<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CAROLINA POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 4911 56-0165465
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Number) Identification Number)
</TABLE>
411 FAYETTEVILLE STREET
RALEIGH, NORTH CAROLINA 27601-1748
(919) 546-6111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
WILLIAM CAVANAUGH III
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ROBERT B. MCGEHEE, ESQ., EXECUTIVE VICE PRESIDENT
AND GENERAL COUNSEL
411 FAYETTEVILLE STREET
RALEIGH, NORTH CAROLINA 27601-1748
(919) 546-6111
(Names and addresses, including zip codes, and telephone numbers, including area
codes, of agents for service)
It is respectfully requested that the Commission send copies of all notices,
orders and communications to:
<TABLE>
<S> <C>
TIMOTHY S. GOETTEL, ESQ. ALFRED E. CLEVELAND, ESQ.
HUNTON & WILLIAMS MCCOY, WEAVER, WIGGINS CLEVELAND & RAPER, P.L.L.C.
421 FAYETTEVILLE STREET MALL 202 FAIRWAY DRIVE
RALEIGH, NORTH CAROLINA 27601 FAYETTEVILLE, NORTH CAROLINA 28305
(919) 899-3094 (910) 483-8104
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the proposed merger described herein have been satisfied or
waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Inspection G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
Common Stock, no par value..... 9,200,000 N/A $332,117,749 $26,744
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</TABLE>
(1) This Registration Statement covers (i) the maximum number of shares of
common stock of the Registrant issuable in connection with the merger
described herein and (ii) the maximum number of shares of common stock that
the Registrant has reserved for issuance under the dividend reinvestment
plan, the long term incentive plan, the employee stock purchase plan, and
other arrangements of NCNG which may be assumed by the Registrant upon
consummation of the merger but which may or may not be issued prior to
consummation of the merger. This Registration Statement covers the number of
shares of CP&L common stock that is estimated to be at least as large as the
number of shares of NCNG common stock expected to be outstanding at the
effective time of the merger Additionally, this registration statement
covers additional shares of the common stock of the registrant that may be
issued to prevent dilution resulting from a stock split, stock dividend, or
similar transaction involving the common stock of the registrant, pursuant
to Rule 416.
(2) The registration fee was calculated in accordance with Rule 457(f)(1) based
on the average of the high and low sale prices for shares of NCNG common
stock on the New York Stock Exchange on May 7, 1999. Pursuant to Rule
457(b), the total fee required of $92,329 has been reduced by the $65,585.62
filing fee previously paid at the time of filing of preliminary proxy
materials by North Carolina Natural Gas Corporation on January 11, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
(CP&L LOGO) (NCNG LOGO)
PROSPECTUS PROXY STATEMENT
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders of
North Carolina Natural Gas Corporation on June 29, 1999, at 10:00 a.m., local
time, at the Radisson Prince Charles Hotel, 450 Hay Street, Fayetteville, North
Carolina. Only shareholders of record as of the close of business on May 10,
1999, are entitled to attend and vote at the special meeting.
Your board of directors and Carolina Power & Light Company's board of
directors have agreed on a merger. The merger is structured so that NCNG will
become a subsidiary of CP&L. You will receive a fraction of a share of CP&L
common stock for each share of NCNG common stock you own based upon an exchange
ratio ranging from 0.7032 to 0.8594. The exchange ratio is designed to give you
approximately $35.00 per NCNG share in market value of CP&L common stock.
The exact exchange ratio and value of the CP&L common stock you will
receive in the merger will not be determined until the merger is completed.
Based on the range of exchange ratios above, we estimate that the shares of CP&L
common stock to be issued to NCNG shareholders will represent between
approximately 4% and 6% of the outstanding CP&L common stock after the merger.
The merger cannot be completed without the approval of a majority of the
outstanding shares of NCNG common stock. Whether or not you plan to attend the
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us. If you sign, date and mail your proxy card without identifying
how you want to vote, your proxy will be counted as a vote "FOR" the merger.
This document provides you with detailed information about the proposed
merger. Please read this entire document carefully. You may obtain additional
information about NCNG and CP&L from documents filed with the Securities and
Exchange Commission.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND HAS CONCLUDED
THAT THE MERGER IS IN THE BEST INTEREST OF NCNG SHAREHOLDERS. ACCORDINGLY, YOUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER
PROPOSAL.
(Calvin B. Wells Signature)
Calvin B. Wells
Chairman of the Board & Chief Executive Officer
North Carolina Natural Gas Corporation
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED
THE MERGER OR THE CP&L COMMON STOCK TO BE ISSUED UNDER THIS DOCUMENT OR
DETERMINED IF THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS IS DATED MAY 10, 1999 AND WAS FIRST MAILED
TO NCNG SHAREHOLDERS ON OR ABOUT MAY 14, 1999.
<PAGE> 3
NORTH CAROLINA NATURAL GAS CORPORATION
------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
------------------------------------------
North Carolina Natural Gas Corporation will hold a special meeting of
shareholders on June 29, 1999, at 10:00 a.m., local time, at the Radisson Prince
Charles Hotel, 450 Hay Street, Fayetteville, North Carolina. Shareholders of
record on May 10, 1999 are entitled to consider and vote at the special meeting
on the following proposals:
1. To approve an agreement and plan of merger, dated as of November 10,
1998, as amended and restated as of April 22, 1999, by and among North Carolina
Natural Gas Corporation, a Delaware corporation, Carolina Power & Light Company,
a North Carolina corporation, and Carolina Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Carolina Power & Light Company.
2. Any other matters that may properly come before the special meeting, or
any adjournments or postponements of the special meeting.
WE INVITE YOU TO ATTEND THE SPECIAL MEETING. IF YOU HAVE SHARES REGISTERED
IN THE NAME OF A BROKERAGE FIRM, TRUSTEE OR OTHER NOMINEE AND YOU PLAN TO ATTEND
THE SPECIAL MEETING, PLEASE OBTAIN FROM THE REGISTERED HOLDER A LETTER, ACCOUNT
STATEMENT OR OTHER EVIDENCE OF YOUR BENEFICIAL OWNERSHIP OF THOSE SHARES TO
FACILITATE YOUR ADMITTANCE TO THE MEETING.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU OWN. TO ENSURE YOUR REPRESENTATION AT THE
SPECIAL MEETING, PLEASE SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD
IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. YOUR PROXY MAY BE REVOKED IN THE
MANNER DESCRIBED IN THE PROXY STATEMENT-PROSPECTUS ACCOMPANYING THIS NOTICE AT
ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT THE SPECIAL MEETING.
By Order of the Board of Directors
(Barbara J. Caudill Signature)
Barbara J. Caudill
Assistant Corporate Secretary
May 14, 1999
Fayetteville, North Carolina
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 2
The Companies............................................. 2
What You Will Receive in the Merger....................... 2
NCNG's Reasons for the Merger............................. 3
The Merger Agreement...................................... 3
Comparative Per Share Market Price and Dividend
Information............................................ 3
Opinion of the Financial Advisor to the NCNG Board........ 3
Regulatory Approvals...................................... 4
Conditions to the Merger.................................. 4
Termination of the Merger Agreement....................... 4
Termination Fee........................................... 4
Important Federal Income Tax Consequences................. 4
Accounting Treatment...................................... 5
Other Interests of NCNG Officers and Directors in the
Merger................................................. 5
Where You Can Find More Information....................... 5
Comparative Per Share Information......................... 6
CP&L -- Selected Historical Financial Information......... 8
NCNG -- Selected Historical Financial Information......... 9
A CAUTION ABOUT FORWARD-LOOKING STATEMENTS.................. 10
WHAT INFORMATION YOU SHOULD RELY ON......................... 11
THE NCNG SPECIAL MEETING.................................... 12
Date and Purpose of the Special Meeting................... 12
Record Date for the Special Meeting and Who is Entitled to
Vote at the Special Meeting............................ 12
Voting by Proxy and How to Revoke Your Proxy.............. 13
Solicitation of Proxies................................... 13
THE MERGER.................................................. 14
General Description of the Merger; Effective Time......... 14
What You Will Receive in the Merger....................... 14
Cash Payments for Fractional Shares of CP&L Common
Stock.................................................. 15
Illustrations of Exchange Ratio Application and Value to
be Received............................................ 15
No Dissenters' Appraisal Rights........................... 16
Accounting for the Merger Under the Purchase Method....... 16
Restrictions on Resales by NCNG Affiliates................ 17
Material Federal Income Tax Consequences.................. 17
Procedures for Exchanging NCNG Certificates for CP&L
Certificates........................................... 18
Background and Negotiation of the Merger.................. 19
Reasons of NCNG for Agreeing to the Merger with CP&L...... 22
Reasons of CP&L for Agreeing to the Merger with NCNG...... 23
Opinion of NCNG Financial Advisor that the Merger is Fair
from a Financial Point of View......................... 23
Interests of NCNG Officers and Directors in the Merger.... 30
Regulatory Approvals Required to Complete the Merger...... 31
Other Significant Conditions to the Merger that Must be
Fulfilled or Waived.................................... 32
Covenants of Each of NCNG and CP&L; Conduct of Business
Prior to the Effective Time............................ 34
NCNG May Not Solicit Alternative Proposals................ 36
Amendment and Waiver...................................... 36
Termination of the Merger Agreement; Termination Fee...... 37
</TABLE>
(i)
<PAGE> 5
<TABLE>
<S> <C>
Indemnification of the Companies.......................... 38
MARKET PRICES AND DIVIDENDS PAID............................ 39
INFORMATION ABOUT NCNG...................................... 39
INFORMATION ABOUT CP&L...................................... 40
DESCRIPTION OF CP&L CAPITAL STOCK........................... 40
Authorized and Outstanding CP&L Capital Stock............. 40
CP&L Common Stock......................................... 41
Transfer Agent and Registrar.............................. 42
COMPARATIVE RIGHTS OF NCNG SHAREHOLDERS AND CP&L
SHAREHOLDERS.............................................. 42
Authorized Capital........................................ 42
Required Shareholder Votes for Certain Transactions....... 42
Anti-Takeover Laws and Provisions......................... 42
Size, Classification and Terms of Board of Directors...... 45
Removal of Directors...................................... 45
Dividends and Other Distributions......................... 45
Special Shareholder Meetings.............................. 46
Shareholder Proposal Procedures........................... 46
Director and Officer Liability; Indemnification........... 46
Amendment of Charter...................................... 47
Amendment of Bylaws....................................... 48
NO VOTE REQUIRED FOR CP&L SHAREHOLDERS...................... 48
LEGAL MATTERS............................................... 48
EXPERTS..................................................... 49
OTHER MATTERS............................................... 49
WHERE YOU CAN FIND MORE INFORMATION......................... 49
ANNEX A: AMENDED AND RESTATED AGREEMENT AND PLAN OF
MERGER.................................................... A-1
ANNEX B: OPINION OF NCNG FINANCIAL ADVISOR.................. B-1
</TABLE>
(ii)
<PAGE> 6
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN TO NCNG AS A RESULT OF THE MERGER?
A: If the merger is completed, NCNG will become a subsidiary of CP&L.
Q: WHEN DO NCNG AND CP&L EXPECT THE MERGER TO BE COMPLETE?
A: NCNG and CP&L are working to complete the merger as quickly as possible.
We hope to complete the merger in mid-1999.
Q: WHAT DO I NEED TO DO NOW?
A: You should carefully read and consider the information contained in this
document. You should complete and sign your proxy and return it in the
enclosed return envelope as soon as possible so that your shares may be
represented at the special meeting. Failing to vote in person or by proxy
will have the same effect as a vote against the merger agreement.
Q: AM I ENTITLED TO APPRAISAL RIGHTS?
A: No. Under Delaware law, you are not entitled to dissenters' rights of
appraisal or other rights to demand fair value for your shares in cash by
reason of the merger.
Q: WHAT IS THE REQUIRED VOTE TO APPROVE THE MERGER?
A: The merger must be approved by the holders of a majority of shares of NCNG
common stock entitled to vote at the special meeting. North Carolina law
does not require CP&L shareholders to approve the merger.
Q: CAN I CHANGE MY VOTE AFTER I MAIL MY
SIGNED PROXY?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, your can send
a written notice stating that you would like to revoke your proxy. Second,
you can complete and submit a new proxy. If you choose either of these two
methods, you must submit your notice of revocation or your new proxy to NCNG
at the address on page 13. Third, you can attend the special meeting and
vote in person.
Q: MY SHARES ARE HELD IN "STREET NAME." WILL MY BROKER VOTE MY SHARES ON THE
MERGER?
A: A broker will vote your shares on the merger agreement only if you provide
your broker with instructions on how to vote. You should follow the
directions provided by your broker(s) regarding how to instruct brokers to
vote the shares.
Q: SHOULD I SEND IN MY CERTIFICATES NOW?
A: No. After the merger is completed, CP&L will send written instructions to
you for exchanging your stock certificates. YOU SHOULD NOT SEND IN YOUR
STOCK CERTIFICATES WITH YOUR PROXY.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or if you need additional
copies of this document or the enclosed proxy, you should contact Barbara J.
Caudill, NCNG's Assistant Corporate Secretary, at (910) 323-6204.
1
<PAGE> 7
SUMMARY
This summary highlights material information from this document. It does
not contain all of the detailed information that may be important to you. To
understand the merger fully and for a more complete description of the legal
terms of the merger, you should read carefully this entire document and the
other documents to which we refer. For more information about NCNG and CP&L, see
"Where You Can Find More Information" on page 49. Each item in this summary
refers to the pages where that subject is discussed more fully.
THE COMPANIES (PAGES 39-40)
Carolina Power & Light Company
411 Fayetteville Street
Raleigh, North Carolina 27601
(919) 546-6111
CP&L is an electric utility company. It provides electric service and other
related services to more than 1.2 million customers in central and eastern North
Carolina, the Asheville area of North Carolina and the Pee Dee Region of South
Carolina. It was incorporated in July 1908 under the laws of the State of North
Carolina.
At December 31, 1998, CP&L had total consolidated assets of approximately
$8.3 billion and total consolidated common shareholders' equity of approximately
$2.9 billion.
North Carolina National Gas Corporation
150 Rowan Street
Fayetteville, North Carolina 28301
(910) 483-0315
NCNG is a natural gas utility company. Its business is the sale and
transportation of natural gas to residential, commercial, industrial and
electric power generation customers. NCNG provides natural gas, propane and
related services to more than 173,000 customers in 86 towns and cities and on
four municipal gas distribution systems in south central and eastern North
Carolina. NCNG was organized in 1955 under the laws of the State of Delaware.
At December 31, 1998, NCNG had total consolidated assets of approximately
$286.9 million and total consolidated shareholders' equity of approximately
$126.2 million.
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 14)
In the merger, each share of NCNG common stock will convert automatically
into a fractional share of CP&L common stock according to an exchange ratio.
The exchange ratio is a number designed to provide each NCNG shareholder
with approximately $35.00 worth of CP&L common stock for each share of NCNG
common stock owned. The value received will be more or less than $35.00 if, just
prior to completion of the merger, the CP&L common stock price exceeds $49.775
or is less than $40.725. The exchange ratio will be no less than 0.7032 and no
greater than 0.8594.
Although the exchange ratio and the number of shares of CP&L common stock
to be issued in the merger cannot be determined at this time, based on the
minimum and maximum exchange ratios and assuming no change in the number of
outstanding shares of each company, former NCNG shareholders would own between
4% and 6% of CP&L's common stock immediately after the merger.
CP&L will issue only whole shares. You will receive cash based on the
market price for CP&L common stock after closing for any fractional share
resulting from the application of the exchange ratio.
2
<PAGE> 8
The following table gives you illustrative examples of the exchange ratio
and the corresponding value per NCNG share at stated CP&L average market prices.
<TABLE>
<CAPTION>
AVERAGE CP&L $ VALUE PER
MARKET PRICE* EXCHANGE RATIO NCNG SHARE
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<S> <C> <C>
$35.00 0.8594 $30.08
$38.00 0.8594 $32.66
$40.725 0.8594 $35.00
$44.00 0.7955 $35.00
$45.00 0.7778 $35.00
$46.00 0.7609 $35.00
$47.00 0.7447 $35.00
$49.775 0.7032 $35.00
$53.00 0.7032 $37.27
$55.00 0.7032 $38.68
On May 10, 1999, the date of this document:
$38.66 0.8594 $33.22
</TABLE>
- ------------------
* The average CP&L market price will be calculated based upon the average
closing price of CP&L common stock on the NYSE for the 20 consecutive trading
days ending 5 trading days prior to the completion of the merger.
NCNG'S REASONS FOR THE MERGER (PAGE 22)
The NCNG board believes that the merger is in the best interest of NCNG's
shareholders, and that it offers strategic and financial benefits to NCNG and
CP&L as well as to their customers and to the service territories in which CP&L
and NCNG do business. In reaching its decision, the NCNG board considered the
following factors, among other things:
- - the merger presents an opportunity for NCNG shareholders to obtain common
stock in a larger, more diversified enterprise with significantly greater
liquidity;
- - the merger presents an opportunity for NCNG's shareholders to achieve enhanced
future earnings and dividend growth;
- - the merger is expected to be tax-free for federal income tax purposes to NCNG
shareholders, except on any cash received for fractional shares; and
- - the opinion of NCNG's financial advisor, Salomon Smith Barney Inc., that the
exchange ratio is fair to NCNG shareholders from a financial point of view.
THE MERGER AGREEMENT (PAGE 14)
The merger agreement is attached as Annex A to this document. We encourage
you to read the merger agreement because it is the legal document that governs
the merger. The merger agreement provides for the merger of a CP&L subsidiary
into NCNG. NCNG will remain in existence, but as a wholly-owned subsidiary of
CP&L. The NCNG shareholders will become shareholders of CP&L.
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION (PAGE 39)
Shares of CP&L common stock are listed on the NYSE and the Pacific
Exchange. Shares of NCNG common stock also are listed on the NYSE. On November
10, 1998, the last trading day prior to the public announcement of the proposed
merger, CP&L common stock closed at $47.5625 per share on the NYSE, and NCNG
common stock closed at $23.625 per share on the NYSE. On May 7, 1999, CP&L
common stock closed at $42.19 per share and NCNG common stock closed at $32.81
per share on the NYSE.
Based on CP&L's recent dividend history your per share dividends are
expected to increase. The annualized cash dividend of NCNG for the twelve months
ended December 31, 1998 was $1.00 per share. The December 31, 1998 annualized
pro forma equivalent dividend would have been $1.45 per share.
OPINION OF THE FINANCIAL ADVISOR TO THE NCNG BOARD (PAGE 23)
The NCNG board has retained Salomon Smith Barney as its financial advisor
in connection with the merger and to assist NCNG's board of directors in
evaluating the financial terms of the merger. Salomon Smith Barney has rendered
its opinion to the NCNG board that the exchange ratio specified in the merger
agreement is fair, from a financial point of view, to NCNG shareholders. The
opinion was delivered to the NCNG board at its meeting on November 10, 1998, and
Salomon Smith
3
<PAGE> 9
Barney is expected to reconfirm its opinion on
or about the date of this document.
NCNG SHAREHOLDERS SHOULD READ SALOMON SMITH BARNEY'S OPINION, ATTACHED AS
ANNEX B, IN ITS ENTIRETY. THE OPINION DISCUSSES THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS OF THE REVIEW UNDERTAKEN IN RENDERING THE OPINION.
REGULATORY APPROVALS (PAGE 31)
CP&L and NCNG have jointly filed applications with the U.S. Justice
Department and the Federal Trade Commission as required by federal law. The
North Carolina Utilities Commission and The Public Service Commission of South
Carolina must approve the merger and the related issuance of CP&L common stock.
Applications for the state approvals have been filed.
CONDITIONS TO THE MERGER (PAGE 32)
The merger will not be completed unless customary conditions are satisfied
or waived by CP&L and NCNG. Examples of customary conditions include shareholder
approval, the delivery of tax opinions and the absence of governmental action to
block the merger.
TERMINATION OF THE MERGER AGREEMENT (PAGE 37)
The boards of directors of NCNG and CP&L can agree at any time to terminate
the merger agreement before completing the merger, even if the NCNG shareholders
have voted to approve it.
The merger agreement may be terminated:
- - if the necessary governmental approvals are not obtained or if a court or
other government body issues an order blocking the merger.
- - if the merger is not completed by December 31, 1999;
- - if the NCNG shareholders do not approve the merger agreement;
- - if either company violates, in a material way, any of its representations,
warranties or obligations under the merger agreement and that violation has
not been corrected as permitted by the merger agreement; or
- - if a third party offers to NCNG a bona fide acquisition proposal that the NCNG
board believes, in good faith after consultation with its financial advisor,
is more favorable, from a financial point of view, than the CP&L proposal and
CP&L does not make a new proposal that the NCNG board believes is at least as
favorable, from a financial point of view, to the NCNG shareholders.
TERMINATION FEE (PAGE 37)
CP&L is entitled to be paid a termination fee of $10 million by NCNG if the
merger agreement is terminated for any one of the following reasons:
- - CP&L terminates the merger agreement because the merger has not been completed
by December 31, 1999 due to the failure of NCNG to use its best efforts to
obtain NCNG shareholder approval, to use its best efforts to complete the
merger promptly or to use all commercially reasonable efforts to make all
required regulatory filings and to provide information in connection with
those filings;
- - a qualified competing proposal has been made to NCNG's board or the NCNG
shareholders and CP&L does not modify its proposal to meet those terms within
the allotted time; or
- - the NCNG board withdraws its recommendation that you approve the merger
agreement.
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES (PAGE 17)
The receipt of CP&L common stock in the merger will generally be tax free
to NCNG shareholders for United States federal income tax purposes, except for
cash received for fractional shares. To review the tax conse-
4
<PAGE> 10
quences of the merger in greater detail please read the tax discussion
beginning on page 17.
ACCOUNTING TREATMENT (PAGE 16)
We expect the merger to be accounted for as a purchase for accounting and
financial reporting purposes in accordance with generally accepted accounting
principles.
OTHER INTERESTS OF NCNG OFFICERS AND DIRECTORS IN THE MERGER (PAGE 30)
In considering the NCNG board's recommendation that you vote for the merger
agreement, you should be aware that the NCNG officers and directors identified
in this document have interests in the merger that are different from, or in
addition to, their rights as NCNG shareholders.
WHERE YOU CAN FIND MORE INFORMATION (PAGE 49)
If you would like more information about NCNG or CP&L, it can be found in
documents filed by each company with the SEC. These documents are identified on
page 50. Pages 50-51 provide instructions on how you can obtain copies of them.
5
<PAGE> 11
COMPARATIVE PER SHARE INFORMATION (UNAUDITED)
The following table presents per share data for CP&L and NCNG for the
stated period. It also shows per share information assuming that the merger had
occurred, referred to as "pro forma" information. NCNG's fiscal year ends on
September 30 and CP&L's on December 31. The table shows pro forma information
for the year ended December 31, 1998. As a result, NCNG's financial information
has been conformed to CP&L's fiscal year end.
The fair value of the consideration paid and the number of CP&L shares
issued will be determined at the closing date. Under the merger agreement, NCNG
shareholders will receive between 0.7032 and 0.8594 shares of CP&L common stock
for each share of NCNG common stock they hold. The pro forma information has
been prepared as if each holder of NCNG common stock received 0.7417 share of
CP&L common stock, which was determined by using the exchange ratio as if the
merger had been completed on December 31, 1998. The pro forma purchase price of
approximately $355 million has been computed based on the pro forma CP&L shares
issued of approximately 7,529,000 multiplied by $47.19, the CP&L common stock
market price used in setting the pro forma exchange ratio. For more information
on the exchange ratio please refer to pages 14-15.
The pro forma purchase price of approximately $355 million has been
adjusted for estimated transaction costs of approximately $4 million, resulting
in a pro forma adjusted purchase price of approximately $359 million to be
allocated to the assets and liabilities of NCNG at their fair values. The
allocation of the purchase price is preliminary and subject to change. The fair
values of the rate-regulated net assets acquired are considered to be equivalent
to the book value since book value represents the amount that will be
recoverable through regulated rates. For pro forma computations, the fair values
of the non-regulated net assets are assumed to equal the book value.
Accordingly, the only adjustment to the carrying value of NCNG's net assets
reflects transaction costs and severance liabilities totaling approximately $4
million. Pro forma goodwill of approximately $237 million has been amortized
over a 40-year life. The pro forma earnings per common share information has
been prepared using the purchase accounting assumptions described above, but
applied as if the merger had occurred on January 1, 1998.
Amounts shown as "Pro forma equivalent" are computed by multiplying the
"Pro forma combined" information by the assumed exchange ratio of 0.7417. A
1/8% change in the assumed exchange ratio would not change the pro forma
combined information and would result in a maximum change of $0.02 per share to
the pro forma equivalent information.
While we expect that the merger will provide the combined companies with
reduced operating expenses and opportunities to increase revenue, we have not
reflected those anticipated benefits in the pro forma information. In addition,
CP&L may incur expenses as a result of the merger, but the pro forma information
does not reflect any expenses in addition to those discussed above. Therefore,
the pro forma information, while helpful in illustrating the financial results
of the combined companies under one set of assumptions, does not attempt to
predict or suggest future results. The pro forma information also does not
attempt to show how the combined companies would have performed if the merger
had occurred prior to the stated period.
We based the information in the following table on the historical
information of NCNG and CP&L included in prior filings with the SEC. When you
read the summary financial information we provide in the following tables, you
also should read the historical financial information in other documents to
which we refer. See "Where You Can Find More Information" on page 49.
6
<PAGE> 12
COMPARATIVE PER SHARE INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
EARNINGS PER COMMON SHARE(BASIC AND DILUTED)
CP&L
Historical............................................. $ 2.75
Pro forma combined for the merger...................... $ 2.69
NCNG
Historical............................................. $ 1.65
Pro forma equivalent for the merger.................... $ 2.00
CASH DIVIDENDS DECLARED PER COMMON SHARE
CP&L
Historical............................................. $1.955
Pro forma combined for the merger(1)................... $1.955
NCNG
Historical............................................. $1.000
Pro forma equivalent for the merger.................... $1.450
BOOK VALUE PER COMMON SHARE(2)
CP&L
Historical............................................. $20.47
Pro forma combined for the merger...................... $21.79
NCNG
Historical............................................. $12.44
Pro forma equivalent for the merger.................... $16.16
</TABLE>
- ------------------------------------------
(1) Pro forma cash dividends declared assumes that the combined entity would
have declared cash dividends equal to the CP&L historical cash dividends
declared.
(2) Historical book value per common share is computed by dividing common
shareholders' equity by the number of shares of common stock outstanding at
the end of the period. Pro forma book value per share is computed by
dividing pro forma common shareholders' equity by the pro forma number of
shares of common stock outstanding at the end of the period.
7
<PAGE> 13
CP&L -- SELECTED HISTORICAL FINANCIAL INFORMATION
We derived the information below from the audited consolidated financial
statements of CP&L for its fiscal years ended December 31, 1994 through 1998.
You should not expect the results for the prior periods to be an indication of
the results to be achieved for future periods. This information is only a
summary and should be read in conjunction with CP&L's historical financial
statements (and related notes) contained in its reports filed with the SEC. See
"Where You Can Find More Information" on page 49.
(IN THOUSANDS EXCEPT PER SHARE AND RATIO AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating results
Operating revenues............ $3,130,045 $3,024,089 $2,995,715 $3,006,553 $2,876,589
Net income.................... 399,238 388,317 391,277 372,604 313,167
Earnings for common stock..... 396,271 382,265 381,668 362,995 303,558
Ratio of earnings to fixed
charges....................... 4.38 4.17 4.12 3.67 3.31
Ratio of earnings to fixed
charges and preferred stock
dividends..................... 4.28 3.98 3.83 3.43 3.09
Per share data
Basic and diluted earnings per
common share............... $ 2.75 $ 2.66 $ 2.66 $ 2.48 $ 2.03
Dividends declared per common
share...................... $ 1.955 $ 1.895 $ 1.835 $ 1.775 $ 1.715
Assets (end of period).......... $8,347,406 $8,176,728 $8,298,862 $8,159,655 $8,136,819
Capitalization (end of period)
Common stock equity........... $2,949,305 $2,818,807 $2,690,454 $2,574,743 $2,586,179
Preferred stock -- redemption
not required............... 59,376 59,376 143,801 143,801 143,801
Long-term debt, net........... 2,614,414 2,415,656 2,525,607 2,610,343 2,530,773
---------- ---------- ---------- ---------- ----------
Total capitalization....... $5,623,095 $5,293,839 $5,359,862 $5,328,887 $5,260,753
========== ========== ========== ========== ==========
</TABLE>
8
<PAGE> 14
NCNG -- SELECTED HISTORICAL FINANCIAL INFORMATION
We derived the information below from the audited consolidated financial
statements of NCNG for its fiscal years ended September 30, 1994 through 1998
and the unaudited consolidated financial statements for the three months ended
December 31, 1997 and 1998. You should not expect the results for the three
month periods to be an indication of the results to be achieved for the full
year or any other interim period. In addition you should not expect the results
for the prior annual periods to be an indication of the results to be achieved
for future periods. This information is only a summary and should be read in
conjunction with NCNG's historical financial statements (and related notes)
contained in its reports filed with the SEC. See "Where You Can Find More
Information" on page 49.
(IN THOUSANDS EXCEPT FOR PER SHARE AND RATIO AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31 YEAR ENDED SEPTEMBER 30
------------------- ----------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating results
Operating revenues.......... $ 50,042 $ 69,227 $231,915 $235,534 $235,201 $170,180 $173,561
Net income.................. 4,851 5,369 17,148 17,594 15,173 11,809 11,150
Earnings for common stock... 4,851 5,369 17,148 17,594 15,173 11,809 11,150
Ratio of earnings to fixed
charges..................... 5.44 6.68 5.14 5.72 5.32 4.46 4.84
Per share data
Basic and diluted earnings
per common share.......... $ 0.48 $ 0.54 $ 1.70 $ 1.77 $ 1.55 $ 1.23 $ 1.17
Dividends declared per
common share.............. $ 0.250 $ 0.233 $ 0.983 $ 0.917 $ 0.853 $ 0.803 $ 0.760
Assets (end of period)........ $286,878 $273,504 $271,438 $253,251 $232,779 $214,880 $205,631
Capitalization (end of period)
Common stock equity......... $126,190 $116,766 $123,201 $113,223 $101,958 $ 92,778 $ 86,399
Preferred stock............. 0 0 0 0 0 0 0
Long-term debt, net......... 59,000 61,000 59,000 61,000 63,000 62,000 37,000
-------- -------- -------- -------- -------- -------- --------
Total capitalization...... $185,190 $177,766 $182,201 $174,223 $164,958 $154,778 $123,399
======== ======== ======== ======== ======== ======== ========
</TABLE>
9
<PAGE> 15
A CAUTION ABOUT FORWARD-LOOKING STATEMENTS
The matters discussed throughout this document or in any document
incorporated by reference 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.
Any forward-looking statement speaks only as of the date on which the
statement was made. Neither CP&L nor NCNG undertakes any obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which the statement was 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 Public Service Commission of South Carolina;
- - Legislative and regulatory initiatives that impact the speed and degree of
industry restructuring of the electric utility and natural gas industries;
- - The ability of CP&L and NCNG to obtain adequate and timely rate recovery of
costs, including potential stranded costs arising from industry restructuring,
and other necessary regulatory approvals;
- - General industry trends and increasing competition from other energy
suppliers;
- - The success of diversified businesses;
- - Operation of nuclear power facilities, the availability of nuclear waste
storage facilities and nuclear decommissioning costs;
- - Market demand for energy, changes in the economy of areas served by the
companies and weather conditions or catastrophic weather-related damage;
- - The ability of CP&L, NCNG, their suppliers and customers to successfully
address Year 2000 readiness issues;
- - General economic factors including inflation and capital market conditions;
- - Unanticipated changes in operating expenses and capital expenditures; and
- - Legal and administrative proceedings.
These factors are difficult to predict. They also contain uncertainties
that may materially affect actual results, and may be beyond the control of CP&L
or NCNG. New factors may emerge from time to time and it is not possible for us
to predict new factors, nor can we assess the effect of any new factors on
either CP&L or NCNG.
10
<PAGE> 16
WHAT INFORMATION YOU SHOULD RELY ON
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION THAT DIFFERS FROM, OR ADDS TO, THE INFORMATION DISCUSSED IN THIS
DOCUMENT OR IN THE OTHER DOCUMENTS THAT WE SPECIFICALLY INCORPORATE BY
REFERENCE, OR IN OTHER DOCUMENTS WE HAVE PUBLICLY FILED WITH THE SEC. THEREFORE,
IF ANYONE GIVES YOU DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON
IT.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF ITS DATE
UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES. THIS
DOCUMENT DOES NOT CONSTITUTE AN OFFER TO EXCHANGE OR SELL, OR A SOLICITATION OF
AN OFFER TO EXCHANGE OR PURCHASE, THE NCNG COMMON STOCK OR TO ASK FOR PROXIES,
TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO DIRECT THESE ACTIVITIES. UNDER
THOSE CIRCUMSTANCES, THE SOLICITATION AND OFFER PRESENTED BY THIS DOCUMENT DOES
NOT APPLY TO YOU.
11
<PAGE> 17
THE NCNG SPECIAL MEETING
DATE AND PURPOSE OF THE SPECIAL MEETING
The special meeting is scheduled to be held on June 29, 1999, at 10:00
a.m., local time, at the Radisson Prince Charles Hotel, 450 Hay Street,
Fayetteville, North Carolina. It may be adjourned to another date and/or place
for proper purposes. The purpose of the meeting is to consider and vote upon a
proposal to approve the merger agreement. The NCNG shareholders also might be
asked to vote upon a proposal to adjourn or postpone the special meeting for the
purpose, among others, of allowing additional time for the solicitation of
additional votes to approve the merger agreement.
RECORD DATE FOR THE SPECIAL MEETING AND WHO IS ENTITLED TO VOTE AT THE SPECIAL
MEETING
Record Date. The NCNG board has fixed the close of business on May 10,
1999, as the record date for the determination of the NCNG shareholders entitled
to receive notice of and to vote at the special meeting. As of the record date,
10,190,787 shares of NCNG common stock were outstanding and entitled to vote on
the merger proposal.
Voting Rights. Each NCNG shareholder is entitled to one vote for each
share of NCNG common stock held on the record date on the proposal to approve
the merger agreement and on each matter that may properly come before the
special meeting.
Quorum Requirements. A majority of the NCNG common stock outstanding and
entitled to vote, represented in person or by proxy, constitutes a quorum for
consideration of each matter at the special meeting.
Vote Required. The affirmative vote of the holders of a majority of the
outstanding shares of NCNG common stock entitled to vote at the special meeting
will be sufficient to approve the merger agreement.
Abstentions, Failures to Vote, and Broker Non-Votes. In accordance with
Delaware law, NCNG intends to count shares of NCNG common stock present in
person at the special meeting but not voting, and shares of NCNG common stock
for which it has received proxies but with respect to which holders of those
shares have abstained, as present at the special meeting for purposes of
determining the presence or absence of a quorum for the transaction of business.
Under applicable NYSE rules, brokers who hold NCNG common stock in nominee or
"street name" for customers who are the beneficial owners of those shares are
prohibited from giving a proxy to vote shares held for those customers with
respect to the merger agreement without specific instructions from those
customers.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE VOTES ENTITLED TO BE CAST AT THE SPECIAL MEETING, ABSTENTIONS
AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS NEGATIVE VOTES. THE FAILURE TO
VOTE YOUR SHARES WILL ALSO HAVE THE SAME EFFECT AS A NEGATIVE VOTE. ACCORDINGLY,
THE NCNG BOARD URGES YOU TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE.
As of the record date, approximately 259,132 shares of NCNG common stock,
or approximately 2.54% of the shares entitled to vote at the special meeting,
were beneficially owned by directors and executive officers of NCNG. It is
currently expected that each director or executive officer will vote the shares
of NCNG common stock beneficially owned by him or her for approval of the merger
agreement.
12
<PAGE> 18
Additional information with respect to beneficial ownership of NCNG common
stock by persons and entities owning more than 5% of the outstanding shares of
NCNG common stock and more detailed information with respect to beneficial
ownership of NCNG common stock by directors and executive officers of NCNG is
incorporated by reference from the NCNG Annual Report on Form 10-K for the year
ended September 30, 1998. See "Where You Can Find More Information" on page 49.
VOTING BY PROXY AND HOW TO REVOKE YOUR PROXY
You may vote shares either in person or by duly authorized proxy. You may
use the proxy accompanying this document if you are unable to attend the special
meeting in person or you wish to have your shares voted by proxy even if you do
attend the special meeting. You may revoke any proxy given by you in response to
this solicitation at any time before the proxy is exercised by delivering a
written notice of revocation, by filing with NCNG a subsequently dated, properly
executed proxy or by attending the special meeting and electing to vote in
person. Your attendance at the special meeting, by itself, will not constitute a
revocation of a proxy. You should address any written notices of proxy
revocation to: North Carolina Natural Gas Corporation, P.O. Box 909,
Fayetteville, North Carolina 28302-9969, Attention: Assistant Corporate
Secretary.
All shares represented by effective proxies on the accompanying form of
NCNG proxy received by NCNG at or before the special meeting, and not revoked
before they are exercised, will be voted at the special meeting in accordance
with their terms. If no instructions are given, the NCNG proxies will be voted
"FOR" the approval of the merger agreement and at the discretion of the proxies
on any other matters that properly come before the special meeting. The NCNG
board is not aware of any other matters to be presented at the special meeting
other than matters incidental to the conduct of the special meeting.
SOLICITATION OF PROXIES
NCNG will bear the entire cost of the solicitation of proxies for the
special meeting and in the printing, mailing and its filing of this document. In
addition to the solicitation of proxies by mail, officers, directors, employees
and agents of NCNG may solicit proxies by correspondence, telephone, telegraph,
telecopy or other electronic means, or in person, but without extra
compensation. NCNG will request banks, brokers and other record holders to send
proxies and proxy materials to the beneficial owners of NCNG common stock and
secure their voting instructions and will reimburse their reasonable charges and
expenses incurred in forwarding the proxies and proxy materials. Further
solicitation of proxies may be made by telephone or oral communication with some
NCNG shareholders following the original solicitation. All further solicitation
will be made by officers and regular clerical employees of NCNG who will not be
additionally compensated for their activities.
13
<PAGE> 19
THE MERGER
The following is a summary of the material terms of the merger agreement.
This summary is qualified in its entirety by reference to the merger agreement,
as amended and restated, a copy of which is included as Annex A to this document
and is incorporated herein by reference. You are urged to read carefully the
merger agreement in its entirety.
GENERAL DESCRIPTION OF THE MERGER; EFFECTIVE TIME
The merger agreement provides that, once the NCNG shareholders have
approved the merger agreement and if the other conditions to the merger have
been satisfied or waived, including the requisite regulatory approvals, Carolina
Acquisition Corporation, a wholly-owned subsidiary of CP&L, will merge with and
into NCNG in accordance with the laws of the State of Delaware by filing a
Certificate of Merger with the Secretary of the State of Delaware. Once the
Certificate of Merger is filed and accepted by the Secretary of the State of
Delaware, the merger will be effective. This is referred to as the effective
time of the merger. NCNG will be the surviving company in the merger and will
continue its corporate existence under the laws of the State of Delaware.
Although NCNG will continue as an entity, the shares of NCNG common stock owned
by the NCNG shareholders will convert automatically into shares of CP&L common
stock (and any cash payment for fractional shares) and the shares of stock of
Carolina Acquisition Corporation owned by CP&L will convert into shares of NCNG
common stock, with the result that NCNG will be a wholly-owned subsidiary of
CP&L.
WHAT YOU WILL RECEIVE IN THE MERGER
In the merger, each share of NCNG common stock issued and outstanding at
the effective time of the merger, along with each related right to acquire NCNG
common stock previously issued to NCNG shareholders pursuant to NCNG's
shareholder rights plan, will be converted automatically into the right to
receive a fractional share of CP&L common stock equal to the exchange ratio, as
explained below.
If the merger is completed on or before November 10, 1999, the exchange
ratio will be equal to $35.00 divided by one of the following three
denominators. Each denominator reflects the average market price of CP&L common
stock on the NYSE for each of the 20 consecutive trading days prior to and
including the 5th trading day prior to the completion of the merger. For
simplification, we have defined the 20 day average market price referred to in
the preceding sentence as the CP&L MARKET PRICE. The exchange ratio is designed
to provide each NCNG shareholder with approximately $35.00 worth of CP&L common
stock for each share of NCNG common stock owned. However, the actual value
received for each NCNG share will depend on the market value of CP&L common
stock at the completion of the merger. If the CP&L market value is more than
$49.775, each share of NCNG common stock will be valued in the merger at more
than $35.00, and if the CP&L market value is less than $40.725, each share of
NCNG common stock will be valued in the merger at less than $35.00.
The three denominators used to calculate the exchange ratio are as follows:
(i) the CP&L Market Price if the CP&L Market Price is between $49.775 and
$40.725;
Example: CP&L Market Price = $45.00
$35/$45 = 0.7778 exchange ratio
14
<PAGE> 20
(ii) $49.775 if the CP&L Market Price is greater than $49.775, in which
case the exchange ratio will equal 0.7032;
Example: CP&L Market Price = $53.00
$35/$49.775 = 0.7032 exchange ratio
(iii) $40.725 if the CP&L Market Price is less than $40.725, in which case
the exchange ratio will be 0.8594.
Example: CP&L Market Price = $38.00
$35/$40.725 = 0.8594 exchange ratio
Although the merger will be accounted for under the purchase method of
accounting, if before the closing, CP&L publicly announces an event that would
have precluded the merger from being accounted for as pooling of interests, then
the denominator will be either:
(i) $40.725 if the average CP&L market price for the 20 days prior to the
public announcement is less than $40.725; or
(ii) The lower of the average CP&L market price for the 20 days prior to
the public announcement or the CP&L Market Price if the average CP&L
market price for the 20 days prior to the public announcement is
$40.725 or greater.
However, in no case will the denominator be less than $40.725 or greater than
$49.775.
If the merger is completed after November 10, 1999, the exchange ratio will
be equal to $35.00 increased by a rate of 3.7% per annum, compounded daily, for
each day after November 10, 1999 through the closing date, as defined in the
merger agreement, divided by the applicable denominator listed above. This
adjustment will result in a slightly higher exchange ratio.
Assuming the maximum exchange ratio of 0.8594 and a minimum exchange ratio
of 0.7032, the merger will result in NCNG shareholders holding between 4% and 6%
of all outstanding shares of CP&L common stock following consummation of the
merger, giving effect to the shares to be issued in the merger and based on the
number of shares of NCNG and CP&L common stock outstanding as of the date of
this document.
CASH PAYMENTS FOR FRACTIONAL SHARES OF CP&L COMMON STOCK
If the application of the exchange ratio to your NCNG shares results in a
number of whole shares of CP&L common stock and an additional fractional share,
no fractional shares of CP&L common stock will be delivered. Rather than
receiving fractional shares, you will receive a cash payment, without interest,
based on the market price for CP&L common stock immediately after the closing.
ILLUSTRATIONS OF EXCHANGE RATIO APPLICATION AND VALUE TO BE RECEIVED
The market price of CP&L common stock will fluctuate, and the number of
outstanding shares of NCNG common stock might change, between the date of this
document and the effective time of the merger. Therefore, the number of shares
of CP&L common stock to be issued in the merger can be estimated, but the
precise number cannot be forecast at this time.
15
<PAGE> 21
The following table contains examples of the exchange ratio assuming CP&L
Market Prices and that you own 100 shares of NCNG common stock. The examples
provided assume that the market price of a share of CP&L common stock on the day
the merger is completed is equal to the CP&L Market Price used to determine the
exchange ratio. For each stated CP&L Market Price, the table indicates:
- the corresponding exchange ratio;
- the number and dollar value of whole shares of CP&L common stock that you
would receive;
- the amount of cash you would receive for any fractional share; and
- the total value of the merger consideration that you would receive.
<TABLE>
<CAPTION>
CASH PAYMENT TOTAL VALUE
CP&L EXCHANGE NUMBER WHOLE $ VALUE OF CP&L FOR FRACTIONAL PER 100
MARKET PRICE RATIO CP&L SHARES SHARES TO BE RECEIVED SHARE NCNG SHARES
- ------------ -------- ------------ --------------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
$35.00 0.8594 85 $2,975.00 $32.90 $3,007.90
$38.00 0.8594 85 $3,230.00 $35.72 $3,265.72
$40.725 0.8594 85 $3,461.63 $38.28 $3,499.91
$44.00 0.7955 79 $3,476.00 $24.20 $3,500.20
$45.00 0.7778 77 $3,465.00 $35.10 $3,500.10
$46.00 0.7609 76 $3,496.00 $ 4.14 $3,500.14
$47.00 0.7447 74 $3,478.00 $22.09 $3,500.09
$49.775 0.7032 70 $3,484.25 $15.93 $3,500.18
$53.00 0.7032 70 $3,710.00 $16.96 $3,726.96
$55.00 0.7032 70 $3,850.00 $17.60 $3,867.60
On May 10, 1999, the date of this document:
$38.66 0.8594 85 $3,286.10 $36.34 $3,322.44
</TABLE>
- ------------------------------------------
The table assumes that the merger occurs by November 10, 1999, so that the
exchange ratio is not increased as a result of the increase in the formula
numerator described above.
NO DISSENTERS' APPRAISAL RIGHTS
Pursuant to Delaware law, NCNG shareholders who object to the merger are
not entitled to demand separate payment or appraisal for their shares in
connection with the transactions contemplated by the merger agreement.
Therefore, if the merger agreement is approved and the merger is completed, you
will be entitled only to the shares of CP&L common stock and any cash paid for
fractional shares as provided by the merger agreement, even if you did not vote
in favor of the merger agreement or voted against the merger agreement.
ACCOUNTING FOR THE MERGER UNDER THE PURCHASE METHOD
The merger will be accounted for by CP&L using the purchase method of
accounting for a business combination. Under this method of accounting, the
assets and liabilities of NCNG will be recorded at their fair values. The
results of operations and cash flows of NCNG will be included in CP&L's
financial statements prospectively as of the completion of the merger.
16
<PAGE> 22
RESTRICTIONS ON RESALES BY NCNG AFFILIATES
CP&L has registered under the Securities Act the shares of CP&L common
stock to be received by NCNG shareholders in connection with the merger. When
your CP&L shares are issued, you may trade them without restriction unless you
are deemed to be an "affiliate" of NCNG or CP&L, as defined in the rules
promulgated under the Securities Act.
The shares of CP&L common stock to be issued in connection with the merger
and received by persons who are deemed to be affiliates of NCNG prior to the
merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act. Shares of CP&L common stock
received by persons who are deemed to be affiliates of CP&L after the merger may
be sold by them only in transactions permitted under the provisions of Rule 144
under the Securities Act, or as otherwise permitted under the Securities Act.
For purposes of Rule 145 under the Securities Act, NCNG has agreed to use
its best efforts to cause each person who is an affiliate of NCNG to deliver to
CP&L a written agreement intended to ensure compliance with the Securities Act.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Each NCNG shareholder should consult with his or her own tax advisor about
the tax consequences of the merger in light of his or her individual
circumstances, including the application of any federal, state, local or foreign
law.
The following summarizes the material federal income tax consequences of
the merger to NCNG shareholders. This summary is based on current law, which is
subject to change at any time, possibly with retroactive effect. This summary is
not a complete description of all tax consequences of the merger and, in
particular, may not address federal income tax consequences applicable to you if
you are subject to special treatment under federal income tax law. In addition,
this summary does not address the tax consequences of the merger under
applicable state, local or foreign laws.
NCNG and CP&L have received the opinion of Hunton & Williams, counsel to
CP&L, that the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. If the merger qualifies as a
reorganization:
(i) no gain or loss will be recognized by NCNG, Carolina Acquisition
Corporation or CP&L upon consummation of the merger;
(ii) no gain or loss will be recognized by an NCNG shareholder upon the
exchange of NCNG common stock for CP&L common stock in the merger,
except with respect to cash received for fractional shares;
(iii) the aggregate basis of the shares of CP&L common stock received by an
NCNG shareholder in the merger, including any fractional share for
which the shareholder receives cash, will be the same as the
aggregate basis of the shares of NCNG common stock surrendered in
exchange;
(iv) the holding period of the shares of CP&L common stock received by an
NCNG shareholder in the merger will include the holding period of the
shares of NCNG common stock surrendered in exchange, if they are held
as a capital asset at the effective time; and
(v) an NCNG shareholder who receives cash for any fractional share of CP&L
common stock will recognize gain or loss equal to the difference
between the amount of cash received and
17
<PAGE> 23
the NCNG shareholder's basis in the fractional share. That basis will
be an allocable portion of the aggregate basis of the CP&L common
stock described in clause (iii) above.
Receipt by NCNG and CP&L of substantially the same tax opinion of Hunton &
Williams as of the closing date, as defined in the merger agreement, is a
condition to consummation of the merger. The opinion of Hunton & Williams is
based on, and the opinion to be given as of the closing date will be based on,
customary assumptions and representations. Hunton & Williams' opinion represents
its best legal judgment and is not binding on the Internal Revenue Service or
any court. If the merger does not qualify as a reorganization, the exchange of
stock in the merger would be taxable to NCNG shareholders.
PROCEDURES FOR EXCHANGING NCNG CERTIFICATES FOR CP&L CERTIFICATES
After the merger is completed, your shares of NCNG common stock will no
longer evidence an interest in NCNG, and will automatically become the right to
receive:
(i) certificate or certificates representing the number of whole shares of
CP&L common stock into which your shares were converted in the merger;
(ii) a check for any fractional share, without interest; and
(iii) a check for any dividends or other distributions declared by CP&L, if
any, with respect to each whole share of CP&L common stock with a
record date after the effective time, without interest.
You will not be entitled to receive any certificates for shares of CP&L
common stock or cash payable under the merger agreement until you surrender your
NCNG common stock certificate or certificates. Immediately prior to the
completion of the merger, CP&L will deliver to Equiserve Trust Company, N.A.,
the exchange agent, in trust for the benefit of the NCNG shareholders, shares of
CP&L common stock necessary to make the exchanges required by the merger
agreement on a timely basis. CP&L will also deliver to Equiserve cash sufficient
to pay for any dividends or other distributions on CP&L common stock with a
record date after the effective time.
Promptly after the merger is completed, Equiserve will mail to each NCNG
shareholder a letter of transmittal and instructions for use in surrendering
NCNG certificates. Upon surrender of an NCNG certificate, an executed letter of
transmittal, and any other required documents, you will be entitled to receive
shares of CP&L common stock in exchange and any cash due. Each NCNG certificate
will be canceled. Delivery of NCNG certificates will be effected, and risk of
loss and title to NCNG certificates will pass, only upon proper delivery of the
NCNG certificates to Equiserve.
If registration or delivery of CP&L common stock is to be made to a person
other than the person in whose name the NCNG certificate surrendered is
registered, the NCNG certificate surrendered must be properly endorsed or
otherwise must be in proper form for transfer and the person requesting delivery
or issuance must pay any transfer or other taxes required.
After the merger is completed, NCNG will not recognize any transfers on the
stock transfer books of NCNG of the shares of NCNG. If, after the merger is
completed, NCNG certificates are presented to CP&L or NCNG for transfer, they
will be canceled and exchanged for shares of CP&L common stock and any
applicable cash payments.
Any shares of CP&L common stock, any cash received by Equiserve for
payments on fractional shares and any cash delivered to Equiserve for payment on
accrued dividends and distributions thereon, that remain unclaimed by the former
NCNG shareholders 180 days after the effective time will be delivered by
Equiserve to CP&L. NCNG shareholders who have not delivered their NCNG
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<PAGE> 24
certificates may look only to CP&L for satisfaction of their claim for the
merger consideration due to them, without any interest thereon. Neither CP&L nor
NCNG will be liable to any NCNG shareholders for any shares of CP&L common stock
or cash payments delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
CP&L will be entitled to deduct and withhold from the cash otherwise
payable to any NCNG shareholder pursuant to the merger agreement any amount that
CP&L is required to deduct and withhold with respect to any payment under the
applicable tax laws. Any withheld amounts will be treated as having been paid to
the NCNG shareholder.
BACKGROUND AND NEGOTIATION OF THE MERGER
The merger agreement is the result of arms-length negotiations between
representatives of CP&L and NCNG, supported by their respective legal counsel
and financial advisors. The following is a brief discussion of the background of
these negotiations.
In June 1998, William Cavanaugh III, the President and Chief Executive
Officer of CP&L, met in Fayetteville, North Carolina, with Calvin B. Wells, the
Chief Executive Officer of NCNG. During the meeting, Mr. Cavanaugh discussed
CP&L's strategy for becoming a total energy provider for customers and securing
natural gas supplies for CP&L's electric power plants. The current state of the
utility industry, the challenges presented by anticipated changes in the utility
industry and the regulatory and economic environment were also discussed during
the meeting. Mr. Cavanaugh indicated to Mr. Wells that he considered a possible
business combination of NCNG with CP&L and the potential benefits to the
shareholders of NCNG and CP&L to be a topic that was appropriate for future
consideration. During a regularly scheduled meeting of NCNG's board of directors
on July 6, 1998, Mr. Wells informed the NCNG directors of Mr. Cavanaugh's visit
and comments.
On July 8, 1998, Mr. Cavanaugh and Mr. Glenn Harder, Executive Vice
President and Chief Financial Officer of CP&L, met with Mr. Wells and Mr. Gerald
A. Teele, Senior Vice President and Chief Financial Officer of NCNG, to propose
a business combination between CP&L and NCNG. During this meeting, the CP&L
representatives reviewed the past performance of CP&L and NCNG. The CP&L
officers also described the potential benefit to NCNG shareholders of a business
combination of the companies and suggested for initial discussion purposes
merger consideration for holders of NCNG common stock that would represent a
premium over the NCNG common stock price as of July 8, 1998.
In response to CP&L's initiatives and expression of interest in NCNG, NCNG
management engaged a consultant specializing in utility matters. A special
meeting of the NCNG board was held on July 28, 1998, for an overview by the
consultant of his views regarding future prospects for the gas and electric
utility industry.
After considering the information presented at this meeting, the NCNG board
determined that it was interested in pursuing merger negotiations, but that it
could not recommend to the NCNG shareholders the initial price for NCNG common
stock within the ranges suggested by CP&L. The NCNG board instructed Mr. Wells
to contact Mr. Cavanaugh to explore whether CP&L would be interested in
increasing the price to be paid for NCNG.
On July 30, 1998, Mr. Wells advised Mr. Cavanaugh by telephone that
although discussions regarding the business combination of NCNG and CP&L may be
appropriate, the NCNG directors believed that NCNG's value exceeded the price
range suggested by CP&L.
On August 4, 1998, a meeting of representatives of CP&L and NCNG was held.
This meeting was attended by Mr. Cavanaugh, Mr. Harder and Mr. Robert McGehee,
Executive Vice President
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<PAGE> 25
and General Counsel of CP&L. NCNG was represented at this meeting by Mr. Wells,
Mr. Richard F. Waid, a Director of NCNG, and Mr. Alfred E. Cleveland, General
Counsel for NCNG. The parties discussed CP&L's strategy for the future and the
advantages of a business combination with NCNG. The CP&L representatives also
suggested a range of exchange ratios and valuations for NCNG's common stock,
which equated to a value of $31.33 to $32.58 per share of NCNG common stock,
representing a premium of approximately 25% to 30% over the market price of NCNG
common stock on August 4, 1998.
On August 13, 1998, a special meeting of the NCNG board was held during
which Mr. Wells reported to the NCNG directors concerning the meeting with
representatives of CP&L on August 4, 1998. After Mr. Wells reported to the NCNG
board, he invited Mr. Cavanaugh of CP&L into the meeting. Mr. Cavanaugh reviewed
CP&L's past performance, the outlook for CP&L in the future, the strategic
benefits of merging CP&L and NCNG, and the potential value to NCNG shareholders
of a business combination with CP&L. After his remarks, Mr. Cavanaugh left the
meeting.
Following a discussion of Mr. Cavanaugh's comments and the outlook for
NCNG's remaining an independent company, the NCNG directors instructed the
board's Finance Committee to meet with investment banking firms and to recommend
one firm to act as financial advisor to NCNG. During a special meeting of the
NCNG board by telephone on August 24, 1998, the directors, upon recommendation
of the Finance Committee, voted to retain Salomon Smith Barney Inc. to act as
NCNG's financial advisor to assist NCNG in evaluating strategic alternatives and
in negotiating with CP&L or other parties concerning a possible business
combination.
Representatives of Salomon Smith Barney met with members of NCNG's
management and directors on several occasions during which Salomon Smith Barney
discussed utility industry trends, including the mergers of electric and gas
companies, potential advantages of NCNG merging with CP&L, data from utility
industry peers, merger activity in the utility industry and strategic
alternatives that might be available to NCNG, including other electric and
natural gas companies that might have an interest in acquiring NCNG. The NCNG
board considered NCNG's long-term position and strategic options that would help
NCNG take advantage of increasing deregulation and consolidation in the gas
distribution industry. Among the strategic options considered were:
- continuing NCNG's independent course;
- merging with an out-of-region energy company; and
- merging with a larger regional energy company.
In their assessment of strategic options, NCNG's board examined NCNG's
future requirements for the large capital and operating cash commitments
necessary for expanding its gas business as well as the effects on NCNG's
business of an increasingly competitive utility marketplace. NCNG's board
concluded that a business combination with a larger, diversified regional energy
company with greater financial and operational resources presented the better
available course for NCNG in responding to the competitive changes occurring in
the natural gas industry.
During a meeting on September 11, 1998, NCNG's directors instructed Salomon
Smith Barney to inform CP&L that the NCNG board believed that any acceptable
exchange ratio of CP&L and NCNG stock would have to produce a higher price than
proposals previously made by CP&L representatives. In discussing the value of
NCNG, it was the opinion of Salomon Smith Barney that NCNG's value to CP&L would
likely be greater than to other utility companies due to CP&L's and NCNG's
overlapping service territories.
On September 14, 1998, Mr. Robert Hoglund, a Managing Director of Salomon
Smith Barney, informed Mr. Glenn Harder of CP&L that CP&L's proposal of a price
range from $31.33 to $32.58
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<PAGE> 26
was inadequate. On September 23, 1998, representatives of Morgan Stanley & Co.,
Inc., CP&L's financial advisor, requested that NCNG suggest an acceptable price
for NCNG stock and that representatives of both companies meet to discuss the
economic forecasts for both companies and NCNG financial projections.
Thereafter, on September 30, 1998, a confidentiality agreement between NCNG and
CP&L was signed in which the parties agreed to provide nonpublic information to
each other. Subsequently, NCNG, through its representatives, provided its
financial forecast and other information regarding the economic outlook for NCNG
to CP&L's representatives and met with them to discuss the information provided.
At the request of the NCNG board, contacts were also made with two other
utility companies headquartered in Virginia and South Carolina that fit NCNG's
strategic combination objectives. Preliminary discussions with representatives
of these two companies were conducted to determine whether either company had an
interest in pursuing a business combination with NCNG. Both companies expressed
the view that CP&L would be likely to pay a greater price because of NCNG and
CP&L's overlapping retail service territories. For that reason, the companies
indicated that it would be difficult to make a competitive offer.
During a special meeting of NCNG's directors on October 6, 1998, Mr.
Hoglund of Salomon Smith Barney informed the NCNG board that CP&L and NCNG were
continuing to negotiate concerning the exchange ratio for the proposed merger.
Mr. Hoglund reviewed with the NCNG board the recent discussions with CP&L
representatives relating to the consideration to be paid to NCNG shareholders in
the proposed stock-for-stock merger transaction. The NCNG directors instructed
Mr. Hoglund to advise CP&L, through its financial advisors, that CP&L should
make its best offer and that offer would be considered by the NCNG directors.
On October 14, 1998, Mr. Cavanaugh delivered a letter to Mr. Wells that
outlined CP&L's proposal to acquire all of the outstanding common stock of NCNG.
Under the terms of this proposal, each holder of NCNG common stock would receive
the number of shares of CP&L common stock necessary to produce a value of $35.00
per share for NCNG common stock shares, with the exchange ratio to be fixed at
the time of acceptance of the offer based on the closing price of CP&L's common
stock on the date CP&L's offer was accepted.
Between October 17, 1998 and October 29, 1998, the parties negotiated price
protections against fluctuations in the price of CP&L's common stock.
On October 29, 1998, a special meeting of NCNG's directors was held by
telephone to consider the results of those negotiations. The NCNG board approved
the offer by CP&L subject to completion of normal due diligence, and directed
NCNG management to negotiate a definitive merger agreement for further
consideration by the NCNG directors.
Following additional due diligence work by both CP&L and NCNG during the
first week of November 1998, the merger agreement between NCNG and CP&L was
completed. NCNG's directors met on November 9, 1998 to review the proposed
merger agreement with NCNG's legal counsel and Salomon Smith Barney, and
suggested revisions and matters for further discussions. The meeting was
recessed for continuation by telephone on November 10, 1998.
On November 10, 1998, the NCNG directors continued their special meeting by
telephone. NCNG's legal counsel and Salomon Smith Barney also participated in
the meeting. After discussion of the proposed merger agreement and receiving the
opinion of NCNG's financial advisor that the exchange ratio provided for in the
merger agreement was fair from a financial point of view to the holders of NCNG
common stock, the NCNG directors approved the merger agreement. The merger
agreement was also approved by CP&L's board of directors and executed by the
parties on November 10, 1998. The merger was publicly announced on November 11,
1998.
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<PAGE> 27
In March, 1999, CP&L management contacted Mr. Wells concerning the
accounting treatment for the merger, indicating that management wanted to
further analyze and consider various strategic options with respect to CP&L and
NCNG which would likely preclude pooling-of-interests accounting. CP&L
management indicated to Mr. Wells that amending the merger agreement to delete
requirements for pooling-of-interests accounting would be in the best interest
of all parties. On April 7, 1999, the NCNG board met and agreed to such an
amendment. The NCNG board conditioned its approval on there being no change to
the exchange ratio adverse to the interests of the NCNG shareholders resulting
from a public announcement by CP&L of an event that would otherwise have
precluded pooling-of-interests accounting. The parties and their counsel
negotiated revisions to the merger agreement, and the CP&L board approved the
amendments on April 20, 1999. The merger agreement was amended and restated as
of April 22, 1999.
REASONS OF NCNG FOR AGREEING TO THE MERGER WITH CP&L
The NCNG board believes that the merger is in the best interest of NCNG's
shareholders, and offers strategic and financial benefits to NCNG and CP&L as
well as to their customers and to the service territories in which CP&L and NCNG
do business. In reaching its decision, the NCNG board considered the following
factors, among other things:
- The opportunity for NCNG shareholders to obtain common stock in a larger,
more diversified enterprise with significantly greater liquidity than
NCNG common stock;
- The opportunity for NCNG shareholders to achieve enhanced future earnings
and dividend growth;
- The condition that the merger be completed by a tax-free exchange of
stock, except for fractional shares;
- NCNG's future requirements for large capital and operating cash
commitments for expanding its gas business and CP&L's greater resources
for future expansion;
- The economic and competitive environment facing the utility industry
generally and smaller gas distribution companies like NCNG in particular;
- The potential that the merger will result in economies of scale with cost
and revenue synergies that will create an electric and gas utility which
is better positioned to meet the challenges of an increasingly
competitive and consolidating energy industry;
- The potential for enhanced customer service based on the companies'
overlapping service territories and the ability to provide both gas and
electricity to those customers;
- The business, operations and prospects of NCNG if it continued as an
independent company; and
- The opinion of Salomon Smith Barney that, as of the date of the merger
agreement, the exchange ratio was fair to NCNG shareholders from a
financial point of view.
In reaching its determination to approve the merger agreement, the NCNG
board did not assign any relative or specific weights to the various factors
considered by it, and the individual directors may have given different weights
to different factors. The foregoing discussion of the information and factors
considered by the NCNG board is not intended to be exhaustive but includes
material factors considered by the NCNG board.
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<PAGE> 28
FOR THE REASONS DESCRIBED ABOVE, THE NCNG BOARD UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND BELIEVES THAT THE MERGER IS FAIR TO, AND IS IN THE BEST
INTEREST OF, NCNG SHAREHOLDERS. ACCORDINGLY, THE NCNG BOARD UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
REASONS OF CP&L FOR AGREEING TO THE MERGER WITH NCNG
CP&L's business strategy is to become a total energy provider for customers
while growing earnings and securing gas supplies for planned gas-fired electric
power plants. CP&L is currently active in the fields of electricity, energy
services and technology products and services.
CP&L has plans for significant additions of gas-fired power plants over the
next 10 years to meet its customers' needs. 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 electricity usage, to increase reserve capacity in the Southeast
and to support CP&L's strategy for additional sales in the wholesale energy
market. A competitively priced gas supply is integral to CP&L's long-term
strategy to better serve its customers by creating a larger regional platform
from which to expand its energy-related products and services throughout the
Carolinas and beyond. CP&L management believes that the acquisition of NCNG will
advance that strategy by bringing to the combined companies NCNG's experience
and expertise in the natural gas business.
CP&L also believes that there is an opportunity to increase sales of
natural gas to customers in its service area. NCNG's low-cost structure and
strong balance sheet make for a good fit with CP&L, and the two companies'
overlapping service areas will provide increased growth opportunities between
the two operations.
OPINION OF NCNG FINANCIAL ADVISOR THAT THE MERGER IS FAIR FROM A FINANCIAL POINT
OF VIEW
At the meeting of the NCNG board of directors held on November 10, 1998,
Salomon Smith Barney delivered its oral opinion, subsequently confirmed in
writing to the NCNG board of directors that, as of that date, the exchange ratio
was fair, from a financial point of view, to the holders of NCNG common stock.
On or about the date of this document, it is expected that Salomon Smith Barney
will reconfirm its November 10, 1998 opinion that, as of the date of such
reconfirmation, the merger is fair, from a financial point of view, to the
holders of NCNG common stock. Promptly following its delivery, this
reconfirmation will be available upon request, at no charge, from NCNG. No
limitations were imposed by the NCNG board upon Salomon Smith Barney with
respect to the investigation made or the procedures followed by Salomon Smith
Barney in rendering its opinion. The opinion of Salomon Smith Barney was for the
use and benefit of the NCNG board in connection with its consideration of the
merger.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY, WHICH SETS
FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY SALOMON SMITH BARNEY IS ATTACHED AS
ANNEX B TO THIS DOCUMENT. YOU ARE URGED TO READ THE SALOMON SMITH BARNEY OPINION
IN ITS ENTIRETY. THE SALOMON SMITH BARNEY OPINION IS DIRECTED ONLY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE EXCHANGE RATIO, TO THE HOLDERS
OF NCNG COMMON STOCK AND DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW YOU
SHOULD VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE OPINION AS DISCUSSED IN
THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION, WHICH IS INCORPORATED HEREIN BY REFERENCE.
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In connection with rendering its opinion, Salomon Smith Barney reviewed and
analyzed, among other things, the following:
- a copy of the merger agreement;
- publicly available information concerning NCNG, including, without
limitation, the Annual Reports on Form 10-K of NCNG for each of the years
in the three-year period ended September 30, 1997;
- internal information, primarily financial in nature, including, without
limitation, projections, concerning the business and operations of NCNG
furnished to it by NCNG for purposes of its analysis;
- publicly available information concerning the trading of, and the trading
market for, NCNG common stock;
- publicly available information concerning CP&L, including, without
limitation, the Annual Reports on Form 10-K of CP&L for each of the years
in the three-year period ended December 31, 1997;
- other information, primarily financial in nature, including, without
limitation, projections concerning the business and operations of CP&L,
furnished to Salomon Smith Barney by either CP&L or NCNG for purposes of
its analysis;
- publicly available information concerning the trading of, and the trading
market for, CP&L common stock;
- publicly available information with respect to certain other companies
that Salomon Smith Barney believed to be comparable to NCNG or CP&L and
the trading markets for certain of such other companies' securities; and
- publicly available information concerning the nature and terms of certain
other transactions that Salomon Smith Barney considered relevant to its
inquiry.
Salomon Smith Barney has also considered other information, financial
studies, analyses, investigations and financial, economic and market criteria
that it deemed relevant. Salomon Smith Barney has also met with officers and
employees of NCNG and CP&L to discuss the foregoing as well as other matters
that it believed relevant to its inquiry.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it or publicly available and has
neither attempted independently to verify nor assumed any responsibility for
verifying any of such information and has further relied upon the assurances of
management of NCNG that they are not aware of any facts that would make any of
such information inaccurate or misleading. Salomon Smith Barney has not
conducted a physical inspection of any of the properties or facilities of NCNG
or CP&L, nor has it made or obtained or assumed any responsibility for making or
obtaining any independent evaluation or appraisal of any properties or
facilities of NCNG or CP&L, nor has it been furnished with any such evaluations
or appraisals. With respect to financial projections, Salomon Smith Barney has
been advised by the managements of NCNG and CP&L and has assumed that they were
reasonably prepared and reflect the best currently available estimates and
judgment of the management of NCNG or CP&L, as the case may be, as to the future
financial performance of NCNG or CP&L, as the case may be, and Salomon Smith
Barney expresses no view with respect to such projections or the assumptions on
which they were based. Salomon Smith Barney has also assumed that the merger
will be completed in a timely manner and in accordance
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<PAGE> 30
with the terms of the merger agreement. In rendering its opinion, Salomon Smith
Barney noted its understanding that the merger will be accounted for as a
pooling-of-interests in accordance with generally accepted accounting principles
as described in Accounting Principles Board Opinion No. 16. In reconfirming its
November 10, 1998 opinion, Salomon Smith Barney will note its understanding that
the merger will be accounted for under the purchase method. Salomon Smith Barney
also noted in its opinion that certain adjustments will be made to the exchange
ratio if the closing date of the merger does not occur on or prior to November
10, 1999.
In conducting its analysis and arriving at its opinion as expressed herein,
Salomon Smith Barney has considered such financial and other factors as it
deemed appropriate under the circumstances including, among others, the
following:
- the historical and current financial position and results of operations
of NCNG and CP&L;
- the business prospects of NCNG and CP&L;
- the historical and current market for NCNG common stock, CP&L common
stock and for the equity securities of certain other companies that it
believes to be comparable to NCNG or CP&L; and
- the nature and terms of certain other merger transactions that it
believes to be relevant.
Salomon Smith Barney has also taken into account its assessment of general
economic, market and financial conditions as well as its experience in
connection with similar transactions and securities valuation generally. In
arriving at its opinion, Salomon Smith Barney has not ascribed a specific
consolidated range of values to either NCNG or CP&L. Salomon Smith Barney has
not been asked to consider, and its opinion does not address, the relative
merits of the merger as compared to any alternative business strategy that might
exist for NCNG. Salomon Smith Barney's opinion necessarily is based upon
conditions as they exist and can be evaluated on the date of this document, and
Salomon Smith Barney assumes no responsibility to update or revise its opinion
based upon circumstances or events occurring after the date of this document.
Its opinion is, in any event, limited to the fairness, from a financial point of
view, of the exchange ratio to the holder of NCNG common stock and does not
address NCNG's underlying business decision to effect the merger or constitute a
recommendation of the merger to NCNG. The Salomon Smith Barney Opinion does not
imply any conclusion as to the likely trading range of the CP&L common stock
following the completion of the merger, which may vary depending upon many
factors including changes in interest rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
In connection with its opinion, Salomon Smith Barney performed various
financial analyses, which it discussed with the NCNG board of directors on
November 10, 1998. The material portions of the analyses performed by Salomon
Smith Barney in connection with the rendering of its opinion are summarized
below.
HISTORICAL STOCK PRICE PERFORMANCE. Salomon Smith Barney reviewed the
historical stock performance of the NCNG common stock as compared with the stock
performance of a selected group of small capitalization peer group companies,
including Cascade Natural Gas Corporation, Connecticut Energy Corporation, Semco
Energy, Inc., Providence Energy Corporation and Yankee Energy System, Inc.
DISCOUNTED CASH FLOW ANALYSIS. Salomon Smith Barney performed a discounted
cash flow ("DCF") analysis of NCNG to estimate a range of values for the NCNG
common stock. The DCF analysis for NCNG was based upon certain financial
forecasts for the years ending 1999 through 2002 prepared by the management of
NCNG. As a substitute for the cash flows generated beyond 2002,
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<PAGE> 31
Salomon Smith Barney calculated a terminal year value for NCNG by applying a
range of multiples of common stock price to earnings per share ("P/E multiples")
of 15.5x to 17.0x to terminal year net income, and then added to those values
the outstanding amount of debt (net of cash) as of the end of the terminal year.
The unleveraged free cash flow amounts for the years ending 1999 to 2002, plus
the terminal value were then discounted to the present using a range of discount
rates of 7.0% to 7.6%, based upon an analysis of the weighted average cost of
capital ("WACC") of NCNG. Analysis of the forecast for NCNG, without considering
any benefits derived from the merger, indicated the following results:
NCNG DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
IMPLIED PRESENT VALUE OF
IMPLIED EQUITY IMPLIED PERPETUITY TERMINAL VALUE AS A PERCENTAGE
VALUE RANGES GROWTH RANGE OF FIRM VALUE RANGE
-------------- ------------------ ------------------------------
<S> <C> <C>
$27.75 to $31.50 4.5% to 5.0% 103.8% to 104%
</TABLE>
Salomon Smith Barney performed a similar analysis for CP&L to estimate a
range of values for the CP&L common stock. The DCF analysis for CP&L was based
upon certain financial forecasts for the years ending 1999 through 2003 provided
by the management of CP&L. As a substitute for cash flows beyond 2003, Salomon
Smith Barney calculated a terminal year value for CP&L by applying a range of
P/E multiples of 15.0x to 16.5x to terminal year net income then added to those
values the outstanding amount of debt (net of cash) as of the end of the
terminal year. The unleveraged free cash flow amounts for the years ending 1999
to 2003, plus the terminal value were then discounted back to the present using
a range of discount rates of 6.8% to 7.4%, based upon an analysis of the WACC
for CP&L. This analysis, which did not consider any benefits derived from
combining the businesses of NCNG and CP&L, indicated the following results:
CP&L DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
IMPLIED PRESENT VALUE OF
IMPLIED EQUITY IMPLIED PERPETUITY TERMINAL VALUE AS A PERCENTAGE
VALUE RANGES GROWTH RANGE OF FIRM VALUE RANGE
-------------- ------------------ ------------------------------
<S> <C> <C>
$51.00 to $57.25 0.8% to 0.9% 85.8% to 86.8%
</TABLE>
Salomon Smith Barney also performed two sensitivity analyses in which
certain adjustments were made to CP&L management projections relating to gross
margin and net income growth rates. These analyses, which did not consider any
benefits derived from combining the businesses of NCNG and CP&L, indicated the
following results:
CP&L DISCOUNTED CASH FLOW ANALYSIS (ADJUSTED)
<TABLE>
<CAPTION>
IMPLIED PRESENT VALUE OF
IMPLIED EQUITY IMPLIED PERPETUITY TERMINAL VALUE AS A PERCENTAGE
VALUE RANGES GROWTH RANGE OF FIRM VALUE RANGE
-------------- ------------------ ------------------------------
<S> <C> <C>
$47.75 to $53.75 2.5% to 2.7% 90.3% to 91.0%
$46.50 to $52.50 3.0% to 3.3% 91.9% to 92.6%
</TABLE>
DISCOUNTED CASH FLOW WITH SYNERGIES. Salomon Smith Barney also performed a
DCF analysis of NCNG, based upon certain financial forecasts for the years
ending 1999 through 2002 prepared by the management of NCNG, which incorporated
the synergy savings which NCNG's management
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expects might be obtained in the merger. This DCF with synergies analysis was
performed for two cases: one case in which it was assumed that CP&L would retain
100% of synergy savings for several years after the consummation of the merger,
after which time 100% of synergy savings would run to the benefit of customers
(the "Synergies Case"), and another case in which it was assumed that CP&L would
retain 100% of synergy savings in perpetuity, with no sharing of synergy savings
with customers at any time in the future (the "Perpetuity Synergies Case"). In
each case, as a substitute for the cash flows generated beyond 2002, Salomon
Smith Barney calculated a terminal year value for NCNG by applying a range of
P/E multiples of 15.5x to 17.0x to terminal year net income and then added to
those values the outstanding amount of debt (net of cash) as of the end of the
terminal year. The unleveraged free cash flow amounts for the years ending 1999
to 2002, plus the terminal value were then discounted back to the present using
a range of discount rates of 7.0% to 7.6% based upon the WACC for NCNG. The
Synergies Case indicated an implied equity value range per share of NCNG common
stock of $28.75 to $32.25, an implied perpetuity growth rate of 4.0% to 4.5% and
an implied present value of the terminal value as a percentage of firm value of
101.6% to 101.6%. The Perpetuity Synergies Case indicated an implied equity
value range per share of NCNG common stock of $31.50 to $35.50, an implied
perpetuity growth rate of 4.2% to 4.7% and an implied present value of the
terminal value as a percentage of firm value of 101.5% to 101.5%.
PUBLIC MARKET VALUATION ANALYSIS. Using publicly available information,
Salomon Smith Barney performed a public market valuation analysis for each of
NCNG and CP&L based on a selected range of multiples as applied to estimated
1998 and estimated 1999 earnings per share figures (and, in the case of CP&L and
the CP&L Comparable Companies (as defined below), estimated 2000 earnings per
share figures), as well as historical (June 30, 1998) book value per share
figures, derived from the group of comparable publicly traded companies listed
below. The companies that Salomon Smith Barney determined to be comparable to
NCNG are as follows:
NCNG Comparable Companies
- - Piedmont Natural Gas
- - Indiana Energy
- - Northwest Natural Gas
- - New Jersey Resources
- - Public Service Company of North Carolina
- - Laclede Gas
- - Connecticut Energy
- - South Jersey Industries
- - Yankee Energy System
- - Pennsylvania Enterprises
The companies that Salomon Smith Barney determined to be comparable to CP&L
are as follows:
CP&L Comparable Companies
- - Southern Co.
- - FPL Group
- - Florida Progress
- - SCANA
Estimated 1998 and 1999 earnings per share figures for NCNG and CP&L were
based on forecasts provided by the managements of both NCNG and CP&L. The NCNG
Comparable Companies and the CP&L Comparable Companies were based on consensus
estimates published by First Call Corporation.
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Salomon Smith Barney's analysis of the NCNG Comparable Companies indicated
a range of book value per share multiples of 1.7x to 2.2x, resulting in an
implied equity value range per share of NCNG common stock of $21.04 to $27.22
based on NCNG's book value per share as of June 30, 1998 of $12.37, and a range
of P/E multiples based on estimated 1998 and 1999 earnings per share figures of
16.0x to 17.5x and 14.0x to 15.5x, respectively, resulting in an implied equity
value range per share of NCNG common stock of $27.43 to $30.00 based on NCNG's
estimated 1998 earnings per share figure of $1.71 and $25.36 to $28.08 based on
NCNG's estimated 1999 earnings per share figure of $1.81, respectively. Based on
these analyses, Salomon Smith Barney derived an implied equity value range per
share of NCNG common stock of $26.00 to $29.00.
Salomon Smith Barney also reviewed public information, including the
projected 1998, 1999, and 2000 earnings per share estimates from First Call
Corporation, the price to book value per share, and P/E multiples, among other
things, for the CP&L Comparable Companies. This analysis resulted in a range of
price to book value per share multiples as of June 30, 1998 of 2.0x to 2.5x,
projected 1998, 1999, and 2000 P/E multiples of 15.0x to 16.0x, 14.5x to 15.5x
and 13.8x to 14.8x, respectively. Using this analysis, Salomon Smith Barney
derived a range of implied equity value range per share of CP&L common stock of
$43.75 to $48.25.
PRIVATE MARKET VALUATION ANALYSIS. Using publicly available information,
Salomon Smith Barney performed an analysis of selected gas utility industry
business combination transactions (the "Precedent Transactions") announced since
March, 1993, including:
- - Eastern's acquisition of Colonial Gas Co.;
- - Eastern's acquisition of Essex County Gas Co.;
- - NIPSCO Industries Inc.'s acquisition of Bay State Gas Company;
- - PP&L Resources' acquisition of Penn Fuel Gas Co.;
- - TECO Energy, Inc.'s acquisition of West Florida Gas Co.;
- - Citizens Utilities' acquisition of Gasco, Inc.;
- - ONEOK Inc.'s acquisition of Western Resources Inc.'s Kansas gas operations;
- - TECO Energy, Inc.'s acquisition of Lykes Energy, Inc.;
- - Houston Industries Inc.'s acquisition of NorAm Energy Corp.;
- - Atmos Energy Corp.'s acquisition of United Cities Gas Co.;
- - Texas Utilities Co.'s acquisition of ENSERCH Corp.;
- - Puget Sound Power & Light Co.'s acquisition of Washington Energy Company;
- - Energy Corporation of America's acquisition of Allegheny & Western Energy
Corp.;
- - NUI Corp.'s acquisition of Pennsylvania and Southern Gas Co.;
- - Southern Union's acquisition of Western Resources Inc.'s Missouri gas
operations;
- - Wisconsin Energy Corp.'s acquisition of Wisconsin Southern Gas Co.; and
- - Atmos Energy Corp.'s acquisition of Greeley Gas Company.
For each of the Precedent Transactions, Salomon Smith Barney calculated
among other things, multiples based on last twelve months ("LTM") earnings per
share figures, projected one year and two year forward earnings per share
figures, book value per share and net plant, as well as premiums to market price
one day, five days and one month prior to announcement. Based on this analysis,
Salomon Smith Barney derived a selected range of multiples based on the
Precedent Transactions and applied this selected multiple range to NCNG's LTM
earnings per share figure, estimated 1998 earnings per share figure, estimated
1999 earnings per share figure, historical (June 30, 1998) book value per share,
and LTM net plant (June 30, 1998). Salomon Smith Barney also applied the
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selected premium to market price range of 20%-35%, derived from the Precedent
Transactions, to the closing price of the NCNG common stock on the day prior to
the execution of the merger agreement. Based on these analyses, Salomon Smith
Barney derived an implied equity value range per share of NCNG common stock of
$29.00 to $35.00.
HISTORICAL TRADING RATIOS ANALYSIS. Salomon Smith Barney analyzed the
historical ratios between the market prices per share of the NCNG common stock
and the CP&L common stock (the "Historical Trading Ratios"). The Historical
Trading Ratios were analyzed over the five year period between November 9, 1993
and November 9, 1998. The Historical Trading Ratios were also analyzed for each
of the three year, two year, one year, six month, three month and one month
periods ended November 9, 1998. During the five year period, the average
Historical Trading Ratio was 0.56. Over the three year, two year, one year, six
month, three month and one month periods, the average Historical Trading Ratios
were 0.56, 0.58, 0.58, 0.57, 0.55 and 0.53, respectively. On November 9, 1998,
the ratio of the market price of the NCNG common stock to the market price of
the CP&L common stock was 0.51.
Salomon Smith Barney also analyzed the premium to the average Historical
Trading Ratio at each of the bottom of the collar ("Collar Bottom") (an implied
exchange ratio of 0.7032x), a mid-point of the collar ("Collar Mid-Point") (an
implied exchange ratio of 0.7735x) and the top of the collar under the merger
agreement ("Collar Top") (an implied exchange ratio of 0.8594x). This analysis
indicated a premium to average Historical Trading Ratio over the five year
period of 26% at Collar Bottom, 38% at Collar Mid-Point and 53% at Collar Top.
Over the three year, two year, one year, six month, three month and one month
periods, the premium to average Historical Trading Ratios at Collar Bottom,
Collar Mid-Point and Collar Top were 26%, 38% and 53%; 21%, 33% and 48%; 21%,
33% and 48%; 23%, 36% and 51%; 28%, 41% and 56%; and 33%, 46% and 62%,
respectively.
PRO FORMA ANALYSIS OF THE MERGER. Salomon Smith Barney analyzed the pro
forma impact of the merger on an earnings per share basis to NCNG's shareholders
and CP&L's shareholders for the fiscal years ending December 31, 1999 through
2002. The analysis was performed utilizing stand-alone earnings estimated for
the years ending 1999 through 2002 for NCNG and CP&L based on financial
projections prepared by NCNG's management and CP&L's management, in each case
taking into account NCNG management's expectation of synergies that might be
obtained in the merger. Based on such analysis, the merger would be accretive to
NCNG's shareholders for the years 1999 to 2002, ranging from an estimated 29.6%
in 1999 to 38.9% in 2002. In addition, this analysis demonstrated that the
merger would not be dilutive to CP&L's projected earnings per share if the
pretax synergies during the next four years ranged from $9.1 million to $24.1
million per year.
The preparation of a fairness opinion is a complex process and is not
susceptible to a partial analysis or summary description. The summary set forth
above is not and does not purport to be a complete description of the analyses
underlying Salomon Smith Barney's opinion or its presentation to the NCNG board.
Salomon Smith Barney believes that its analysis and the summary set forth above
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all such analyses and factors,
could create an incomplete view of the processes underlying the analyses
discussed in its opinion. In addition, no company used in the comparable
companies trading analysis, the public market valuation analysis or the
multiples analyses summarized above is identical to NCNG or CP&L or any of their
business segments and no transaction used in the private market valuation
analysis summarized above is identical to the merger. In addition, Salomon Smith
Barney may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Salomon Smith Barney's view
of the actual value of NCNG. Additionally, an analysis of the data described
above necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of NCNG, CP&L or any
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of their business segments and other facts that could affect the public trading
value or the acquisition value of the companies to which they are being
compared.
In performing its analyses, Salomon Smith Barney made numerous assumptions
with respect to industry performance, general business, financial, market and
economic conditions and other matters, many of which are beyond the control of
NCNG or CP&L. The analyses which Salomon Smith Barney performed are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Salomon Smith Barney's analysis of the
fairness, from a financial point of view, of the exchange ratio to holders of
NCNG common stock. The analyses do not purport to be appraisals or to reflect
the prices at which a company or any of its businesses might actually be sold or
the prices at which any securities may trade at the present time or at any time
in the future. In addition, the opinion of Salomon Smith Barney and Salomon
Smith Barney's presentation to the NCNG board of directors were among the many
factors taken into consideration by the NCNG board of directors in making its
determination to approve the merger.
Pursuant to the terms of an engagement letter dated August 25, 1998, NCNG
agreed to pay Salomon Smith Barney for its financial advisory and investment
banking services:
(i) a retainer fee of $100,000, which was payable upon execution of
the engagement letter;
(ii) a transaction fee equal to approximately 0.856% of the aggregate
consideration payable in connection with the merger (as defined in the
engagement letter) based on a $35 purchase price and subject to change if
the price falls outside the collar, contingent upon the consummation of the
merger and payable at the closing. Of this transaction fee, $455,176 was
payable on execution of the merger agreement.
NCNG also agreed to reimburse Salomon Smith Barney for reasonable out-of-pocket
expenses arising from the engagement, including legal fees and expenses. NCNG
will also indemnify Salomon Smith Barney against certain liabilities in
connection with Salomon Smith Barney's engagement, including liabilities under
the federal securities laws.
Salomon Smith Barney is an internationally recognized investment banking
firm that provides financial services in connection with a wide range of
business transactions. As part of its business, Salomon Smith Barney regularly
engages in the valuation of companies and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and other purposes. In the ordinary course of its business, Salomon Smith Barney
may actively trade the securities of NCNG and CP&L for its own account and the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, Salomon Smith Barney has rendered
certain investment banking and financial advisory services to NCNG and CP&L for
which Salomon Smith Barney received, or is expected to receive, customary
compensation. Salomon Smith Barney and its affiliates (including Citigroup Inc.)
may have other business relationships with NCNG, CP&L and their affiliates. The
NCNG board of directors retained Salomon Smith Barney based on Salomon Smith
Barney's expertise in the valuation of companies as well as its substantial
experience in transactions such as the merger.
INTERESTS OF NCNG OFFICERS AND DIRECTORS IN THE MERGER
You should be aware that NCNG's named officers and directors have interests
in the merger that are different from, or in addition to, the interests of
shareholders of NCNG generally and represent inherent conflicts of interest.
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NCNG has employment agreements with ten executive officers which include
its Chief Executive Officer, Senior Vice Presidents, and Vice Presidents. The
five most highly compensated of these ten executive officers, as disclosed in
NCNG's proxy statement dated December 4, 1998, are Calvin B. Wells, Gerald A.
Teele, Terrence D. Davis, E.J. Mercier, Jr., and Ronald J. Josephson. The
employment agreements contain provisions which may require the payment of
severance benefits after a "change in control" of NCNG if any of the parties to
the employment agreements are terminated within three years of the effective
time of the merger as more fully set forth in the employment agreements. The
maximum aggregate value of the severance benefits which may become payable to
these ten executive officers under the terms of their employment agreements is
approximately $7.4 million. In addition, under NCNG's Long Term Incentive Plan,
maximum awards valued at approximately $2 million (based on the $35 per share
price stated in the merger agreement) are payable upon a "change in control" to
these ten executive officers. At the effective time of the merger, a "change in
control" will be deemed to have occurred for purposes of the employment
agreements and the Long Term Incentive Plan.
CP&L has not made any firm decisions or commitments with respect to the
continued employment of NCNG's executive officers. The compensation and benefits
of any NCNG executive who is retained after the merger is expected to be
consistent with the compensation paid and benefits provided for a comparable
position level at CP&L. NCNG's directors will not become CP&L directors.
CP&L has also agreed that for six years after the completion of the merger
it will maintain all rights of indemnification existing in favor of the
directors and officers of NCNG as in effect on the date of the merger agreement
with respect to matters occurring prior to the completion of the merger. CP&L
also will cause the current policies for directors' and officers' liability
insurance maintained by NCNG to be maintained for six years from the completion
of the merger with respect to matters occurring prior to the effective time, to
the extent liability insurance is available to CP&L in the market. CP&L may
substitute policies of at least the same coverage containing terms and
conditions that are not materially less advantageous.
CP&L has agreed to exercise its best efforts to accommodate the elections
made by NCNG's directors under the accumulation and payout provisions of the
NCNG Directors' Deferred Compensation Stock Plan and the NCNG Deferred
Retirement Compensation Stock Plan for Eligible Directors, with units of CP&L
common stock being substituted for the accumulated units of NCNG common stock,
based on the exchange ratio, in each director's account and accumulated and paid
out as provided for in each plan and the related agreements between NCNG and its
directors. Further, NCNG may allow each NCNG director who would otherwise
receive a distribution based on a change of control of NCNG an election to defer
any distributions until they would have been paid out under each plan's normal
distribution provisions.
One of NCNG's directors, Richard F. Waid, is a managing director of The
Robinson-Humphrey Company, an investment banking and securities brokerage
company. The Robinson-Humphrey Company is a wholly-owned subsidiary of Salomon
Smith Barney, NCNG's financial advisor.
The NCNG board was aware of these interests and considered them, among
other things, in approving the merger agreement.
REGULATORY APPROVALS REQUIRED TO COMPLETE THE MERGER
While we believe that we will receive the requisite regulatory approvals
and clearances for the merger that are summarized below, we cannot give any
assurance regarding the timing of the required approvals or clearances or our
ability to obtain the required approvals and clearances on satisfactory
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terms or otherwise, or that no action will be brought challenging the merger or
the governmental approvals or other actions.
Completion of the merger is subject to obtaining regulatory approvals on
terms and conditions that would not have a material adverse effect on the
business, assets, financial or other condition, results of operations or
prospects of CP&L or on NCNG following the effective time of the merger. NCNG
and CP&L have filed (or will promptly file) all applications and notices and
have taken (or will promptly take) other appropriate action with respect to any
requisite approvals or other action of any governmental authority.
Subject to restrictions explained in the merger agreement, either CP&L or
NCNG may terminate the merger agreement if all necessary conditions to the
consummation of the merger have not been satisfied by December 31, 1999. See
"-- Termination of the Merger Agreement; Termination Fee" on page 37.
HSR Pre-Merger Notification. The Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended ("HSR Act"), and the rules and regulations thereunder,
provide that the merger may not be completed until premerger notification
filings have been made, by which means information is submitted to the Antitrust
Division of the U. S. Department of Justice and the Federal Trade Commission,
and the specified HSR Act waiting period has expired. These premerger
notification filings were initially made by CP&L and NCNG on March 30, 1999. On
April 29, 1999, CP&L withdrew and resubmitted its HSR Act notification in order
to provide the Department of Justice with additional time for review.
Public Utility Holding Company Act of 1935. CP&L currently is not a
"holding company" under the provisions of the Public Utility Holding Company Act
of 1935 (the "1935 Act"). Upon the effective time of the merger, CP&L will
become a holding company but will be exempt from all provisions of the 1935 Act
except Section 9(a)(2) of the 1935 Act by filing an exemption statement under
Section 3(a)(2) pursuant to Rule 2 of the 1935 Act.
State Approvals. CP&L is subject to the jurisdiction of the North Carolina
Utilities Commission and The Public Service Commission of South Carolina, both
of which must approve the merger and issuance of CP&L common stock in connection
with the merger. NCNG is also subject to the jurisdiction of the North Carolina
Utilities Commission. On January 11, 1999, CP&L and NCNG filed a joint
application with the North Carolina Utilities Commission seeking approval of the
merger and of the issuance of CP&L's common stock in connection with the merger.
On February 9, 1999, CP&L filed an application with The Public Service
Commission of South Carolina seeking approval of the merger and issuance of its
common stock in connection with the merger. As of the date of this document,
neither the CP&L -- NCNG joint application to the North Carolina Utilities
Commission nor the CP&L application to The Public Service Commission of South
Carolina has been approved.
OTHER SIGNIFICANT CONDITIONS TO THE MERGER THAT MUST BE FULFILLED OR WAIVED
Completion of the merger is subject to other conditions. The merger
agreement provides that each of CP&L and NCNG has duties to attempt to cause the
conditions to be satisfied. If all conditions are not satisfied or waived by
December 31, 1999, either party may terminate the merger agreement unless the
failure of the condition results from the failure of that party to fulfill its
obligations. See "-- Termination of the Merger Agreement; Termination Fee" on
page 37.
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The conditions to the obligations of each party to complete the merger,
among other things, are as follows:
(i) the approval of the merger agreement by the NCNG shareholders;
(ii) that there is no action by any court of competent jurisdiction or
governmental authority which prohibits or makes illegal the completion of
the merger;
(iii) the registration statement, of which this document forms a part,
is effective in accordance with the provisions of the Securities Act, and
no stop order suspending effectiveness has been issued and remains in
effect;
(iv) expiration or termination of the waiting period applicable to the
merger under the HSR Act;
(v) all approvals or actions of, or filings with, any governmental
authority required in connection with the merger shall have been obtained
or made;
(vi) the receipt of the opinion of Hunton & Williams that, for United
States federal income tax purposes, the merger will constitute a
"reorganization" under Section 368(a) of the Internal Revenue Code; and
(vii) that the shares of CP&L common stock to be issued in the merger
have been approved for listing on the NYSE, subject to official notice of
issuance.
The respective obligations of CP&L and NCNG to complete the merger are also
subject to the satisfaction or waiver of various other conditions specified in
the merger agreement. The conditions include, among others:
(i) since November 10, 1998, there has been no material adverse change
or any development that is reasonably likely to result in a material
adverse change in the business, assets, financial or other condition,
results of operations, or prospects of either company, including their
subsidiaries and other entities in which they have an interest, taken as a
whole;
(ii) each party's representations and warranties set forth in the
merger agreement were true and correct in all material respects when made
and as of the closing of the merger except (a) to the extent those
representations and warranties speak as of a specified earlier date, and
(b) as otherwise contemplated or permitted by the merger agreement;
(iii) the performance by each party, in all material respects, of its
agreements and covenants under the merger agreement;
(iv) each party shall have delivered to the other, a certificate
executed by a specified officer or officers, in form satisfactory to
counsel for NCNG, certifying fulfillment of the matters referred to in
subparagraphs (i) through (iii) above;
(v) all proceedings, corporate or other, to be taken by each party in
connection with the merger, shall be reasonably satisfactory in form and
substance to each party and its counsel, and each party shall have made
available to the other party for examination the originals or true and
correct copies of all documents that may have been reasonably requested in
connection with the transactions contemplated by the merger; and
(vi) all governmental consents, authorizations, orders, permits, and
approvals described in the merger agreement shall contain no terms that
would have a material adverse effect on CP&L or NCNG.
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COVENANTS OF EACH OF NCNG AND CP&L; CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE
TIME
In the merger agreement, NCNG has agreed that pending the completion of the
merger, it will conduct its operations in the ordinary and usual course of
business and consistent with past practice. NCNG has also agreed to use its
reasonable best efforts to preserve intact its business organizations, to keep
available the services of its officers and employees and to maintain
satisfactory relationships with suppliers, contractors, distributors, customers
and others having material business relationships with them.
In addition, without the prior written consent of CP&L, prior to the
completion of the merger, NCNG will not:
(i) amend its articles or certificate of incorporation, bylaws, or
other organizational document;
(ii) issue any stock of any class or any other securities or
interests, except under existing employee benefit plans or NCNG's dividend
reinvestment plan 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, or redeem or
otherwise acquire any of its securities or any securities, except that it
may declare and pay dividends in the ordinary course of business consistent
with its past practices and may increase the amount of dividends by no more
than 6% over the amount last declared prior to the date of the merger
agreement;
(iv) take actions or permit events to occur relating to the NCNG
Rights Agreement dated as of October 7, 1997, between NCNG and Wachovia
Bank, N.A., and the rights issued under the NCNG Rights Agreement, or to
take any action that would allow parties other than CP&L or Carolina
Acquisition Corporation to acquire shares of stock of NCNG above a
specified amount without triggering events under the NCNG Rights Agreement;
(v) incur or assume any indebtedness for borrowed money or guarantee
any indebtedness other than refinancings, intra-company indebtedness, or
borrowings under existing facilities or for permitted capital expenditures;
(vi) except in the ordinary course of business, consistent with past
practices:
(a) enter into any material operating lease or create any
mortgages, liens, except with respect to indebtedness permitted
pursuant to the merger agreement;
(b) enter into any material contract, or 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 the merger agreement;
(c) make capital expenditures through the effective time in excess
of $1,000,000 over the amount budgeted for capital expenditures
on the date of the merger agreement as disclosed to CP&L;
(d) take actions relating to director, officer or employee
compensation and benefits unless required by law or not
resulting in a material increase in expenses;
(e) acquire, sell, lease or dispose of any material asset;
(f) take any action with respect to accounting policies or
practices, unless it would not have an adverse effect; or
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(g) make any material tax election, or settle or compromise any
material tax liability, except in the ordinary course of
business, consistent with past practice;
(vii) make any filing to materially change rates on file, except for
filings with the North Carolina Utilities Commission relating to purchased
gas;
(viii) fail to maintain insurance against risks and losses in
accordance with past practice;
(ix) fail to maintain in effect any existing permit, license or
governmental authorization, registration or approval;
(x) except for the payment of professional fees or as otherwise
permitted by the merger agreement, pay or satisfy any material claims,
liabilities or obligations other than liabilities reflected or reserved
against in the September 30, 1997 financial statements or incurred in the
ordinary course of business since that date;
(xi) voluntarily engage in any activities which are reasonably
expected to cause a change in status under Public Utility Holding Company
Act of 1935, or which are reasonably expected to impair the ability of CP&L
to claim an exemption under PUHCA Rule 2 following the merger; or
(xii) agree in writing or otherwise to take any of the foregoing
actions.
NCNG also has agreed to use its best efforts, subject to the right of the
NCNG directors to act in accordance with their fiduciary duties, to obtain the
approval of the merger agreement by the NCNG shareholders. NCNG has agreed to
provide CP&L with access to NCNG facilities and information, subject to CP&L's
obligation of confidentiality undertaken in connection with the merger
agreement.
The merger agreement also contains other agreements relating to the conduct
of the parties prior to the effective time, including those requiring the
parties:
(i) to use their reasonable best efforts in good faith to take the
necessary actions to effect the merger and other contemplated
transactions;
(ii) to cooperate in the preparation of the CP&L Registration Statement
and this document;
(iii) to cooperate in preparing, filing and obtaining all necessary
regulatory approvals;
(iv) to refrain from issuing press releases regarding the merger
without the other party's prior approval, except as otherwise
required by applicable law, regulation or stock exchange or
trading system;
(v) give written notice promptly to the other concerning any event or
circumstance which would cause or constitute a breach or warranty
of any of the representations, warranties or covenants of that
party contained in the merger agreement; and
(vi) to deliver to each other letters from their respective accountants
for use in connection with SEC filings made in connection with the
merger.
CP&L has agreed to provide NCNG with access to CP&L nuclear power
facilities in connection with any assessment of those facilities undertaken by
NCNG pursuant to the merger agreement.
During the period from the date of the merger agreement to the effective
time, CP&L and NCNG also agreed that their representatives would meet as
frequently as reasonably requested by
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either party to discuss the operations and business prospects of their
companies. Each party has agreed to advise the other of the occurrence of a
material adverse change with respect to it.
NCNG MAY NOT SOLICIT ALTERNATIVE PROPOSALS
The merger agreement provides that neither NCNG nor any of its subsidiaries
will initiate, solicit or encourage any inquiries or proposals regarding:
(i) any merger, acquisition, consolidation, reorganization, share
exchange, tender offer, exchange offer or similar transaction
involving NCNG or any of its subsidiaries; or
(ii) any proposal or offer to acquire a substantial equity interest in or
a substantial portion of the assets of NCNG or any of its
subsidiaries.
NCNG has also agreed not to provide any non-public information or data to,
or have any discussions with, any person relating to a transaction listed above,
or otherwise facilitate any effort or attempt to make or implement a transaction
listed above. NCNG also agreed to terminate any existing activities relating to
other proposals and to notify CP&L if any inquiries and proposals for an
alternative transaction, requests for information, or attempts to initiate
discussions are received by NCNG.
The merger agreement does not prohibit NCNG or the NCNG board, to the
extent required for the NCNG directors to comply with their fiduciary duties to
shareholders imposed by law (as determined in good faith upon advice of
counsel), from furnishing information to and engaging in discussions with other
parties, subject to notifying CP&L, providing information to CP&L, taking
actions to ensure the confidentiality of information provided to other parties,
and complying with legal requirements regarding disclosure of contacts with
other parties.
Nothing in the merger agreement permits NCNG to enter into any agreement
with respect to an alternative proposal unless the merger agreement is first or
simultaneously terminated in accordance with its terms. See "-- Termination of
the Merger Agreement; Termination Fee" on page 37.
AMENDMENT AND WAIVER
The merger agreement may be amended by action taken by both CP&L and NCNG
at any time before or after approval of the merger by the NCNG shareholders.
After NCNG shareholder approval, no amendment may be made that by law requires
the further approval of the NCNG shareholders without obtaining the required
NCNG shareholder approval. The merger agreement may not be amended except in a
writing signed by both of the parties.
At any time prior to the effective time, either party may:
(i) extend the time for the performance by the other party;
(ii) waive any inaccuracies in the representations and warranties
contained in the merger agreement or in any document delivered by the
other party; or
(iii) waive compliance by the other party with any of the agreements or
conditions contained in the merger agreement.
Any extension or waiver will be valid only if stated in a writing signed by that
party.
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TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEE
The merger agreement may be terminated and the merger may be abandoned
notwithstanding approval of the merger by the NCNG shareholders:
(i) by mutual written consent of NCNG and CP&L;
(ii) by NCNG or CP&L, if the merger has not occurred on or before
December 31, 1999, but the right to terminate the merger agreement will not
be available to a party whose failure to perform was the reason for the
delay;
(iii) by NCNG if there has been a material breach by CP&L of any
representation, warranty, covenant or agreement given in the merger
agreement, and the breach has not been cured within 10 business days
following receipt by CP&L of written notice of the material breach;
(iv) (a) by CP&L or NCNG if the NCNG shareholders do not approve the
merger agreement; (b) by CP&L if there has been a material breach by NCNG
of any representation, warranty, covenant or agreement given in the merger
agreement, which breach has not been cured within 10 business days
following receipt by NCNG of written notice of the material breach; or (c)
by CP&L if the board of directors of NCNG withdraws its recommendation to
the NCNG shareholders that they approve the merger agreement;
(v) by NCNG if, prior to the effective time, another party has 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 NCNG board 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 CP&L proposal, and CP&L has not made,
within five business days of receiving notice of the competing proposal, an
offer that the NCNG board 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 the competing proposal; or
(vi) by NCNG or CP&L, if a court or other governmental authority has
issued a proper order, decree or ruling or taken any other action
restraining or otherwise prohibiting the merger and that order, decree,
ruling or other action has become final.
If the merger agreement is terminated and the merger is not completed, the
obligations of the parties under the merger agreement will terminate, except for
confidentiality obligations under the merger agreement and the provisions of
Section 8.3 (termination fee) and Article IX (miscellaneous provisions) of the
merger agreement. Termination will not relieve any party from liability by
reason of any breach of any provision contained in the merger agreement.
If CP&L or NCNG terminates the merger agreement due to material breach by
the other party of representations or warranties, and no other ground for
termination exists, then the breaching party must reimburse the other for
out-of-pocket expenses incurred in connection with the transactions contemplated
by the merger agreement. Any reimbursement by NCNG will reduce claims for
damages that CP&L otherwise might have for breach of the merger agreement by
NCNG.
CP&L is entitled to be paid a termination fee of $10 million by NCNG if the
merger agreement is terminated for the following reasons:
- CP&L terminates the merger agreement because the merger has not been
completed by December 31, 1999, due to the failure of NCNG to use its
best efforts to obtain NCNG shareholder approval, to use its best efforts
to complete the merger promptly or to use all
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commercially reasonable efforts to make regulatory filings and to provide
information in connection with those filings;
- a qualified competing proposal has been made to NCNG or the NCNG
shareholders and CP&L does not modify its proposal to meet those terms
within the allotted time; or
- the NCNG board withdraws its recommendation to you that you approve the
merger agreement.
The termination fee otherwise payable because of a competing proposal will
not be payable unless NCNG or its related companies enters into a binding
agreement relating to the competing proposal (or a similar proposal) within 12
months of the termination of the merger agreement.
INDEMNIFICATION OF THE COMPANIES
The merger agreement does not contain provisions pursuant to which either
CP&L or NCNG will indemnify each other for liabilities arising from the merger,
except for agreements that CP&L will continue to maintain the indemnification
rights of directors and officers of NCNG and NCNG policies of directors' and
officers' liability insurance as described above. See "Comparative Rights of
NCNG Shareholders and CP&L Shareholders -- Director and Officer Liability;
Indemnification" on page 46.
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MARKET PRICES AND DIVIDENDS PAID
CP&L common stock trades on the NYSE and the Pacific Exchange under the
symbol "CPL," and NCNG common stock trades on the NYSE under the symbol "NCG".
As of May 7, 1999, CP&L common stock was held of record by approximately 66,298
persons, and NCNG common stock was held of record by approximately 4,591
persons. This table sets forth for the indicated periods the high and low sales
prices per share, as reported as composite transactions in The Wall Street
Journal, and dividends declared per share.
<TABLE>
<CAPTION>
CP&L COMMON STOCK NCNG COMMON STOCK
--------------------------- ---------------------------
PER SHARE PER SHARE
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996(1)
First Quarter.......................... 38.375 34.500 0.455 18.167 16.667 0.217
Second Quarter......................... 38.000 34.875 0.455 19.250 16.583 0.217
Third Quarter.......................... 38.250 34.125 0.455 21.250 18.167 0.217
Fourth Quarter......................... 37.000 34.250 0.470 20.917 18.667 0.217
YEAR ENDED DECEMBER 31, 1997(1)
First Quarter.......................... 37.875 36.125 0.470 22.167 19.167 0.233
Second Quarter......................... 36.250 33.000 0.470 22.250 19.667 0.233
Third Quarter.......................... 36.625 33.750 0.470 23.333 20.875 0.233
Fourth Quarter......................... 42.500 34.313 0.485 23.292 20.500 0.233
YEAR ENDED DECEMBER 31, 1998
First Quarter.......................... 45.750 40.625 0.485 27.938 23.250 0.250
Second Quarter......................... 45.500 39.500 0.485 27.000 22.250 0.250
Third Quarter.......................... 46.625 39.938 0.485 26.500 23.063 0.250
Fourth Quarter......................... 49.063 45.063 0.500 33.250 22.313 0.250
YEAR ENDED DECEMBER 31, 1999
First Quarter.......................... 47.500 37.813 0.500 33.375 30.375 0.265
</TABLE>
- ------------------------------------------
(1) Per share amounts for NCNG have been restated to reflect a 3-for-2 stock
split effective February 20, 1998.
INFORMATION ABOUT NCNG
NCNG is engaged in the transmission and distribution of natural gas through
approximately 1,020 miles of transmission pipeline and approximately 2,761 miles
of distribution mains. Natural gas is sold under regulated rates to
approximately 162,000 customers in 86 cities and towns and four municipal gas
distribution systems in eastern and southcentral North Carolina. The population
in NCNG's franchised territory is approximately 2,581,000.
NCNG purchases and transports natural gas under long-term contracts with
Transcontinental Gas Pipe Line Corporation, Columbia Gas Transmission
Corporation, and several major oil and gas producers. Approximately 52% of
NCNG's total available gas supply in 1998 was purchased under long-term
contracts, in the spot market or with nonpipeline suppliers for system supply,
and approximately 48% was received for transportation to various customers. NCNG
also serves propane gas to approximately 11,200 customers and sells to and
services gas appliances for gas customers and new home builders.
For more information about NCNG, reference is made to its periodic filings
with the Securities and Exchange Commission, which are incorporated by
referenced into this document. See "Where You Can Find More Information" on page
49.
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<PAGE> 45
INFORMATION ABOUT CP&L
CP&L is engaged primarily in the generation, transmission, distribution and
sale of electric energy in portions of North and South Carolina. It serves an
area of approximately 30,000 square miles, with a population of approximately
3.9 million. As of December 31, 1998, it served approximately 1,183,000
customers. During 1998, 33% of CP&L's operating revenues were derived from
residential sales, 22% from commercial sales, 23% from industrial sales, 13%
from wholesale sales, and 9% from other sources.
At December 31, 1998, CP&L had a total system installed generating capacity
of 9,963 megawatts, of which 53% was coal-fired, 32% nuclear, 2% hydro, and 13%
other fuels. CP&L also had approximately 5,628 pole miles of transmission lines,
44,033 pole miles of overhead distribution lines, and 12,759 miles of
underground distribution lines.
CP&L is considering the formation of a holding company structure, so that
CP&L would become a subsidiary of a newly formed holding company. This
conversion is being considered because of the advantages it might offer as CP&L
continues to confront the rapidly changing environment facing electric
utilities. The holding company structure would allow greater organizational
flexibility, including a clearer separation of regulated businesses from each
other and from unregulated businesses such as energy services,
telecommunications, and electric generation projects for wholesale markets. This
structure would also offer greater financing flexibility, because the holding
company would not be required to obtain utility commission approval each time it
seeks to issue securities in order to raise cash or to offer as consideration in
acquisitions.
CP&L's shareholders would have to approve a holding company restructuring,
as would various regulatory authorities. If CP&L converts to a holding company
structure, each share of CP&L common stock will automatically be exchanged for
one share of common stock of the new holding company. There can be no assurance
as to when or whether the contemplated holding company structure will be
submitted for shareholder approval or established. CP&L does not currently
expect that the conversion will be submitted to the shareholders until after the
NCNG merger is completed and you have had an opportunity to become a shareholder
of CP&L.
For more information about CP&L, reference is made to its periodic filings
with the Securities and Exchange Commission, which are incorporated by
referenced into this document. See "Where You Can Find More Information" on page
49.
DESCRIPTION OF CP&L CAPITAL STOCK
This summary of the characteristics of CP&L's capital stock below is
qualified in all respects by reference to the CP&L charter and the CP&L bylaws,
each as amended, copies of which are on file with the SEC as Exhibit No. 3(i) to
CP&L's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1997, and Exhibit No. 3b(3) to CP&L's Form 10-K for the year ended December 31,
1998, respectively. Reference is also made to the laws of the State of North
Carolina.
AUTHORIZED AND OUTSTANDING CP&L CAPITAL STOCK
CP&L is authorized to issue 200,000,000 shares of 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 December 31, 1998, 151,337,503 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, respectively.
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The preferred stock ranks prior to the preference stock and the common
stock, and the preference stock ranks prior to the common stock, as to dividends
and liquidation rights.
CP&L COMMON STOCK
Dividend Rights. The CP&L common stock is entitled to all dividends after
full provisions for preferred stock and preference stock dividends. The CP&L
Charter contains provisions limiting the amount of dividends or distributions
which CP&L may pay or make on the CP&L common stock
- unless at least a 25 percent ratio of CP&L common stock and surplus to
total capitalization is maintained; or
- if there is a failure to pay dividends on any preferred stock or
preference stock (current aggregate annual requirements -- approximately
$3 million); or
- to meet sinking fund payments on the preferred stock.
So long as any mortgage bonds are outstanding, the payment of CP&L common
stock dividends is restricted to aggregate net income available therefor (after
dividends on all preferred stock outstanding) since December 31, 1948, plus
$3,000,000. No portion of retained earnings is currently restricted. There are
no defaults in the payment of dividends on any of the outstanding preferred
stock or preference stock.
Voting Rights and Cumulative Voting. Each share of currently outstanding
preferred stock and each share of CP&L common stock is entitled to one vote on
all matters. Since the holders of those shares do not have cumulative voting
rights, the holders of more than 50 percent of the shares voting can elect all
of CP&L's directors and the holders of the remaining shares voting (less than 50
percent) cannot elect any directors. If dividends payable on any of the
preferred stock are in default in an amount equivalent to four full quarterly
payments or more per share, holders of preferred stock, voting as a class, are
entitled to elect the smallest number of directors necessary to constitute a
majority of the CP&L board, and holders of CP&L common stock, voting as a class,
shall have the right, subject to prior rights of holders of preference stock, to
elect the remaining directors. If dividends payable on the preference stock
shall be in default in an amount equivalent to six full quarterly payments or
more per share, holders of preference stock, voting as a class, are entitled,
subject to the prior rights of the preferred stock, to elect two directors.
Liquidation Rights. The preferred stock is entitled, in preference to the
preference stock and the CP&L common stock, to $100 per share or, for preferred
stock issued after June 1, 1980, the liquidation value fixed by the CP&L board,
and accumulated unpaid dividends. The preference stock is entitled, in
preference to the CP&L common stock, to the amount per share fixed at the time
of issuance and accumulated unpaid dividends. The holders of the CP&L common
stock are entitled to share, ratably, in the distribution of all remaining
assets.
Preemptive Rights. The holders of CP&L common stock have no preemptive
rights to purchase additional shares of CP&L common stock.
Calls and Assessments. All issued and outstanding shares of CP&L common
stock are fully-paid and non-assessable, and the shares of CP&L common stock to
be issued in connection with the merger, when authorized, approved, issued and
delivered under the terms of the merger agreement, will be fully-paid and
non-assessable.
Redemption/Conversion. Shares of CP&L common stock are not subject to any
redemption provisions and are not convertible into any other securities or
property.
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TRANSFER AGENT AND REGISTRAR
As of June 1, 1999, Equiserve Trust Company, N.A. will succeed Wachovia
Bank, N.A. as the transfer agent and registrar for the CP&L common stock.
COMPARATIVE RIGHTS OF NCNG SHAREHOLDERS
AND CP&L SHAREHOLDERS
NCNG is a Delaware corporation, subject to the provisions of the Delaware
General Corporation Law. The rights of the NCNG shareholders are based on
Delaware law, the certificate of incorporation of NCNG (as amended, the "NCNG
charter"), and the NCNG bylaws (as amended). CP&L is a North Carolina
corporation, subject to the provisions of the North Carolina Business
Corporation Act. In the merger, NCNG shareholders will become holders of CP&L
common stock. The material differences between the rights of an NCNG shareholder
under the NCNG charter, the NCNG bylaws and Delaware law, on the one hand, and
the rights of a holder of CP&L common stock under the CP&L charter (as amended,
the "CP&L charter"), the CP&L bylaws (as amended) and North Carolina law, on the
other hand, are summarized below. The summary does not purport to be a complete
statement of all differences and is qualified in its entirety by reference to
the relevant provisions of the laws and the documents discussed below. Also, the
summary does not reflect any rules of the New York Stock Exchange or Pacific
Stock Exchange that may apply to CP&L or NCNG in connection with the matters
discussed.
AUTHORIZED CAPITAL
CP&L: CP&L's charter authorizes four classes of stock in addition to
common stock: $5 Preferred Stock, Serial Preferred Stock, Preferred Stock A and
Preference Stock, each of which has, or might have when issued, rights superior
to the rights of the CP&L common stock.
NCNG: NCNG's only class of authorized capital stock is the NCNG common
stock.
REQUIRED SHAREHOLDER VOTES FOR CERTAIN TRANSACTIONS
CP&L: North Carolina law provides that mergers, share exchanges, or sales
of substantially all assets require the approval of at least a majority of the
shares entitled to vote on the subject transaction. CP&L's governing documents
do not require a greater vote, but certain business combinations require the
approval of a majority of the outstanding shares, of the CP&L preferred and
preference stock, voting as a single voting group. Other transactions affecting
rights of preferred or preference stock might give rise to voting rights
requiring approval by these classes.
NCNG: Delaware law provides that certain business combinations, including
mergers, or sales of substantially all of a corporation's assets require the
approval of a majority of the shares entitled to vote on the transaction. NCNG
has adopted a provision requiring a two-thirds vote for certain business
combinations. NCNG's governing documents contain no other provisions that would
alter the voting requirements provided under Delaware law.
ANTI-TAKEOVER LAWS AND PROVISIONS
CP&L: CP&L is governed by the North Carolina Shareholder Protection Act
and the North Carolina Control Share Act. CP&L does not currently have a
shareholder rights plan, commonly known as a "poison pill" plan.
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<PAGE> 48
Shareholder Protection Act. The North Carolina Shareholder Protection Act
is a form of "fair price" anti-takeover law that applies to CP&L. Its purpose is
to protect against two-stage control transactions in which holders of shares not
purchased by the acquiror in the first stage of its acquisition are forced to
accept a lower price in the second stage (in which the acquiror eliminates
minority shares). The law also protects against the disposition of the
corporation's assets after the acquiror has completed the first stage.
A "fair price" statute makes it difficult for the acquiror to complete the
second stage of the transaction unless holders in the second stage receive a
"fair price" for their shares or approve the transaction by a supermajority
vote.
The Shareholder Protection Act requires the holders of 95% of the voting
shares of CP&L to approve a "business combination" with any other entity that
beneficially owns, directly or indirectly, 20% or more of CP&L's stock or has in
the past been a 20% owner and at the time is an affiliate of CP&L.
A "business combination" includes:
- any merger or consolidation with or into any other corporation;
- the sale or lease of all or any substantial part of the corporation's
assets to any other entity; or
- any payment, sale or lease to the corporation or any subsidiary, in
exchange for securities of CP&L, of assets of any other entity, except
assets having an aggregate fair market value of less than $5,000,000.
The 95% vote requirement will not apply if the act's "fair price" and
procedural provisions are satisfied. There are exceptions to the 95% approval
requirement, but in some cases they might be difficult to satisfy. CP&L's
directors have no authority under the Shareholder Protection Act to waive the
high vote requirement for specific transactions. The Shareholder Protection Act
can function as a deterrent in many hostile acquisition transactions, but its
broad provisions and the inability of a board of directors to exempt a
transaction from the application of the statute could prevent the completion of
a transaction that the board of directors and a significant majority of
shareholders would have approved.
Control Share Act. The North Carolina Control Share Acquisition Act
restricts the voting rights of a person who acquires "control shares" in CP&L.
Control shares are shares that, when added to all other shares of CP&L, would
entitle that person to specified levels of voting power in the election of
directors.
Under the statute, the control shares acquired have no voting rights unless
the "disinterested shareholders" grant voting rights to those shares. The
disinterested shareholders are all shareholders other than the acquiring person,
officers of CP&L and directors of CP&L who also are employees of CP&L. If voting
rights are granted to control shares, all shareholders, other than the
interested shareholders, have the right to require the corporation to redeem
their shares for the highest price per share paid by the interested shareholder
in the control share acquisition.
The Control Share Act contains exceptions to the voting rights provisions,
such as a transfer of control shares in a merger or share exchange approved by
the target company board. However, the exemptions are limited and qualified, and
the statute could operate in a way to impede or delay transactions favored by
the board and a substantial number of shareholders.
NCNG: NCNG is governed by the Section 203 of the Delaware General
Corporation Law, the "fair price" provisions of its charter and its shareholder
rights plan.
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Interested Stockholder Transactions. Section 203 of the Delaware General
Corporation Law prohibits public corporations such as NCNG from engaging in a
"business combination" with an "interested stockholder" for 3 years following
the date on which the stockholder becomes an interested stockholder, subject to
exceptions. An "interested stockholder" generally is any stockholder who becomes
the beneficial owner of 15% or more of NCNG's outstanding voting stock.
"Business combination" includes mergers or consolidations between NCNG and an
interested stockholder, transactions with an interested stockholder involving
the assets or stock of the corporation or its subsidiaries and transactions
which increase an interested stockholder's percentage ownership.
Section 203 applies to transactions, called "covered acquisitions," in
which a person acquires 15% or more of a corporation's stock. This law serves to
prevent the acquiror in a covered acquisition from effecting a business
combination with the corporation within the 3-year period. There are exceptions
to the prohibitions. Business combinations may be effected, if:
- the interested stockholder's proposed business combination is approved by
the NCNG board before the person becomes an interested stockholder;
- the share acquisitions by the acquiror that result in 15% ownership
interest also result in the acquiror owning 85% of NCNG voting stock; or
- the NCNG board and at least 66 2/3% of the disinterested voting shares
approve the business combinations.
The 3-year prohibition also does not apply to certain business combinations
specifically excepted in the statute.
NCNG has not taken any of the actions permitted under Section 203 to
restrict the applicability of this law.
NCNG Fair Price Charter Provisions. The NCNG charter has a form of "fair
price" provision which requires that certain business combinations with a
"substantial shareholder" (generally, a holder of 10% or more of the NCNG voting
stock) be approved not only by the vote of shareholders otherwise required by
Delaware law, but also by one or more directors who are not associated with the
substantial shareholder and also were directors before the time the substantial
shareholder achieved that status. In addition, this provision requires:
- that the cash or fair market value of other consideration to be received
by any NCNG shareholder will be offered to all NCNG shareholders, and
that the value must not be less than the highest of:
- the highest price per share paid by the substantial shareholder at any
time;
- the fair market value of those shares, as defined in the NCNG Charter;
or
- the highest price then being offered in any competing business
combination on the day the NCNG board approves the business
combination with the substantial shareholder; and
- that information complying with the requirements of the Securities
Exchange Act of 1934 has been provided to the NCNG shareholders,
conforming to requirements provided in the NCNG charter.
Shareholder Rights Plan. NCNG issued Rights to holders of record of NCNG
common stock on November 10, 1997, giving each holder of a Right the right to
buy shares of NCNG common stock. In summary, unless the NCNG board takes certain
actions to redeem the rights or to except a
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<PAGE> 50
proposed transaction from making the Rights exercisable, the acquisition of
shares constituting 15% or more of the outstanding common stock would render the
Rights exercisable on financial terms that would make an acquisition of control
of NCNG prohibitively expensive. The Rights are explained in the Rights
Agreement dated as of October 7, 1997 between NCNG and Wachovia Bank, N.A. as
Rights Agent.
The Rights and the Rights Agreement, in general, are designed to deter
unsolicited or hostile tender offers for NCNG shares so that the NCNG board can
assess the merits of the proposal in the interest of NCNG and its shareholders.
The NCNG board has amended the Rights Agreement in order to except the merger
from the operation of the Rights Agreement.
SIZE, CLASSIFICATION AND TERMS OF BOARD OF DIRECTORS
CP&L: The CP&L board may determine its size, except that the number of
directors may not be less than 11 or more than 15. Once set, the number of
directors may not be reduced to a number less than the number of directors then
in office unless the reduction becomes effective only at and after the next
meeting of shareholders for the election of directors. Currently, CP&L has an
11-member board divided into three classes, each as nearly as possible equal in
number as the others, with the classes being elected for staggered 3-year terms.
Directors of CP&L who are full-time employees of CP&L must retire from the CP&L
board at age 65, except for the chairman of the board. Directors who are not
full-time employees of CP&L must retire at age 71.
NCNG: The NCNG board may determine its size, except that the number must be
at least 9. Currently, NCNG has a 9-member board divided into three classes of
three directors each, with each class serving a staggered 3-year term. Directors
of NCNG must retire at age 75.
REMOVAL OF DIRECTORS
CP&L: A CP&L director may be removed with or without cause by the vote of
the holders of a majority of the voting shares. However, directors elected by
holders of preferred or preference stock may be removed only by the vote of the
voting group authorized to elect them, and other directors not elected by those
voting groups may be removed only by the shareholders that elected them.
NCNG: Because the NCNG board is staggered, a director may be removed only
with cause, unless the NCNG charter is amended to allow removal without cause.
DIVIDENDS AND OTHER DISTRIBUTIONS
CP&L: CP&L generally may make dividends or other distributions to its
shareholders unless after the distribution either:
- CP&L would not be able to pay its debts as they become due in the usual
course of business; or
- CP&L's assets would be less than the sum of its liabilities plus the
amount that would be needed to satisfy the preferential liquidation
rights of senior shareholders.
The CP&L charter contains extensive provisions governing the preference of
the CP&L preferred and preference stock with respect to the payment of dividends
and distributions, including liquidation preferences.
NCNG: NCNG may declare and pay dividends out of surplus or, if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or for the preceding fiscal year. In
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addition, NCNG may redeem or repurchase its shares only if the redemption or
repurchase would not impair the capital of the corporation.
NCNG does not have a class of preferred stock; therefore, the only
restrictions on distributions to shareholders of NCNG common stock are the
restrictions imposed by law.
SPECIAL SHAREHOLDER MEETINGS
CP&L: CP&L shareholders may not demand the call of a special meeting of
shareholders.
NCNG: NCNG shareholders of record, owning a majority of outstanding stock
entitled to vote, may demand the call of a special meeting of shareholders.
SHAREHOLDER PROPOSAL PROCEDURES
CP&L: The CP&L bylaws provide that a shareholder may propose business or
nominate candidates for director only for election at an annual meeting. Written
notice from the shareholder must be received not later than the 60th day prior
to the first anniversary of the immediately preceding year's annual meeting.
NCNG: Delaware law, the NCNG charter and the NCNG bylaws do not contain
specific advance notice requirements applicable to proposals by a shareholder.
DIRECTOR AND OFFICER LIABILITY; INDEMNIFICATION
CP&L: Under North Carolina law, a director is required to exercise his or
her duties in good faith, with the care an ordinarily prudent person in a like
position would exercise in similar circumstances, and in a manner the director
reasonably believes to be in the best interests of the corporation.
The CP&L charter provides that a CP&L director will not be liable to CP&L
or to any CP&L shareholder for monetary damages arising from the director's
breach of his or her duties as a director. North Carolina law permits these
provisions, except for:
- acts or omissions that the director at the time of the breach knew or
believed were clearly in conflict with the best interests of the
corporation;
- unlawful distributions; or
- any transaction from which the director derived an improper personal
benefit.
North Carolina law provides directors and officers with a right to
indemnification relating to official conduct when the director or officer has
been wholly successful in defense of a claim. In addition, a director or officer
without the right to indemnification may apply to a court for an order requiring
the corporation to indemnify the director or officer in a particular case.
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The CP&L bylaws provide that any person who is or was a director or officer
of CP&L and any person who at the request of CP&L serves or has served as an
officer or director, or in any position of similar authority, of any other
corporation or other enterprise, including as an individual trustee under any
employee benefit plan, will be reimbursed and indemnified against liability and
expenses incurred by that person in connection with any proceeding arising out
of that person's status as a director or officer of CP&L:
- as authorized by a shareholder resolution adopted on December 31, 1943
(dealing with actions taken pursuant to specified governmental orders);
or
- if the person's acts or omissions were not known or believed by him or
her to be clearly in conflict with the best interests of CP&L.
NCNG: Under Delaware law, a director has a fiduciary duty to the
corporation and its shareholders. Such duty generally imposes a duty of loyalty
and a duty to exercise due care in the performance of directorial duties.
A Delaware corporation may eliminate or limit a director's personal
liability to the corporation or its shareholders for monetary damages except
for:
- a breach of the director's duty of loyalty to the corporation and its
shareholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful distributions; or
- a transaction from which the director derived an improper personal
benefit.
The NCNG charter does not contain a provision limiting or eliminating the
personal liability of directors for breach of duty.
Delaware law provides directors and officers with a right to
indemnification relating to official conduct when the director or officer has
been successful in defense of the claim. In addition, the NCNG bylaws provide
that NCNG must indemnify, to the extent legally permissible, each of its
directors and officers against all liabilities, including reasonable expenses,
due to acts or omissions of the director or officer, unless the liability
results from the person's dereliction of duty. However, any indemnification will
not cover liabilities arising from a settlement made by the director or officer,
unless the settlement is approved as in the best interest of NCNG, either by a
vote of the NCNG board in which no interested director participates, or by a
vote of the holders of a majority of the outstanding stock at the time having
the right to vote for directors (not counting any stock owned by any interested
director or officer).
AMENDMENT OF CHARTER
CP&L: An amendment to the CP&L charter generally requires the
recommendation of the CP&L board and the approval of either a majority of all
shares entitled to vote or a majority of the votes cast, depending on the nature
of the amendment. If an amendment causes dissenters' rights to be available to
members of a voting group, it also must be approved by a majority of shares
within that voting group entitled to be voted. Where classes or series of
capital stock vote as separate voting groups, amendments also can require the
approval of each voting group entitled to vote as a separate voting group, and
by the prescribed number of all shares (including shares not entitled to vote as
a separate group).
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NCNG: Because NCNG has only one class of stock, its charter may be amended
upon recommendation by the board of directors and affirmative vote of a majority
of shareholders.
AMENDMENT OF BYLAWS
CP&L: The CP&L board generally may adopt, amend or repeal bylaws. An
amendment to the CP&L bylaws generally requires the approval of a majority of
the directors then holding office. The CP&L board may not amend the CP&L bylaws
to require more than a majority of the voting shares for a quorum at a
shareholders' meeting or more than a majority vote at the meeting, except where
higher percentages are required by law. Under North Carolina law, shareholder
approval is necessary for any bylaw that:
- creates staggered terms for directors;
- increases or decreases the number of directors, except when directors are
specifically authorized to take that action;
- varies the quorum requirement for shareholder action;
- provides for a quorum for director action below a majority;
- provides for shareholder action by single or multiple voting groups;
- creates a voting requirement for shareholder action that is greater than
a statutory requirement for that action;
- affects directors' powers to alter bylaws;
- limits the authority of directors to transfer corporate assets; or
- pertains to certain voting requirements under the North Carolina Control
Share Acquisition Act.
The CP&L bylaws also may be adopted, amended or repealed by vote of the
holders of a majority of the issued and outstanding CP&L shares that are
entitled to vote on the bylaw proposal at any annual shareholders' meeting. Any
bylaw adopted, amended or repealed by the CP&L shareholders may not be
readopted, amended or repealed by the CP&L board unless the CP&L charter or a
CP&L bylaw adopted by the CP&L shareholders authorizes the CP&L board to do so.
NCNG: The NCNG bylaws may be amended by the board or by the vote of
holders of a majority of the issued and outstanding stock.
NO VOTE REQUIRED FOR CP&L SHAREHOLDERS
Under applicable law, no approval of the merger agreement or the
transactions contemplated thereby is required by, and no proxies are being
solicited from, holders of CP&L common stock.
LEGAL MATTERS
The legality of the CP&L common stock to be issued in connection with the
merger will be passed upon by Hunton & Williams, Raleigh, North Carolina.
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Certain tax consequences of the merger have been passed upon for CP&L and
NCNG by Hunton & Williams. See "The Merger -- Material Federal Income Tax
Consequences" on page 17. Certain other matters related to the merger have been
passed upon for CP&L by Hunton & Williams and for NCNG by McCoy, Weaver,
Wiggins, Cleveland & Raper P.L.L.C., Fayetteville, North Carolina.
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this document by reference to the NCNG Annual Report on Form
10-K for the year ended September 30, 1998, have been audited by Arthur Andersen
LLP, independent public accountants, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements and the related financial statement schedules
incorporated in this document by reference from the CP&L Annual Report on Form
10-K for the year ended December 31, 1998, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
Representatives of Arthur Andersen LLP are expected to be present at the
NCNG special meeting. Representatives of that firm will have the opportunity to
make a statement if they desire to do so and are expected to be available to
respond to appropriate questions.
OTHER MATTERS
The NCNG board does not currently intend to bring before the special
meeting any matters other than that in the Notice specified and has no knowledge
of any other matters which may be brought up by other persons. However, if any
other matters properly come before the special meeting or any adjournment of the
special meeting, and are voted upon, the enclosed proxies will be deemed to
confer discretionary authority on the persons named as proxies therein to vote
the shares represented by those proxies as to those other matters. Those persons
named as proxies intend to vote or not vote in accordance with the
recommendation of the management of NCNG.
WHERE YOU CAN FIND MORE INFORMATION
Documents Incorporated by Reference. CP&L and NCNG file annual, quarterly
and special reports, proxy statements and other information with the SEC. CP&L
also has filed with the SEC a Registration Statement on Form S-4
(333- ) under the Securities Act, with respect to the CP&L common
stock to be issued in the merger. This document is part of that registration
statement and constitutes a prospectus of CP&L.
This document does not contain all of the information discussed in the
registration statement or the exhibits thereto, certain parts of which have been
omitted in accordance with the rules and regulations of the SEC. For further
information, reference is hereby made to the registration statement, copies of
which may be obtained from the SEC as set forth below.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The
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information incorporated by reference is an important part of this document and
information that we file later with the SEC will automatically update and
supersede this information.
CP&L and NCNG incorporate by reference the documents listed below. Some of
these filings have been amended by later filings, which also are listed. Any
statement in a document listed below shall be deemed to be modified or
superseded for the purposes of this document if a statement herein, or a
document that is subsequently filed by CP&L or NCNG with the SEC that is
incorporated by reference herein, modifies or supersedes it. Any statement
modified or superseded in that manner shall be deemed a part of this document
only as modified or superseded. Any statements contained herein concerning the
provisions of any document filed with the SEC are not necessarily complete, and,
in each instance, you should refer to the document in its entirety for complete
information.
You should rely only on the information incorporated by reference or
provided in this document. This document is dated May 10, 1999. You should not
assume that the information in this document is accurate as of any date other
than that date.
NCNG and CP&L also incorporate by reference additional documents that may
be filed with the SEC between the date of this document and the completion of
the merger or the termination of the merger agreement. These include Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on
Form 8-K. CP&L incorporates by reference the description of CP&L common stock in
CP&L's Registration Statement on Form 8-A filed under the Securities Exchange
Act of 1934 with respect to CP&L common stock, including all amendments and
reports filed for the purpose of updating the description.
<TABLE>
<S> <C>
CP&L SEC FILINGS (FILE NO. 1-3382) PERIOD/AS OF DATE
Definitive Proxy Statement April 1, 1999
Annual Report on Form 10-K Fiscal year ended December 31, 1998
NCNG SEC FILINGS (FILE NO. 1-10998) PERIOD/AS OF DATE
Annual Report on Form 10-K Fiscal year ended September 30, 1998
Quarterly Report on Form 10-Q Quarter ended December 31, 1998
Amended Quarterly Report on Form 10-Q Quarter ended December 31, 1998
</TABLE>
Where to Obtain Documents. SEC filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any documents that are filed at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C.; 7 World Trade Center, Suite 1300, New
York, New York; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. You may also obtain filed documents from
commercial document retrieval services (some of which also provide on-line
delivery). NCNG shareholders of record as of November 27, 1998 have already been
mailed the NCNG 1998 Annual Report.
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Documents incorporated by reference are available from the companies
without charge by first class mail or equally prompt means within one (1)
business day of receipt of your request, excluding exhibits unless the exhibit
has been specifically incorporated by reference into the information that this
document incorporates. If you want to receive a copy of any document
incorporated by reference, please request in writing or by telephone from the
appropriate company at the following addresses:
<TABLE>
<S> <C>
CAROLINA POWER & LIGHT COMPANY NORTH CAROLINA NATURAL GAS CORPORATION
411 Fayetteville Street PO Box 909
Raleigh, North Carolina 27601-1748 Fayetteville, North Carolina 28302-9969
Attn: Robert F. Drennan, Jr., Manager Attn: Barbara J. Caudill
Investor Relations and Funds Management Assistant Corporate Secretary
Treasury Department Telephone: (910) 323-6204
Telephone: (919) 546-7474
</TABLE>
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, REQUESTS SHOULD BE
MADE BY JUNE 22, 1999.
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A N N E X E S
<PAGE> 58
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
As Amended and Restated
As of April 22, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
1.1. Agreement................................................... A-6
1.2. Alternative Proposal........................................ A-6
1.3. Atomic Energy Act........................................... A-6
1.4. COBRA....................................................... A-6
1.5. Certificates................................................ A-6
1.6. Certificate of Merger....................................... A-7
1.7. CP&L Common Stock........................................... A-7
1.8. CP&L Companies.............................................. A-7
1.9. CP&L Disclosure Letter...................................... A-7
1.10. CP&L SEC Reports............................................ A-7
1.11. Closing; Closing Date....................................... A-7
1.12. Code........................................................ A-7
1.13. Confidentiality Agreement................................... A-7
1.14. Contracts................................................... A-7
1.15. DGCL........................................................ A-7
1.16. ERISA....................................................... A-7
1.17. Easements................................................... A-7
1.18. Effective Time.............................................. A-7
1.19. Environmental Claim and Environmental Laws.................. A-7
1.20. Environmental Permits....................................... A-7
1.21. Exchange Act................................................ A-7
1.22. Exchange Agent.............................................. A-7
1.23. Exchange Ratio.............................................. A-8
1.24. FERC........................................................ A-8
1.25. GAAP........................................................ A-8
1.26. Governmental Authority...................................... A-8
1.27. Hazardous Material.......................................... A-8
1.28. HSR Act..................................................... A-8
1.29. IRS......................................................... A-8
1.30. Knowledge of CP&L........................................... A-8
1.31. Knowledge of NCNG........................................... A-8
1.32. Law......................................................... A-8
1.33. Material Adverse Effect..................................... A-8
1.34. Merger...................................................... A-8
1.35. Merger Subsidiary........................................... A-8
1.36. Morgan Stanley.............................................. A-8
1.37. NCNG Benefit Plans.......................................... A-8
1.38. NCNG Common Stock........................................... A-8
1.39. NCNG Companies.............................................. A-8
1.40. NCNG Disclosure Letter...................................... A-8
1.41. NCNG Pension Plan........................................... A-9
1.42. NCNG Qualified Plan......................................... A-9
1.43. NCNG Rights................................................. A-9
1.44. NCNG Rights Agreement....................................... A-9
</TABLE>
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<TABLE>
<S> <C> <C>
1.45. NCNG SEC Reports.................................................................................. A-9
1.46. NCNG Share........................................................................................ A-9
1.47. NCUC.............................................................................................. A-9
1.48. NYSE.............................................................................................. A-9
1.49. PSCSC............................................................................................. A-9
1.50. PUHCA............................................................................................. A-9
1.51. Partnership; Partnerships......................................................................... A-9
1.52. Permits........................................................................................... A-9
1.53. Power Act......................................................................................... A-9
1.54. Properties........................................................................................ A-9
1.55. Proxy Statement/Prospectus........................................................................ A-9
1.56. Registration Statement............................................................................ A-9
1.57. Release........................................................................................... A-9
1.58. SEC............................................................................................... A-9
1.59. Salomon Smith Barney.............................................................................. A-10
1.60. Securities Act.................................................................................... A-10
1.61. Special Meeting................................................................................... A-10
1.62. Subsidiary; Subsidiaries.......................................................................... A-10
1.63. Surviving Corporation............................................................................. A-10
1.64. Tax Returns....................................................................................... A-10
1.65. Taxes............................................................................................. A-10
ARTICLE II
THE MERGER
2.1. The Merger........................................................................................ A-10
2.2. Effective Time; Closing........................................................................... A-10
2.3. Effect of the Merger.............................................................................. A-11
2.4. Articles of Incorporation and By-Laws............................................................. A-11
2.5. Directors and Officers of the Surviving Corporation............................................... A-11
ARTICLE III
CONVERSION OF SECURITIES IN THE MERGER
3.1. Effect of Merger on NCNG Capital Stock............................................................ A-11
3.2. Exchange of Certificates.......................................................................... A-12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CP&L
4.1. Organization and Authority of CP&L................................................................ A-14
4.2. Capitalization.................................................................................... A-14
4.3. Authority Relative to this Agreement.............................................................. A-15
4.4. Consents and Approvals; No Violations............................................................. A-15
4.5. Reports........................................................................................... A-16
4.6. Absence of Certain Events......................................................................... A-16
4.7. Proxy Statement/Prospectus........................................................................ A-16
4.8. Fees and Expenses of Brokers and Others........................................................... A-16
4.9. Operations of Nuclear Power Plants................................................................ A-17
4.10. No Default........................................................................................ A-17
4.11. Compliance with Law............................................................................... A-17
4.12. Regulation as Utility............................................................................. A-17
</TABLE>
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<TABLE>
<S> <C> <C>
4.13. [Omitted.].................................................. A-17
4.14. No Impairment of Tax Free Status............................ A-18
4.15. Insurance................................................... A-18
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NCNG
5.1. Organization and Authority of the NCNG Companies............ A-18
5.2. Capitalization.............................................. A-18
5.3. Authority Relative to this Agreement........................ A-18
5.4. Consents and Approvals; No Violations....................... A-19
5.5. Reports..................................................... A-19
5.6. Absence of Certain Events................................... A-20
5.7. Proxy Statement/Prospectus.................................. A-20
5.8. Litigation.................................................. A-21
5.9. Assets; Easements........................................... A-21
5.10. Contracts; No Default....................................... A-21
5.11. Labor Matters............................................... A-22
5.12. Employee Benefit Plans...................................... A-22
5.13. Tax Matters................................................. A-24
5.14. Compliance with Law......................................... A-25
5.15. Environmental Matters....................................... A-25
5.16. NCNG Action................................................. A-27
5.17. Vote Required............................................... A-27
5.18. Material Interests of Certain Persons....................... A-27
5.19. Insurance................................................... A-28
5.20. [Omitted.].................................................. A-28
5.21. Fees and Expenses of Brokers and Others..................... A-28
5.22. Regulation as Utility....................................... A-28
5.23. Absence of Undisclosed Liabilities.......................... A-28
5.24. Opinion of Financial Advisor................................ A-28
5.25. [Omitted.].................................................. A-28
5.26. Intellectual Property....................................... A-28
5.27. Year 2000 Matters........................................... A-29
5.28. No Impairment of Tax Free Status............................ A-29
ARTICLE VI
COVENANTS
6.1. Conduct of the Business of NCNG; Meetings and Notices....... A-29
6.2. No Solicitation............................................. A-31
6.3. The Registration Statement; Listing......................... A-32
6.4. Special Meeting............................................. A-33
6.5. Access to Information; Confidentiality Agreement............ A-33
6.6. Best Efforts................................................ A-34
6.7. Approvals................................................... A-34
6.8. Public Announcements........................................ A-34
Employee Agreements; Workforce Matters and Employee
6.9. Benefits.................................................... A-34
6.10. Letter of NCNG's Accountants................................ A-36
6.11. Letter of CP&L's Accountants................................ A-36
</TABLE>
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<TABLE>
<S> <C> <C>
6.12. Opinions of Financial Advisors.............................. A-36
6.13. Indemnification; Insurance.................................. A-36
6.14. Affiliate Agreements........................................ A-37
6.15. Nuclear Facilities.......................................... A-37
ARTICLE VII
CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER
Conditions Precedent to Each Party's Obligation to Effect
7.1. the Merger.................................................. A-37
7.2. Conditions Precedent to Obligations of NCNG................. A-38
7.3. Conditions Precedent to Obligations of CP&L................. A-38
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
8.1. Termination................................................. A-39
8.2. Effect of Termination....................................... A-40
8.3. Termination Fee............................................. A-40
8.4. Amendment................................................... A-40
8.5. Extension; Waiver........................................... A-40
ARTICLE IX
MISCELLANEOUS
9.1. Survival of Representations and Warranties.................. A-41
9.2. Brokerage Fees and Commissions.............................. A-41
9.3. Entire Agreement; Assignment................................ A-41
9.4. Notices..................................................... A-41
9.5. Governing Law............................................... A-42
9.6. Descriptive Headings........................................ A-42
9.7. Parties in Interest......................................... A-42
9.8. Counterparts................................................ A-42
9.9. Specific Performance........................................ A-42
9.10. Fees and Expenses........................................... A-42
9.11... Severability................................................ A-42
EXHIBITS
6.14 Form of NCNG Affiliate Letter............................... A-44
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of November
10, 1998, as amended and restated as of April 22, 1999, 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. This Agreement amends and restates the Agreement and Plan of Merger
among the parties hereto dated as of November 10, 1998.
F. The parties intend, notwithstanding such amendment and restatement, that
this Agreement continues to speak as of November 10, 1998 unless otherwise
expressly provided herein and that "the date hereof" shall mean November 10,
1998 when used in this Agreement.
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.
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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 Equiserve Trust
Company, N.A. or such other entity as may be agreed to between NCNG and CP&L.
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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.
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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.
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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
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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
Preclosing Market Price of CP&L Common Stock (as defined below) if the
Preclosing Market Price of CP&L Common Stock is no greater than $49.775 and no
less than $40.725, (ii) $49.775 if the Preclosing 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 Preclosing 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").
Notwithstanding the preceding paragraph, if, after the date of this
Agreement but before the fourth trading day prior to the Closing Date, CP&L
makes a public announcement of an action that is of a character that would
prevent CP&L from accounting for the Merger as a pooling of interests (but not
including the announcement of the change in accounting method itself, in form
previously agreed to between the parties) (an "Announcement"), then the
Denominator will be (iv) $40.725 if the Preannouncement Market Price of CP&L
Common Stock (as defined below) is less than
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$40.725, or (v) the lower of the Preclosing Market Price of CP&L Common Stock or
the Preannouncement Market Price of CP&L Common Stock (but not to exceed $49.775
or be less than $40.725) if the Preannouncement Market Price of CP&L Common
Stock is $40.725 or greater.
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 "Preclosing 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. The "Preannouncement Market Price" of CP&L Common Stock means
the average closing price per share of CP&L Common Stock on the NYSE for each of
the twenty consecutive trading days prior to (but not including) the date of an
Announcement.
(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 as provided in Section
3.2(a).
(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 the Certificates,
(i) shares of CP&L Common Stock necessary to make the exchanges contemplated by
Section 3.1 hereof on a timely basis and (ii) cash in immediately available
funds in an amount sufficient to pay any dividends or other distributions with
respect to the whole shares of CP&L Common Stock with a record date after the
Effective Time allocable to each holder of a Certificate. The Exchange Agent
will then determine the number of whole shares and fractional shares of CP&L
Common Stock allocable to each holder of a Certificate. Upon the Exchange
Agent's determination of the aggregate number of such fractional shares, the
Exchange Agent, acting on behalf of the holders thereof, will sell, or cause
another independent agent to sell, for cash on the open market, a number of
shares of CP&L Common Stock equal to such aggregate number of fractional shares
and shall deliver the allocable portion of the sales proceeds to each holder of
a Certificate to whom such fractional shares were allocable.
(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
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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 received by 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.
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(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.
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(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.
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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
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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. [Omitted.].
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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
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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
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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
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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
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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
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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.
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(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
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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
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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
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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.
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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 10, 1998, the
Exchange Ratio is fair to the holders of shares of NCNG Common Stock from a
financial point of view.
Section 5.25. [Omitted.]
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
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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 NCNG'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
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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;
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(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
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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;
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(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
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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
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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
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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) 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, 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.
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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;
and
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(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.
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
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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.
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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
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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.
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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.
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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: /s/ WILLIAM CAVANAUGH III
------------------------------------
William Cavanaugh III
President and Chief Executive
Officer
NORTH CAROLINA NATURAL GAS CORPORATION
By: /s/ CALVIN B. WELLS
------------------------------------
Calvin B. Wells
Chairman, President and
Chief Executive Officer
CAROLINA ACQUISITION CORPORATION
By: /s/ WILLIAM CAVANAUGH III
------------------------------------
William Cavanaugh III
President and Chief Executive
Officer
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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."
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: ____________
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ANNEX B
[SALOMON SMITH BARNEY (LETTERHEAD)]
November 10, 1998
Board of Directors
North Carolina Natural Gas
Corporation
150 Rowan Street
Fayetteville, NC 28302
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of common stock, par value $2.50
per share ("NCNG Common Stock"), of North Carolina Natural Gas Corporation
("NCNG"), a Delaware corporation, of the Exchange Ratio (as defined below) in
connection with the (the "Merger") of NCNG into Norman Acquisition Corporation
("Merger Sub"), a wholly owned subsidiary of Carolina Power & Light Company, a
North Carolina corporation ("CP&L"), pursuant to the Agreement and Plan of
Merger (the "Agreement"), dated as of November 10, 1998, by and among CP&L, NCNG
and Merger Sub.
As more specifically set forth in the Agreement, and subject to the terms
and conditions thereof, NCNG will merge with and into Merger Sub and upon the
effectiveness of the Merger, each issued and outstanding share of NCNG Common
Stock (other than shares held by CP&L or by NCNG as treasury stock) will be
converted into the right to receive a number of shares of CP&L Common Stock
equal to the Exchange Ratio. As a result of the Merger, the separate corporate
existence of Merger Sub will cease, and NCNG will continue as the surviving
corporation in respect of such transaction and as a result will become a wholly
owned subsidiary of CP&L. We understand that this Merger will be accounted for
as a pooling-of-interests in accordance with generally accepted accounting
principles as described in Accounting Principles Board Opinion Number 16. If the
Closing Date (as defined in the Agreement) occurs on or prior to November 12,
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 12, 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 12, 1999 through
the Closing Date. The "Market Price" of CP&L Common Stock means the average
closing price per share of CP&L Common Stock on the New York Stock Exchange,
Inc. for each of twenty consecutive trading days prior to and including the
fifth trading day prior to the Closing Date.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, the following; (i) a copy of the Agreement; (ii) certain
publicly available information concerning NCNG, including, without limitation,
the Annual Reports on Form 10-K of NCNG for each of the years in the three year
period ended September 30, 1997; (iii) certain internal information, primarily
financial in nature, including, without limitation, projections, concerning the
business and operations
B-1
<PAGE> 103
of NCNG furnished to us by Norman for purposes of our analysis; (iv) certain
publicly available information concerning the trading of, and the trading market
for, NCNG Common Stock; (v) certain publicly available information concerning
CP&L, including, without limitation, the Annual Reports on Form 10-K of CP&L for
each of the years in the three year period ended December 31, 1997; (vi) certain
other information, primarily financial in nature, including, without limitation,
projections, concerning the business and operations of CP&L, furnished to us by
CP&L or NCNG for purposes of our analysis; (vii) certain publicly available
information concerning the trading of, and the trading market for, CP&L Common
Stock; (viii) certain publicly available information with respect to certain
other companies that we believe to be comparable to NCNG or CP&L and the trading
markets for certain of such other companies' securities; and (ix) certain
publicly available information concerning the nature and terms of certain other
transactions that we consider relevant to our inquiry. We also have considered
such other information, financial studies, analyses, investigations and
financial, economic and market criteria that we deemed relevant. We also have
met with certain officers and employees of NCNG and CP&L to discuss the
foregoing as well as other matters that we believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us or publicly available and have neither attempted
independently to verify nor assumed any responsibility for verifying any of such
information and have further relied upon the assurances of management of NCNG
that they are not aware of any facts that would make any of such information
inaccurate or misleading. We have not conducted a physical inspection of any of
the properties or facilities of NCNG or CP&L, nor have we made or obtained or
assumed any responsibility for making or obtaining any independent evaluations
or appraisals of any of such properties or facilities, nor have we been
furnished with any such valuations or appraisals. With respect to financial
projections, we have been advised by the managements of NCNG and CP&L and have
assumed that they were reasonably prepared and reflect the best currently
available estimates and judgment of the management of NCNG or CP&L, as the case
may be, as to the future financial performance of NCNG or CP&L, as the case may
be, and we express no view with respect to such projections or the assumptions
on which they were based. We also have assumed that the Merger will be
consummated in a timely manner and in accordance with the terms of the
Agreement.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of NCNG
and CP&L; (ii) the business prospects of NCNG and CP&L; (iii) the historical and
current market for NCNG Common Stock, CP&L Common Stock and for the equity
securities of certain other companies that we believe to be comparable to NCNG
or CP&L; and (iv) the nature and terms of certain other merger transactions that
we believe to be relevant. We have also taken into account our assessment of
general economic, market and financial conditions as well as our experience in
connection with similar transactions and securities valuation generally. In
arriving at our opinion, we have not ascribed a specific consolidated range of
values to either NCNG or CP&L. We have not been asked to consider, and our
opinion does not address, the relative merits of the Merger as compared to any
alternative business strategy that might exist for NCNG. Our opinion necessarily
is based upon conditions as they exist and can be evaluated on the date hereof,
and we assume no responsibility to update or revise our opinion based upon
circumstances or events occurring after the date hereof. Our opinion is, in any
event, limited to the fairness, from a financial point of view, of the Exchange
Ratio to the holders of NCNG Common Stock and does not address NCNG's underlying
business decision to effect the Merger or constitute a recommendation of the
Merger to NCNG. Our opinion also does not constitute an opinion or imply any
conclusion as to the price at which NCNG Common Stock will trade following the
announcement of the Merger.
B-2
<PAGE> 104
We have acted as financial advisors to NCNG in connection with the Merger
and will receive a fee for such services, a substantial portion of which is
contingent upon consummation of the Merger. In addition, in the ordinary course
of business, we and our affiliates may actively trade the securities of NCNG and
CP&L for its own account and for the accounts of customers and, accordingly, may
at any time hold a long or short position in such securities. We and our
affiliates (including Citigroup Inc.) may have other business relationships with
NCNG or CP&L.
This opinion is intended solely for the benefit and use of NCNG (including
the management and directors of NCNG) in considering the transaction to which it
relates and may not be used for any other purpose or reproduced, disseminated,
quoted or referred to (other than in the Agreement) at any time, in any manner
or for any purpose, without the prior written consent of Salomon Smith Barney,
except that this opinion may be reproduced in full in, and references to this
opinion and to Salomon Smith Barney and its relationship with NCNG (in each case
in such form as Salomon Smith Barney shall approve) may be included in, the
proxy statement NCNG distributes to its shareholders in connection with the
Merger.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that as of the date hereof, the Exchange Ratio is fair, from a financial
point of view, to the holders of NCNG Common Stock.
Very truly yours,
(Salomon Smith Barney Inc. Signature)
SALOMON SMITH BARNEY INC.
B-3
<PAGE> 105
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 55-8-51 through 55-8-57 of the North Carolina Business Corporation
Act (the "NCBCA") and the Charter and By-Laws of CP&L (and resolutions of CP&L's
shareholders) provide for indemnification of the registrant's directors and
officers in a variety of circumstances, which may include liabilities under the
Securities Act of 1933, as amended. CP&L has insurance covering expenditures it
might incur in connection with the lawful indemnification of its directors and
officers for their liabilities and expenses. Officers and directors of CP&L also
have insurance which insures them against certain liabilities and expenses.
As authorized by the NCBCA, and to the fullest extent permitted by it, the
CP&L Charter provides that a CP&L director will not be liable to CP&L or to any
CP&L shareholder for monetary damages arising from the director's breach of his
or her duties as a director. The NCBCA permits these provisions, except for (i)
acts or omissions that the director at the time of the breach knew or believed
were clearly in conflict with the best interests of the corporation, (ii)
unlawful distributions, and (iii) any transaction from which the director
derived an improper personal benefit.
The NCBCA provides directors and officers with a right to indemnification
relating to official conduct when the director or officer has been wholly
successful in defense of a claim. In addition, a director or officer without the
right to indemnification may apply to a court for an order requiring the
corporation to indemnify the director or officer in a particular case.
The NCBCA also authorizes a corporation to indemnify directors and officers
beyond the indemnification rights granted by law. The CP&L Bylaws provide that
any person who is or was a director or officer of CP&L and any person who at the
request of CP&L serves or has served as an officer or director (or in any
position of similar authority) of any other corporation or other enterprise,
including as an individual trustee under any employee benefit plan, will be
reimbursed and indemnified against liability and expenses incurred by that
person in connection with any action, suit or proceeding arising out of that
person's status as a director or officer of CP&L (i) as authorized by a
shareholder resolution adopted on December 31, 1943 (dealing with actions taken
pursuant to specified governmental orders), or (ii) if that person's acts or
omissions were not known or believed by him or her to be clearly in conflict
with the best interests of CP&L.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
<TABLE>
<S> <C> <C>
2 -- Agreement and Plan of Merger, dated November 10, 1998, as
amended and restated as of April 22, 1999, by and among
Carolina Power & Light Company, North Carolina Natural Gas
Company, and Carolina Acquisition Corporation, included as
Annex A to the Prospectus/Proxy Statement contained in Part
I of this Registration Statement.
5 -- Opinion of Hunton & Williams regarding the validity of the
shares of common stock of Carolina Power & Light Company to
be issued in connection with the merger.
8 -- Opinion of Hunton & Williams regarding the federal income
tax consequences of the merger.
12 -- NCNG Computation of Ratios.
23(a) -- Consent of Deloitte & Touche LLP.
23(b) -- Consent of Arthur Andersen LLP.
</TABLE>
II-1
<PAGE> 106
<TABLE>
<S> <C> <C>
23(c) -- Consent of Hunton & Williams (included in Exhibits 5 and 8).
23(d) -- Consent of Salomon Smith Barney, Inc. (included in Exhibit
99(a)).
24 -- The Power of Attorney is contained on the signature page of
this Registration Statement.
99(a) -- Opinion of Salomon Smith Barney Inc., included as Annex B to
the Prospectus/Proxy Statement contained in Part I of this
Registration Statement.
99(b) -- Form of Proxy of North Carolina Natural Gas Corporation.
</TABLE>
ITEM 22. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in the
volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
C. 1. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the
II-2
<PAGE> 107
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
2. The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph C.1. immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject to
Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and
that, for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
D. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
E. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
F. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE> 108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on the 10th day of May, 1999.
CAROLINA POWER & LIGHT COMPANY
By: /s/ WILLIAM CAVANAUGH III
------------------------------------
William Cavanaugh III
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints William Cavanaugh III, Robert B. McGehee, and
Timothy S. Goettel, and each of them (with full power to act alone) as true and
lawful attorneys-in-fact, and stead, in any and all capacities, to sign any
amendments to this registration statement ad to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and conforming all that said
attorney-in-fact, or their substitute or substitutes, may lawfully do or cause
to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM CAVANAUGH III President and Chief Executive May 10, 1999
- ----------------------------------------------------- Officer and Director
William Cavanaugh III
/s/ GLENN E. HARDER Executive Vice President and May 10, 1999
- ----------------------------------------------------- Chief Financial Officer (and
Glenn E. Harder principal accounting officer)
/s/ SHERWOOD H. SMITH, JR. Chairman of the Board May 10, 1999
- -----------------------------------------------------
Sherwood H. Smith, Jr.
/s/ LESLIE M. BAKER, JR. Director May 10, 1999
- -----------------------------------------------------
Leslie M. Baker, Jr.
/s/ EDWIN B. BORDEN Director May 10, 1999
- -----------------------------------------------------
Edwin B. Borden
/s/ CHARLES W. COKER Director May 10, 1999
- -----------------------------------------------------
Charles W. Coker
</TABLE>
II-4
<PAGE> 109
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD L. DAUGHERTY Director May 10, 1999
- -----------------------------------------------------
Richard L. Daugherty
/s/ ROBERT L. JONES Director May 10, 1999
- -----------------------------------------------------
Robert L. Jones
/s/ ESTELL C. LEE Director May 10, 1999
- -----------------------------------------------------
Estell C. Lee
/s/ WILLIAM O. McCOY Director May 10, 1999
- -----------------------------------------------------
William O. McCoy
/s/ J. TYLEE WILSON Director May 10, 1999
- -----------------------------------------------------
J. Tylee Wilson
</TABLE>
II-5
<PAGE> 110
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2 -- Agreement and Plan of Merger, dated November 10, 1998, as
amended and restated as of April 22, 1999, by and among
Carolina Power & Light Company, North Carolina Natural Gas
Company, and Carolina Acquisition Corporation, included as
Annex A to the Prospectus/Proxy Statement contained in Part
I of this Registration Statement.
5 -- Opinion of Hunton & Williams regarding the validity of the
shares of common stock of Carolina Power & Light Company to
be issued in connection with the merger.
8 -- Opinion of Hunton & Williams regarding the federal income
tax consequences of the merger.
12 -- NCNG Computation of Ratios.
23(a) -- Consent of Deloitte & Touche LLP.
23(b) -- Consent of Arthur Andersen LLP.
23(c) -- Consent of Hunton & Williams (included in Exhibits 5 and 8).
23(d) -- Consent of Salomon Smith Barney, Inc. (included in Exhibit
99(a))
24 -- The Power of Attorney is contained on the signature page of
this Registration Statement.
99(a) -- Opinion of Salomon Smith Barney Inc., included as Annex B to
the Prospectus/Proxy Statement contained in Part I of this
Registration Statement.
99(b) -- Form of Proxy of North Carolina Natural Gas Corporation.
</TABLE>
<PAGE> 1
EXHIBIT 5
May 10, 1999
Carolina Power & Light Company
411 Fayetteville Street
Raleigh, North Carolina 27601-6111
Registration Statement on Form S-4
Relating to the shares to be issued in connection
acquisition of North Carolina Natural Gas Corporation
Ladies and Gentlemen:
We have acted as counsel to Carolina Power & Light Company, a North
Carolina corporation (the "Company"), in connection with the registration under
the Securities Act of 1933 of 9,200,000 shares of its Common Stock (the "Common
Stock"). The Common Stock is to be issued in connection with the Company's
acquisition of North Carolina Natural Gas Corporation, and the transaction in
which the Common Stock will be issued is described in the Registration Statement
on Form S-4 (the "Registration Statement") that is being filed on the date
hereof with the Securities and Exchange Commission (the "Commission") by the
Company.
In rendering this opinion, we have relied upon, among other things, our
examination of such records of the Company and certificates of its officers and
of public officials as we have deemed necessary.
Based upon the foregoing and the further qualifications stated below,
we are of the opinion that:
1. The Company is duly incorporated, validly existing and in good
standing under the laws of the State of North Carolina; and
2. When (a) the Common Stock has been issued as described in the
Registration Statement and (b) the North Carolina Utilities Commission and the
South Carolina Public Service Commission have entered orders authorizing the
issuance and sale of the Common Stock, then the Common Stock will be legally
issued, fully paid and nonassessable.
<PAGE> 2
Carolina Power & Light Company
May 10, 1999
Page 2
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement and to the references to this firm
under the heading "Legal Matters" in the Proxy Statement/Prospectus included
therein.
Very truly yours,
/s/
Hunton & Williams
<PAGE> 1
EXHIBIT 8
May 10, 1999
Carolina Power & Light Company
411 Fayetteville Street Mall
Raleigh, NC 27601
North Carolina Natural Gas Corporation
150 Rowan Street
P.O. Box 909
Fayetteville, NC 28301
Merger of Carolina Acquisition Corporation Into
North Carolina Natural Gas Corporation
Certain Federal Income Tax Matters
Ladies and Gentlemen:
We have acted as counsel to Carolina Power & Light Company ("CP&L"), a
North Carolina corporation, in connection with the proposed merger (the
"Merger") of Carolina Acquisition Corporation ("Merger Subsidiary"), a Delaware
corporation and wholly-owned subsidiary of CP&L, with and into North Carolina
Natural Gas Corporation ("NCNG"), a Delaware corporation, pursuant to the
Agreement and Plan of Merger dated as of November 10, 1998, as amended and
restated as of April 22, 1999, among CP&L, Merger Subsidiary, and NCNG (the
"Agreement"). Any capitalized term used but not defined in this letter has the
meaning given that term in the Agreement.
NCNG's only class of stock outstanding is common stock. Each share of
NCNG common stock also represents a stock purchase right issued pursuant to the
NCNG Rights Agreement dated as of October 7, 1997. Future references herein to
NCNG common stock refer to both the common stock and such rights. In the Merger,
each outstanding share of NCNG common stock (other than any shares held by CP&L
or NCNG) will be converted into a fraction of a share of CP&L common stock
according to an exchange ratio based on the Market Price of the CP&L common
stock; however, the maximum exchange ratio will be 0.8594 of a share of CP&L
common stock and the minimum exchange ratio will be 0.7032 of a share of CP&L
common stock. If the Closing Date is after November 10, 1999, the exchange ratio
is to be adjusted. CP&L will not issue any fractional share to NCNG
<PAGE> 2
Carolina Power & Light Company
North Carolina Natural Gas Corporation
May 10, 1999
Page 2
shareholders who otherwise would be entitled to receive a fractional share of
CP&L common stock upon the exchange of shares of NCNG common stock. Instead, the
Exchange Agent will sell (on behalf of such shareholders) whole shares
representing the aggregate of such fractional shares in the market and deliver
the allocable portion of the sale proceeds to each such shareholder.
You have requested our opinion concerning certain federal income tax
consequences of the Merger. In giving this opinion, we have reviewed the
Agreement, the Form S-4 Registration Statement under the Securities Act of 1933
relating to the Merger (the "S-4"), and such other documents as we have
considered necessary. In addition, we have been advised by appropriate officers
of CP&L and NCNG as follows:
1. The fair market value of the CP&L common stock (including any
fractional share interest) received by an NCNG shareholder in exchange for NCNG
common stock will be approximately equal to the fair market value of NCNG common
stock surrendered in the exchange.
2. None of the compensation received by any shareholder-employee of
NCNG will be separate consideration for, or allocable to, any shares of NCNG
common stock; none of the shares of CP&L common stock received by any
shareholder-employee in the Merger will be separate consideration for, or
allocable to, any employment agreement; and except for severance payments made
pursuant to employment agreements or otherwise to NCNG employees whose
employment is terminated, the compensation paid to any shareholder-employee will
be for services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
3. The payment of cash in lieu of fractional shares of CP&L common
stock is solely for the purpose of avoiding the expense and inconvenience to
CP&L of issuing fractional shares and does not represent separately
bargained-for consideration.
4. No share of NCNG common stock has been or will be redeemed directly
or indirectly (including, without limitation, through a partnership) by NCNG or
acquired directly or indirectly (including, without limitation, through a
partnership) by any subsidiary of NCNG in anticipation of the Merger, and NCNG
has not made and will not make any extraordinary distribution with respect to
its stock in anticipation of the Merger.
5. There is no plan or intention for CP&L or any subsidiary of CP&L to
acquire directly or indirectly (including, without limitation, through a
partnership) or to make any extraordinary distribution with respect to any of
the CP&L common stock issued in the
<PAGE> 3
Carolina Power & Light Company
North Carolina Natural Gas Corporation
May 10, 1999
Page 3
Merger, except that such CP&L common stock might be acquired by a holding
company that may be formed after the Merger as described below. In addition,
CP&L might purchase some shares of its common stock in open market transactions
before and after the Merger, but CP&L will not solicit the purchase of any
shares of CP&L common stock from any former shareholders of NCNG.
6. If a holding company is formed after the Merger, the holding company
will acquire all of the then outstanding CP&L common stock (including shares of
CP&L common stock issued to NCNG shareholders in the Merger) solely in exchange
for holding company voting common stock, and after that share exchange, the
holding company will own all the issued and outstanding common stock of CP&L.
7. If a holding company acquires all the outstanding CP&L common stock
after the Merger, there will be no plan or intention for the holding company to
dispose of any shares of CP&L common stock or for CP&L to issue additional
shares of its stock that would result in the holding company's owning less than
80 percent of (a) the total combined voting power of all classes of CP&L voting
stock, (b) each class of CP&L nonvoting stock, or (c) the total fair market
value of all the outstanding stock of CP&L.
8. If a holding company acquires all the outstanding CP&L common stock
after the Merger, there will be no plan or intention for the holding company or
any subsidiary of the holding company to acquire directly or indirectly
(including, without limitation, through a partnership) or make any extraordinary
distribution with respect to any of the holding company stock issued in exchange
for the CP&L common stock, except that the holding company might purchase some
shares of its common stock in open market transactions. The holding company will
not solicit the purchase of any shares of holding company common stock from any
former shareholder of NCNG.
9. Neither CP&L nor any subsidiary of CP&L (a) owns any shares of NCNG
common stock or (b) has acquired or will acquire directly or indirectly
(including, without limitation, through a partnership) any shares of NCNG common
stock in anticipation of the Merger.
10. Following the Merger, NCNG will hold (a) at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by NCNG immediately before the Merger and (b) at
least 90 percent of the fair market value of the net assets and at least 70
percent of the fair market value of the gross assets held by Merger Subsidiary
immediately before the Merger. For this purpose, amounts paid by NCNG
<PAGE> 4
Carolina Power & Light Company
North Carolina Natural Gas Corporation
May 10, 1999
Page 4
or Merger Subsidiary for expenses related to the Merger and any redemptions and
distributions (except for regular, normal dividends) made in connection with the
Merger will be included as assets held by NCNG or Merger Subsidiary, as
appropriate, immediately before the Merger, but any assets transferred to Merger
Subsidiary by CP&L in connection with the Merger are not taken into account.
11. On the effective date of the Merger, the fair market value of
NCNG's assets will exceed the sum of NCNG's liabilities plus the amount of
liabilities, if any, to which its assets are subject.
12. Following the Merger, NCNG will continue its historic business or
use a significant portion of its historic business assets in a business.
13. The liabilities of Merger Subsidiary, if any, that will be assumed
by NCNG and the liabilities, if any, to which assets of Merger Subsidiary are
subject were incurred by Merger Subsidiary in the ordinary course of business.
Merger Subsidiary holds, and will hold, only those assets necessary for it to
effect the Merger.
14. There is no indebtedness existing between (a) NCNG or any
subsidiary of NCNG and (b) CP&L, Merger Subsidiary, or any other subsidiary of
CP&L, except for accounts receivable for sales of gas and electricity between
NCNG (or its subsidiaries) and CP&L (or its subsidiaries) in the ordinary course
of business.
15. CP&L has paid or will pay its expenses and Merger Subsidiary's
expenses, and NCNG has paid or will pay its expenses, incurred in connection
with the Merger. NCNG shareholders will pay their expenses, if any, incurred in
connection with the Merger.
16. CP&L owns, and immediately before the Merger will own, all the
outstanding shares of stock of Merger Subsidiary.
17. After the Merger, NCNG will not issue additional shares of its
stock that would result in CP&L's owning less than 80 percent of (a) the total
combined voting power of all classes of NCNG voting stock, (b) each class of
NCNG nonvoting stock, or (c) the total fair market value of all the outstanding
stock of NCNG.
18. Neither CP&L nor NCNG has any plan or intention (a) to liquidate
NCNG, (b) to merge NCNG into another entity, (c) to sell or otherwise dispose of
any of NCNG's assets (except for dispositions made in the ordinary course of
business and other dispositions that will be consistent with paragraph ten
above), or (d) to sell or otherwise dispose of any stock of NCNG, except that,
if a holding company for CP&L is formed after the Merger, CP&L might decide to
transfer the NCNG stock to the holding company provided that CP&L first
<PAGE> 5
Carolina Power & Light Company
North Carolina Natural Gas Corporation
May 10, 1999
Page 5
obtains a ruling from the Internal Revenue Service or an opinion of counsel that
such a transfer will not adversely affect the qualification of the Merger as a
reorganization.
19. For each of CP&L, Merger Subsidiary, and NCNG, less than 50 percent
of the fair market value of its adjusted total assets consists of stock and
securities. For purposes of the preceding sentence, (a) a corporation's adjusted
total assets exclude cash, cash items (including accounts receivable and cash
equivalents), and United States government securities and (b) a corporation's
adjusted total assets exclude stock and securities issued by any subsidiary at
least 50 percent of the voting power or 50 percent of the total fair market
value of the stock of which is owned by the corporation, but the corporation is
treated as owning directly a ratable share (based on the percentage of the fair
market value of the subsidiary's stock owned by the corporation) of the assets
owned by any such subsidiary.
20. At all times during the five-year period ending on the effective
date of the Merger, no NCNG shareholder that is a nonresident alien or foreign
entity has owned directly or indirectly of record or, to the knowledge of NCNG,
beneficially more than five percent of the outstanding NCNG common stock.
21. Either (a) no shares of NCNG common stock, if any, that were
acquired in connection with the performance of services are subject to a
substantial risk of forfeiture within the meaning of section 83(c) of the
Internal Revenue Code (the "Code") or (b) any shares of CP&L common stock
received in exchange for shares of NCNG common stock that were acquired in
connection with the performance of services and are subject to a substantial
risk of forfeiture within the meaning of section 83(c) of the Code will be
subject to substantially the same risk of forfeiture after the Merger.
22. No outstanding NCNG common stock acquired in connection with the
performance of services was or will have been acquired within six months before
the effective date of the Merger by any person subject to section 16(b) of the
Securities Exchange Act of 1934 other than pursuant to an award (a) granted in a
transaction that satisfies the requirements under S.E.C. Rule 16b-3 or (b)
granted more than six months before the effective date of the Merger.
23. Since April 16, 1997, NCNG has not distributed to its shareholders
or security holders stock or securities of a controlled corporation in a
transaction to which section 355(a) of the Code applies.
On the basis of the foregoing, and assuming that the Merger will be
consummated in accordance with the Agreement, we are of the opinion that (under
existing law) for federal
<PAGE> 6
Carolina Power & Light Company
North Carolina Natural Gas Corporation
May 10, 1999
Page 6
income tax purposes the Merger will be a reorganization within the meaning of
section 368(a) of the Code, and CP&L, Merger Subsidiary, and NCNG each will be a
"party to a reorganization" within the meaning of section 368(b) of the Code.
We are also of the opinion that the material federal income tax
consequences of the Merger to NCNG shareholders are fairly summarized in the S-4
under the headings "Summary--Important Federal Income Tax Consequences" and "The
Merger--Certain Federal Income Tax Consequences."
Except as set forth above, we express no opinion regarding any tax
consequences of the Merger. This opinion may not be distributed, quoted in whole
or in part or otherwise reproduced in any document, or filed with any
governmental agency without our prior written consent. We consent to the use of
this opinion as an exhibit to the S-4 and to the references to this firm in the
S-4 under the aforementioned headings and under the heading "Legal Matters." In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by section 7 of the Securities Act of 1933 or the
rules and regulations promulgated thereunder by the Securities and Exchange
Commission.
Very truly yours,
/s/
Hunton & Willams
<PAGE> 1
EXHIBIT 12
North Carolina Natural Gas Corporation
Calculation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Fiscal Years Ended September 30 Three Months
(000's) Ended December 31
----------------------------------------------- ------------------
1998 1997 1996 1995 1994 1998 1997
----------------------------------------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings, as Defined:
Net Income (B) $17,148 $17,594 $15,173 $11,809 $11,150 $ 4,851 $ 5,369
Fixed Charges, excluding interest capitalized 5,080 4,686 5,276 4,449 4,055 1,194 1,266
Income Taxes 10,294 10,724 9,201 7,153 6,853 2,934 3,190
----------------------------------------------- ------------------
Total earnings, as defined (C) $32,522 $33,004 $29,650 $23,411 $22,058 $ 8,979 $ 9,825
=============================================== ==================
Fixed Charges, as defined:
Interest on long-term debt, including interest
capitalized $ 5,132 $ 5,314 $ 5,250 $ 3,503 $ 4,205 $ 1,252 $ 1,267
Other interest 1,195 459 328 1,745 350 399 204
----------------------------------------------- ------------------
Total Fixed Charges, as defined (D) $ 6,327 $ 5,773 $ 5,578 $ 5,248 $ 4,555 $ 1,651 $ 1,471
=============================================== ==================
Earnings Before Income Taxes (A) $27,442 $28,318 $24,374 $18,962 $18,003 $ 7,785 $ 8,559
=============================================== ==================
Ratio of Earnings Before Income Taxes
to Net Income (A)/(B) 1.60 1.61 1.61 1.61 1.61 1.60 1.59
Ratio of Earnings to Fixed Charges (C)/(D) 5.14 5.72 5.32 4.46 4.84 5.44 6.68
</TABLE>
<PAGE> 1
EXHIBIT NO. 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Carolina Power & Light Company on Form S-4 of our report dated February 9,
1999, appearing in the Annual Report on Form 10-K of Carolina Power & Light
Company for the year ended December 31, 1998 and to the reference to us under
the heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
May 7, 1999
<PAGE> 1
EXHIBIT 23(b)
[ARTHUR ANDERSEN LLP LOGO]
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated November 5, 1998,
except for Note 11, as to which the date is November 10, 1998, included in
North Carolina Natural Gas Corporation's Form 10-K for the year ended September
30, 1998, and to all references to our firm included in this registration
statement.
/s/ Arthur Andersen LLP
Charlotte, North Carolina,
May 7, 1999.
<PAGE> 1
EXHIBIT 99(b)
PROXY PROXY
NORTH CAROLINA NATURAL GAS CORPORATION
Proxy for Special Meeting of Shareholders
This Proxy is Solicited on Behalf of the Board of Directors of the Company
The signatory shareholder hereby appoints Calvin B. Wells and Barbara J.
Caudill, or either of them, with full power of substitution as attorneys and
proxies to vote all of the shares of COMMON STOCK of North Carolina Natural Gas
Corporation held or owned by said shareholder at the Special Meeting of
Shareholders on June 29, 1999, and at any adjournments thereof, as follows on
the reverse.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" THE PROPOSAL IDENTIFIED
ON THE REVERSE SIDE.
Shareholders should sign exactly as name appears on the reverse. Any person
signing in a fiduciary capacity will please enclose proof of his appointment
unless such proof has already been furnished. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person. If a limited
liability company, please sign in limited liability company name by authorized
member.
HAS YOUR ADDRESS CHANGED?
______________________________________
______________________________________
______________________________________
- --------------------------------------------------------------------------------
<PAGE> 2
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
NORTH CAROLINA NATURAL GAS CORPORATION
Special Meeting of Shareholders to be held on June 29, 1999
RECORD DATE SHARES: _______________
1. Approval of the Agreement and Plan of Merger dated as of November
10, 1998, as amended and restated as of April 22, 1999, by and among the
Company, Carolina Power & Light Company and Carolina Acquisition Corporation, a
subsidiary of Carolina Power & Light Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, upon any other business which may properly come
before the meeting or any adjournment thereof.
Mark box at right if address change has been noted on the reverse side
of this care. [ ]
PLEASE BE SURE TO SIGN AND DATE THIS PROXY.
______________________________________
Date
______________________________________
Shareholder sign here
______________________________________
Co-owner sign here
- --------------------------------------------------------------------------------
DETACH CARD
NORTH CAROLINA NATURAL GAS CORPORATION
Dear Shareholder:
Please take note of the important information enclosed with this Proxy
Ballot, explaining the proposed merger of the Company with a subsidiary of
Carolina Power & Light Company, and the conversion of your shares of Company
common stock (and related Rights issued under the Company's Rights Plan) into
shares of common stock of Carolina Power & Light Company, as described in detail
in the enclosed materials.
The merger requires the approval of a majority of outstanding shares of
the Company's common stock. Your vote counts, and you are strongly encouraged to
exercise your right to vote your shares.
Please mark the boxes on the proxy card to indicate how your shares
shall be voted. Then sign and date the card, detach it and return your proxy
vote in the enclosed postage paid envelope.
Your vote must be received prior to the Special Meeting of
Shareholders, June 29, 1999.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
North Carolina Natural Gas Corporation
