effect.
(g) As used in this Agreement: (i) "Environmental Claim" means any and
all administrative, regulatory or judicial actions, suits, demands, demand
letters, directives, claims, proceedings or notices by any Governmental
Authority or other person alleging in writing violations of or liability under
Environmental Laws, or demanding remediation of conditions which, with notice,
the passage of time, or both would constitute violations of Environmental Laws,
arising out of, based on or resulting from (a) the presence, Release or
threatened Release into the environment, of any Hazardous Materials at any
location, whether or not owned, operated, leased or managed by a NCNG Company or
(b) circumstances forming the basis of any violation of any Environmental Law;
(ii) "Environmental Laws" means all federal, state, and local laws, rules and
regulations, judgments or final orders as in effect on the date of this
Agreement relating to pollution or protection of human health or the environment
or Releases or threatened Releases of Hazardous Materials, to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials, including, without limitation, the Clean Air
Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation
and Liability Act, the National Environmental Policy Act, the Oil Pollution Act
of 1990, the Resource Conservation and Recovery Act of 1976, the Hazardous and
Solid Waste Amendments Act, the Outer Continental Shelf Act, the Superfund
Amendments and Reauthorization Act, the Rivers and Harbors Act, and the Toxic
Substances Control Act, all as amended through the Effective Date; (b) any toxic
tort cause of action of any kind whatsoever arising from or relating to
Hazardous Materials, or the alleged emission, Release or discharge of Hazardous
Materials into ambient air, surface water, ground water, or soil; and (c) any
other law or regulation relating to Hazardous Materials, or the emission,
Release, or discharge of Hazardous Materials into ambient air, surface water,
ground water, or soil; (iii) "Hazardous Materials" means (a) any petroleum or
petroleum products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, and transformers or other
equipment that contain dielectric fluid containing polychlorinated biphenyls;
(b) any chemicals, materials or substances which are now defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," or words of similar import, under any
Environmental Law; and (c) any other chemical, material, substance or waste,
exposure to which is now prohibited, limited or regulated under any
Environmental Law in a jurisdiction in which a NCNG Company operates (for
purposes of this Section 5.15); (iv) "Release" means any release, spill,
emission, leaking, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the atmosphere, soil, surface water, groundwater or property.
Section 5.16. NCNG Action. The Board of Directors of NCNG (at a meeting
duly called, constituted and held) has by the requisite vote of all directors
present (a) determined that the Merger is advisable and in the best interests of
NCNG and its shareholders, (b) approved this Agreement and the transactions
contemplated hereby, including the Merger, and (c) directed that the Merger be
submitted for consideration by NCNG's shareholders at the Special Meeting. NCNG
has taken all steps necessary to exempt (i) the execution and delivery of this
Agreement, (ii) the Merger and (iii) the transactions contemplated hereby and
thereby from, (x) any statute of the State of Delaware that purports to limit or
restrict business combinations or the ability to acquire or to vote shares,
including, without limitation, Section 203 of the DGCL (y) the NCNG Rights
Agreement and (z) any applicable provision of NCNG's articles of incorporation
or bylaws containing change of control or anti-takeover provisions. Subject to
Section 6.2 and Article VIII, NCNG has (A) duly entered into an appropriate
amendment to the NCNG Rights Agreement and (B) taken all other action necessary
or appropriate so that the execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby (including, without
limitation, the Merger) do not and will not (I) result in the ability of any
person to exercise any NCNG Rights or enable or require the NCNG Rights to
separate from the shares of NCNG Common Stock to which they are attached, (II)
cause CP&L or Merger Subsidiary or any of their Affiliates or Associates to be
an Acquiring Person (as each such term is defined in the NCNG Rights Agreement)
or (III) trigger other provisions of the NCNG Rights Agreement, including giving
rise to a Distribution Date or a Triggering Event (as each such term is defined
in the NCNG Rights Agreement), and such amendment shall be in full force and
effect from and after the date hereof.
Section 5.17. Vote Required. The affirmative vote of holders of a
majority of the outstanding shares of NCNG Common Stock entitled to vote thereon
is the only vote of the holders of any class or series of NCNG capital stock
necessary to approve this Agreement and the transactions contemplated by the
Agreement.
Section 5.18. Material Interests of Certain Persons. Except as
disclosed in NCNG's Proxy Statement for its 1998 Annual Meeting of Shareholders
or as set forth in the NCNG Disclosure Letter, no officer or director of NCNG,
or any "associate" (as such term is defined in Rule 14a-1 under the Exchange
Act) of any such officer or director, has any material interest in any material
contract or property (real or personal), tangible or intangible, used in or
pertaining to the business of NCNG or any NCNG Subsidiary.
Section 5.19. Insurance. Except as set forth in the NCNG Disclosure
Letter, each NCNG Company is, and has been continuously since December 31, 1995,
insured by reputable and financially responsible insurers in such amounts and
against such risks and losses as are customary for companies conducting their
respective businesses during such time period. No NCNG Company has received any
notice of cancellation or termination with respect to any material insurance
policy thereof and no NCNG company has received notice that any such policy is
invalid or unenforceable.
Section 5.20. [Omitted.]
Section 5.21. Fees and Expenses of Brokers and Others. None of the NCNG
Companies (a) has had any dealings, negotiations or communications with any
broker or other intermediary in connection with the transactions contemplated by
this Agreement, (b) is committed to any liability for any brokers' or finders'
fees or any similar fees in connection with the transactions contemplated by
this Agreement or (c) has retained any broker or other intermediary to act on
its behalf in connection with the transactions contemplated by this Agreement,
except that NCNG has engaged Salomon Smith Barney to represent it in connection
with such transactions, and shall pay all of Salomon Smith Barney fees and
expenses in connection with such engagement.
Section 5.22. Regulation as Utility. (a) Neither NCNG nor any of its
Subsidiaries is a "holding company," a "subsidiary company" or an "affiliate" of
any holding company within the meaning of Section 2(a)(7), 2(a)(8) or 2(a)(11)
of PUHCA, respectively, and none of NCNG's Subsidiaries is a "public utility
company" within the meaning of Section 2(a)(5) of PUHCA.
(b) Neither NCNG nor any of its Subsidiaries is subject to regulation
as a public utility or public service company (or similar designation) in any
state other than North Carolina.
Section 5.23. Absence of Undisclosed Liabilities. Except as disclosed
in the NCNG SEC Reports, none of the NCNG Companies have, as of the date hereof,
or will have, as of the Effective Time, any liabilities or obligations of any
kind, whether absolute, accrued, asserted or unasserted, contingent or
otherwise, that would be required to be disclosed on a consolidated balance
sheet of NCNG prepared as of such date, in accordance with GAAP, except
liabilities, obligations or contingencies that were (a) reflected on or accrued
or reserved against in the consolidated balance sheets of NCNG, included in the
NCNG SEC Reports or reflected in the notes thereto, or (b) incurred after the
date of such balance sheets in the ordinary course of business and consistent
with past practices and which, individually or in the aggregate, would not have
a Material Adverse Effect on NCNG.
Section 5.24. Opinion of Financial Advisor. NCNG has received the
opinion of Salomon Smith Barney to the effect that, as of November 11, 1998, the
Exchange Ratio is fair to the holders of shares of NCNG Common Stock from a
financial point of view.
Section 5.25. Accounting Matters. To the Knowledge of NCNG, neither
NCNG nor any of its "affiliates" or "associates" (as such terms are defined in
Rule 12b-2 adopted under the Exchange Act) has taken or agreed to take any
action that (without giving effect to any action taken or agreed to be taken by
CP&L or any of its affiliates or associates) would prevent CP&L from accounting
for the business combination to be effected in accordance herewith as a pooling
of interests.
Section 5.26. Intellectual Property. The NCNG Companies own, or are
licensed or otherwise possess, legally enforceable and otherwise adequate rights
to use, all patents, trademarks, trade names, service marks, copyrights and any
applications therefor, technology, know-how, computer software programs or
applications, and tangible or intangible proprietary information or material
that are required or reasonably necessary for the conduct of their business as
currently conducted, except as would not, individually or in the aggregate, have
a Material Adverse Effect on NCNG (collectively, the "NCNG Intellectual Property
Rights"). All of the NCNG Intellectual Property Rights are owned or licensed by
a NCNG Company, free and clear of any and all liens, claims and encumbrances,
except as set forth in applicable license agreements or as would not,
individually or in the aggregate, have a Material Adverse Effect on NCNG. To the
Knowledge of NCNG, the use of the NCNG Intellectual Property Rights by the NCNG
Companies does not, in any material respect, conflict with, infringe upon,
violate or interfere with or constitute an appropriation of any right, title,
interest or good will of any other person and neither NCNG nor any NCNG Company
has received notice of any claim or otherwise have Knowledge that any NCNG
Intellectual Property Right is invalid, conflicts with the asserted rights of
any other person, or has not been used or enforced in a manner that would result
in its abandonment, cancellation, or unenforceability, except as would not,
individually or in the aggregate, have a Material Adverse Effect on NCNG.
Section 5.27. Year 2000 Matters. The NCNG Companies have assessed their
internal software and hardware components (in both information technology and
other applications) for problems relating to the Year 2000 issue (the inability
of computers and microchips to recognize and perform properly date-sensitive
functions involving certain dates prior to and after December 31, 1999). To the
best of Norman's Knowledge, resolution of problems associated with the Year 2000
issue with respect to the software and hardware of the NCNG Companies can be
achieved so as to allow the conduct of the business of the NCNG Companies as
currently conducted, and in accordance with the time and cost estimates outlined
in NCNG's Report on Form 10-Q for the period ended June 30, 1998.
Section 5.28. No Impairment of Tax Free Status. None of the NCNG
Companies has taken any action, or failed to take any action, or has Knowledge
of any fact, agreement, plan or other circumstance, that is reasonably likely to
prevent the Merger from constituting a reorganization within the meaning of
Section 368(a) of the Code.
ARTICLE VI
COVENANTS
Section 6.1. Conduct of the Business of NCNG; Meetings and Notices. (a)
Except as otherwise expressly provided in this Agreement, as required by law, as
set forth on the NCNG Disclosure Letter, or as consented to in writing in
advance by CP&L, during the period from the date of this Agreement to the
Effective Time, the NCNG Companies will conduct their respective operations
according to their ordinary and usual course of business and consistent with
past practice, and will use their respective reasonable best efforts to preserve
intact their respective business organizations, to keep available the services
of their officers and employees and to maintain satisfactory relationships with
suppliers, contractors, distributors, customers and others having material
business relationships with them. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, as set
forth on the NCNG Disclosure Letter, or as required by law, prior to the
Effective Time, none of the NCNG Companies will, without the prior written
consent of CP&L:
(i) amend its Articles or Certificate of Incorporation, bylaws,
partnership or joint venture agreements or other organizational documents;
(ii) authorize for issuance or issue, sell or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or any
other securities or interests, other than the issuance of shares of NCNG Common
Stock in accordance with the terms of the NCNG Benefit Plans and the NCNG
Dividend Reinvestment Plan, in each case, in the ordinary course of business
consistent with past practice;
(iii) split, combine or reclassify any shares of its capital
stock or declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of its capital
stock, or redeem or otherwise acquire any of its securities or any securities of
their respective Subsidiaries and Partnerships, except that NCNG may declare and
pay dividends in the ordinary course of business consistent with its past
practices, and may increase the amount of such dividends by no more than six
percent (6%) over the current amount;
(iv) subject to Section 6.2 and Article VII, (a) redeem the
Rights, (b) amend the NCNG Rights Agreement (other than the amendment
contemplated by Section 5.16 hereof) or (c) except in connection with a Superior
Proposal that would allow NCNG to terminate this Agreement under Section 8.2(e),
take any action that would allow any Person (as defined in the NCNG Rights
Agreement) other than CP&L or Merger Subsidiary to become a Beneficial Owner (as
defined in the NCNG Rights Agreement) of 15% or more of the NCNG Shares without
causing a Distribution Date or a Triggering Event (as such terms are defined in
the NCNG Rights Agreement) to occur;
(v) incur or assume any indebtedness for borrowed money or
guarantee any such indebtedness, other than (a) in connection with the
refinancing of existing indebtedness either at its stated maturity or at a lower
cost of funds, (b) indebtedness between NCNG or any of its Subsidiaries and
another of its Subsidiaries, (c) additional indebtedness in the ordinary course
of business, consistent with past practice, under existing credit facilities or
(d) to fund capital expenditures permitted under clause (vi) below;
(vi) except in the ordinary course of business, (a) enter into
any material operating lease or create any mortgages, liens, security interests
or other encumbrances on the property of any of the NCNG Companies, except with
respect to indebtedness permitted pursuant to this Section 6.1, (b) enter into
any material Contract, or alter, amend, modify or exercise any option under any
material existing Contract, other than in the ordinary course of business or in
connection with the transactions contemplated by this Agreement or (c) make
capital expenditures through the Effective Time, in excess of $1,000,000 over
the amount budgeted by the NCNG Companies for capital expenditures on the date
of this Agreement (as reflected on the capital expenditure budgets previously
provided by NCNG to CP&L);
(vii) except in the ordinary course of business, consistent
with past practice, and to the extent not resulting in a material increase in
benefits or compensation expense, (i) adopt or amend (except as may be required
by Law or as provided in this Agreement) any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation right,
restricted stock, pension, retirement, deferred compensation, employment,
severance or other employee benefit agreements, trusts, plans, funds or other
arrangements for the benefit or welfare of any director, officer or employee, or
(ii) increase in any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any existing plan or
arrangement (including, without limitation, the granting of stock options, stock
appreciation rights, shares of restricted stock or performance units) or enter
into any Contract, agreement, commitment or arrangement to do any of the
foregoing;
(viii) acquire, sell, lease or dispose of any material assets
outside the ordinary course of business;
(ix) take any action other than in the ordinary course of
business and in a manner consistent with past practice with respect to
accounting policies or practices, except for any action that would not have an
adverse effect;
(x) (A) make any material Tax election, except for those made
in the ordinary course of business consistent with past practice and as would
not have a Material Adverse Effect on NCNG with respect to periods following the
Merger or (B) settle or compromise any material federal, state, local or foreign
income Tax liability, except for those in the ordinary course of business
consistent with past practice;
(xi) make any filing with any Governmental Authority to
materially change rates on file, except for Purchased Gas Adjustment filings
with the NCUC;
(xii) fail to maintain insurance against risks and losses in
accordance with past practice;
(xiii) fail to maintain in effect any existing NCNG Permit;
(ix) except for the payment of professional fees or as
otherwise permitted by this Agreement, pay, discharge or satisfy any material
claims, liabilities or obligations (absolute, accrued or unasserted, contingent
or otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in NCNG's
September 30, 1997 financial statements or incurred in the ordinary course of
business since the date thereof;
(x) voluntarily engage in any activities which are reasonably
expected to cause a change in status under PUHCA, or which are reasonably
expected to impair the ability of CP&L to claim an exemption under PUHCA Rule 2
following the Merger; or
(xi) agree in writing or otherwise to take any of the
foregoing actions.
(b) CP&L and NCNG agree that, during the period from the date of this
Agreement to the Effective Time: (i) they will cause representatives of their
respective companies to meet as frequently as reasonably requested by either
party to discuss the operations and business prospects of their companies; and
(ii) NCNG will promptly advise CP&L of the occurrence of any Material Adverse
Effect with respect to NCNG, and CP&L will promptly advise NCNG of the
occurrence of any Material Adverse Effect with respect to CP&L.
(c) Notwithstanding anything in this Section 6.1 to the contrary, any
action that is permitted to be taken by NCNG pursuant to this Section 6.1 shall
not result in a breach of any other provision of this Agreement, so long as the
closing condition in Section 7.3(a) is still satisfied.
Section 6.2. No Solicitation. Prior to the Effective Time, NCNG agrees
(a) that neither it nor any of its Subsidiaries shall, and it shall direct and
use reasonable efforts to cause its officers, directors, employees, agent and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of its Subsidiaries or any of the foregoing)
not to, initiate, solicit or encourage, directly or indirectly, any inquiries or
the making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to an
Alternative Proposal or engage in any negotiations concerning, or provide any
non-public information or data to, or have any discussions with, any person
relating to an Alternative Proposal, or otherwise facilitate any effort or
attempt to make or implement an Alternative Proposal; (b) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing, and it will take the necessary steps to inform the
individuals or entities referred to above of the obligations undertaken in this
Section 6.2; and (c) that it will notify CP&L reasonably promptly if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, it; provided, however, that nothing contained in this Section 6.2 shall
prohibit the Board of Directors of NCNG from (i) furnishing information
(pursuant to a confidentiality letter deemed appropriate by the Board of
Directors of NCNG) to or engaging in or entering into discussions or
negotiations with, any person or entity that makes an unsolicited Alternative
Proposal, if, and only to the extent that, (a) the Board of Directors of NCNG
determines in good faith upon the advice of outside counsel that such action is
required for the Board of Directors to comply with its fiduciary duties to
stockholders imposed by law, (b) prior to furnishing such information to, or
entering into discussions or negotiations with, such person or entity, NCNG
provides written notice to CP&L of the identity of the person or entity making
the Alternative Proposal and that it intends to furnish information to, or
intends to enter into discussions or negotiations with, such person or entity,
and (c) NCNG keeps CP&L informed on a timely basis of the status of any such
discussions or negotiations and all terms and conditions thereof and promptly
provides CP&L with copies of any written inquiries or proposals relating
thereto, and (ii) to the extent applicable, complying with Rule 14e-2
promulgated under the Exchange Act or otherwise making disclosures required by
law with regard to an Alternative Proposal. Nothing in this Section 6.2 shall
(x) permit NCNG to terminate this Agreement (except as specifically provided in
Article 8 hereof), (y) permit NCNG to enter into any agreement with respect to
an Alternative Proposal unless this Agreement is first or simultaneously
terminated in accordance with Article VIII (it being agreed that during the term
of this Agreement, NCNG shall not enter into any agreement with any person that
provides for, or in any way facilitates, an Alternative Proposal (other than a
confidentiality agreement deemed appropriate by the Board of Directors of
NCNG)), or (z) affect any other obligation of NCNG under this Agreement.
"Alternative Proposal" shall mean any merger, acquisition, consolidation,
reorganization, share exchange, tender offer, exchange offer or similar
transaction involving NCNG or any of NCNG's Subsidiaries, or any proposal or
offer to acquire in any manner, directly or indirectly, a substantial equity
interest in or a substantial portion of the assets of NCNG or any of NCNG's
Subsidiaries.
Section 6.3. The Registration Statement; Listing.
(a) NCNG and CP&L shall, as soon as practicable following the execution
of this Agreement, prepare, and NCNG shall file with the SEC, a draft of the
Proxy Statement/Prospectus (in a form mutually agreeable to NCNG and CP&L) as
preliminary proxy materials under the Exchange Act, and shall seek confidential
treatment with respect thereto. NCNG and CP&L shall cooperate to respond
promptly to any comments made by the SEC with respect thereto. NCNG shall cause
the Proxy Statement/Prospectus to be mailed to its shareholders at the earliest
practicable time after effectiveness of the Registration Statement.
(b) As soon as practicable following the execution of this Agreement,
CP&L shall prepare and file the Registration Statement (including the
then-current draft of the Proxy Statement/Prospectus) with the SEC, and shall:
(i) after consultation with NCNG, respond promptly to any
comments made by the SEC with respect thereto; provided, however, that CP&L will
not file any amendment or supplement to the Registration Statement without first
furnishing to NCNG a copy thereof for its review and will not file any such
proposed amendment or supplement to which NCNG reasonably and promptly objects;
(ii) use its best efforts to cause the Registration Statement
to become effective under the Securities Act as soon as practicable;
(iii) cause the registration or qualification of the CP&L
Common Stock to be issued upon conversion of shares of NCNG Common Stock in
accordance with the Merger under the state securities or "Blue Sky" laws of each
state of residence of a record holder of NCNG Common Stock as reflected in its
stock transfer ledger;
(iv) promptly advise NCNG (A) when the Registration Statement
becomes effective, (B) when, prior to the Effective Time, any amendment to the
Registration Statement shall be filed or become effective, (c) of the issuance
by the SEC of any stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for that purpose
and (D) of the receipt by CP&L of any notification with respect to the
suspension of the registration or qualification of CP&L Common Stock for sale in
any jurisdiction or the institution or threatening of any proceeding for that
purpose;
(v) use its best efforts to prevent the issuance of any such
stop order and, if issued, to obtain as soon as possible the withdrawal thereof;
and
(vi) use its best efforts to cause the shares of CP&L Common
Stock to be issued upon conversion of shares of NCNG Common Stock in accordance
with the Merger to be approved for listing on the NYSE, subject to official
notice of issuance.
If, at any time when the Proxy Statement/Prospectus is required to be
delivered under the Securities Act or the Exchange Act, any event occurs as a
result of which the Proxy Statement/Prospectus as then amended or supplemented
would include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements contained therein, in light of
the circumstances under which they were made, not misleading, or if it shall be
necessary to amend the Registration Statement or supplement the Proxy
Statement/Prospectus to comply with the Securities Act or the Exchange Act or
the respective rules thereunder, NCNG and CP&L will cooperate to prepare and
file with the SEC, subject to clause (a) of this Section 6.3, an amendment or
supplement that will correct such statement or omission or effect such
compliance.
Section 6.4. Special Meeting. Subject to Section 6.2 and Article VIII,
NCNG shall (i) call the Special Meeting to be held for the purpose of voting
upon the approval of this Agreement, (ii) through its Board of Directors,
recommend to the holders of NCNG Common Stock the approval of this Agreement and
not rescind such recommendation, (iii) use best efforts to have the holders of
NCNG Common Stock approve this Agreement, and (iv) use all reasonable efforts to
hold such meeting as soon as practicable after the date upon which the
Registration Statement becomes effective; provided, however, that nothing herein
obligates NCNG to take any action that would cause its Board of Directors to act
inconsistently with their fiduciary duties as determined by the Board of
Directors in good faith based on the advice of outside counsel. For the
avoidance of doubt, the foregoing shall not prevent the Board of Directors of
NCNG from withdrawing the recommendation referred to in clause (ii) of the
preceding sentence prior to the Special Meeting if (x) it concludes in good
faith based on the advice of outside counsel that the failure to take such
action would breach the directors' fiduciary duties under applicable law (it
being agreed that, so long as no Material Adverse Effect with respect to CP&L
has occurred and is continuing, neither the NCNG Board's decision to merge with
CP&L pursuant to this Agreement nor changes in the market price of CP&L's common
stock on the consideration to be received by NCNG shareholders under this
Agreement shall serve as the basis for the Board to withdraw its recommendation
under this Section 6.4) and (y) NCNG has given CP&L notice of its intention to
withdraw its recommendation at least five days prior to any such withdrawal,
together with a description of the reasons for the Board's proposed action and
the related advice of its outside counsel.
Section 6.5. Access to Information; Confidentiality Agreement.
(a) To the extent permitted by law and upon reasonable notice, between
the date of this Agreement and the Effective Time, the NCNG Companies will give
to CP&L and its authorized representatives reasonable access during normal
business hours to all facilities and to all books and records, and will cause
their officers to furnish such financial and operating data and other
information with respect to their businesses and properties as may from time to
time reasonably be requested. Subject to Section 6.8 hereof, all such
information shall be kept confidential in accordance with the Confidentiality
Agreement.
(b) Notwithstanding the execution of this Agreement, the
Confidentiality Agreement shall remain in full force and effect through the
Effective Time, at which time the Confidentiality Agreement shall terminate and
be of no further force and effect. Each party hereto hereby waives the
provisions of the Confidentiality Agreement as and to the extent necessary under
the Securities Act and the Exchange Act to permit the solicitation of votes of
the shareholders of NCNG pursuant to the Proxy Statement/Prospectus and to
permit consummation of the transactions contemplated hereby. Each party further
acknowledges that the Confidentiality Agreement shall survive any termination of
this Agreement pursuant to Section 8.1 hereof.
Section 6.6. Best Efforts. Subject to the terms and conditions herein
provided and subject to fiduciary obligations under applicable Law as advised by
counsel, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper and advisable under applicable Law, to consummate and make
effective the transactions contemplated by this Agreement in the most
expeditious manner possible. In case at any time after the Effective Time any
further action is reasonably necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall take all such necessary action. CP&L and NCNG will execute any
additional instruments reasonably necessary to consummate the transactions
contemplated hereby.
Section 6.7. Approvals. (a) NCNG and CP&L shall file or cause to be
filed with the Federal Trade Commission and the Department of Justice any
notifications required to be filed by them under the HSR Act and the rules and
regulations promulgated thereunder with respect to the transactions contemplated
hereby. NCNG and CP&L will use all commercially reasonable efforts to make such
filings promptly and to respond on a timely basis to any requests for additional
information made by either of such agencies.
(b) NCNG and CP&L shall cooperate and use their best efforts to
promptly prepare and file all necessary documentation, to effect all necessary
applications, notices, petitions, filings and other documents, and to use all
commercially reasonable efforts to obtain (and will cooperate with each other in
obtaining) any consent, acquiescence, authorization, order or approval of, or
any exemption or nonopposition by, any Governmental Authority required to be
obtained or made by NCNG or CP&L in connection with the Merger or the taking of
any action contemplated thereby or by this Agreement.
(c) NCNG and CP&L each will use its best efforts to obtain consents of
all other third parties necessary to the consummation of the transactions
contemplated by this Agreement.
Section 6.8. Public Announcements. The parties hereto have agreed upon
the text of a joint press release announcing, among other things, the execution
of this Agreement, which joint press release shall be disseminated promptly
following the execution hereof. NCNG and CP&L will consult with each other
before issuing any additional press release or otherwise making any additional
public statement with respect to this Agreement, the Merger or the transactions
contemplated herein and shall not issue any such press release or make any such
public statement prior to such consultation or as to which the other party
promptly and reasonably objects, except as may be required by Law in the written
opinion of such party's counsel or by obligations pursuant to any listing
agreement with any national securities exchange or inter-dealer quotation
system, in which case the party proposing to issue such press release or make
such public announcement shall use its best efforts to consult in good faith
with the other party before issuing any such press release or making any such
public announcements.
Section 6.9. Employee Agreements; Workforce Matters and Employee
Benefits.
(a) Following the Effective Time, CP&L will cause the Surviving
Corporation to honor all obligations under any employment contracts, agreements
and commitments of the NCNG Companies prior to the date of this Agreement (or as
established or amended in accordance with or permitted by this Agreement), which
apply to any current or former employee, or current or former director of any
NCNG Company; provided, however, that this undertaking is not intended to
prevent CP&L from enforcing such contracts, agreements and commitments in
accordance with their terms, including any reserved right to amend, modify,
suspend, revoke or terminate any such contract, agreement or commitment or
portion thereof.
(b) CP&L presently intends, following the Effective Time, that (subject
to obligations under applicable law) (i) any reductions in the employee
workforce of the CP&L Companies (including the Surviving Corporation) shall be
made on a fair and equitable basis, in light of the circumstances and the
objectives to be achieved, giving consideration to previous work history, job
experience and qualifications, without regard to whether employment prior to the
Effective Time was with the CP&L Companies or the NCNG Companies, and any
employees whose employment is terminated or jobs are eliminated by any CP&L
Company during such period as a result of the transaction contemplated by this
Agreement shall be entitled to participate on a fair and equitable basis in the
job opportunity and employment placement programs offered by the CP&L Companies
for which they are eligible and (ii) employees shall be entitled to participate
in all job training, career development and educational programs of the CP&L
Companies for which they are eligible, and shall be entitled to fair and
equitable consideration in connection with any job opportunities with the CP&L
Companies, in each case without regard to whether employment prior to the
Effective Time was with the CP&L Companies or the NCNG Companies.
(c) Subject to applicable law, CP&L presently intends to maintain
through December 31, 1999, without interruption, the employee welfare and
employee pension benefit plans, and programs maintained by the NCNG Companies as
of the date of this Agreement. Where applicable, benefits under such plans or
programs will be frozen as of such date and, at CP&L's election, merged into
CP&L's plans. Employees of the NCNG Companies or the Surviving Corporation who
continue in the employ of the CP&L Companies thereafter will be eligible to
participate in the CP&L Employee Benefit Plans for which they are eligible.
NCNG's Employee Stock Purchase Plan will terminate at the Effective Date. CP&L
also presently intends to merge NCNG's employee policies and practices into
CP&L's policies and practices to the extent practicable at the Effective Date.
(d) Subject to its obligations under applicable law, the CP&L Companies
shall give credit under each of their respective employee benefit plans,
programs and arrangements to employees for all service prior to the Effective
Time with the NCNG Companies, or any predecessor employer (to the extent that
such credit was given by the NCNG Companies) for all purposes other than the
accrual of benefits for which such service was taken into account or recognized
by the NCNG Companies, but not to the extent crediting such service would result
in duplication of benefits. To the extent permitted by Law, CP&L shall continue
to administer the NCNG pension and 401(K) plans for NCNG employees hired on or
before December 31, 1999 ("Current NCNG Employees") through the December 31
first following the earlier of:
a) CP&L's performance of an analysis confirming that the
benefits of CP&L's current pension and 401(K) plans, plus
any transition credits CP&L agree to provide to Current
NCNG Employees upon transfer to CP&L's pension plan, are
equal or greater than the benefits that the Current NCNG
Employees would have received, in aggregate, in NCNG's
pension and 401(K) plans; or
b) Five (5) years from the Effective Time.
The calculations used in a) above shall be based on assumptions and
factors recommended by CP&L's actuary. After the time described above, all
Current NCNG Employees shall be transferred to CP&L's pension and 401(K) plans.
If the transfer occurs pursuant to a) above, CP&L shall provide the Current NCNG
Employees with the transition credits in the CP&L pension plan used to perform
the analysis described in a). If the transfer occurs pursuant to b), CP&L shall
provide the Current NCNG Employees with transition credits in the pension plan
to the extent necessary to produce an equitable result that does not in the
aggregate significantly reduce the benefits to the Current NCNG Employees. At
the time of such transfer, Current NCNG Employees' accrued benefits under the
NCNG pension plans shall be preserved.
All NCNG employees, other than Current NCNG Employees, shall be
eligible only for CP&L's then current pension and 401(K) plans at the time that
they are hired.
(e) To the extent doing so does not adversely effect pooling of
interest accounting treatment for the Merger, CP&L agrees to exercise its best
efforts to accommodate the elections made by NCNG's directors in regard to the
accumulation and payout provisions of the Directors' Deferred Compensation Stock
Plan and the Deferred Retirement Compensation Stock Plan for Eligible Directors,
with the number of stock units of CP&L Common Stock (determined pursuant to the
Exchange Ratio) being substituted for the accumulated units of NCNG Common Stock
in each director's account in each such plan and accumulated and paid out as
provided for in such plans and the related agreements between NCNG and its
directors. Further, to the extent doing so would not adversely effect pooling of
interests accounting treatment for the Merger, NCNG may allow each NCNG director
who would otherwise receive a distribution based on a change of control of NCNG
an election to defer such distributions until they would have been paid out
under each such plan's normal distribution provisions.
Section 6.10. Letter of NCNG's Accountants. NCNG shall use its best
efforts to obtain a letter of Arthur Andersen LLP, dated a date within two
business days before the date on which the Registration Statement shall become
effective and addressed to NCNG, in form and substance reasonably satisfactory
to CP&L and NCNG and customary in scope and substance for agreed-upon procedures
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
Section 6.11. Letter of CP&L's Accountants. CP&L shall use its best
efforts to obtain a letter of Deloitte & Touche, LLP, dated a date within two
business days before the date on which the Registration Statement shall become
effective and addressed to CP&L, in form and substance reasonably satisfactory
to NCNG and CP&L and customary in scope and substance for agreed-upon procedures
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
Section 6.12. Opinions of Financial Advisors. NCNG shall use its best
efforts to cause Salomon Smith Barney to provide its opinion, as of a date no
earlier than three business days prior to the date that the Proxy
Statement/Prospectus is mailed to shareholders of NCNG, as to the fairness of
the Exchange Ratio to the shareholders of NCNG, respectively, from a financial
point of view, as contemplated by this Agreement, and shall include such updated
opinions in the Proxy Statement/Prospectus.
Section 6.13. Indemnification; Insurance. (a) Except as may be limited
by applicable Law, from the Effective Time and for a period of six (6) years
thereafter, CP&L shall cause NCNG to maintain all rights of indemnification
existing in favor of the directors and officers of NCNG on terms no less
favorable than those provided in the certificate of incorporation and by-laws of
NCNG on the date of this Agreement with respect to matters occurring prior to
the Effective Time.
(b) CP&L shall cause to be maintained in effect for six (6) years from
the Effective Time the current policies for directors' and officers' liability
insurance maintained by NCNG (provided that CP&L may substitute therefor
policies of at least the same coverage containing terms and conditions that are
not materially less advantageous) with respect to matters occurring prior to the
Effective Time, to the extent such insurance is available to CP&L in the market.
Section 6.14. Affiliate Agreements. NCNG will use its best efforts to
ensure that each person who is an "affiliate" of NCNG within the meaning of Rule
145 under the Securities Act will enter into an agreement in the form attached
hereto as Exhibit 6.14 as soon as practical after the date hereof.
Section 6.15. Nuclear Facilities. NCNG (or its designee) shall have the
right for ninety (90) days after the date of this Agreement, at its own risk and
expense, to conduct or have conducted a reasonable assessment of the CP&L
Nuclear Facilities and shall provide the results of any such assessment to CP&L.
CP&L will provide NCNG with reasonable access to the CP&L Nuclear Facilities and
to documents relating thereto in order to conduct the assessment. Not later than
ninety (90) days after the date of this Agreement, NCNG shall advise CP&L of any
material conditions involving the CP&L Nuclear Facilities that would constitute
a material breach by CP&L of any provision of this Agreement. For purposes of
this section, such conditions shall be considered "material" only if the cure or
remedial costs for such conditions would create liability or responsibility
which would have a Material Adverse Effect on the continued operation of CP&L.
ARTICLE VII
CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER
Section 7.1. Conditions Precedent to Each Party's Obligation to Effect
the Merger. The respective obligation of each party to consummate the Merger is
subject to the satisfaction at or prior to the Effective Time of the following
conditions precedent:
(a) this Agreement shall have been approved and adopted by the
affirmative vote of the shareholders of NCNG holding a majority of the shares of
outstanding NCNG Common Stock entitled to vote at the Special Meeting.
(b) no order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any court of competent jurisdiction or Governmental
Authority which prohibits the consummation of the Merger; provided, however,
that the parties hereto shall use their best efforts to have any such order,
decree or injunction vacated or reversed;
(c) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect;
(d) any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired;
(e) all consents, authorizations, orders, permits and approvals for (or
registrations, declarations or filings with) any Governmental Authority required
in connection with the execution, delivery and performance of this Agreement
shall have been obtained or made, except for filings in connection with the
Merger and any other documents required to be filed after the Effective Time and
except where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have a Material
Adverse Effect on CP&L or NCNG following the Effective Time.
(f) the parties hereto shall have received the opinion of Hunton &
Williams (dated the date of the Effective Time and based on customary
assumptions and certificates) to the effect that, for United States federal
income tax purposes, the Merger will constitute a "reorganization" under Section
368(a) of the Code;
(g) the shares of CP&L Common Stock required to be issued hereunder
shall have been approved for listing on the NYSE, subject to official notice of
issuance; and
(h) NCNG and CP&L shall have received a letter from each of Arthur
Andersen LLP and Deloitte & Touche, LLP, dated the Effective Time, addressed to
and in form and substance reasonably satisfactory to NCNG and CP&L, stating that
the Merger will qualify as a "pooling of interests" transaction under GAAP.
Section 7.2. Conditions Precedent to Obligations of NCNG. The
obligations of NCNG to consummate the Merger are subject to the satisfaction or
waiver at or prior to the Effective Time of the following conditions precedent:
(a) there shall have occurred no material adverse change (or any
development which, insofar as can reasonably be determined, is reasonably likely
to result in a material adverse change) in the business, assets, financial or
other condition, results of operations, or prospects of the CP&L Companies,
taken as a whole, from the date hereof to the Effective Time;
(b) the representations and warranties of CP&L contained in Article IV
shall be true and correct in all material respects when made and at and as of
the Effective Time with the same force and effect as if those representations
and warranties had been made at and as of such time except (i) to the extent
such representations and warranties speak as of a specified earlier date, and
(ii) as otherwise contemplated or permitted by this Agreement;
(c) CP&L shall, in all material respects, have performed all
obligations and complied with all covenants necessary to be performed or
complied with by it on or before the Effective Time;
(d) NCNG shall have received a certificate of the President or
Executive Vice President of CP&L, in form satisfactory to counsel for NCNG,
certifying fulfillment of the matters referred to in paragraphs (a) through (c)
of this Section 7.2; and
(e) all proceedings, corporate or other, to be taken by CP&L in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to NCNG and NCNG's counsel, and CP&L shall have made available to NCNG
for examination the originals or true and correct copies of all documents that
NCNG may reasonably request in connection with the transactions contemplated by
this Agreement.
Section 7.3. Conditions Precedent to Obligations of CP&L. The
obligations of CP&L to consummate the Merger are subject to the satisfaction or
waiver at or prior to the Effective Time of the following conditions precedent:
(a) there shall have occurred no material adverse change (or any
development which, insofar as can reasonably be determined, is reasonably likely
to result in a material adverse change) in the business, financial or other
condition, results of operations, or prospects of the NCNG Companies, taken as a
whole, from the date hereof to the Effective Time;
(b) the representations and warranties of NCNG contained in Article V
shall be true and correct in all material respects when made and at and as of
the Effective Time with the same force and effect as if those representations
and warranties had been made at and as of such time except (i) to the extent
such representations and warranties speak as of a specified earlier date, and
(ii) as otherwise contemplated or permitted by this Agreement;
(c) NCNG shall, in all material respects, have performed all
obligations and complied with all covenants necessary to be performed or
complied with by it on or before the Effective Time;
(d) CP&L shall have received a certificate of the President or Senior
Vice President of NCNG, in form satisfactory to counsel for CP&L, certifying
fulfillment of the matters referred to in paragraphs (a) through (d) of this
Section 7.3;
(e) all proceedings, corporate or other, to be taken by NCNG in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to CP&L and CP&L's counsel, and NCNG shall have made available to CP&L
for examination the originals or true and correct copies of all documents that
CP&L may reasonably request in connection with the transactions contemplated by
this Agreement; and
(f) the consents, authorizations, orders, permits, and approvals
described in Section 7.1(e) shall contain no terms or conditions that would have
a material adverse effect on CP&L or NCNG.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
Section 8.1. Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the shareholders of NCNG, but prior to the Effective Time:
(a) by mutual written consent of NCNG and CP&L;
(b) by NCNG or CP&L, if the Effective Time shall not have occurred on
or before December 31, 1999 (provided that the right to terminate this Agreement
under this Section 8.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of or has
resulted in the failure of the Effective Time to occur on or before such date);
(c) by NCNG if there has been a material breach by CP&L of any
representation, warranty, covenant or agreement set forth in this Agreement,
which breach has not been cured within ten business days following receipt by
the breaching party of written notice of such breach;
(d) (i) by CP&L or NCNG if the transactions contemplated in this
Agreement shall have been voted on by holders of NCNG Common Stock at a meeting
duly convened therefor, and the votes shall not have been sufficient to satisfy
the condition set forth in Section 7.1(a) hereof, (ii) by CP&L if there has been
a material breach by NCNG of any representation, warranty, covenant or agreement
set forth in this Agreement, which breach has not been cured within ten business
days following receipt by the breaching party of written notice of such breach;
or (iii) by CP&L if the Board of Directors of NCNG should fail to recommend to
its shareholders approval of the transactions contemplated by this Agreement or
such recommendation shall have been made and subsequently withdrawn;
(e) by NCNG if, prior to the Effective Time, a corporation,
partnership, person or other entity or group shall have made a bona fide
proposal with respect to the acquisition of all of NCNG's outstanding capital
stock, or all or substantially all of NCNG's assets, that the Board of Directors
of NCNG believes, in good faith after consultation with its financial advisors,
is more favorable, from a financial point of view, to the shareholders of NCNG
than the proposal set forth in this Agreement (a "Superior Proposal"); provided,
that CP&L does not make, within five business days of receiving notice of such
third party proposal, an offer that the Board of Directors of NCNG believes, in
good faith after consultation with its financial advisors, is at least as
favorable, from a financial point of view, to NCNG's shareholders as such
Superior Proposal; or
(f) by NCNG or CP&L, if any court of competent jurisdiction or other
Governmental Authority shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Mergers and
such order, decree, ruling or other action shall have become final and
nonappealable.
Section 8.2. Effect of Termination. If this Agreement is so terminated
and the Merger is not consummated, the obligations of the parties under this
Agreement shall terminate, except (a) for the provisions of the last sentence of
Section 6.5(a), Section 6.5(b), this Section 8.2, Section 8.3, and Article IX,
and (b) that no such termination shall relieve any party from liability by
reason of any breach of any provision contained in this Agreement.
Section 8.3. Termination Fee.
(a) If this Agreement is terminated (i) by CP&L pursuant to Section
8.1(b), and the failure of the Effective Time to occur has been caused by or is
attributable to any failure by NCNG to fulfill any of its obligations under
Sections 6.4(iii), 6.6 or 6.7, (ii) by CP&L pursuant to Section 8.1(b) after an
Alternative Proposal has been made to NCNG or directly to NCNG's shareholders
prior to such termination, (iii) by CP&L or NCNG pursuant to Section 8.1(d)(i),
if prior to or during the Special Meeting an Alternative Proposal shall have
been made to NCNG or directly to NCNG's shareholders that has not been revoked
prior to the Special Meeting, (iv) by CP&L pursuant to Section 8.1(d)(iii), or
(v) by NCNG pursuant to Section 8.1(e), then NCNG shall promptly (and in any
event within two days of receipt by NCNG of written notice from CP&L) pay to
CP&L (by wire transfer of immediately available funds to an account designated
by CP&L) a termination fee of $10 million; provided, however, that no such
termination fee shall be payable to CP&L pursuant to clauses (ii) or (iii) of
this Section 8.3(a), unless and until within 12 months of termination NCNG or
any of its Subsidiaries enters into any definitive agreement in respect of such
Alternative Proposal or any similar proposal, in which event such termination
fee shall be payable promptly (and in any event within two days of receipt by
NCNG of written notice from CP&L), to CP&L (by wire transfer or immediately
available funds to an account designated by CP&L) upon the occurrence of such
event.
(b) If this Agreement is terminated by CP&L pursuant to Section
8.1(d)(ii) hereof, or by NCNG pursuant to Section 8.1(c) hereof, in either case
as a result of a breach of any representation, warranty, covenant or agreement
by the other party hereto, which breach was not willful or knowing in nature,
and if the breaching party is not otherwise entitled to terminate this
Agreement, then the breaching party shall promptly reimburse the non-breaching
party that has terminated this Agreement for all out-of-pocket expenses
(including all fees and expenses of its counsel, advisors, accountants and
consultants) incurred by such non-breaching party or on its behalf in connection
with the transactions contemplated in this Agreement.
(c) This Section 8.3 shall not be the exclusive remedy of the parties
hereto in the event of any termination of this Agreement, but any payments
pursuant to Section 8.2(a) shall be treated as an offset to any claim for
damages by CP&L for any breach of this Agreement by NCNG.
Section 8.4. Amendment. This Agreement may be amended by action taken
by both CP&L and NCNG at any time before or after approval of the transactions
contemplated herein by the shareholders of NCNG but, after any such approval, no
amendment shall be made that by law requires the further approval of such
shareholders without the approval of such shareholders. This Agreement may not
be amended except by an instrument in writing signed on behalf of both of the
parties hereto.
Section 8.5. Extension; Waiver. At any time prior to the Effective
Time, either party hereto may (i) extend the time for the performance of any of
the obligations or other acts of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto by the other party
hereto or (iii) waive compliance with any of the agreements or conditions
contained herein by the other party hereto. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Survival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time.
Section 9.2. Brokerage Fees and Commissions. No broker, finder or
investment banker (other than Salomon Smith Barney, whose fees shall be paid by
NCNG) is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of NCNG; and no broker, finder or investment
banker (other than Morgan Stanley, whose fees shall be paid by CP&L) is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of CP&L.
Section 9.3. Entire Agreement; Assignment. This Agreement (a)
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes, except as set forth in Section 6.5(a) and (b)
hereof, all other prior agreements and understandings, both written and oral,
between the parties or any of them with respect to the subject matter hereof,
and (b) shall not be assigned by operation of law or otherwise.
Section 9.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex, or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties as follows:
if to CP&L:
Carolina Power & Light Company
411 Fayetteville Street Mall
Raleigh, North Carolina 27601
Attention: Mr. William Cavanaugh III, President and Chief Executive
Officer
with copies to:
Hunton & Williams
One Hannover Square
Suite 1400
Raleigh, North Carolina 27601
Attention: Timothy S. Goettel, Esq.
Carolina Power & Light Company
411 Fayetteville Street Mall
Raleigh, North Carolina 27601
Attention: William D. Johnson, Esq.
if to NCNG:
North Carolina Natural Gas Corporation
150 Rowan Street
P.O. Box 909
Fayetteville, North Carolina 28301
Attention: Mr. Calvin B. Wells, Chairman, President and Chief
Executive Officer
with copies to:
McCoy, Weaver, Wiggins, Cleveland & Raper
202 Fairway Drive
Fayetteville, North Carolina 28305
Attention: Alfred E. Cleveland, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Section 9.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina, except to
the extent that the laws of Delaware govern the Merger, regardless, in each
case, of the laws that might otherwise govern under applicable principles of
conflicts of laws thereof.
Section 9.6. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
Section 9.7. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and except for the
provisions of Article III, Section 6.9 and Section 6.13, nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
Section 9.8. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 9.9. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with the terms hereof and that the
parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
Section 9.10. Fees and Expenses. Except as provided in Section 8.3(b),
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated.
Section 9.11. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to either party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner,
to the end that the transactions contemplated hereby are fulfilled to the extent
possible.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
CAROLINA POWER & LIGHT COMPANY
By:
------------------------------------------------
William Cavanaugh III
President and Chief Executive Officer
NORTH CAROLINA NATURAL GAS CORPORATION
By:
------------------------------------------------
Calvin B. Wells
Chairman, President and Chief Executive Officer
CAROLINA ACQUISITION CORPORATION
By:
---------------------------------------
William Cavanaugh III
President and Chief Executive Officer
<PAGE>
EXHIBIT 6.14
[Form of letter to be signed by each affiliate of NCNG]
__________ __, 1998
=========================
- -------------------------
Dear Sirs:
In accordance with Section 6.9 of the Agreement and Plan of Merger (the
"Agreement") by and among Carolina Power & Light Company ("CP&L"), North
Carolina Natural Gas Corporation ("NCNG"), and Carolina Acquisition Corporation,
I represent and agree as follows:
1. I will comply with the Securities Act of 1933, as amended (the
"Securities Act"), and the Securities and Exchange Commission's rules and
regulations thereunder, and will not offer to sell, sell or otherwise dispose of
any shares of CP&L Common Stock that I will receive in the Merger except in
compliance with Rule 145 under the Securities Act or following receipt of an
opinion of counsel to CP&L that the provisions of such rule need not be
observed.
2. I agree that the certificates for shares of CP&L Common Stock I will
receive in the Merger may bear the following legend:
"Shares represented by this certificate are subject to
restrictions as to transfer by virtue of provisions of the
Securities Act of 1933 and the General Rules and Regulations
of the Securities and Exchange Commission thereunder. Such
shares may not be transferred except upon compliance with 17
CFR 230.145(d) or the favorable opinion of counsel for the
issues that such transfer will not constitute or result in a
violation of the Securities Act of 1933."
3. As required by the rules of the Securities and Exchange Commission
for "pooling of interests" accounting treatment, I agree that I will not (a)
sell any shares of CP&L Common Stock or NCNG Common Stock, or in any way reduce
my investment risk relative to CP&L or NCNG, during the 30 day period prior to
the Effective Time, which is expected to occur on or about __________ __, 1999,
or (b) sell any shares of CP&L Common Stock received in the Merger, or in any
way reduce my investment risk relative to such shares, from the Effective Time
through the date of publication of CP&L's financial results covering at least 30
days of post-Merger combined operations.
Execution of this letter agreement by the undersigned shall not
constitute an acknowledgment that the undersigned is an "affiliate" of NCNG, as
such term is used under the federal securities laws, for any purpose.
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the Agreement.
Very truly yours,
SIGN HERE:
-------------------------
PRINT NAME:
-------------------------
EXHIBIT 4
REGISTERED BOND CUSIP No. 144141CH9
CAROLINA POWER & LIGHT COMPANY
First Mortgage Bond,
6.80% Series due August 15, 2007
No. R- $
CAROLINA POWER & LIGHT COMPANY, a corporation of the State of North
Carolina (hereinafter called the Company), for value received, hereby promises
to pay to
or registered assigns, at the office or agency of the Company in the Borough of
Manhattan, The City of New York,
DOLLARS
on August 15, 2007, in such coin or currency of the United States of America as
at the time of payment is legal tender for public and private debts, and to pay
to the registered owner hereof interest thereon from August 15, 1997, if the
date of this bond is prior to February 15, 1998, or, if the date of this bond is
after February 15, 1998, from the February 15 or August 15 next preceding the
date of this bond, at the rate of 6.80% per annum in like coin or currency
semi-annually at said office or agency, on February 15 and August 15 in each
year until the principal of this bond shall have become due and payable.
This bond is one of an issue of bonds of the Company issuable in series
and is one of a series known as its First Mortgage Bonds, 6.80% Series due
August 15, 2007, all bonds of all series issued and to be issued under and
equally secured (except in so far as any sinking fund or other fund, established
in accordance with the provisions of the Mortgage hereinafter mentioned, may
afford additional security for the bonds of any particular series) by a Mortgage
and Deed of Trust (herein, together with any indenture supplemental thereto
including the Sixty-fourth Supplemental Indenture dated as of August 15, 1997,
called the Mortgage), dated as of May 1, 1940, executed by the Company to Irving
Trust Company (now The Bank of New York), as Corporate Trustee, and Frederick G.
Herbst (W.T. Cunningham, successor), as Individual Trustee. Reference is made to
the Mortgage for a description of the property mortgaged and pledged, the nature
and extent of the security, the rights of the holders of the bonds and of the
Trustees in respect thereof, the duties and immunities of the Trustees and the
terms and conditions upon which the bonds are and are to be secured and the
circumstances under which additional bonds may be issued. With the consent of
the Company and to the extent permitted by and as provided in the Mortgage, the
rights and obligations of the Company and/or the rights of the holders of the
bonds and/or coupons and/or the terms and provisions of the Mortgage may be
modified or altered by affirmative vote of the holders of at least 70% in
principal amount of the bonds then outstanding under the Mortgage and, if the
rights of one or more, but less than all, series of bonds then outstanding are
to be affected, then also by affirmative vote of the holders of at least 70% in
principal amount of the bonds then outstanding of each series of bonds so to be
affected (excluding in any case bonds disqualified from voting by reason of the
Company's interest therein as provided in the Mortgage); provided that, without
the consent of the holder hereof, no such modification or alteration, among
other things, shall impair or affect the right of the holder to receive payment
of the principal of and interest on this bond, on or after the respective due
dates expressed herein, or permit the creation of any lien equal or prior to the
lien of the Mortgage or deprive the holder of a lien on the mortgaged and
pledged property. The Company has reserved the right to amend the Mortgage
without any consent or other action by the holders of any series of bonds
created after July 31, 1970 (including this series) so as to change 70% in the
foregoing sentence to 66 2/3%.
The principal hereof may be declared or may become due prior to the
maturity date hereinbefore named on the conditions, in the manner and at the
time set forth in the Mortgage, upon the occurrence of a default as in the
Mortgage provided.
This bond is transferable as prescribed in the Mortgage by the
registered owner hereof in person, or by his duly authorized attorney, at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, upon surrender and cancellation of this bond, and thereupon a new fully
registered temporary or definitive bond of the same series for a like principal
amount will be issued to the transferee in exchange herefor as provided in the
Mortgage. The Company and the Trustees may deem and treat the person in whose
name this bond is registered as the absolute owner hereof for the purpose of
receiving payment and for all other purposes.
In the manner prescribed in the Mortgage, any bonds of this series,
upon surrender thereof for cancellation at the office or agency of the Company
in the Borough of Manhattan, The City of New York, are exchangeable for a like
aggregate principal amount of bonds of the same series of other authorized
denominations.
The bonds of this series are redeemable at the option of the Company,
in whole at any time, or in part from time to time, prior to maturity, upon
notice (which may be made subject to deposit of the redemption moneys with the
Corporate Trustee on or before the date fixed for redemption (hereinafter called
the Redemption Date)) mailed at least 30 days and not more than 90 days prior to
the Redemption Date at a redemption price equal to the greater of (i) 100% of
the principal amount thereof or (ii) the sum of the present values of the
remaining scheduled payments of principal and interest from the Redemption Date
to the maturity date, computed by discounting such payments, in each case, to
the Redemption Date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Yield (as defined in the Sixty-fourth
Supplemental Indenture mentioned above) plus 10 basis points, plus in each case
accrued interest on the principal amount thereof to the Redemption Date.
Reference is made to said Sixty-fourth Supplemental Indenture for the full terms
of the redemption provisions applicable to the bonds of this series.
No recourse shall be had for the payment of the principal of or
interest on this bond against any incorporator or any past, present or future
subscriber to the capital stock, stockholder, officer or director of the Company
or of any predecessor or successor corporation, as such, either directly or
through the Company or any predecessor or successor corporation, under any rule
of law, statute or constitution or by the enforcement of any assessment or
otherwise, all such liability of incorporators, subscribers, stockholders,
officers and directors being released by the holder or owner hereof by the
acceptance of this bond and being likewise waived and released by the terms of
the Mortgage.
This bond shall not become obligatory until The Bank of New York
(formerly Irving Trust Company), the Corporate Trustee under the Mortgage, or
its successor thereunder, shall have signed the form of certificate endorsed
hereon.
<PAGE>
IN WITNESS WHEREOF, CAROLINA POWER & LIGHT COMPANY has caused this bond
to be signed in its corporate name by its President and Chief Executive Officer,
or one of its Vice Presidents by his signature or a facsimile thereof, and its
corporate seal to be impressed or imprinted hereon and attested by its Secretary
or one of its Assistant Secretaries by his signature or a facsimile thereof.
CAROLINA POWER & LIGHT COMPANY
DATED:
By:
----------------------------------------
President and Chief Executive Officer
ATTEST:
- -------------------------------
Secretary
CORPORATE TRUSTEE'S CERTIFICATE
This bond is one of the bonds, of the series herein designated,
described or provided for in the within-mentioned Mortgage.
THE BANK OF NEW YORK,
Corporate Trustee
By:
-----------------------------
Authorized Officer
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM (UNAUDITIED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AS OF SEPTEMBER 30,
1998) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $6,275,260
<OTHER-PROPERTY-AND-INVEST> $269,636
<TOTAL-CURRENT-ASSETS> $842,968
<TOTAL-DEFERRED-CHARGES> $403,291
<OTHER-ASSETS> $570,777
<TOTAL-ASSETS> $8,361,932
<COMMON> $1,217,911
<CAPITAL-SURPLUS-PAID-IN> ($790)
<RETAINED-EARNINGS> $1,740,043
<TOTAL-COMMON-STOCKHOLDERS-EQ> $2,957,164
$0
$59,376
<LONG-TERM-DEBT-NET> $2,535,409
<SHORT-TERM-NOTES> $0
<LONG-TERM-NOTES-PAYABLE> $0
<COMMERCIAL-PAPER-OBLIGATIONS> $0
<LONG-TERM-DEBT-CURRENT-PORT> $73,172
$0
<CAPITAL-LEASE-OBLIGATIONS> $0
<LEASES-CURRENT> $0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $2,736,811
<TOT-CAPITALIZATION-AND-LIAB> $8,361,932
<GROSS-OPERATING-REVENUE> $2,434,635
<INCOME-TAX-EXPENSE> $256,621
<OTHER-OPERATING-EXPENSES> $1,692,125
<TOTAL-OPERATING-EXPENSES> $1,948,746
<OPERATING-INCOME-LOSS> $485,889
<OTHER-INCOME-NET> ($15,194)
<INCOME-BEFORE-INTEREST-EXPEN> $470,695
<TOTAL-INTEREST-EXPENSE> $132,631
<NET-INCOME> $338,064
($2,225)
<EARNINGS-AVAILABLE-FOR-COMM> $335,839
<COMMON-STOCK-DIVIDENDS> $209,676
<TOTAL-INTEREST-ON-BONDS> $98,375
<CASH-FLOW-OPERATIONS> $733,934
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.33
</TABLE>
