<PAGE>
PRELIMINARY COPIES
SCHEDULE 14A INFORMATION
Proxy statement pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [X](1)
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FLORIDA PROGRESS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1)Title of each class of securities to which transaction applies: COMMON
STOCK, WITHOUT PAR VALUE, OF FLORIDA PROGRESS CORPORATION
(2)Aggregate number of securities to which transaction applies: 98,453,025
SHARES OF FLORIDA PROGRESS CORPORATION COMMON STOCK (REPRESENTING THE
NUMBER OF SHARES OF FLORIDA PROGRESS CORPORATION COMMON STOCK OUTSTANDING
ON SEPTEMBER 30, 1999)
(3)Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $54.00 FOR
SHARES EXCHANGED FOR CASH CONSIDERATION (65% OF FLORIDA PROGRESS
CORPORATION'S OUTSTANDING SHARES, OR 63,994,466 SHARES) AND $45.25
(AVERAGE HIGH ($45.75) AND LOW ($44.75) SALES PRICES OF THE FLORIDA
PROGRESS CORPORATION COMMON STOCK ON THE NEW YORK STOCK EXCHANGE REPORTED
IN THE CONSOLIDATED REPORTING SYSTEM ON OCTOBER 15, 1999) FOR SHARES
EXCHANGED FOR STOCK CONSIDERATION (35% OF FLORIDA PROGRESS CORPORATION'S
OUTSTANDING SHARES OR 34,458,559 SHARES)
- --------
(1) The proxy statement filed herewith is a Preliminary Joint Proxy
Statement/Prospectus to be used by CP&L Energy, Inc., formerly named CP&L
Holdings, Inc., and Florida Progress Corporation at each of their respective
special meetings of shareholders relating to the transactions set forth in
the Amended and Restated Agreement and Plan of Exchange, dated and restated
as of August 22, 1999 as amended and restated as of March 3, 2000.
<PAGE>
(4)Proposed maximum aggregate value of transaction: $5,014,950,958
(5)Total fee paid: $1,002,990
[X] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1)Amount Previously Paid: $1,002,990
(2)Form, Schedule or Registration Statement No.: Preliminary Joint
Proxy Statement/Prospectus on Schedule 14A
(3)Filing Party: Carolina Power & Light Company and Florida Progress
Corporation
(4)Date Filed: October 21, 1999
<PAGE>
[CP&L Energy Logo] [Florida Progress Logo]
PROXY STATEMENT/PROSPECTUS PROXY STATEMENT
Dear CP&L Energy, Inc. and Florida Progress Corporation Shareholders:
The boards of directors of CP&L Energy, Inc., Carolina Power & Light
Company and Florida Progress Corporation have agreed to a share exchange
transaction and have entered into an amended and restated agreement and plan of
exchange among Carolina Power & Light, CP&L Energy and Florida Progress. CP&L
Energy recently became the holding company for Carolina Power & Light. The share
exchange is structured so that Florida Progress will become a subsidiary of CP&L
Energy.
The terms of the share exchange provide that, for each share of Florida
Progress common stock that they own, Florida Progress shareholders will be able
to elect to receive either $54.00 in cash or a number of shares of CP&L Energy
common stock designed to provide Florida Progress shareholders with CP&L Energy
stock having a value of $54.00, subject to adjustment. The actual value of any
stock consideration may be less than or more than $54.00, depending on the
market price of CP&L Energy common stock on the date the share exchange closes.
The number of CP&L Energy shares to be exchanged for each Florida Progress share
will be between 1.1897 and 1.4543, based on the value of CP&L Energy shares
during a 20-day period before the effective time of the share exchange. Each
holder of Florida Progress common stock may choose to exchange some of their
shares for cash and some for CP&L Energy common stock; however, the right of
Florida Progress shareholders to elect to receive cash or stock is subject to
proration if the elections exceed 65% in cash or 35% in stock. Florida Progress
shareholders also will receive one contingent value obligation for each share of
Florida Progress common stock they own. Each contingent value obligation will
represent the right to receive contingent payments based upon the net after-tax
cash flow to CP&L Energy generated by four synthetic fuel plants purchased by
Florida Progress in October 1999. Due to a number of uncertainties regarding the
performance of these plants and the potential tax benefits they may produce, no
assurances can be given as to the timing or amounts of payments, if any, that
may be made on the contingent value obligations.
The exact exchange ratio and value of the CP&L Energy common stock that
the Florida Progress shareholders will receive in the share exchange will not be
determined until after the shareholders have voted and shortly before the date
that the share exchange is completed. However, we estimate that Florida Progress
shareholders will own between 20% and 24% of the outstanding CP&L Energy common
stock immediately after the share exchange. The common stock of CP&L Energy is
listed on the New York Stock Exchange under the symbol "CPL". The contingent
value obligations of CP&L Energy will not be listed on any stock exchange or
included in any interdealer quotation system.
The share exchange cannot be completed without approval by the
shareholders of CP&L Energy and Florida Progress. Whether or not you plan to
attend your special meeting, please take the time to vote by completing and
mailing the enclosed proxy card or voting by telephone or the internet in
accordance with the instructions on the enclosed proxy card.
Only shareholders of record of CP&L Energy on ______________, 2000 and
shareholders of record of Florida Progress on _____________, 2000 are entitled
to attend or vote at the special meetings. The dates, times and places of the
special meetings are:
For CP&L Energy shareholders: For Florida Progress shareholders:
_____________, 2000 at __________ a.m. _____________, 2000 at __________ a.m.
______________________________________ ______________________________________
______________________________________ ______________________________________
______________________________________ ______________________________________
______________________________________ ______________________________________
Information about the share exchange and the other items to be voted on
at the special meetings is contained in this joint proxy statement/prospectus.
WE URGE YOU TO READ THIS MATERIAL, INCLUDING THE SECTION ENTITLED "RISK FACTORS
RELATING TO THE SHARE EXCHANGE" BEGINNING ON PAGE __ AND "RISK FACTORS
ASSOCIATED WITH THE EARTHCO PLANTS AND CONTINGENT VALUE OBLIGATIONS" ON PAGE
___.
William Cavanaugh III Richard Korpan
Chairman of the Board, President Chairman of the Board, President
and Chief Executive Officer and Chief Executive Officer
CP&L Energy, Inc. Florida Progress Corporation
Carolina Power & Light Company
<PAGE>
EACH VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
================================================================================
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved this document or the securities to be
issued in connection with the share exchange or determined if this document is
accurate or adequate. Any representation to the contrary is a criminal offense.
================================================================================
This joint proxy statement/prospectus is dated ___________ ____, 2000
and it is first being mailed on or about ___________ ____, 2000.
<PAGE>
THIS DOCUMENT IS THE JOINT PROXY STATEMENT OF CP&L ENERGY AND FLORIDA
PROGRESS FOR THEIR SPECIAL MEETINGS AND THE PROSPECTUS OF CP&L ENERGY FOR THE
COMMON STOCK AND CONTINGENT VALUE OBLIGATIONS TO BE ISSUED IN THE SHARE
EXCHANGE. THIS DOCUMENT GIVES YOU DETAILED INFORMATION ABOUT THE PROPOSED SHARE
EXCHANGE. THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE TO
OTHER DOCUMENTS IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT CAROLINA
POWER & LIGHT, CP&L ENERGY AND FLORIDA PROGRESS THAT IS NOT INCLUDED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON
PAGE __ FOR ADDITIONAL INFORMATION ABOUT THE COMPANIES ON FILE WITH THE
SECURITIES AND EXCHANGE COMMISSION. TO OBTAIN TIMELY DELIVERY, CP&L ENERGY AND
FLORIDA PROGRESS SHAREHOLDERS MUST REQUEST THIS INFORMATION NO LATER THAN FIVE
BUSINESS DAYS BEFORE THEY MAKE THEIR INVESTMENT DECISION. THEREFORE, CP&L ENERGY
SHAREHOLDERS MUST REQUEST THIS INFORMATION BY _______________, 2000 AND FLORIDA
PROGRESS SHAREHOLDERS MUST REQUEST THIS INFORMATION BY __________, 2000. YOU MAY
OBTAIN THESE DOCUMENTS WITHOUT CHARGE BY WRITING OR CALLING CP&L ENERGY OR
FLORIDA PROGRESS AT THE FOLLOWING ADDRESSES AND TELEPHONE NUMBERS:
CP&L ENERGY, INC. FLORIDA PROGRESS CORPORATION
CAROLINA POWER & LIGHT COMPANY INVESTORS SERVICES
SHAREHOLDER RELATIONS P.O. BOX 14042 (BT11B)
411 FAYETTEVILLE STREET ST. PETERSBURG, FLORIDA 33733
RALEIGH, NORTH CAROLINA 27601 TELEPHONE: (800) 937-2640
TELEPHONE: (800) 662-7232
<PAGE>
[FLORIDA PROGRESS LOGO]
NOTICE OF SPECIAL MEETING
OF SHAREHOLDERS
FLORIDA PROGRESS CORPORATION
___________, 2000
To the Common Shareholders:
You are cordially invited to attend a special meeting of shareholders
of Florida Progress Corporation at __________, local time, on _____________,
2000, at _________________________ ____________________________, to vote on a
proposal recommended by the board of directors of Florida Progress to approve
the amended and restated agreement and plan of exchange, including the related
plan of share exchange, among Florida Progress, Carolina Power & Light Company
and CP&L Energy, Inc., and the transactions contemplated thereby, pursuant to
which Florida Progress will become a wholly owned subsidiary of CP&L Energy; and
to transact any other business which may properly come before the Florida
Progress special meeting or any postponements or adjournments thereof.
The board of directors has fixed the close of business on ___________,
2000, as the record date for the determination of the shareholders entitled to
notice of, and to vote at, the meeting and any adjournment thereof. A complete
list of shareholders entitled to vote at the meeting will be open to examination
by the shareholders, during regular business hours, for a period of ten days
prior to the meeting at the principal executive offices of Florida Progress, One
Progress Plaza, St. Petersburg, Florida 33701.
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 the shares to facilitate your registration at the
meeting.
THE BOARD OF DIRECTORS OF FLORIDA PROGRESS HAS DETERMINED THAT THE
AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE, INCLUDING THE RELATED PLAN
OF SHARE EXCHANGE, AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST
INTERESTS OF FLORIDA PROGRESS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE AMENDED AND RESTATED AGREEMENT AND PLAN OF
EXCHANGE, INCLUDING THE RELATED PLAN OF SHARE EXCHANGE, AND TRANSACTIONS
CONTEMPLATED THEREBY AT THE SPECIAL MEETING.
By order of the Board of Directors,
Kathleen M. Haley
Vice President and Corporate Secretary
You are urged, whether you own one or many shares, to mark, date, sign
and promptly mail the enclosed proxy in the enclosed envelope, which requires no
postage. You may also vote your shares by telephone or through the internet by
following the instructions we have provided on the enclosed proxy card. You may
revoke your proxy (or your vote cast by telephone or through the internet) at
any time before the vote is taken by delivering to the Secretary a written
revocation or a proxy with a later date or by voting your shares in person at
the special meeting. You may also change a vote cast by telephone or through the
internet by revoting by telephone or through the internet.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD.
<PAGE>
[CP&L ENERGY LOGO]
-----------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
-----------------------------
To the Shareholders:
You are cordially invited to attend a special meeting of shareholders
of CP&L Energy, Inc. on _________________, 2000 at ______ a.m. in
______________________________________. The meeting will be held in order for
you to consider and vote upon the following proposals:
1. the issuance of shares of common stock of CP&L Energy, Inc. to
be delivered to shareholders of Florida Progress Corporation in connection with
an Amended and Restated Agreement and Plan of Exchange, dated as of August 22,
1999, by and among Carolina Power & Light Company, a North Carolina corporation,
Florida Progress Corporation, a Florida corporation, and CP&L Energy, Inc., a
North Carolina corporation; and
2. any other matters that may properly come before the special
meeting, or any adjournments or postponements of the special meeting.
All shareholders of CP&L Energy common stock of record at the close of
business on _____________, 2000, will be entitled to vote on the proposals.
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. YOU MAY ALSO VOTE
YOUR SHARES BY TELEPHONE OR THROUGH THE INTERNET BY FOLLOWING THE INSTRUCTIONS
WE HAVE PROVIDED ON THE ENCLOSED PROXY CARD. YOUR PROXY MAY BE REVOKED IN THE
MANNER DESCRIBED IN THE JOINT PROXY STATEMENT/PROSPECTUS ACCOMPANYING THIS
NOTICE AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT THE SPECIAL MEETING.
THE BOARD OF DIRECTORS OF CP&L ENERGY HAS DETERMINED THAT THE ISSUANCE
OF CP&L ENERGY COMMON STOCK IS IN THE BEST INTERESTS OF CP&L ENERGY
SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ADOPTION AND APPROVAL
OF THE SHARE ISSUANCE.
THE SHARE EXCHANGE IS EXPLAINED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS, WHICH YOU ARE URGED TO READ CAREFULLY. A COPY OF THE
AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE IS ATTACHED AS ANNEX A TO
THE JOINT PROXY STATEMENT/PROSPECTUS.
By Order of the Board of Directors,
William D. Johnson
Senior Vice President and
Corporate Secretary
, 2000
Raleigh, North Carolina
<PAGE>
TO FIND ANY ONE OF THE PRINCIPAL SECTIONS IDENTIFIED BELOW, SIMPLY BEND
THE DOCUMENT SLIGHTLY TO EXPOSE THE BLACK TABS AND OPEN THE DOCUMENT TO THE TAB
WHICH CORRESPONDS TO THE TITLE OF THE SECTION YOU WISH TO READ.
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE SHARE EXCHANGE
SUMMARY
MARKET PRICES AND DIVIDENDS PAID
RISK FACTORS RELATING TO THE SHARE EXCHANGE
THE FLORIDA PROGRESS SPECIAL MEETING
THE CP&L ENERGY SPECIAL MEETING
THE SHARE EXCHANGE
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
COMPARATIVE RIGHTS OF FLORIDA PROGRESS SHAREHOLDERS AND CP&L ENERGY SHAREHOLDERS
WHERE YOU CAN FIND MORE INFORMATION
ANNEXES
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE SHARE EXCHANGE....................................................................1
SUMMARY...........................................................................................................4
The Companies............................................................................................4
The Share Exchange.......................................................................................5
Organizational Structure.................................................................................6
What You Will Receive in the Share Exchange..............................................................7
How the Share Exchange will Affect Stock Dividends......................................................10
The Florida Progress Special Meeting....................................................................10
The CP&L Energy Special Meeting.........................................................................11
Our Recommendations to Shareholders.....................................................................11
Opinion of the Financial Advisor to Florida Progress....................................................11
Opinion of the Financial Advisor to CP&L Energy.........................................................12
Regulatory Approvals....................................................................................12
Conditions to the Share Exchange........................................................................13
Termination of the Exchange Agreement...................................................................13
Termination Fee.........................................................................................13
Important Federal Income Tax Consequences...............................................................14
Accounting Treatment....................................................................................14
Conflicts of Interest...................................................................................14
Comparison of Shareholder Rights........................................................................15
Where You Can Find More Information.....................................................................15
MARKET PRICES AND DIVIDENDS PAID.................................................................................16
SELECTED HISTORICAL FINANCIAL INFORMATION........................................................................17
CP&L Energy, Inc. and Carolina Power & Light Company....................................................17
Florida Progress Corporation............................................................................18
COMPARATIVE PER SHARE INFORMATION................................................................................19
UNAUDITED SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION.............................................................................................22
RISK FACTORS RELATING TO THE SHARE EXCHANGE......................................................................23
Transaction Risks.......................................................................................23
Operational Risks.......................................................................................25
Holding Company Structure...............................................................................26
RISK FACTORS ASSOCIATED WITH THE EARTHCO PLANTS AND CONTINGENT VALUE OBLIGATIONS.................................26
No Public Market for the Contingent Value Obligations...................................................26
Tax Risks...............................................................................................27
Subordination...........................................................................................29
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
A CAUTION ABOUT FORWARD-LOOKING STATEMENTS.......................................................................30
THE FLORIDA PROGRESS SPECIAL MEETING.............................................................................33
Date and Purpose of the Special Meeting.................................................................33
Record Date for the Special Meeting and Who is Entitled to Vote at the Special
Meeting........................................................................................33
Voting by Proxy and How to Revoke Your Proxy............................................................34
Solicitation of Proxies.................................................................................35
THE CP&L ENERGY SPECIAL MEETING..................................................................................35
Date and Purpose of the Special Meeting.................................................................35
Record Date for the Special Meeting and Who is Entitled to Vote at the Special
Meeting........................................................................................36
Voting by Proxy and How to Revoke Your Proxy............................................................37
Solicitation of Proxies.................................................................................37
THE SHARE EXCHANGE...............................................................................................39
General.................................................................................................39
What Florida Progress Shareholders Will Receive in the Share Exchange...................................39
Cash Payments for Fractional Shares of CP&L Energy Common Stock.........................................41
Illustrations of Exchange Ratio Application and Value to be Received....................................41
The Contingent Value Obligations........................................................................42
Florida Progress "Walk-Away" Right......................................................................44
Background and Negotiation of the Share Exchange........................................................45
Reasons of Florida Progress for Agreeing to the Share Exchange with CP&L Energy.........................51
Recommendation of the Florida Progress Board of Directors...............................................52
CP&L Energy and Carolina Power & Light Reasons for the Share Exchange...................................57
Recommendation of the CP&L Energy and Carolina Power & Light Boards of
Directors......................................................................................59
Opinion of the Financial Advisor to Florida Progress....................................................61
Opinion of the Financial Advisor to Carolina Power & Light..............................................73
No Dissenters' Appraisal Rights.........................................................................82
Accounting for the Share Exchange under the Purchase Method.............................................82
Restrictions on Resales by Florida Progress Affiliates..................................................83
Material Federal Income Tax Consequences................................................................83
Procedures for Shareholder Elections....................................................................85
Allocation Rules........................................................................................87
Conflicts of Interest...................................................................................92
Employee Benefit Matters................................................................................96
Headquarters and Other Significant Operating Locations..................................................97
Effective Time..........................................................................................97
Regulatory Approvals Required to Complete the Share Exchange............................................97
Other Significant Conditions to the Share Exchange that Must be Fulfilled or Waived....................102
Representations and Warranties.........................................................................104
Covenants of Each of Florida Progress, Carolina Power & Light and CP&L Energy;
Conduct of Business Before the Effective Time.................................................105
Florida Progress May Not Solicit Alternative Proposals.................................................108
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
Amendment and Waiver...................................................................................109
Termination of the Exchange Agreement; Termination Fee.................................................109
Florida Progress Shareholder Lawsuit Regarding the Share Exchange......................................112
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION....................................................113
ACQUISITION FINANCING...........................................................................................121
INFORMATION ABOUT FLORIDA PROGRESS..............................................................................121
INFORMATION ABOUT CP&L ENERGY AND CAROLINA POWER & LIGHT........................................................122
DESCRIPTION OF CP&L ENERGY CAPITAL STOCK........................................................................124
CP&L Energy's Capitalization...........................................................................124
CP&L Energy Preferred Stock............................................................................124
CP&L Energy Common Stock...............................................................................125
Transfer Agent and Registrar...........................................................................125
COMPARATIVE RIGHTS OF FLORIDA PROGRESS SHAREHOLDERS AND CP&L ENERGY SHAREHOLDERS................................125
Authorized Capital.....................................................................................126
Shareholder Action Without a Meeting...................................................................126
Shareholder Inspection Rights..........................................................................127
Required Shareholder Votes for Extraordinary Transactions..............................................127
Anti-Takeover Laws and Provisions......................................................................128
Shareholder Rights Plans...............................................................................131
Loans to Directors.....................................................................................132
Dissenters'Rights......................................................................................132
Size, Classification and Terms of Board of Directors...................................................133
Director and Officer Liability; Indemnification........................................................134
Election of Directors..................................................................................135
Removal of Directors...................................................................................135
Dividend and Distribution Rights.......................................................................136
Special Shareholder Meetings...........................................................................136
Shareholder Proposal and Nomination Procedures.........................................................137
Amendment of Articles..................................................................................137
Amendment of Bylaws....................................................................................139
DESCRIPTION OF THE CONTINGENT VALUE OBLIGATIONS.................................................................140
Summary................................................................................................140
Description of the Contingent Value Obligations........................................................142
LEGAL MATTERS...................................................................................................166
EXPERTS.........................................................................................................166
OTHER MATTERS...................................................................................................166
Shareholder Proposals..................................................................................167
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION.............................................................................167
WHAT INFORMATION YOU SHOULD RELY ON.............................................................................170
ANNEX A AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE....................................................A-1
ANNEX B OPINION OF SALOMON SMITH BARNEY INC....................................................................B-1
ANNEX C OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED..........................................C-1
ANNEX D FORM OF CONTINGENT VALUE OBLIGATION AGREEMENT...........................................................D-1
</TABLE>
(iv)
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE SHARE EXCHANGE
Q: WHAT WILL I RECEIVE IN THE SHARE EXCHANGE?
A. FLORIDA PROGRESS SHAREHOLDERS: Under the terms of the amended and restated
agreement and plan of exchange, you will be able to elect to receive for
each share of Florida Progress common stock you own:
- $54.00 in cash, or
- a number of shares of CP&L Energy common stock equal to the exchange
ratio, which is designed to provide Florida Progress shareholders
with CP&L Energy common stock having a value of $54.00, subject to
adjustments.
The exchange ratio will be determined by dividing $54.00 by the average of
the closing sale price per share of CP&L Energy common stock as reported
on the New York Stock Exchange Composite Tape on each of the
20-consecutive trading days ending with the fifth trading day before the
closing of the share exchange. Please see page ___ and page ___ for more
details and examples of how the exchange ratio and the value of the CP&L
Energy common stock you receive will be calculated.
You will also receive one contingent value obligation for each share of
Florida Progress common stock you own. Each contingent value obligation
will represent the right to receive contingent payments based upon the net
after-tax cash flow to CP&L Energy generated by four synthetic fuel plants
purchased by Florida Progress in October 1999. Due to a number of
uncertainties regarding the performance of these plants and the potential
tax benefits they may produce, no assurances can be given as to the timing
or amounts of payments, if any, that may be made on the contingent value
obligations.
CP&L ENERGY SHAREHOLDERS: You will not receive any new consideration in
the share exchange, and will continue to own the same number of shares of
CP&L Energy common stock you owned immediately before the share exchange.
Q: WHAT WILL YOU RECEIVE FOR YOUR CONTINGENT VALUE OBLIGATIONS?
A: It is not possible to know precisely the value of contingent value
obligations at this time, nor to predict the extent to which any market
for contingent value obligations may develop. In addition, the amount of
payments, if any, made to holders of contingent value obligations will
depend on and be subject to a number of factors described in "The Share
Exchange--The Contingent Value Obligations." Based on assumptions provided
by Florida Progress management described in "The Share Exchange--The
Contingent Value Obligations," annual net after-tax cash flow could reach
an average of about $140 million per year over the years in which the
rights to these payments can accrue to the contingent value obligations.
Assuming net after-tax cash flow of $140 million in a particular year, for
example, after subtracting CP&L Energy's preferential amount of $80
million, the allocation to the contingent value obligations for that year
would be $30 million (which is 50% of the net after-tax cash flow above
$80 million). If the assumptions made by Florida Progress management
differ materially from actual results, the payments to contingent value
obligation holders could vary significantly
1
<PAGE>
from the projected amounts. No assurance can be given as to the value of
the contingent value obligations or the amount of payments, if any, that
will ultimately be made to holders of contingent value obligations.
Assuming that tax audit matters are resolved in a time frame consistent
with past experience, we anticipate any payments would begin no earlier
than 2007. See "Risk Factors Associated with the EARTHCO Plants and
Contingent Value Obligations," "The Share Exchange--The Contingent Value
Obligations" and "Description of the Contingent Value Obligations."
Q: WHEN DO FLORIDA PROGRESS AND CP&L ENERGY EXPECT THE SHARE EXCHANGE TO BE
COMPLETE?
A: We are working to complete the share exchange as quickly as possible and
expect to do so during the fall of 2000 following receipt of necessary
regulatory approvals.
Q: WHAT DO I NEED TO DO NOW?
A: You should carefully read and consider the information contained in this
joint proxy statement/prospectus. You should complete and sign your proxy
and return it in the enclosed return envelope or vote by telephone or
through the internet in accordance with the instructions on the enclosed
proxy card as soon as possible so that your shares may be represented at
the appropriate special meeting. If you sign, date and mail your proxy
card without identifying how you want to vote, your proxy will be counted
"FOR" the agreement and plan of exchange or the issuance of the shares of
CP&L Energy common stock. If you are a Florida Progress shareholder,
failure to vote in person, by telephone, by internet or by returning your
completed proxy card or, if your shares are held in street name, failure
to provide your broker with instructions on how to vote will have the same
effect as a vote against the agreement and plan of exchange.
Q: ARE SHAREHOLDERS ENTITLED TO APPRAISAL RIGHTS?
A: No. Under Florida and North Carolina law, neither Florida Progress nor
CP&L Energy shareholders are entitled to dissenters' rights of appraisal
or other rights to demand fair value for their shares in cash by reason of
the share exchange.
Q: WHO MUST APPROVE THE SHARE EXCHANGE?
A: In addition to the approvals by the Carolina Power & Light, CP&L Energy
and Florida Progress boards of directors, which have already been
obtained, the shareholders of Florida Progress must approve the amended
and restated agreement and plan of exchange, including the related plan of
share exchange, and the shareholders of CP&L Energy must approve the
issuance of shares of CP&L Energy common stock in connection with the
share exchange. We must also obtain some regulatory approvals for the
share exchange. Please read the more detailed description of the
regulatory approvals on pages __ to __.
Q: CAN I CHANGE MY VOTE AFTER I MAIL MY SIGNED PROXY OR IF I VOTED BY
TELEPHONE OR THROUGH THE INTERNET?
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 several ways. First, you
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 for Florida Progress shares at the address on page _____
and for CP&L Energy shares at the address on page ____.
2
<PAGE>
Third, you can attend the special meeting and vote in person. Fourth, if
you retained a copy of the voter control number found on the enclosed
proxy card, you can change your vote by accessing the internet or by
telephone. Finally, if you voted by telephone or through the internet, you
can also change your vote by any of these methods or you can revote by
following the instructions on the enclosed proxy form.
Q: MY SHARES ARE HELD IN "STREET NAME." WILL MY BROKER VOTE MY SHARES ON THE
SHARE EXCHANGE?
A: A broker will vote your shares on the agreement and plan of exchange or
the issuance of shares of CP&L Energy common stock 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: WHEN AND HOW WILL FLORIDA PROGRESS SHAREHOLDERS MAKE THEIR ELECTIONS FOR
CASH OR CP&L ENERGY COMMON STOCK?
A: Shortly before the share exchange is completed, written instructions will
be sent to Florida Progress shareholders for making their elections for
cash or CP&L Energy common stock.
Q: SHOULD I SEND IN MY CERTIFICATES NOW?
A: FLORIDA PROGRESS SHAREHOLDERS: NO, YOU SHOULD NOT SEND IN YOUR STOCK
CERTIFICATES WITH YOUR PROXY. You will receive instructions for exchanging
your stock certificates along with the instructions for making your
election.
A: CP&L ENERGY SHAREHOLDERS: No. You will keep your stock certificates.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the share exchange or if you need
additional copies of this joint proxy statement/prospectus or the enclosed
proxy, you should contact:
CP&L Energy, Inc.
Carolina Power & Light Company
Shareholder Relations
411 Fayetteville Street
Raleigh, North Carolina 27601
(800) 662-7232
Florida Progress Corporation
Investor Services
P.O. Box 14042 (BT11B)
St. Petersburg, Florida 33733
(800) 937-2640
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<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS MATERIAL INFORMATION FROM THIS JOINT PROXY
STATEMENT/PROSPECTUS. IT DOES NOT CONTAIN ALL OF THE DETAILED INFORMATION THAT
MAY BE IMPORTANT TO YOU. TO UNDERSTAND THE SHARE EXCHANGE FULLY AND FOR A MORE
COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE SHARE EXCHANGE, YOU SHOULD READ
CAREFULLY THIS ENTIRE JOINT PROXY STATEMENT/PROSPECTUS AND THE OTHER DOCUMENTS
TO WHICH WE REFER. FOR MORE INFORMATION ABOUT CP&L ENERGY, CAROLINA POWER &
LIGHT, AND FLORIDA PROGRESS, SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE
__. EACH ITEM IN THIS SUMMARY REFERS TO THE PAGES WHERE THAT SUBJECT IS
DISCUSSED MORE FULLY.
THE COMPANIES (PAGES __)
CP&L ENERGY, INC.
CAROLINA POWER & LIGHT COMPANY
411 Fayetteville Street
Raleigh, North Carolina 27601
(919) 546-6111
CP&L Energy, Inc., formerly known as CP&L Holdings, Inc., a North
Carolina corporation, was incorporated in August 1999 under the laws of the
State of North Carolina and became the holding company for Carolina Power &
Light Company on _______, 2000. At that time, the holders of Carolina Power &
Light common stock became the holders of the outstanding stock of CP&L Energy,
through a one-for-one share exchange. See "Information About CP&L Energy and
Carolina Power & Light--The Recent Holding Company Restructuring" on page ____
for a description of the recent holding company restructuring.
CP&L Energy operates its utility businesses through three subsidiaries.
Carolina Power & Light Company, a North Carolina corporation, is a public
service corporation that provides electricity and energy related services to
more than 1.2 million customers in North Carolina and South Carolina and,
through its wholly owned subsidiary, North Carolina Natural Gas Corporation,
provides natural gas, propane and related service to approximately 178,000
customers in south-central and eastern North Carolina.
Interpath Communications, Inc., a wholly owned subsidiary of Carolina
Power & Light, is primarily engaged in providing internet-based services.
CP&L Energy's diversified, non-utility operations segment includes
Strategic Resource Solutions Corp., a wholly owned subsidiary of Carolina Power
& Light, specializing in facilities and energy management software, systems and
services for educational, commercial, industrial and governmental markets
nationwide.
At ___________, ____, CP&L Energy had total consolidated assets of
approximately $___ billion and total consolidated shareholders' equity of
approximately $___ billion.
FLORIDA PROGRESS CORPORATION
One Progress Plaza
St. Petersburg, Florida 33701
(727) 824-6400
Florida Progress Corporation, a Florida corporation, is a diversified
electric utility holding company. Florida Power Corporation, a Florida
corporation and Florida Progress' largest subsidiary, is a regulated public
utility engaged in the generation, purchase, transmission, distribution and sale
of electricity. It provides electric services to an average of 1.3 million
customers in central and north Florida. In 1998, Florida Power accounted for 73%
of Florida Progress'
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<PAGE>
consolidated revenues, 80% of its assets and 89% of its net income.
Florida Progress also has diversified, non-utility operations which are
owned, directly or indirectly, through Progress Capital Holdings, Inc., a
Florida corporation and a wholly owned subsidiary of Florida Progress. The
diversified, non-utility operations segment includes Electric Fuels Corporation,
an energy and transportation company. The primary segments of Electric Fuels are
energy and related services, rail services and inland marine transportation.
At ___________, ____, Florida Progress had total consolidated assets of
approximately $_____ billion and total consolidated common stock equity of
approximately $_____ billion.
THE SHARE EXCHANGE
THE AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE AND RELATED
PLAN OF SHARE EXCHANGE ARE ATTACHED AS ANNEX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. THESE ARE THE LEGAL DOCUMENTS THAT GOVERN THE SHARE
EXCHANGE AND THE SHAREHOLDER ELECTION PROCEDURE. WE ENCOURAGE YOU TO READ THESE
DOCUMENTS CAREFULLY. IN THIS JOINT PROXY STATEMENT/PROSPECTUS, WE REFER TO THE
AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE, INCLUDING THE RELATED PLAN
OF SHARE EXCHANGE, AS THE EXCHANGE AGREEMENT.
5
<PAGE>
ORGANIZATIONAL STRUCTURE
The following charts show (1) CP&L Energy's current corporate structure
reflecting its recent holding company restructuring, and (2) the proposed
corporate structure for CP&L Energy following the completion of the share
exchange:
[GRAPHIC]
At or about the time the share exchange is completed, the name of CP&L
Energy likely will be changed to better reflect its anticipated future business
operations.
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<PAGE>
WHAT YOU WILL RECEIVE IN THE SHARE EXCHANGE (PAGE __)
FLORIDA PROGRESS SHAREHOLDERS: Under the terms of the exchange
agreement, Florida Progress shareholders will be able to elect to receive for
each share of Florida Progress common stock they own:
- - $54.00 in cash; or
- - a number of shares of CP&L Energy common stock equal to the exchange
ratio, which is designed to provide Florida Progress shareholders with CP&L
Energy common stock having a value of $54.00, subject to adjustments
described below.
You will also receive one contingent value obligation for each share of
Florida Progress common stock you own. Each contingent value obligation will
represent the right to receive contingent payments based upon the net after-tax
cash flow to CP&L Energy generated by four synthetic fuel plants purchased by
Florida Progress in October 1999. Due to a number of uncertainties regarding the
performance of these plants and the potential tax benefits they may produce, no
assurances can be given as to the timing or amounts of payments, if any, that
may be made on the contingent value obligations. See "Risk Factors Associated
with the EARTHCO Plants and Contingent Value Obligations," "The Share
Exchange--The Contingent Value Obligations" and "Description of the Contingent
Value Obligations."
The exchange ratio will be determined by dividing $54.00 by the average
of the closing sale price per share of CP&L Energy common stock as reported on
the New York Stock Exchange Composite Tape on each of the 20-consecutive trading
days ending with the fifth trading day before the closing of the share exchange.
This exchange ratio is subject to the following two adjustments:
- - if the average closing price of CP&L Energy common stock as calculated
above exceeds $45.39, the exchange ratio described above will be fixed at
1.1897; and
- - if the average closing price falls below $37.13, the exchange ratio
described above will be fixed at 1.4543.
This means that the number of shares of CP&L Energy common stock
received for each share of Florida Progress common stock will never be less than
1.1897 or more than 1.4543 regardless of what happens to CP&L Energy's stock
price shortly before the share exchange. This also means that if the average
closing price of CP&L Energy common stock is less than $37.13 or more than
$45.39, the value of the CP&L Energy common stock delivered to holders of
Florida Progress common stock would be less than or more than $54.00. Assuming
the average closing price were equal to $__.__, which was closing sales price of
Carolina Power & Light shares on ____________, 2000, the value of CP&L Energy
common stock delivered to Florida Progress shareholders for each share of
Florida Progress common stock would equal approximately $__.__.
Florida Progress shareholders will receive a check in payment for any
fractional shares of CP&L Energy common stock to which they would be entitled
based on the average closing price of CP&L Energy common stock for the 20-day
trading period.
The right of Florida Progress shareholders to receive cash or CP&L
Energy common stock is subject to proration in the event that elections exceed
65% in cash and 35% in stock. You will receive contingent value obligations
regardless of any election you have made or any allocation or proration
procedures. Set forth below is a table showing examples of the exchange ratio
and
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<PAGE>
cash and shares of CP&L Energy common stock to be received by Florida Progress
shareholders in the share exchange, based on various average closing prices of
CP&L Energy common stock and assuming that a Florida Progress shareholder owns
100 shares of Florida Progress common stock, and elected to receive 65% cash and
35% shares of CP&L Energy common stock as consideration and no proration
occurred. The examples provided assume that the market price of a share of CP&L
Energy common stock on the day the share exchange is completed is equal to the
average closing price of CP&L Energy common stock. This table excludes any value
attributable to the contingent value obligations. The table also highlights the
minimum and maximum exchange ratios and the point at which Florida Progress'
walk-away right would be effective:
ILLUSTRATIONS OF EXCHANGE RATIO APPLICATION AND THE VALUE OF CASH AND STOCK
CONSIDERATION TO BE RECEIVED
<TABLE>
<CAPTION>
Number of Total Value of
Whole $ Value of Cash Cash and Stock
Average CP&L CP&L Payment Cash Consideration to
CP&L Energy Energy for Consideration to be Received per
Energy Exchange Shares to be Shares to be Fractional to be 100 Florida
Closing Price Ratio Received Received Share Received Progress Shares*
------------- ----- -------- -------- ----- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$50.00 1.1897 41 $2,050.00 $31.98 $3,510.00 $5,591.98
$48.00 1.1897 41 $1,968.00 $30.70 $3,510.00 $5,508.70
-------------------- --------------- ----------- ------------- ------------- ------------ --------------- ----------------
Exchange Ratio
Limitation $45.39 1.1897 41 $1,860.99 $29.03 $3,510.00 $5,400.02
-------------------- --------------- ----------- ------------- ------------- ------------ --------------- ----------------
$44.00 1.2273 42 $1,848.00 $42.04 $3,510.00 $5,400.04
$42.00 1.2857 44 $1,848.00 $41.98 $3,510.00 $5,399.98
$41.00 1.3171 46 $1,886.00 $ 4.04 $3,510.00 $5,400.04
$39.00 1.3846 48 $1,872.00 $17.98 $3,510.00 $5,399.98
-------------------- --------------- ----------- ------------- ------------- ------------ --------------- ----------------
Exchange Ratio
Limitation $37.13 1.4543 50 $1,856.50 $33.44 $3,510.00 $5,399.94
-------------------- --------------- ----------- ------------- ------------- ------------ --------------- ----------------
$35.00 1.4543 50 $1,750.00 $31.52 $3,510.00 $5,291.52
$33.00 1.4543 50 $1,650.00 $29.72 $3,510.00 $5,189.72
-------------------- --------------- ----------- ------------- ------------- ------------ --------------- ----------------
Walk-Away
Right $30.00 1.4543 50 $1,500.00 $27.02 $3,510.00 $5,037.02
-------------------- --------------- ----------- ------------- ------------- ------------ --------------- ----------------
$29.00 1.4543 50 $1,450.00 $26.11 $3,510.00 $4,986.11
$28.00 1.4543 50 $1,400.00 $25.21 $3,510.00 $4,935.21
$27.00 1.4543 50 $1,350.00 $24.31 $3,510.00 $4,884.31
</TABLE>
* Excluding any value attributable to the contingent value
obligations. See "The Share Exchange -- The Contingent Value Obligations."
8
<PAGE>
We expect CP&L Energy will issue a maximum of approximately 50,244,000
shares of CP&L Energy common stock and pay approximately $3.465 billion in cash,
on a fully diluted basis, in the share exchange. Because of the time period
between the Florida Progress special meeting and the completion of the share
exchange, you will not know the composition or the actual value of the
consideration you will receive or the number of shares to be issued by CP&L
Energy at the time you vote.
The right of Florida Progress shareholders to elect to receive cash or
CP&L Energy common stock is subject to proration in the event that elections
exceed 65% in cash or 35% in stock. Consequently, the amounts of cash and CP&L
Energy common stock Florida Progress shareholders receive may be different from
the amounts Florida Progress shareholders elect. The contingent value
obligations will not be subject to proration. The tables below illustrate the
potential effects of allocation on a holder of 100 shares of Florida Progress
common stock who elects, (1) in the case of Table 1, to receive stock
consideration with respect to all 100 shares and (2) in the case of Table 2, to
receive cash consideration with respect to all 100 shares. Both tables assume an
exchange ratio of 1.4543 based on the assumption that the average closing price
is $36.278, which is the average of the closing sales price per share on each of
the 20 consecutive trading days ending with the fifth trading day before the end
of the third fiscal quarter of 1999, the period for which pro forma financial
information is included in this joint proxy statement/prospectus. THE TABLES SET
FORTH BELOW ARE FOR PURPOSES OF ILLUSTRATION ONLY, AND ARE BASED ON THE
ASSUMPTIONS DESCRIBED IN THE TABLES AND ELSEWHERE UNDER "THE SHARE EXCHANGE --
ALLOCATION RULES" BEGINNING ON PAGE __. THE ACTUAL AMOUNTS OF STOCK
CONSIDERATION AND/OR CASH CONSIDERATION TO BE RECEIVED BY A FLORIDA PROGRESS
SHAREHOLDER MAY DIFFER BASED ON THE ACTUAL EXCHANGE RATIO AND THE ACTUAL
ELECTIONS MADE BY ALL FLORIDA PROGRESS SHAREHOLDERS IN THE AGGREGATE. The tables
exclude the value of the contingent value obligations.
TABLE 1
ILLUSTRATION OF POTENTIAL EFFECTS OF ALLOCATION PROCEDURES
ON A HOLDER OF 100 SHARES OF FLORIDA PROGRESS COMMON STOCK WHO
MAKES A STOCK ELECTION WITH RESPECT TO ALL 100 SHARES
<TABLE>
<CAPTION>
Percentage of all Number of
Shares of CP&L Energy
Florida Progress Shares Amount of
Common Stock Received as Cash
Making Stock Exchange Stock Consideration
Elections Ratio Consideration Received
--------- ----- ------------- --------
<S> <C> <C> <C> <C>
25% 1.4543 145 $ 0.00
35% 1.4543 145 $ 0.00
50% 1.4543 101 $1,620.00
75% 1.4543 68 $2,862.00
85% 1.4543 61 $3,132.00
100% 1.4543 50 $3,510.00
</TABLE>
9
<PAGE>
TABLE 2
ILLUSTRATION OF POTENTIAL EFFECTS OF ALLOCATION PROCEDURES
ON A HOLDER OF 100 SHARES OF FLORIDA PROGRESS COMMON STOCK WHO MAKES
A CASH ELECTION WITH RESPECT TO ALL 100 SHARES
<TABLE>
<CAPTION>
Percentage of
all Shares of
Florida Number of
Progress CP&L Energy
Common Shares Amount of
Stock Received as Cash
Making Cash Exchange Stock Consideration
Elections Ratio Consideration Received
--------- ----- ------------- --------
<S> <C> <C> <C> <C>
50% 1.4543 0 $5,400.00
65% 1.4543 0 $5,400.00
75% 1.4543 20 $4,644.00
85% 1.4543 34 $4,104.00
100% 1.4543 50 $3,510.00
</TABLE>
These examples illustrate only a few of the possibilities. We cannot
predict the actual amounts of stock consideration and cash consideration that
Florida Progress shareholders, in the aggregate, will elect.
See page ____ for examples of how the exchange ratio and the number of
shares of CP&L Energy common stock to be received by Florida Progress
shareholders are calculated.
One condition to the obligation of Florida Progress to complete the
share exchange is that the average closing price of CP&L Energy common stock for
the 20-day trading period ending five trading days before the share exchange, as
calculated above, not be less than $30.00. It is not possible to know whether
the average closing price of CP&L Energy common stock will be less than $30.00
until the fifth trading day prior to the closing of the share exchange. We
cannot predict now whether or not the Florida Progress board of directors would
exercise its right to terminate the share exchange if the average closing price
were less than $30.00 See "The Share Exchange--Florida Progress `Walk-Away'
Right" on page ____.
CP&L ENERGY SHAREHOLDERS: You will not receive any new consideration in
the share exchange, and will continue to own the same number of shares of CP&L
Energy common stock you owned immediately before the share exchange.
HOW THE SHARE EXCHANGE WILL AFFECT STOCK DIVIDENDS (PAGE __)
The dividend payment level of CP&L Energy after the share exchange will
be determined by the CP&L Energy board of directors. We anticipate that CP&L
Energy will continue Carolina Power & Light's current dividend policy which has
resulted in dividend increases for 17 of the past 18 years. Carolina Power &
Light currently pays a quarterly dividend of $0.515 per share. However, we
cannot assure you that this dividend policy will be in effect or remain
unchanged after the share exchange.
THE FLORIDA PROGRESS SPECIAL MEETING (PAGE __)
At the special meeting, Florida Progress shareholders will be asked to
vote on a proposal to approve the amended and restated agreement and plan of
exchange among CP&L Energy, Florida Progress and Carolina Power & Light Company,
including the related plan of share exchange. Approval of the amended and
restated agreement and plan of exchange, including the plan of share exchange,
requires the favorable vote of shares representing a majority of the outstanding
shares of Florida Progress common stock.
You can vote at the special meeting of Florida Progress shareholders if
you owned
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<PAGE>
Florida Progress common shares at the close of business on the record date,
____________. As of _____________, directors and executive officers of Florida
Progress and their affiliates beneficially owned shares representing
approximately ___% of the outstanding Florida Progress shares.
If you do not vote your shares, abstain or, if you hold your shares in
street name, do not provide your broker with instructions on how to vote, the
effect will be a vote against the amended and restated agreement and plan of
exchange and the plan of share exchange, except that if you do not vote your
shares held in the Savings Plan for Employees of Florida Progress Corporation,
the trustee of the plan will vote those shares in accordance with its judgment
of the best interests of the participants in the plan.
THE CP&L ENERGY SPECIAL MEETING (PAGE __)
At the special meeting, CP&L Energy shareholders will be asked to vote
on a proposal to approve the issuance of shares of CP&L Energy common stock in
connection with the amended and restated agreement and plan of exchange.
Approval of the issuance of shares of CP&L Energy common stock in connection
with the amended and restated agreement and plan of exchange requires the
favorable vote of a majority of the votes cast by holders of CP&L Energy common
stock, voting together as one class, provided that a majority of all outstanding
shares is voted at the special meeting.
You can vote at the special meeting of CP&L Energy shareholders if you
owned shares of CP&L Energy common stock of record at the close of business on
the record date, _________. As of the record date, directors and executive
officers of CP&L Energy and their affiliates beneficially owned approximately
_____% of the outstanding voting stock of CP&L Energy.
OUR RECOMMENDATIONS TO SHAREHOLDERS (PAGE __)
FLORIDA PROGRESS (PAGE __)
All of the members of the Florida Progress board of directors recommend
that its shareholders vote "FOR" the proposal to approve the amended and
restated agreement and plan of exchange, including the related plan of share
exchange.
CP&L ENERGY (PAGE __)
All of the members of the CP&L Energy board of directors recommend that
its shareholders vote "FOR" the proposal to approve the issuance of shares of
CP&L Energy common stock in connection with the amended and restated agreement
and plan of exchange.
OPINION OF THE FINANCIAL ADVISOR TO FLORIDA PROGRESS (PAGE __)
In connection with the share exchange, the Florida Progress board of
directors received a written opinion, dated March 3, 2000, from Salomon Smith
Barney Inc. as to the fairness, from a financial point of view, of the exchange
consideration to the holders of Florida Progress common stock. Florida Progress
currently intends to request that Salomon Smith Barney confirm its opinion as of
the date of this joint proxy statement/prospectus. Salomon Smith Barney will
receive an estimated aggregate fee for its financial advisory services to
Florida Progress in the share exchange of approximately $17 million based on the
closing stock price of Carolina Power & Light common stock as of March 2, 2000,
a significant portion of which is contingent upon the closing of the share
exchange. SALOMON SMITH BARNEY'S OPINION IS
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<PAGE>
ADDRESSED TO THE FLORIDA PROGRESS BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO THE FORM OF THE CASH OR STOCK
CONSIDERATION TO BE ELECTED BY ANY SHAREHOLDER, HOW ANY SHAREHOLDER SHOULD VOTE
ON THE SHARE EXCHANGE OR WITH RESPECT TO ANY OTHER MATTER RELATING TO THE SHARE
EXCHANGE.
THE FULL TEXT OF SALOMON SMITH BARNEY'S WRITTEN OPINION, DATED MARCH 3,
2000, IS ATTACHED TO THE BACK OF THIS DOCUMENT AS ANNEX B. WE ENCOURAGE YOU TO
READ THIS OPINION CAREFULLY IN ITS ENTIRETY FOR A DESCRIPTION OF THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN.
OPINION OF THE FINANCIAL ADVISOR TO CAROLINA POWER & LIGHT (PAGE __)
The Carolina Power & Light board of directors has retained Merrill
Lynch, Pierce, Fenner & Smith Incorporated as its financial advisor in
connection with the share exchange and to assist the board of directors in
evaluating the financial terms of the share exchange. Merrill Lynch has
delivered its opinion to the Carolina Power & Light board of directors to the
effect that, as of February 25, 2000, the exchange consideration to be paid by
CP&L Energy under the share exchange was fair to Carolina Power & Light and CP&L
Energy from a financial point of view. Carolina Power & Light currently intends
to request that Merrill Lynch confirm its opinion as of the date of this joint
proxy statement/prospectus. Merrill Lynch's opinion does not constitute a
recommendation to any shareholder as to how any shareholder should vote on the
proposed issuance of CP&L Energy common stock under the share exchange or any
other matter relating to the share exchange. Merrill Lynch will receive an
aggregate fee for its financial advisory services to Carolina Power & Light in
the share exchange of $10 million, a significant portion of which is contingent
upon the closing of the share exchange.
THE FULL TEXT OF MERRILL LYNCH'S WRITTEN OPINION, DATED FEBRUARY 25, 2000,
IS ATTACHED TO THE BACK OF THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX C. WE
ENCOURAGE YOU TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY FOR A DESCRIPTION
OF THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN.
REGULATORY APPROVALS (PAGE __)
In order to complete the share exchange, we must receive approvals from
and/or make filings with various U.S. federal and state governmental agencies.
At the federal level, these approvals include approval of the Securities and
Exchange Commission, the Federal Energy Regulatory Commission, the Nuclear
Regulatory Commission and the Federal Communications Commission. Additionally,
we must receive antitrust clearance from the Department of Justice and the
Federal Trade Commission. We must receive approval of the North Carolina
Utilities Commission in order to complete the share exchange. While the
companies do not believe any other formal state public utility commission
approvals are required for this transaction, the companies will continue their
practice of constructively working with state regulators regarding their ongoing
jurisdiction over Carolina Power & Light and Florida Power. In addition, as a
result of Florida Progress' indirect ownership of Mid-Continent Life Insurance
Company, the parties may be required to obtain approvals from insurance
regulators in Oklahoma and Texas. Upon consummation of the share exchange, CP&L
Energy expects that it will be subject to regulation as a holding company
registered under the Public Utility Holding Company Act of 1935.
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<PAGE>
CONDITIONS TO THE SHARE EXCHANGE (PAGE __)
The share exchange will not be completed unless customary conditions
are satisfied or waived by Carolina Power & Light Company, CP&L Energy and
Florida Progress, including shareholder approval, regulatory approval and the
absence of governmental action to block the share exchange.
TERMINATION OF THE EXCHANGE AGREEMENT (PAGE __)
The boards of directors of Florida Progress, Carolina Power & Light
Company, and CP&L Energy can agree at any time to terminate the exchange
agreement before completing the share exchange, even if the Florida Progress
shareholders have voted to approve it.
The exchange agreement may be terminated:
- - if the Florida Progress shareholders do not approve the exchange agreement
or the CP&L Energy shareholders do not approve the issuance of additional
shares in connection with the share exchange;
- - if the share exchange is not completed by December 31, 2000, or by June 30,
2001 if the necessary regulatory approvals have not been obtained by
December 31, 2000, but all other conditions have been or could be satisfied
by that time;
- - if either company violates any of its representations or warranties under
the exchange agreement that has had or may reasonably be expected to have a
material adverse effect and that violation has not been corrected as
permitted by the agreement and plan of exchange;
- - if either company violates any of its obligations under the exchange
agreement and that violation has not been corrected as permitted by the
exchange agreement; or
- - if a third party makes a bona fide acquisition proposal to Florida Progress
that the Florida Progress board of directors believes, in good faith after
consultation with its financial advisors, is superior, from a financial
point of view, to the shareholders of Florida Progress than the share
exchange, and is more favorable generally to the shareholders of Florida
Progress (taking into account all financial and strategic considerations,
including relevant legal, financial, regulatory and other aspects of the
proposal, and the conditions, prospects and time required for completion of
the proposal) and determines in good faith upon advice of outside counsel
that it is required to recommend the proposal to Florida Progress
shareholders and Carolina Power & Light or CP&L Energy does not make a new
proposal that the Florida Progress board of directors believes is at least
as favorable to Florida Progress shareholders (taking into account all
financial and strategic considerations, including relevant legal,
financial, regulatory and other aspects of the proposal, and the
conditions, prospects and time required for completion of the proposal).
TERMINATION FEE (PAGE __)
Florida Progress must pay CP&L Energy a termination fee of $150 million
plus out-of-pocket expenses not to exceed $25 million if the exchange agreement
is terminated for any one of the following reasons:
- - Carolina Power & Light or CP&L Energy terminates the exchange agreement
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<PAGE>
because the share exchange has not been completed by December 31, 2000, or
by June 30, 2001 if the necessary governmental approvals were not obtained
by December 31, 2000, and there is a competing proposal that has not been
rejected by Florida Progress and its board of directors and withdrawn by
the party making the competing proposal;
- - Florida Progress or Carolina Power & Light and CP&L Energy terminate the
exchange agreement because the Florida Progress shareholders do not approve
the share exchange and there has been a competing proposal that has not
been rejected by Florida Progress and its board of directors and withdrawn
by the party making the competing proposal;
- - Carolina Power & Light and CP&L Energy terminate the exchange agreement
because Florida Progress breaches its agreement not to solicit alternative
proposals except for a breach that was both inadvertent and promptly cured;
- - Carolina Power & Light and CP&L Energy terminate the exchange agreement
because the Florida Progress board of directors fails to recommend to its
shareholders approval of the share exchange or withdraws its recommendation
to approve the exchange agreement; or
- - Florida Progress terminates the exchange agreement because Florida Progress
receives a competing proposal that the Florida Progress board of directors
believes to be superior to the share exchange and Carolina Power & Light or
CP&L Energy have not made a new proposal that the Florida Progress board of
directors believes is at least as favorable to Florida Progress
shareholders (taking into account all financial and strategic
considerations, including relevant legal, financial, regulatory and other
aspects of the proposal, and the conditions, prospects and time required
for completion of the proposal).
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES (PAGE __)
FLORIDA PROGRESS SHAREHOLDERS: The receipt of cash and/or shares of
CP&L Energy common stock and contingent value obligations of CP&L Energy in the
share exchange will be taxable to Florida Progress shareholders for federal
income tax purposes. Each Florida Progress shareholder will recognize gain or
loss equal to the difference between the shareholder's tax basis in his or her
Florida Progress shares and the sum of the amount of any cash plus the fair
market value, on the date of the share exchange, of the CP&L Energy common stock
and contingent value obligations received by the shareholder. You likely will
have additional taxable income if and when payments are made under the
contingent value obligations.
CP&L ENERGY SHAREHOLDERS: The share exchange will not have any tax
consequences for you.
To review the tax consequences of the share exchange in greater detail,
please read the tax discussion beginning on page ___.
ACCOUNTING TREATMENT (PAGE__)
We expect the share exchange to be accounted for as a purchase for
financial reporting and accounting purposes in accordance with generally
accepted accounting principles.
CONFLICTS OF INTEREST (PAGE __)
In considering the Florida Progress board of directors' recommendation
that you
14
<PAGE>
vote for the exchange agreement, you should be aware that several of the Florida
Progress officers and directors identified in this joint proxy
statement/prospectus have interests in the share exchange that are different
from, or in addition to, their rights as Florida Progress shareholders.
These interests include the following, which will become effective upon
consummation of the share exchange (for purposes of calculating the amounts
below, we have used September 30, 2000 as the estimated date of the consummation
of the share exchange):
- - The current CEO and Chairman of the Board of Florida Progress and three
other Florida Progress directors will be designated to serve on the CP&L
Energy board of directors;
- - The eight non-employee directors of Florida Progress will be paid
approximately $1.2 million cash in respect of an expected total of
approximately 21,000 phantom stock units;
- - Twenty-six officers of Florida Progress will be entitled to receive a
variety of compensation and benefits under change of control agreements,
including aggregate cash payments of approximately $25.4 million based on
annual salaries and bonuses and approximately $40.3 million based on
long-term incentive plan grants;
- - The officers would also be entitled to non-cash severance benefits as well
as additional payments, if required, to make them whole for any excise
taxes they incur as a result of Section 4999 of the Internal Revenue Code;
- - Approximately 53,000 shares of restricted stock issued to officers under
the long-term incentive plan will fully vest and become unrestricted shares
of common stock; and
- - Following the exchange, CP&L Energy will cause Florida Progress to continue
in effect existing rights of indemnification and will maintain liability
insurance for Florida Progress' directors and officers.
For more information concerning these and other benefits, please read
the more detailed description contained on pages ___ to ___. The Florida
Progress board of directors was aware of these interests and considered them in
making their recommendation.
COMPARISON OF SHAREHOLDER RIGHTS (PAGE __)
When the share exchange is completed, Florida Progress shareholders
receiving stock consideration will become holders of CP&L Energy common stock,
and their rights will be governed by North Carolina law and CP&L Energy's
articles of incorporation and bylaws (instead of Florida law and Florida
Progress' articles of incorporation and bylaws). Differences between the rights
of holders of CP&L Energy common stock and those of holders of Florida Progress
common stock are summarized on pages __ to __.
WHERE YOU CAN FIND MORE INFORMATION (PAGE __)
If you would like more information about Florida Progress, Carolina
Power & Light or CP&L Energy, it can be found in documents filed by each company
with the Securities and Exchange Commission. These documents are identified on
pages _______, and instructions on how you can obtain copies of these documents
is found on page ______.
15
<PAGE>
MARKET PRICES AND DIVIDENDS PAID
CP&L Energy common stock is listed and trades on the New York Stock
Exchange and the Pacific Stock Exchange under the symbol "CPL," and Florida
Progress common stock is listed and trades on the New York Stock Exchange and
the Pacific Stock Exchange under the symbol "FPC." On ________, 2000, Carolina
Power & Light common stock was exchanged for CP&L Energy common stock on a
one-for-one basis. As of __________, 2000, CP&L Energy common stock was held of
record by approximately _________ persons, and Florida Progress common stock was
held of record by approximately _____ persons. This table sets forth for the
indicated periods the high and low sales prices per share for CP&L Energy,
Carolina Power & Light and Florida Progress, as reported as composite
transactions in THE WALL STREET JOURNAL as New York Stock Exchange Composite
Transactions, and dividends declared per share.
<TABLE>
<CAPTION>
CP&L ENERGY AND
CAROLINA POWER & LIGHT FLORIDA PROGRESS COMMON STOCK
COMMON STOCK
----------------------------------- -----------------------------------
PER SHARE PER SHARE
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
--------- --------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
First Quarter.............................. 37.875 36.125 0.470 32.875 29.500 0.525
Second Quarter............................. 36.250 33.000 0.470 31.625 27.750 0.525
Third Quarter.............................. 36.625 33.750 0.470 33.625 30.563 0.525
Fourth Quarter............................. 42.500 34.313 0.485 39.250 31.125 0.525
YEAR ENDED DECEMBER 31, 1998
First Quarter.............................. 45.750 40.625 0.485 42.250 37.688 0.535
Second Quarter............................. 45.500 39.500 0.485 42.875 39.000 0.535
Third Quarter.............................. 46.625 39.938 0.485 43.938 38.063 0.535
Fourth Quarter............................. 49.063 45.063 0.500 47.125 41.000 0.535
YEAR ENDED DECEMBER 31, 1999
First Quarter.............................. 47.825 37.625 0.500 44.750 36.875 0.545
Second Quarter............................. 45.000 36.625 0.500 43.250 35.875 0.545
Third Quarter.............................. 43.250 34.125 0.500 48.000 39.563 0.545
Fourth Quarter............................. 36.813 29.250 0.515 46.938 41.188 0.545
YEAR ENDED DECEMBER 31, 2000
First Quarter (through February 25, 2000).. 37.000 28.250 - 45.000 40.063 0.555
</TABLE>
On August 20, 1999, the last full trading day before the public
announcement of execution of the exchange agreement, the closing sale price, as
reported in THE WALL STREET JOURNAL as New York Stock Exchange Composite
Transactions, for Carolina Power & Light shares was $39.00, and for Florida
Progress shares was $44.625. On ___________, 2000, the last full trading day for
which information was available before the printing of this joint proxy
statement/prospectus, the closing sale price, as reported in THE WALL STREET
JOURNAL as New York Stock Exchange Composite Transactions, for CP&L Energy
shares was $______, and for Florida Progress shares was $______. The market
prices of CP&L Energy and Florida Progress shares are subject to fluctuation. As
a result, CP&L Energy and Florida Progress shareholders are urged to obtain
current market quotations for CP&L Energy and Florida Progress shares.
16
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
CP&L ENERGY, INC. AND CAROLINA POWER & LIGHT COMPANY
On ________, 2000, Carolina Power & Light common stock was exchanged
for CP&L Energy common stock on a one-for-one basis. We derived the information
below from the audited consolidated financial statements of Carolina Power &
Light for its fiscal years ended December 31, 1994 through 1998 and from the
unaudited consolidated financial statements for the nine months ended September
30, 1998 and 1999. Certain reclassifications have been made to pre-1999
operating revenues to conform to Carolina Power & Light's 1999 presentation. 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 Carolina Power & Light historical
financial statements (and related notes) contained in its reports filed with the
Securities and Exchange Commission. See "Where You Can Find More Information" on
page __.
<TABLE>
<CAPTION>
(IN MILLIONS EXCEPT PER SHARE AND RATIO AMOUNTS)
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Operating revenues $ 2,550.5 $ 2,474.7 $ 3,191.6 $ 3,036.6 $ 2,999.3 $ 3,006.6 $ 2,876.6
Net income 303.2 338.1 399.2 388.3 391.3 372.6 313.2
Earnings for common stock 301.0 335.8 396.3 382.3 381.7 363.0 303.6
RATIO OF EARNINGS TO FIXED
CHARGES(1) 4.01 4.57 4.38 4.17 4.12 3.67 3.31
RATIO OF EARNINGS TO FIXED
CHARGES AND PREFERRED STOCK
DIVIDENDS(1) 3.91 4.46 4.28 3.98 3.83 3.43 3.09
PER SHARE DATA
Basic and diluted earnings
per common share $ 2.05 $ 2.33 $ 2.75 $ 2.66 $ 2.66 $ 2.48 $ 2.03
Dividends declared per
common share $ 1.500 $ 1.455 $ 1.955 $ 1.895 $ 1.835 $ 1.775 $ 1.715
ASSETS (end of period) $ 9,295.1 $ 8,361.9 $ 8,347.4 $ 8,176.7 $ 8,298.9 $ 8,159.7 $ 8,136.8
CAPITALIZATION (end of period)
Common stock equity $ 3,410.6 $ 2,957.1 $ 2,949.3 $ 2,818.8 $ 2,690.5 $ 2,574.7 $ 2,586.2
Preferred stock -
redemption not required 59.4 59.4 59.4 59.4 143.8 143.8 143.8
Long-term debt, net 2,800.1 2,535.4 2,614.4 2,415.6 2,525.6 2,610.4 2,530.8
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total capitalization $ 6,270.1 $ 5,551.9 $ 5,623.1 $ 5,293.8 $ 5,359.9 $ 5,328.9 $ 5,260.8
========== ========== ========== ========== ========== ========== ==========
</TABLE>
- ------------------
(1)Ratios for the periods ended September 30 represent the ratios for the twelve
month periods ended on those dates. Due to the effects on interim period
earnings of temperature variations between seasons and the timing of outages of
electric generating units, fixed charge ratios for twelve-month periods more
accurately reflect the ability to pay fixed charges.
17
<PAGE>
FLORIDA PROGRESS CORPORATION
We derived the information below from the audited consolidated
financial statements of Florida Progress for its fiscal years ended December 31,
1994 through 1998 and from the unaudited consolidated financial statements for
the nine months ended September 30, 1998 and 1999. 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 Florida Progress historical financial statements (and related
notes) contained in its reports filed with the Securities and Exchange
Commission. See "Where You Can Find More Information" on page __.
<TABLE>
<CAPTION>
(IN MILLIONS EXCEPT FOR PER SHARE AND RATIO AMOUNTS)
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $ 2,904.0 $ 2,722.1 $ 3,620.3 $ 3,316.4 $ 3,157.9 $ 3,007.8 $ 2,725.3
Net income 281.5 245.6 281.7 54.3 224.4 238.9 212.0
RATIO OF EARNINGS TO FIXED
CHARGES(1) 3.47 3.56 3.16 1.72 3.74 3.61 3.25
RATIO OF EARNINGS TO FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS(1) 3.44 3.52 3.13 1.68 3.52 3.28 2.95
PER SHARE DATA
Basic and diluted earnings
per average common share $ 2.87 $ 2.53 $ 2.90 $ 0.56 $ 2.32 $ 2.50 $ 2.28
Dividends declared per
common share $ 1.63 $ 1.60 $ 2.14 $ 2.10 $ 2.06 $ 2.02 $ 1.99
ASSETS (end of period) $ 6,413.0 $ 6,025.2 $ 6,160.8 $ 5,760.0 $ 5,348.4 $ 5,550.4 $ 5,453.1
CAPITALIZATION (end of period)
Common stock equity $ 2,029.3 $ 1,865.1 $ 1,862.0 $ 1,776.0 $ 1,924.2 $ 2,078.1 $ 1,984.4
Cumulative preferred stock
of Florida Power 33.5 33.5 33.5 33.5 33.5 138.5 143.5
Company-obligated
mandatorily
redeemable preferred
securities 300.0 -- -- -- -- -- --
Long-term debt 2,177.5 2,348.1 2,250.4 2,377.8 1,776.9 1,662.3 1,835.2
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total capital $ 4,540.3 $ 4,246.7 $ 4,145.9 $ 4,187.3 $ 3,734.6 $ 3,878.9 $ 3,963.1
========== ========== ========== ========== ========== ========== ==========
</TABLE>
- ------------------
(1)Ratios for the periods ended September 30 represent the ratios for the twelve
month periods ended on those dates. Due to the effects on interim period
earnings of temperature variations between seasons and the timing of outages of
electric generating units, fixed charge ratios for twelve-month periods more
accurately reflect the ability to pay fixed charges.
18
<PAGE>
COMPARATIVE PER SHARE INFORMATION
On _________, 2000, Carolina Power & Light common stock was exchanged
for CP&L Energy common stock on a one-for-one basis. The following table
presents certain historical per share data for Carolina Power & Light, shown as
CP&L Energy, and Florida Progress for the stated periods. It also shows per
share information assuming that the share exchange has occurred, referred to as
"pro forma" information. The fiscal year for Florida Progress and for CP&L
Energy and Carolina Power & Light ends on December 31.
As explained elsewhere in this joint proxy statement/prospectus, 35% of
Florida Progress common stock will be exchanged for CP&L Energy common stock and
65% will be exchanged for cash. The pro forma information is prepared under the
purchase method of accounting for business combinations and assumes the issuance
of 1.4543 shares of CP&L Energy common stock in exchange for shares of Florida
Progress common stock that are being exchanged for shares of CP&L Energy common
stock. The 1.4543 exchange ratio is the maximum exchange ratio. This data should
be read in conjunction with the questions and answers about the share exchange,
the selected historical financial information and the unaudited pro forma
combined condensed financial statements included elsewhere in this joint proxy
statement/prospectus as well as the separate historical financial statements of
Carolina Power & Light and Florida Progress incorporated by reference in this
joint proxy statement/prospectus. See also "The Share Exchange--What You Will
Receive in the Share Exchange" on page ____ and "Where You Can Find More
Information" on page ____.
Amounts shown as "Pro forma equivalent" are computed by multiplying the
"Pro forma combined" information by the assumed exchange ratio of 1.4543.
While we expect that the share exchange will provide the combined
companies with the opportunity to achieve reduced operating expenses and
opportunities to increase revenue, we have not reflected those anticipated
benefits in the pro forma information. In addition, Carolina Power & Light and
CP&L Energy may incur expenses as a result of the share exchange, but the pro
forma information does not reflect any expenses except those identified in the
unaudited pro forma combined condensed financial statements included elsewhere
in this joint proxy statement/prospectus. 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 share exchange had occurred
before the stated periods.
19
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE
CP&L Energy
Historical........................................... $2.75 $2.05
Pro forma combined for the share exchange(1)......... 2.27 2.06
Florida Progress
Historical........................................... 2.90 2.87
Pro forma equivalent for the share exchange(1)....... 3.30 3.00
DILUTED EARNINGS PER COMMON SHARE
CP&L Energy
Historical........................................... $2.75 $2.05
Pro forma combined for the share exchange(1)......... 2.26 2.06
Florida Progress
Historical........................................... 2.90 2.87
Pro forma equivalent for the share exchange(1)....... 3.29 3.00
CASH DIVIDENDS DECLARED PER COMMON SHARE
CP&L Energy
Historical........................................... $1.955 $1.50
Pro forma combined for the share exchange(2)......... 1.955 1.50
Florida Progress
Historical........................................... 2.14 1.635
Pro forma equivalent for the share exchange.......... 2.84 2.18
BOOK VALUE PER COMMON SHARE(3)
CP&L Energy
Historical........................................... $20.47 $22.31
Pro forma combined for the share exchange(1)......... 24.51 25.75
Florida Progress
Historical........................................... 19.13 20.61
Pro forma equivalent for the share exchange(1)....... 35.64 37.45
- ------------
(1) The assumed 1.4543 exchange ratio is the maximum exchange ratio. Any
decrease in the exchange ratio will cause an increase in pro forma combined
earnings and book value per share. For example, the table below shows the
pro forma earnings and book value per share amounts that would result from
the minimum exchange ratio.
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
--------------------------- -------------------------
<C> <C>
Exchange ratio 1.1897 1.1897
------ ------
Combined basic earnings per share $ 2.38 $ 2.16
Equivalent basic earnings per share 2.83 2.57
Combined diluted earnings per share 2.37 2.16
Equivalent diluted earnings per share 2.82 2.57
Combined book value per share 25.93 27.18
Equivalent book value per share 30.85 32.34
</TABLE>
20
<PAGE>
(2) Pro forma cash dividends declared assumes that the combined entity would
have declared cash dividends equal to the Carolina Power & Light historical
cash dividends declared. CP&L Energy expects to continue Carolina Power &
Light's current dividend level.
(3) 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.
21
<PAGE>
UNAUDITED SELECTED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
In the table below, we provide you with unaudited selected pro forma
combined condensed financial information for the combined company as if the
share exchange had been completed on January 1, 1998 for income statement
purposes and on September 30, 1999 for balance sheet purposes. The information
is based on adjustments to the historical consolidated financial statements of
Florida Progress and Carolina Power & Light to give effect to the share exchange
using the purchase method of accounting for business combinations.
It is important that when you read this unaudited selected pro forma
combined condensed financial information, you read along with it the separate
historical financial statements and accompanying notes of Florida Progress and
Carolina Power & Light, which are incorporated by reference in this joint proxy
statement/prospectus. See "Where You Can Find More Information" on page ___ of
this joint proxy statement/prospectus. It is also important that you read the
unaudited pro forma combined condensed financial information and accompanying
discussion and notes that are included in this joint proxy statement/prospectus
under "Unaudited Pro Forma Combined Condensed Financial Information" beginning
on page ___. You should not rely on the unaudited combined condensed pro forma
financial information as an indication of the results of operations or financial
position that would have been achieved if the share exchange had taken place
earlier or of the results of operations or financial position of CP&L Energy
after the completion of the share exchange.
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
INCOME STATEMENT DATA:
Operating revenues ................. $ 6,811.9 $5,454.4
Net income ......................... 442.7 408.8
Earnings for common stock .......... 438.3 405.5
Per share data
Basic earnings per common share . $ 2.27 $ 2.06
Diluted earnings per common share $ 2.26 $ 2.06
Dividends declared .............. $ 1.955 $ 1.50
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
BALANCE SHEET DATA:
Total assets ................................................... $ 19,020.3
Common stock equity ............................................ 5,227.6
Preferred stock--redemption not required ....................... 92.9
Subsidiary-obligated mandatorily redeemable preferred securities 300.0
Long-term debt, net ............................................ 8,433.3
</TABLE>
22
<PAGE>
RISK FACTORS RELATING TO THE SHARE EXCHANGE
IN ADDITION TO THE OTHER INFORMATION INCLUDED AND INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS, YOU SHOULD CAREFULLY READ
AND CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE PROPOSALS TO BE VOTED ON AT
YOUR COMPANY'S SHAREHOLDER MEETING.
TRANSACTION RISKS
SINCE THE MARKET PRICE OF CP&L ENERGY COMMON STOCK WILL VARY, WE CANNOT
ASSURE FLORIDA PROGRESS SHAREHOLDERS OF THE VALUE OF THE CP&L ENERGY COMMON
STOCK THEY WILL RECEIVE IN THE SHARE EXCHANGE.
Florida Progress shareholders will not know the value of the
consideration they will receive in the share exchange at the time they vote.
Although Florida Progress shareholders will be able to elect to exchange their
shares of Florida Progress common stock for either cash or shares of CP&L Energy
common stock (or a combination of cash and stock), the opportunity to make that
election will not occur until after the time of the shareholder vote on the
share exchange and it is subject to proration. The cash price per share to be
paid for shares is fixed at $54.00 for shares of Florida Progress common stock.
This price will not be adjusted based on changes in market prices or any other
factor. However, the number of shares of CP&L Energy common stock delivered to
Florida Progress shareholders is based upon the average closing price of CP&L
Energy common stock as reported on the New York Stock Exchange Composite Tape on
each of the 20-consecutive trading days ending with the fifth trading day before
the closing of the share exchange. The exchange ratio is designed to provide
Florida Progress shareholders with CP&L Energy common stock with a value of
$54.00 if the average closing price of CP&L Energy common stock, as calculated
above, is not less than $37.13 nor more than $45.39. However, the actual value
may be less than or more than $54.00, depending on the market price of CP&L
Energy common stock on the day the share exchange closes. Furthermore, if the
average closing price of CP&L Energy common stock is less than $37.13 or more
than $45.39, the value of the CP&L Energy stock delivered to holders of Florida
Progress common stock would be less than or more than $54.00 based on a fixed
exchange ratio. Assuming the average closing price were equal to $____________,
which was the closing sales price of Carolina Power & Light common stock as
reported in THE WALL STREET JOURNAL as New York Stock Exchange Composite
Transactions on ___________, 2000, and the market price of CP&L Energy common
stock when actually received by Florida Progress shareholders was equal to such
average closing price, the value of CP&L Energy common stock delivered to
Florida Progress shareholders for each share of Florida Progress common stock
would equal $_____________.
In addition, Florida Progress has the option, but is not required, to
terminate the exchange agreement if the average closing price is below $30.00.
It is not possible to know until the fifth trading day prior to the closing of
the share exchange if the average closing price of CP&L Energy common stock will
be less than $30.00. Florida Progress cannot predict now whether or not the
Florida Progress board of directors would exercise its right to terminate the
share exchange if the average closing price were less than $30.00. The exchange
agreement does not provide for a resolicitation of Florida Progress shareholders
in the event that the average closing price is less than $30.00 and Florida
Progress nevertheless chooses to complete the share exchange.
23
<PAGE>
There may be a significant time delay between the date Florida Progress
shareholders vote on the proposed share exchange at the Florida Progress special
meeting and the date on which the average closing price of CP&L Energy common
stock will be calculated, during which time the market value of CP&L Energy may
fluctuate as a result of changes in the businesses, operations, results and
prospects of both companies, market expectations of the likelihood that the
share exchange will be completed and the timing of completion, the effect of any
conditions or restrictions imposed on or proposed with respect to the combined
company by regulatory agencies, general market and economic conditions, and
other factors. Since the date the share exchange was first announced, the CP&L
Energy and Carolina Power & Light common stock has traded within a range from
$______ to $______, as reported in THE WALL STREET JOURNAL as New York Stock
Exchange Composite Transactions. It is impossible to predict accurately the
market price of CP&L Energy common stock immediately prior to the effective time
of the share exchange and therefore impossible to predict accurately the value
of the stock consideration that will be received by Florida Progress
shareholders. The value of the stock consideration may be significantly higher
or lower than the value of the cash consideration. See "Comparative Per Share
Information." You are urged to obtain current market quotations for CP&L Energy
common stock and Florida Progress common stock.
WE MAY NOT BE ABLE TO COMPLETE THE SHARE EXCHANGE BECAUSE WE MAY NOT BE
ABLE TO OBTAIN THE REQUIRED REGULATORY APPROVALS ON SATISFACTORY TERMS.
Before we can complete the share exchange, we must receive final
approvals from the Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935, the Federal Energy Regulatory Commission under the
Federal Power Act, the Nuclear Regulatory Commission under the Atomic Energy
Act, the Federal Communications Commission under the Communications Act of 1934,
the North Carolina Utilities Commission and, possibly, as a result of Florida
Progress' indirect ownership of Mid-Continent Life Insurance Company, state
insurance regulators under applicable state laws. Additionally, we must receive
antitrust clearance from the Department of Justice and the Federal Trade
Commission. A proceeding will be held before the North Carolina Utilities
Commission to review the share exchange, and Carolina Power & Light will seek in
that proceeding the regulatory approvals needed from the North Carolina
Utilities Commission. While the companies do not believe any other formal state
public utility commission approvals are required for this transaction, the
companies will continue their practice of constructively working with state
regulators regarding their ongoing jurisdiction over Carolina Power & Light and
Florida Power. Obtaining these regulatory approvals could delay closing of the
share exchange for a significant period of time after the CP&L Energy and
Florida Progress shareholders have approved the amended and restated agreement
and plan of exchange at the special meetings. We cannot assure you that we will
obtain these and other regulatory approvals, or if we obtain them, whether the
terms and conditions of the approvals will be satisfactory.
We are obligated to use our "commercially reasonable efforts" to obtain
all necessary governmental authorizations for the share exchange. However, CP&L
Energy and Carolina Power & Light do not have to complete the share exchange if
any governmental authority imposes conditions that may reasonably be expected to
have a material adverse effect on either company. See "The Share
Exchange--Regulatory Approvals Required to Complete the Share Exchange" on page
___ for a more complete discussion of the regulatory approvals required for the
share exchange.
24
<PAGE>
OPERATIONAL RISKS
FAILURE TO SUCCESSFULLY INTEGRATE OUR TWO COMPANIES INTO A SINGLE
ENTITY MAY ADVERSELY IMPACT THE FINANCIAL CONDITION AND RESULTS OF FUTURE
OPERATIONS OF THE COMBINED COMPANY.
After the share exchange, we will need to integrate two large
companies, including their electric utilities and potentially several
diversified operations. Failure to successfully integrate our operations would
have a material adverse effect on our business, operations, properties, assets,
condition (financial or otherwise), results of operations or prospects.
Integrating two companies like CP&L Energy and Florida Progress involves a
number of risks, including:
- the diversion of management's attention away from ongoing
operations;
- difficulties in the combining of operations and systems;
- difficulties in the assimilation and retention of employees;
- challenges in keeping customers; and
- potential adverse short-term effects on operating results.
Among the factors considered by the boards of directors of each company
in approving the agreement and plan of exchange were the opportunities for
economies of scale and scope and operating efficiencies that could result from
the share exchange. We have estimated that CP&L Energy will achieve in excess of
$100 million of net savings in operating costs or revenue enhancements per year
for the first full year and subsequent years following the share exchange;
however, we may not be able to achieve these cost savings and revenue
enhancements and other size-related benefits because of unexpected costs or
difficulties in integrating operations.
INCREASED LEVERAGE MAY ADVERSELY AFFECT THE FINANCIAL CONDITION AND
RESULTS OF FUTURE OPERATIONS OF THE COMBINED COMPANY.
We currently anticipate that the amount necessary to fund the total
cash consideration to be paid to Florida Progress shareholders will be financed
by CP&L Energy through external sources. Sources of financing we are considering
include commercial and investment banks, institutional lenders and the public
securities markets. The management of CP&L Energy believes that CP&L Energy will
have access to many sources and types of short-term and long-term capital
financing at reasonable rates. However, the terms of these financings may
contain covenants that adversely affect the financial condition and flexibility
of the combined company with respect to possible future transactions. We do not
anticipate that any debt will be retired by our companies in connection with the
share exchange. As a result of the proposed financing and as shown in the
Unaudited Pro Forma Combined Condensed Financial Statements, the consolidated
capitalization of CP&L Energy after the share exchange is expected to consist of
approximately 37.9% common and preferred equity and approximately 62.1%
long-term debt and subsidiary obligated mandatorily redeemable preferred
securities, a more leveraged capital structure than either Florida Progress or
CP&L Energy has at present. This increased leverage may also adversely affect
the securities ratings of CP&L Energy, Carolina Power & Light and Florida
Progress and increase their borrowing costs. See "Acquisition Financing" on page
____.
UNREGULATED BUSINESS ACTIVITIES MAY INVOLVE MORE RISK AND MAY ADVERSELY
IMPACT THE PERFORMANCE OF CP&L ENERGY COMMON STOCK.
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We expect the combined company's unregulated businesses will contribute
a greater proportion of the combined company's earnings than CP&L Energy's
unregulated businesses currently contribute to its earnings. Unregulated
businesses generally operate with a higher level of risk than regulated utility
businesses. As a result, the operating results of these businesses may exhibit
more variability than our regulated utility businesses.
HOLDING COMPANY STRUCTURE
In addition to the future financial performance of its subsidiaries,
the ability of CP&L Energy's subsidiaries to pay dividends to CP&L Energy will
continue to be subject to the limits imposed by:
- state law;
- the provisions of their respective charters and bylaws;
- the prior rights of holders of existing and any future
preferred stock issued by those subsidiaries;
- the prior rights of holders of existing and any future
mortgage bonds issued by those subsidiaries; and
- the prior rights of holders of existing and future long-term
debt, and other restrictions in connection with other
liabilities of those subsidiaries.
RISK FACTORS ASSOCIATED WITH THE EARTHCO PLANTS
AND CONTINGENT VALUE OBLIGATIONS
IN ADDITION TO THE OTHER INFORMATION INCLUDED AND INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS, YOU SHOULD CAREFULLY READ
AND CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE PROPOSALS TO BE VOTED ON AT
YOUR COMPANY'S SHAREHOLDER MEETING.
NO PUBLIC MARKET FOR THE CONTINGENT VALUE OBLIGATIONS
THE ABSENCE OF A PUBLIC MARKET FOR THE CONTINGENT VALUE OBLIGATIONS
WILL MAKE IT DIFFICULT FOR YOU TO SELL YOUR CONTINGENT VALUE OBLIGATIONS.
There is no public market for the contingent value obligations and we
do not intend to list the contingent value obligations on any national
securities exchange or cause the contingent value obligations to be included in
any interdealer quotation system. We cannot assure:
- that there will be an active secondary trading market for the
contingent value obligations;
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- that you will be able to sell your contingent value
obligations; or
- of the price at which you will be able to sell your contingent
value obligations.
TAX RISKS
A FINAL DECISION AS TO A DETERMINATION BY APPLICABLE TAXING AUTHORITIES
THAT THE SECTION 29 TAX CREDITS ARE NOT AVAILABLE WOULD ADVERSELY AFFECT THE
ABILITY OF THE HOLDERS OF THE CONTINGENT VALUE OBLIGATIONS TO RECEIVE PAYMENTS
UNDER THE CONTINGENT VALUE OBLIGATIONS AND THE ABILITY OF CP&L ENERGY TO BENEFIT
FROM THE OWNERSHIP OF THE EARTHCO PLANTS.
Payments on the contingent value obligations and the benefits accruing
to CP&L Energy relating to the EARTHCO plants will be subject to the operation
and performance of the four EARTHCO plants and the availability of federal tax
credits related to these four EARTHCO plants. These synthetic fuel plants will
produce and sell to unrelated persons a "qualified fuel" that Florida Progress
believes qualifies for a credit against the federal income tax liability of
Florida Progress as provided in Section 29 of the Internal Revenue Code. We
cannot assure you that the EARTHCO plants and their product will qualify for
Section 29 tax credits against the federal income tax liability of CP&L Energy
after the share exchange or that the Internal Revenue Service will not challenge
our analysis with respect to the current or future eligibility of the EARTHCO
plants for the Section 29 tax credits. Florida Progress has requested rulings
from the Internal Revenue Service as to the Section 29 tax credits applicable to
two of the EARTHCO plants and intends to request such rulings for the other two
EARTHCO plants. However, neither CP&L Energy nor Florida Progress has received
any rulings from the Internal Revenue Service as to the Section 29 tax credits
for these plants. We cannot assure you that rulings will be issued and, if
rulings are issued, we do not expect that such rulings will cover all of the
applicable tax issues or eliminate all tax risk associated with the EARTHCO
plants. In the event that the synthetic fuel operations were determined to be
ineligible for the Section 29 tax credits, CP&L Energy would not be obligated to
make payments on the contingent value obligations.
THE INABILITY OF CP&L ENERGY TO OPERATE THE EARTHCO PLANTS AT
FORECASTED LEVELS OR THE INABILITY TO ACHIEVE SUFFICIENT SALES LEVELS OF THE
SYNTHETIC FUEL COULD ADVERSELY AFFECT YOUR ABILITY TO RECEIVE PAYMENTS UNDER THE
CONTINGENT VALUE OBLIGATIONS.
Under the terms of the contingent value obligations, CP&L Energy will
hold and operate the EARTHCO plants and will have sole discretion over the
appropriate extent and manner of ownership and operation, subject to its
obligations of good faith and fair dealing with respect to ownership and
operation of the EARTHCO plants under the contingent value obligation agreement,
including any abandonment, reduction or termination of operations at one or more
of the EARTHCO plants and the sale of any or all interests in the EARTHCO plants
or any entity owning the EARTHCO plants. We cannot assure you that the EARTHCO
plants will operate in the future at levels sufficient to obligate CP&L Energy
to make payments on the contingent value obligations.
THE FAILURE OF CP&L ENERGY TO HAVE TAXABLE INCOME SUFFICIENT TO BE ABLE
TO UTILIZE SECTION 29 TAX CREDITS WOULD ADVERSELY AFFECT THE ABILITY OF THE
HOLDERS OF THE CONTINGENT VALUE
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OBLIGATIONS TO RECEIVE PAYMENTS UNDER THE CONTINGENT VALUE OBLIGATIONS AND THE
ABILITY OF CP&L ENERGY TO BENEFIT FROM OWNERSHIP OF THE EARTHCO PLANTS.
The ability of the holders of the contingent value obligations to
receive payments under the contingent value obligations and the ability of CP&L
Energy to benefit from ownership of the EARTHCO plants depends partially upon
the ability of CP&L Energy to utilize any Section 29 tax credits resulting from
the operation of the EARTHCO plants. CP&L Energy will utilize Section 29 tax
credits, if any, by applying them as a credit against its federal income tax
liability. CP&L Energy's federal income tax liability will be based upon its
taxable income. We cannot assure you that CP&L Energy will have taxable income
sufficient to be able to utilize any Section 29 tax credits, or other tax
benefits relating to the EARTHCO plants, at levels sufficient to obligate CP&L
Energy to make payments on the contingent value obligations.
THE INABILITY OF CP&L ENERGY TO CLAIM SECTION 29 TAX CREDITS RELATING
TO THE SYNTHETIC FUEL OPERATIONS WOULD ADVERSELY AFFECT YOUR ABILITY TO RECEIVE
PAYMENTS UNDER THE CONTINGENT VALUE OBLIGATIONS.
Under the terms of the contingent value obligations, CP&L Energy will
have complete and full control and sole discretion, subject to its obligations
of good faith and fair dealing with respect to ownership and operation of the
EARTHCO plants under the contingent value obligation agreement, with respect to:
- any item on its tax return or the tax return of any
partnership or other entity that owns any of the plants; and
- the conduct or contest of any tax audit or controversy
proceeding with respect to the synthetic fuel plants or any
such tax return.
We cannot assure you that any item or aspect of CP&L Energy's tax
return or the tax return of any partnership or other entity that owns any of the
EARTHCO plants will not interfere with or prevent CP&L Energy from realizing any
Section 29 tax credits at levels sufficient to obligate CP&L Energy to make
payments on the contingent value obligations.
THE INTERNAL REVENUE SERVICE COULD TAKE THE POSITION THAT THE
CONTINGENT VALUE OBLIGATIONS ARE "DEBT INSTRUMENTS" FOR FEDERAL INCOME TAX
PURPOSES.
If the contingent value obligations were treated as debt instruments,
you would be required to recognize interest income in each taxable year in which
you hold a contingent value obligation, whether or not you receive any payment.
The total amount of the interest income (subject to adjustment when you receive
a payment or dispose of the contingent value obligation) would equal the excess
of the amounts projected to be paid on the contingent value obligation, based on
an assumed yield, over its fair market value on the date of the share exchange.
A CHANGE IN THE CURRENT FEDERAL INCOME TAX LAW COULD ADVERSELY AFFECT
YOUR ABILITY TO RECEIVE PAYMENTS UNDER THE CONTINGENT VALUE OBLIGATIONS.
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There can be no assurance that future legislation, future regulations
or other administrative pronouncements or future judicial decisions will not
reduce or eliminate the ability of CP&L Energy to claim Section 29 tax credits.
SUBORDINATION
YOUR RIGHT TO RECEIVE PAYMENT ON THE CONTINGENT VALUE OBLIGATIONS IS
JUNIOR TO ALL OF CP&L ENERGY'S SENIOR INDEBTEDNESS WHICH COULD INCLUDE ALL
FUTURE INDEBTEDNESS FOR MONEY BORROWED.
The contingent value obligations rank behind all of CP&L Energy's
existing and future senior indebtedness. As a result, upon any distribution to
the creditors of CP&L Energy in a bankruptcy, liquidation or reorganization or
similar proceeding relating to CP&L Energy or its property, the holders of CP&L
Energy's senior debt will be entitled to be paid in full in cash before any
payment may be made to the trustee or the holders of the contingent value
obligations with respect to the contingent value obligations.
Under the terms of the contingent value obligations agreement between
CP&L Energy and the trustee, each contingent value obligation represents the
right to receive a PRO RATA share of contingent payments which are to be made by
CP&L Energy or the trustee on behalf of CP&L Energy. The ability of the trustee
to pay amounts on the contingent value obligations is dependent solely upon CP&L
Energy making payments on the contingent value obligations as and when required
under the contingent value obligations agreement. There is a covenant by CP&L
Energy of good faith and fair dealing with respect to contingent value
obligation holders. No joint venture, partnership or other fiduciary
relationship is created by the contingent value obligations or the contingent
value obligation agreement.
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A CAUTION ABOUT FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains forward-looking
statements, including projections regarding the synergies resulting from the
combination, the companies' ability to obtain regulatory approvals, the date for
completion of the share exchange and the dividend policy to be adopted by CP&L
Energy. The matters discussed throughout this joint proxy statement/prospectus
or in any document incorporated by reference in this joint proxy
statement/prospectus that are not historical facts are forward-looking. The
words "expects," "estimates," "believes," "anticipates," "plans," "should,"
"potential" and variations of these words, and similar expressions are intended
to identify these forward-looking statements that involve estimates,
projections, goals, forecasts, assumptions and uncertainties that could cause
actual results or outcomes to differ materially from those expressed in the
forward-looking statements.
Examples of factors that should be considered with respect to any
forward-looking statements made throughout this joint proxy statement/prospectus
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 Securities and Exchange Commission,
the Federal Communications Commission, the North Carolina
Utilities Commission, the Public Service Commission of South
Carolina, the Florida Public Service Commission and the
Florida Office of Public Counsel and other intervening
parties;
- legislative and regulatory initiatives that impact the speed
and degree of industry restructuring of the electric utility
and natural gas industries;
- the ability of Carolina Power & Light and Florida Power to
obtain adequate and timely rate recovery of costs and return
on invested capital, including potential stranded costs
arising from industry restructuring, and other necessary
regulatory approvals;
- general industry trends and the effects of vigorous
competition from other energy suppliers;
- the success of efforts to invest in and develop diversified
businesses;
- operation of nuclear power facilities;
- the availability of nuclear waste storage facilities;
- nuclear decommissioning costs;
- changes in the economy of geographic regions served by the
companies affecting customer growth and usage;
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- customer business and economic conditions, including demand
for their products or services and supply of labor and
materials used in creating their products and services;
- weather conditions or catastrophic weather-related damage;
- market demand for energy;
- the ability of CP&L Energy, Florida Progress, their suppliers
and customers to address successfully Year 2000 readiness
issues;
- inflation;
- capital market conditions;
- unanticipated changes in operating expenses and capital
expenditures;
- legal and administrative proceedings, settlements,
investigations and claims;
- financial or regulatory accounting principles or policies
enacted by the Financial Accounting Standards Board, the
Securities and Exchange Commission, the Federal Energy
Regulatory Commission and similar agencies with regulatory
oversight;
- employee workforce factors, including loss or retirement of
key executives, collective bargaining agreements with union
employees, or work stoppages;
- technological developments resulting in competitive
disadvantages and creating the potential for impairment of
existing assets; and
- with particular reference to the contingent value obligations,
operation and results of Florida Progress' synthetic fuels
business and the benefits that may be received from the
contingent value obligations, which include:
- the qualification of the synthetic fuel plants and
the method of production of the synthetic fuel for
Section 29 tax credits;
- the actual production and sales of synthetic fuel,
which may depend on, among other things, the amount
of time the synthetic fuels plants are operational
and the impact of weather related factors,
environmental regulations, competition from other
products and market acceptance of synthetic fuel;
- the actual amount of annual net cash flows from
synthetic fuel sales, which may depend on, among
other things, the production and sales of the
synthetic fuel, the operations of the synthetic fuel
plants, and the size of the tax base upon which the
utilization of the tax credits depends; and
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- the actual date on which payments to holders of the
contingent value obligations may begin.
These factors are difficult to predict. They also contain uncertainties
that may materially affect actual results, and may be beyond the control of
Carolina Power & Light, CP&L Energy or Florida Progress. 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 Carolina Power & Light, CP&L
Energy or Florida Progress.
These forward-looking statements are found at various places throughout
this joint proxy statement/prospectus and the other documents incorporated by
reference in this joint proxy statement/prospectus, including, but not limited
to, the Quarterly Report on Form 10-Q for the quarter ended September 30, 1999
and the Annual Report on Form 10-K for the year ended December 31, 1998 of
Carolina Power & Light Company (including any amendments to the Quarterly Report
or the Annual Report), and the combined Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 and the Annual Report on Form 10-K for the year
ended December 31, 1998 of Florida Progress and Florida Power Corporation
(including any amendments to the Quarterly Report or Annual Report). Readers are
cautioned not to place undue certainty on these forward-looking statements,
since any forward-looking statement speaks only as of the date on which the
statement was made. Neither CP&L Energy nor Florida Progress undertakes any
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date of this joint proxy
statement/prospectus or to reflect the occurrence of unanticipated events.
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THE FLORIDA PROGRESS SPECIAL MEETING
DATE AND PURPOSE OF THE SPECIAL MEETING
The Florida Progress special meeting is scheduled to be held on
____________, 2000, at _____ a.m., local time, at ______________. 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 amended and
restated agreement and plan of exchange, including the related plan of share
exchange. The Florida Progress 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 amended and restated agreement and plan of exchange, including the
related plan of share exchange.
RECORD DATE FOR THE SPECIAL MEETING AND WHO IS ENTITLED TO VOTE AT THE SPECIAL
MEETING
RECORD DATE. The Florida Progress board of directors has fixed the
close of business on ____________, 2000, as the record date for the
determination of the Florida Progress shareholders entitled to receive notice of
and to vote at the special meeting. A complete list of shareholders entitled to
vote at the meeting will be open to examination by the shareholders, during
regular business hours, for a period of ten days prior to the meeting at the
principal executive offices of Florida Progress, One Progress Plaza, St.
Petersburg, Florida 33701. As of the record date, ___________ shares of Florida
Progress common stock were outstanding and entitled to vote on the share
exchange proposal.
VOTING RIGHTS. Each Florida Progress shareholder is entitled to one
vote for each share of Florida Progress common stock held on the record date on
the proposal to approve the amended and restated agreement and plan of exchange,
including the related plan of share exchange, and on each matter that may
properly come before the special meeting.
QUORUM REQUIREMENTS. A majority of the Florida Progress 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. If a quorum is
not present at the Florida Progress special meeting, management will adjourn or
postpone it in order to solicit additional proxies.
VOTE REQUIRED. The affirmative vote of the holders of a majority of the
outstanding shares of Florida Progress common stock entitled to vote at the
special meeting will be sufficient to approve the amended and restated agreement
and plan of exchange, including the related plan of share exchange.
ABSTENTIONS, FAILURES TO VOTE, AND BROKER NON-VOTES. Florida Progress
intends to count shares of Florida Progress common stock present in person at
the special meeting but not voting, and shares of Florida Progress 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 New York Stock Exchange rules, brokers who hold Florida
Progress common stock in nominee or "street
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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
amended and restated agreement and plan of exchange without specific
instructions from those customers. These unvoted shares are called "broker
non-votes."
BECAUSE APPROVAL OF THE AMENDED AND RESTATED AGREEMENT AND PLAN OF
EXCHANGE 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, EXCEPT THAT IF YOU DO NOT VOTE YOUR SHARES HELD
IN THE SAVINGS PLAN FOR EMPLOYEES OF FLORIDA PROGRESS CORPORATION, THE TRUSTEE
OF THE PLAN WILL VOTE THOSE SHARES IN ACCORDANCE WITH ITS JUDGMENT OF THE BEST
INTERESTS OF THE PARTICIPANTS OF THE PLAN. ACCORDINGLY, THE FLORIDA PROGRESS
BOARD OF DIRECTORS 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, Florida Progress directors and executive
officers beneficially owned approximately _________ shares of Florida Progress
common stock, or approximately ____% of the shares entitled to vote at the
special meeting. It is currently expected that each director or executive
officer will vote the shares of Florida Progress common stock beneficially owned
by him or her for approval of the amended and restated agreement and plan of
exchange.
Additional information with respect to beneficial ownership of Florida
Progress common stock by persons and entities owning more than 5% of the
outstanding shares of Florida Progress common stock and more detailed
information with respect to beneficial ownership of Florida Progress common
stock by directors and executive officers of Florida Progress is incorporated by
reference from the Florida Progress Annual Report on Form 10-K for the year
ended December 31, 1998. See "Where You Can Find More Information" on page ___.
VOTING BY PROXY AND HOW TO REVOKE YOUR PROXY
You may vote shares either in person or by duly authorized proxy. In
addition, you may vote your shares by telephone or through the internet by
following the instructions provided on the enclosed proxy form. You may use the
proxy accompanying this joint proxy statement/prospectus 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 (1) by delivering a written notice of revocation, (2) by filing with
Florida Progress a subsequently dated, properly executed proxy or (3) by
attending the special meeting and electing to vote in person. If you voted by
telephone or through the internet, you can also revoke your vote by any of these
methods or you can change your vote by voting again by telephone or through the
internet. Finally, if you decide to vote by completing and mailing the enclosed
proxy card, you should retain a copy of the voter control number found on the
proxy card in the event that you decide later to change or revoke your proxy by
accessing the internet or by telephone. 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: Florida Progress Corporation, One
Progress Plaza, St. Petersburg, Florida 33701, Attention: Secretary.
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All shares represented by effective proxies on the accompanying form of
Florida Progress proxy received by Florida Progress 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
Florida Progress proxies will be voted "FOR" the approval of the amended and
restated agreement and plan of exchange and at the discretion of the proxies on
any other matters that properly come before the special meeting. The Florida
Progress board of directors 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.
Florida Progress does not expect to adjourn its special meeting for a
period of time long enough to require the setting of a new record date for the
meeting. If an adjournment occurs, it will have no effect on the ability of
Florida Progress shareholders of record as of the record date to exercise their
voting rights or to revoke any previously delivered proxies.
SOLICITATION OF PROXIES
Florida Progress will bear the entire cost of the solicitation of
proxies for its special meeting and will split with Carolina Power & Light the
cost of printing and filing of this joint proxy statement/prospectus. In
addition to the solicitation of proxies by mail, officers, directors, employees
and agents of Florida Progress may solicit proxies by correspondence, telephone,
telegraph, telecopy or other electronic means, or in person, but without extra
compensation. Florida Progress has retained Innisfree M&A Incorporated, a proxy
solicitation firm, to assist it in the solicitation of proxies for the special
meeting at a cost of approximately $______________ plus reimbursement of
reasonable out-of-pocket expenses. Florida Progress will request banks, brokers
and other record holders to send proxies and proxy materials to the beneficial
owners of Florida Progress common stock and secure their voting instructions,
and will reimburse these banks, brokers and other record holders for 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 Florida Progress shareholders following the original
solicitation. All further solicitation will be made by officers and regular
clerical employees of Florida Progress who will not be additionally compensated
for their activities.
THE CP&L ENERGY SPECIAL MEETING
DATE AND PURPOSE OF THE SPECIAL MEETING
The CP&L Energy special meeting is scheduled to be held on
____________, 2000, at ____ a.m., local time, in ________________________. 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 issuance
of shares of CP&L Energy common stock in connection with the share exchange. The
CP&L Energy 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 share
issuance.
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RECORD DATE FOR THE SPECIAL MEETING AND WHO IS ENTITLED TO VOTE AT THE SPECIAL
MEETING
RECORD DATE. The CP&L Energy board of directors has fixed the close of
business on ____________, 2000, as the record date for the determination of the
CP&L Energy shareholders entitled to receive notice of and to vote at the
special meeting. Only holders of record of CP&L Energy common stock at the close
of business on the record date will be entitled to receive notice of and to vote
at the special meeting. As of the record date, there were outstanding
_____________ shares of CP&L Energy common stock.
VOTING RIGHTS. Each share of C&PL Energy common stock is entitled to
one vote on the proposal to approve the share issuance and on each matter that
may properly come before the special meeting.
QUORUM REQUIREMENTS. A majority of the CP&L Energy 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. If a quorum is
not present at the CP&L Energy special meeting, management will adjourn or
postpone it in order to solicit additional proxies.
VOTE REQUIRED. The affirmative vote of a majority of the votes cast by
holders of CP&L Energy common stock, voting together as one class will be
sufficient to approve the issuance of CP&L Energy shares in the share exchange,
provided that a majority of all outstanding shares of CP&L Energy common stock
is voted at the special meeting.
ABSTENTIONS, FAILURES TO VOTE, AND BROKER NON-VOTES. CP&L Energy
intends to count shares of CP&L Energy common stock present in person at the
special meeting but not voting and shares of CP&L Energy 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 New York Stock Exchange rules, brokers who hold CP&L Energy 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 share issuance without specific instructions from
those customers. These unvoted shares are called "broker non-votes" and will not
be considered in determining the presence of a quorum.
ABSTENTIONS WILL HAVE A NEGATIVE EFFECT ON THE APPROVAL OF THE ISSUANCE
OF CP&L ENERGY COMMON STOCK IN CONNECTION WITH THE AMENDED AND RESTATED
AGREEMENT AND PLAN OF EXCHANGE. FAILURES TO VOTE AND BROKER NON-VOTES WILL HAVE
NO EFFECT ON THE APPROVAL OF THE ISSUANCE OF CP&L ENERGY COMMON STOCK IN
CONNECTION WITH THE AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE,
PROVIDED THAT A MAJORITY OF OUTSTANDING SHARES OF CP&L ENERGY COMMON STOCK IS
VOTED. IF THE TOTAL VOTES CAST ON THE ISSUANCE OF SHARES OF CP&L ENERGY COMMON
STOCK DOES NOT REPRESENT A MAJORITY OF ALL SECURITIES ENTITLED TO VOTE, THE
SHARE EXCHANGE CANNOT BE COMPLETED.
As of the record date, CP&L Energy directors and executive officers
owned approximately _________ shares of CP&L Energy common stock, or
approximately _____% of the shares entitled to vote at the special meeting. It
is currently expected that each director or executive officer will vote the
shares of CP&L Energy common stock beneficially owned by him or her for approval
of the share issuance.
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Additional information with respect to beneficial ownership of CP&L
Energy common stock by persons and entities owning more than 5% of the
outstanding shares of CP&L Energy common stock and more detailed information
with respect to beneficial ownership of CP&L Energy common stock by directors
and executive officers of CP&L Energy is incorporated by reference from the
Carolina Power & Light Annual Report on Form 10-K for the year ended December
31, 1998. See "Where You Can Find More Information" on page ___.
VOTING BY PROXY AND HOW TO REVOKE YOUR PROXY
You may vote shares either in person or by duly authorized proxy. In
addition, you may vote your shares by telephone or through the internet by
following the instructions provided in the enclosed proxy form. You may use the
proxy accompanying this joint proxy statement/prospectus 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 CP&L
Energy 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. If you voted by
telephone or through the internet, you can also revoke your vote by any of these
methods or you can change your vote by voting again by telephone or through the
internet. Finally, if you decide to vote by completing and mailing the enclosed
proxy card, you should retain a copy of the voter control number found on the
proxy card in the event that you decide later to change or revoke your proxy by
accessing the internet or by telephone. You should address any written notices
of proxy revocation to: CP&L Energy, 411 Fayetteville Street, Raleigh, North
Carolina 27601, Attention: Corporate Secretary.
All shares represented by effective proxies on the accompanying form of
CP&L Energy proxy received by CP&L Energy 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 CP&L Energy
proxies will be voted "FOR" the approval of the share issuance and at the
discretion of the proxies on any other matters that properly come before the
special meeting. The CP&L Energy board of directors 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
CP&L Energy will bear the entire cost of the solicitation of proxies
for its special meeting and will split with Florida Progress the cost of
printing and filing of this joint proxy statement/prospectus. In addition to the
solicitation of proxies by mail, officers, directors, employees and agents of
CP&L Energy may solicit proxies by correspondence, telephone, telegraph,
telecopy or other electronic means, or in person, but without extra
compensation. CP&L Energy has retained Morrow & Co., Inc., a proxy solicitation
firm, to assist it in the solicitation of proxies for the special meeting at a
cost of approximately $5,000 plus reimbursement of reasonable out-of-pocket
expenses. CP&L Energy will request banks, brokers and other record holders to
send proxies and proxy materials to the beneficial owners of CP&L Energy common
stock and secure their voting instructions, and will reimburse these banks,
brokers and other record holders for their reasonable
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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 CP&L Energy shareholders following the original solicitation. All
further solicitation will be made by officers and regular clerical employees of
CP&L Energy who will not be additionally compensated for their activities.
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THE SHARE EXCHANGE
THIS SECTION OF THE JOINT PROXY STATEMENT/PROSPECTUS DESCRIBES MATERIAL
ASPECTS OF THE PROPOSED SHARE EXCHANGE. IT HIGHLIGHTS KEY INFORMATION ABOUT THE
SHARE EXCHANGE AND THE AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE BUT
MAY NOT INCLUDE ALL THE INFORMATION THAT A SHAREHOLDER WOULD LIKE TO KNOW. THE
AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE IS ATTACHED AS ANNEX A TO
THIS JOINT PROXY STATEMENT/PROSPECTUS. WE URGE SHAREHOLDERS TO READ THE AMENDED
AND RESTATED AGREEMENT AND PLAN OF EXCHANGE IN ITS ENTIRETY.
GENERAL
The exchange agreement provides that, upon completion of the share
exchange, each Florida Progress share will be exchanged for the right to receive
one contingent value obligation and the right to elect to receive cash, shares
of CP&L Energy common stock or a combination of cash and shares of CP&L Energy
common stock. The exchange agreement also provides that Florida Progress will
become a subsidiary of CP&L Energy. Completion of the share exchange will not
occur until necessary approvals, including shareholder approval, have been
obtained and other conditions described in the agreement and plan of exchange
are satisfied or waived. These are discussed more fully in "--Other Significant
Conditions to the Share Exchange that Must be Fulfilled or Waived." The share
exchange will become effective upon the filing of articles of share exchange
with the Secretary of State of the State of North Carolina and the Department of
State of the State of Florida, or at a later date as provided in the articles of
share exchange, in accordance with the relevant provisions of North Carolina and
Florida law.
WHAT FLORIDA PROGRESS SHAREHOLDERS WILL RECEIVE IN THE SHARE EXCHANGE
In the share exchange, each share of Florida Progress common stock
issued and outstanding at the effective time of the share exchange will
automatically be exchanged for the right to elect to receive the common stock
and cash consideration to be paid by CP&L Energy and for the right to receive
the contingent value obligations. With respect to the CP&L Energy common stock
and cash consideration, Florida Progress shareholders will be mailed a form of
election, after the special meeting but before the completion of the share
exchange, in order to make their elections. Each holder of Florida Progress
common stock may elect to receive in exchange for each of his or her shares of
Florida Progress common stock either:
- $54.00 in cash; or
- a number of shares of CP&L Energy common stock equal to the
exchange ratio, which is designed to provide Florida Progress
shareholders with CP&L Energy common stock having a market
value of $54.00, subject to the limitations described below.
Each holder of Florida Progress common stock may choose to exchange some of
their shares for cash and some for CP&L Energy common stock.
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The exchange ratio will be $54.00 divided by the average of the closing sale
price per share of CP&L Energy common stock as reported on the New York Stock
Exchange Composite Tape on each of the 20-consecutive trading days ending with
the fifth trading day immediately preceding the closing date (the "AVERAGE
CLOSING PRICE"). However, if the Average Closing Price is greater than $45.39,
the exchange ratio will be fixed at 1.1897, and if the Average Closing Price is
less than $37.13, the exchange ratio will be fixed at 1.4543. The actual value
of stock consideration received for each Florida Progress share will depend on
the market value of CP&L Energy common stock at the completion of the share
exchange. Therefore, if the Average Closing Price is less than $37.13, then each
share of Florida Progress common stock exchanged for stock consideration will be
valued in the share exchange at less than $54.00, and if the Average Closing
Price is more than $45.39, then each share of Florida Progress common stock
exchanged for stock consideration will be valued in the share exchange at more
than $54.00. On ______, 2000, the date of this joint proxy statement/prospectus,
the closing trading price of Carolina Power & Light common stock was $______.
The exchange ratio was arrived at through arms-length negotiations between
Carolina Power & Light and CP&L Energy, on the one hand, and Florida Progress,
on the other. The exchange ratio and the actual number of shares of CP&L Energy
common stock Florida Progress shareholders will receive will not be determined
until after Florida Progress shareholders vote on the share exchange. See
"--Background and Negotiation of the Share Exchange."
After Florida Progress shareholder elections have been tabulated, the
elected amounts of cash and CP&L Energy common stock will be subject to
allocation and proration to achieve a mix of the aggregate exchange
consideration that is 65% cash and 35% CP&L Energy common stock. AS A RESULT,
FLORIDA PROGRESS SHAREHOLDERS MAY RECEIVE A DIFFERENT COMBINATION OF CASH AND
CP&L ENERGY COMMON STOCK THAN THEY ELECTED. SEE "--PROCEDURES FOR SHAREHOLDER
ELECTIONS" AND "--ALLOCATION RULES."
In addition, each Florida Progress shareholder will receive one
contingent value obligation for each share of Florida Progress common stock.
Each contingent value obligation will represent the right to receive contingent
payments based upon the net after-tax cash flow to CP&L Energy generated by four
synthetic fuel plants purchased by Florida Progress in October 1999. Due to a
number of uncertainties regarding the performance of these plants and the
potential tax benefits they may produce, no assurances can be given as to the
timing or amounts of payments, if any, that may be made on the contingent value
obligations. For further information on the contingent value obligations, see
"Risk Factors Associated with the EARTHCO Plants and Contingent Value
Obligations," "The Share Exchange--The Contingent Value Obligations" and
"Description of the Contingent Value Obligations."
Depending on the exchange ratio, the share exchange will result in
Florida Progress shareholders owning between 20% and 24% of all outstanding
shares of CP&L Energy common stock following consummation of the share exchange,
giving effect to the shares to be issued in the share exchange and based on the
number of shares of Florida Progress and CP&L Energy common stock outstanding
shortly before the date of this joint proxy statement/prospectus.
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CASH PAYMENTS FOR FRACTIONAL SHARES OF CP&L ENERGY COMMON STOCK
If the application of the exchange ratio to Florida Progress shares
results in Florida Progress shareholders being entitled to a number of whole
shares of CP&L Energy common stock and an additional fractional share, no
fractional share of CP&L Energy common stock will be delivered. Rather than
receiving fractional shares, Florida Progress shareholders will receive a cash
payment, without interest, based on the Average Closing Price.
ILLUSTRATIONS OF EXCHANGE RATIO APPLICATION AND VALUE TO BE RECEIVED
The market price of CP&L Energy common stock will fluctuate, and the
number of outstanding shares of Florida Progress common stock will change,
between the date of this joint proxy statement/prospectus and the effective time
of the share exchange. Therefore, the number of shares of CP&L Energy common
stock to be issued in the share exchange can be estimated, but the precise
number cannot be determined at this time.
The following table contains examples of the exchange ratio and cash
and stock consideration to be received by Florida Progress shareholders in the
share exchange, based on various Average Closing Prices of CP&L Energy common
stock and assuming that a Florida Progress shareholder owns 100 shares of
Florida Progress common stock, elected to receive 65% cash and 35% shares of
CP&L Energy common stock as consideration and no proration occurred. The
examples provided assume that the market price of a share of CP&L Energy common
stock on the day the share exchange is completed is equal to the Average Closing
Price of CP&L Energy common stock. For each stated Average Closing Price, the
table indicates:
- the corresponding exchange ratio;
- the number and dollar value of whole shares of CP&L Energy
common stock that a Florida Progress shareholder would
receive;
- the amount of cash a Florida Progress shareholder would
receive for any fractional share;
- the amount of cash consideration that a Florida Progress
shareholder would receive; and
- the total value of the cash and stock consideration that a
Florida Progress shareholder would receive.
These examples do not include any value attributable to the contingent
value obligations.
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ILLUSTRATIONS OF EXCHANGE RATIO APPLICATION AND THE VALUE OF CASH AND STOCK
CONSIDERATION TO BE RECEIVED
<TABLE>
<CAPTION>
Total Value of
Number of Whole Cash and Stock
Average CP&L CP&L Energy $ Value of Cash Payment Cash Consideration to
Energy Closing Exchange Shares to be CP&L Energy for Fractional Consideration be Received
Price Ratio Received Shares to be Received Share to be Received Per 100 Florida
----- ----- -------- --------------------- ----- -------------- Progress Shares**
-----------------
<S> <C> <C> <C> <C> <C> <C>
$27.00 1.4543 50 $1,350.00 $24.31 $3,510.00 $4,884.31
$28.00 1.4543 50 $1,400.00 $25.21 $3,510.00 $4,935.21
$29.00 1.4543 50 $1,450.00 $26.11 $3,510.00 $4,986.11
$30.00 1.4543 50 $1,500.00 $27.02 $3,510.00 $5,037.02
$33.00 1.4543 50 $1,650.00 $29.72 $3,510.00 $5,189.72
$35.00 1.4543 50 $1,750.00 $31.52 $3,510.00 $5,291.52
$37.13 1.4543 50 $1,856.50 $33.44 $3,510.00 $5,399.94
$39.00 1.3846 48 $1,872.00 $17.98 $3,510.00 $5,399.98
$41.00 1.3171 46 $1,886.00 $ 4.04 $3,510.00 $5,400.04
$42.00 1.2857 44 $1,848.00 $41.98 $3,510.00 $5,399.98
$44.00 1.2273 42 $1,848.00 $42.04 $3,510.00 $5,400.04
$45.39 1.1897 41 $1,860.99 $29.03 $3,510.00 $5,400.02
$48.00 1.1897 41 $1,968.00 $30.70 $3,510.00 $5,508.70
$50.00 1.1897 41 $2,050.00 $31.98 $3,510.00 $5,591.98
$ * $ $ $ $
------ ------ -- --------- ------ --------- ---------
</TABLE>
- ------------
* On ________ __, 2000, the date of this joint proxy statement/prospectus, the
closing trading price of Carolina Power & Light was $______________.
** Excludes any value attributable to the contingent value obligations. See
"--Contingent Value Obligations" below.
THE CONTINGENT VALUE OBLIGATIONS
Each contingent value obligation will represent the right to receive
contingent payments based upon the net after-tax cash flow to CP&L Energy
generated by four synthetic fuel plants purchased by Florida Progress in October
1999. For purposes of calculating payments to be made with respect to the
contingent value obligations, net after-tax cash flow, if any, will include,
among other things, federal income tax credits to CP&L Energy generated by the
four plants.
Qualifying synthetic fuel plants entitle their owners to federal income
tax credits based on the barrel of oil equivalent of the fuel produced by the
plants. The value of such credits are adjusted upward each year by an "inflation
adjustment factor" determined as a fraction, the numerator of which is the GNP
implicit price deflator for the calendar year, and the denominator of which is
the GNP implicit price deflator for 1979. For the last 10 years, the inflation
adjustment factor has averaged approximately 2.8% per year. In the aggregate,
holders of contingent value obligations will be entitled to 50% of the net
after-tax cash flow generated by the four plants in excess of $80 million per
year for each of the years 2001 through 2007. Under current law the tax credits
are only available through 2007. If the share exchange does not close before
January 1, 2001, the $80 million preference amount for the year of closing will
be reduced to reflect that the year of closing constitutes less than a full year
of operation, and other changes will be made to reflect the change in timing.
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It is not possible to know precisely the value of contingent value
obligations at this time, or to predict the extent to which any market for
contingent value obligations may develop. In addition, the amount of payments,
if any, made to holders of contingent value obligations will depend on and be
subject to a number of factors, including the actual annual production of the
EARTHCO plants, the level of sales of that production, the operations of the
synthetic fuel plants, the qualification of the plants and their product for tax
credits and the ability of CP&L Energy to utilize any tax credits generated by
the plants. Based on assumptions provided by Florida Progress management and
used by both parties solely for purposes of structuring the contingent value
obligations, which are set forth below, annual net after-tax cash flow to CP&L
Energy could reach an average of $140 million per year over the years in which
the rights to these payments can accrue to the contingent value obligations.
This average reflects a lower net after-tax cash flow in earlier years and a
higher net after-tax cash flow in later years. Assuming net after-tax cash flow
of $140 million in a particular year, for example, after subtracting CP&L
Energy's preferential amount of $80 million, the allocation to the contingent
value obligations for that year would be $30 million (which is 50% of the net
after-tax cash flow above $80 million). If the assumptions made by Florida
Progress management differ materially from actual results, the payments to
contingent value obligation holders would vary significantly from the projected
amounts.
The key assumptions made by Florida Progress management relate to:
- tons of synthetic fuel produced and sold per EARTHCO plant per
year (assumed to be between 2 - 2.5 million tons);
- tax credit per barrel of oil equivalent produced by the
EARTHCO plants (assumed to be $6.12 for 1998);
- CP&L Energy's pro forma tax base (assumed to be between $197 -
$267 million per year);
- CP&L Energy's combined income tax rate (assumed to be 35% for
Federal taxes and 5% for state taxes);
- the inflation rate (assumed to be zero per year);
- the effective investment earnings rate on funds held in the
trust (assumed to be 6.48% per year); and
- the estimated cost of operating the EARTHCO plants, as well as
the sale price of fuel, which were based on the historical
results of operations of Florida Progress' other synthetic
fuel plants.
No assurance can be given as to the value of the contingent value obligations or
the amount of payments, if any, that may ultimately be made to holders of
contingent value obligations. See "Risk Factors Associated with the EARTHCO
Plants and Contingent Value Obligations," and "Description of the Contingent
Value Obligations."
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Payments on the contingent value obligations for a particular year will
be made to contingent value obligation holders only after the Internal Revenue
Service issues an examination report on CP&L Energy's corporate tax return for
that year that does not challenge or result in an adjustment to any items
related to the EARTHCO plants for that year and satisfaction of other
conditions. Assuming that tax audit matters are resolved in a time frame
consistent with past experience, we anticipate any payments would begin no
earlier than 2007. Pending payment, such funds will be held in a grantor trust
by a trustee, who will invest the funds in U.S. Treasury obligations. Payments
will be made with respect to tax years beyond 2007 only if CP&L is unable to use
all of the tax credits generated before 2008 and therefore carries over and uses
some of the tax credits in subsequent years. Moreover, if in any year from 2001
through 2007 CP&L Energy does not fully realize the $80 million preference
amount, the amount below the $80 million for such year would be carried over to
years 2008 and thereafter. Before any such payment is made to holders of
contingent value obligations, the tax credit carry-forward will be applied to
satisfy any remaining preference for the year in which the tax credit was
generated.
Electric Fuels, which operates Florida Progress' synthetic fuels
business, has experience producing synthetic fuels. Electric Fuels entered the
business as a natural extension of its coal business in mid-1998 through the
purchase of a majority interest in limited liability companies owning three
synthetic fuel plants, the Colona plants. During 1999, the Colona plant
companies sold about 2 million tons of synthetic fuel. After beginning the year
in a start-up mode, the Colona plant companies sold 278,000 tons of synthetic
fuel during the first quarter of 1999; in the fourth quarter of 1999, the Colona
plant companies sold 614,000 tons of synthetic fuel. Florida Progress management
expects the EARTHCO plants, which have a higher rated capacity, to produce and
sell substantially more synthetic fuel than the three Colona plants.
For a more complete description of the features and rights of
contingent value obligations and the agreement under which they will be issued,
see "Description of the Contingent Value Obligations."
In the event of a sale or other disposition of any interest in the four
plants prior to December 31, 2007, a portion of the disposition proceeds may be
paid to the holders of contingent value obligations.
FLORIDA PROGRESS "WALK-AWAY" RIGHT
One condition to the obligation of Florida Progress to complete the
share exchange is that the Average Closing Price not be less than $30.00, which
is 25.7% lower than the 20-day average closing price of Carolina Power & Light
common stock on August 20, 1999, the last trading day before the execution of
the agreement and plan of exchange on August 22, 1999, and is __._% lower than
the closing price of CP&L Energy common stock on ________, 2000. The $30.00
threshold for the walk-away right will be appropriately adjusted for any
adjustments to the number of shares of CP&L Energy common stock outstanding that
may occur between August 22, 1999 and shortly before the closing of the share
exchange, such as in a stock split.
It is not possible to know until the fifth trading day prior to the
closing of the share exchange if the Average Closing Price of CP&L Energy common
stock will be less than $30.00. We cannot
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predict now whether or not the Florida Progress board of directors would
exercise its right to terminate the share exchange if the Average Closing Price
were less than $30.00. In making any such decision, the Florida Progress board
of directors would carefully consider, among other factors, the interests of
Florida Progress and its shareholders, and may consider such other information
as it is legally permitted to consider, including the interests of its
customers, employees, suppliers and the community in which Florida Progress
operates.
The exchange agreement does not provide for a resolicitation of Florida
Progress shareholders in the event that the Average Closing Price is less than
$30.00 and Florida Progress nevertheless chooses to complete the share exchange.
Therefore, adoption of the amended and restated agreement and plan of exchange
by the Florida Progress shareholders at the Florida Progress special meeting
will give the Florida Progress board of directors the power, in accordance with
its fiduciary duties, to complete the share exchange even if the Average Closing
Price is less than $30.00 without any further action by, or resolicitation of,
the Florida Progress shareholders.
BACKGROUND AND NEGOTIATION OF THE SHARE EXCHANGE
The amended and restated agreement and plan of exchange is the result
of arms-length negotiations between representatives of Carolina Power & Light
and CP&L Energy, on the one hand, and Florida Progress, on the other, during
which Carolina Power & Light, CP&L Energy and Florida Progress consulted their
legal and financial advisors. The following is a brief discussion of the
background of these negotiations.
Over the past few years, Florida Progress has monitored and analyzed
the increase in competition and the trend toward consolidation in the electric
utility industry in the United States and globally, which have put pressure on
medium-sized utility companies trying to compete as effectively as larger
companies. As a result, Florida Progress' management determined that Florida
Progress would need to increase the size of its customer base and the scale of
its operations in order to remain competitive in this new environment. During
this period, Florida Progress pursued strategic options such as internal growth
measures, the formation of joint ventures with other utilities to develop new
customers on a nationwide basis and combinations with other utility companies,
both domestic and foreign. Florida Progress had preliminary discussions with
several potential transaction partners in the United States and the United
Kingdom in 1998 and 1999. Although some negotiation and due diligence did occur,
in no case were the parties able to reach agreement on the terms and conditions
and, in each case, negotiations were halted before a definitive proposal was
made. In addition, the Florida Progress board of directors was kept apprised of
these discussions but did not determine that a transaction with any other
potential partners would be in the best interests of Florida Progress and its
shareholders.
In response to these same trends, Carolina Power & Light has developed
a growth strategy focused on being a total energy provider for a growing
customer base located in the southeast region of the United States. In order to
facilitate its growth strategy, Carolina Power & Light decided that the holding
company restructuring would enable it to respond more effectively to the changes
facing the energy industry today and to take better advantage of the
opportunities that will be available in the coming years. Carolina Power &
Light's board of directors first discussed and considered the holding company
restructuring at meetings in late 1998 and decided to pursue the holding company
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restructuring in early 1999. The decision to proceed with the holding company
restructuring was not related to or dependent upon the share exchange with
Florida Progress. Also, consistent with its growth strategy, in July of 1999,
Carolina Power & Light completed its acquisition of North Carolina Natural Gas
Corporation, which gave Carolina Power & Light access to more customers in North
Carolina as well as a competitively priced gas supply and expertise in the
natural gas business. Following that transaction, Carolina Power & Light
management continued to pursue further geographic expansion in the southeast
region and continually studied other potential partners in connection with
possible business combination transactions. Carolina Power & Light had announced
a strategic plan focusing on asset-based growth within the Southeast and had
assessed many potential merger candidates within this region. These electric and
gas utilities were analyzed on many factors including earnings contribution,
enhanced strategic alternatives, economies of scale, operating efficiencies and
differentiation/uniqueness. Florida Progress consistently ranked high on each of
the valuation characteristics. Carolina Power & Light engaged in preliminary
discussions with several potential candidates in connection with a potential
business combination but did not engage in serious negotiations with any party
before deciding to pursue discussions with Florida Progress.
In June 1999, William Cavanaugh III, Chairman, President and Chief
Executive Officer of Carolina Power & Light contacted Richard Korpan, Chairman,
President and Chief Executive Officer of Florida Progress to discuss a possible
business combination transaction. As a follow up from that conversation, on July
7, 1999, representatives from each company presented the basic terms of their
respective strategic growth plans at a meeting held in St. Petersburg, Florida
attended by, from Carolina Power & Light, Mr. Cavanaugh, Glenn Harder, Executive
Vice President and Chief Financial Officer, Robert McGehee, Executive Vice
President and General Counsel, and Ms. Bonnie Hancock, Vice President, Strategic
Planning and, from Florida Progress, Mr. Korpan, Edward Moneypenny, Senior Vice
President and Chief Financial Officer, Kenneth Armstrong, Vice President and
General Counsel and Peter Toomey, Vice President, Corporate Development.
On July 14, 1999, during the regularly scheduled meeting of the
Carolina Power & Light board of directors, Mr. Cavanaugh described the
preliminary discussions that had been held with Florida Progress and reported
that the two companies expected to sign a confidentiality agreement and share
forecasts and other due diligence information. At a telephonic conference call
held on July 16, 1999, Florida Progress management provided the Florida Progress
board of directors with background information on Carolina Power & Light and the
status of discussions. On the same day, Florida Progress and Carolina Power &
Light entered into a Confidentiality and Standstill Agreement to facilitate the
exchange of information between the parties. Shortly thereafter, Carolina Power
& Light engaged Merrill Lynch and Florida Progress engaged Salomon Smith Barney
as their respective financial advisors for a possible transaction involving
Carolina Power & Light and Florida Progress.
On July 21, 1999, Mr. Harder, Ms. Hancock and Ms. LuAnn Absher of
Carolina Power & Light and Messrs. Moneypenny and Toomey and Ms. Sally McKelvey
of Florida Progress, together with representatives of Merrill Lynch and Salomon
Smith Barney, met in New York to discuss financial matters. On July 28, 1999,
Mr. Harder, Ms. Hancock, and Messrs. Moneypenny and Toomey met in Atlanta to
discuss financial, structural and governance related matters as well as
preliminary transaction terms. On August 3, 1999, Mr. Harder. Ms. Hancock,
Messrs. Moneypenny
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and Toomey, together with representatives from Merrill Lynch and Salomon Smith
Barney, met in New York to continue these discussions.
On August 4, 1999, at a meeting of the finance committee of the
Carolina Power & Light board of directors, members of the finance committee
received presentations from the Carolina Power & Light management team relating
to the proposed transaction. On August 4, 1999, Mr. Harder called Mr. Moneypenny
to discuss further the terms of the transaction. During this call, it was
determined that a sufficient basis existed for the chief executive officers to
meet. On August 5, 1999, Messrs. Cavanaugh, Harder and McGehee from Carolina
Power & Light and Messrs. Korpan and Moneypenny from Florida Progress met in
Atlanta to discuss further the proposed terms of the transaction. Based on these
meetings, the parties decided to pursue negotiation of an agreement and plan of
exchange, and their due diligence review of each other's operations on an
accelerated basis. The Florida Progress board of directors received an update on
these conversations at telephonic conferences held on July 27 and August 6,
1999.
From August 9 through August 22, 1999, all of the above-referenced
representatives from both parties, other than the chief executive officers,
other company personnel, together with representatives of Merrill Lynch and
Salomon Smith Barney and representatives from Hunton & Williams, Carolina Power
& Light's regular outside counsel, and LeBoeuf, Lamb, Greene & MacRae, L.L.P.,
Florida Progress' strategic transaction counsel, met in New York to perform
their due diligence review and finalize transaction terms, including negotiation
of the agreement and plan of exchange. An arms-length negotiation between the
parties resulted in the amount of original exchange consideration of $54.00 per
share. The premium of approximately 30% over the average trading price for
shares of Florida Progress common stock over the 20 trading days before the
initial announcement of the share exchange was consistent with precedent
transactions.
The decision to allow an election of cash or stock subject to pro rata
distribution was intended to allow flexibility for Florida Progress shareholders
in their future portfolio holdings of the combined entity's stock while
maintaining the targeted capital structure. The structure of original exchange
consideration was determined based on the pro forma financial position of the
combined entity post-closing. The primary drivers were the assessment of the
leverage ratios and the appropriate equity structure for the utilities and
holding company going forward. The parties believe that the ratio of 65% cash
and 35% CP&L Energy common stock provides an adequate capital structure to
promote future growth, meet utility investment requirements and protect the
ongoing shareholder value within the combined enterprise.
On August 12, 1999, Mr. Korpan and Mr. Cavanaugh met in Raleigh, North
Carolina to discuss the composition of the CP&L Energy board of directors and
charitable contributions of Florida Progress following completion of the share
exchange. On August 19, 1999, Mr. Cavanaugh sent a letter to Mr. Korpan
describing these subjects. The letter provided, among other things, that
immediately following the share exchange the CP&L Energy board of directors
would consist of 14 persons, ten of whom will be continuing directors of
Carolina Power & Light and four of whom will be designated by Florida Progress
from the Florida Progress board of directors and acceptable to Carolina Power &
Light. The letter also provided the terms upon which the Florida Progress
designees would be nominated for reelection to the CP&L Energy board following
their initial terms. Finally, the letter committed Carolina Power & Light to
continue Florida Progress' tradition of community involvement and charitable
contributions following completion of the share exchange, in
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the form of a commitment to continue, for a minimum of three years, to make
charitable contributions in Florida Progress' service territory at no less than
the current level.
At its regularly scheduled meeting held on August 19, 1999, the Florida
Progress board of directors reviewed with Salomon Smith Barney the proposed
financial structure, exchange ratio, and potential financial and strategic
benefits and risks of the transaction. In addition, representatives of LeBoeuf,
Lamb, Greene & MacRae, L.L.P. summarized the terms and conditions of the
proposed agreement and plan of exchange and the board's legal duties in
connection with its consideration of the transaction. Florida Progress
management also provided an update on the due diligence review and its analysis
of the benefits and risks of the transaction.
On August 20, 1999, the Carolina Power & Light board of directors held
a special meeting at which the board of directors received presentations from
its management team relating to the strategic benefits and risks of the proposed
transaction with Florida Progress, the results of the due diligence
investigation of Florida Progress, the financial terms of the transaction and
the expected synergies to be achieved, the detailed terms of the proposed
agreement and plan of exchange, and the regulatory filings and approvals to be
obtained in order to complete the share exchange. Representatives of Merrill
Lynch made a detailed financial presentation to the Carolina Power & Light board
of directors and orally advised the Carolina Power & Light board of directors
that, in its opinion, as of that date and based upon and subject to the factors
and assumptions it described, the original exchange consideration to be paid to
the holders of Florida Progress common stock under the share exchange was fair
to Carolina Power & Light and CP&L Energy from a financial point of view.
Representatives of Hunton & Williams reviewed with the Carolina Power & Light
board of directors their legal duties and responsibilities in connection with
their consideration of the transaction.
Following these meetings, the parties finalized their due diligence
investigations and completed a draft of the agreement and plan of exchange
reflecting the proposed terms, conditions and structure of the transaction.
Florida Progress and BankBoston, N.A. negotiated and executed the second
amendment, dated as of August 22, 1999, to the Shareholder Rights Agreement,
dated as of November 21, 1991, between Florida Progress and BankBoston, N.A., as
successor rights agent, to exempt Carolina Power & Light and the share exchange
transaction from triggering provisions of the Rights Agreement and provide that
the rights will expire immediately before the share exchange and that the Rights
Agreement will terminate upon the effectiveness of the share exchange.
The Florida Progress board of directors held a special telephonic
meeting on August 21, 1999 and received updates from Florida Progress management
and LeBoeuf, Lamb, Greene & MacRae, L.L.P. on the final terms of the
transaction. In addition, Salomon Smith Barney reviewed with the Florida
Progress board of directors its financial analyses with respect to the original
exchange consideration and orally delivered its opinion to the Florida Progress
board of directors, confirmed by delivery of a written opinion dated August 21,
1999, to the effect that, as of that date and based on and subject to the
matters described in its opinion, the original exchange consideration was fair,
from a financial point of view, to holders of Florida Progress common stock.
After considering and discussing the various presentations at this meeting and
its prior meetings, as well as the recommendation of Florida Progress'
management, the Florida Progress board of directors, by unanimous vote, approved
the agreement and plan of exchange, including the related plan of share
exchange, and the transactions contemplated by the agreement and plan of
exchange and the related
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plan of share exchange, authorized the execution of the agreement and plan of
exchange and recommended that these matters be submitted to the shareholders of
Florida Progress for their approval.
The Carolina Power & Light board of directors convened a special
meeting on August 22, 1999 to receive an update with respect to the proposed
transaction with Florida Progress. Merrill Lynch delivered its written opinion
to the Carolina Power & Light board of directors to the effect that, as of that
date and based upon and subject to the factors and assumptions it described, the
original exchange consideration to be paid to the holders of Florida Progress
common stock under the share exchange was fair to Carolina Power & Light and
CP&L Energy from a financial point of view. After discussion with
representatives of senior management, Merrill Lynch and Hunton & Williams, the
Carolina Power & Light board of directors unanimously approved the share
exchange and the issuance of CP&L Energy common stock in the share exchange. At
the same time, the CP&L Energy board of directors approved the share exchange
and the issuance of CP&L Energy common stock in the share exchange.
Following the meeting of the Carolina Power & Light board of directors,
Carolina Power & Light and Florida Progress executed the agreement and plan of
exchange and related documents on Sunday, August 22, 1999 and publicly announced
the transaction on Monday, August 23, 1999.
During the due diligence process leading up to the execution of the
agreement and plan of exchange, Florida Progress discussed the operation of its
synthetic fuels business. As part of that discussion, Florida Progress provided
information regarding the capital costs of its three existing synthetic fuel
plants, the plants' production levels, and the potential economic benefits that
could be derived from tax credits associated with the production and sale of the
synthetic fuels. Florida Progress also disclosed that it might have the
opportunity to acquire additional synthetic fuel plants.
In October 1999, a Florida Progress subsidiary, Electric Fuels
Corporation, did acquire four additional synthetic fuel plants after consulting
with Carolina Power & Light. After signing the agreement and plan of exchange on
August 22, 1999, information arising out of Electric Fuels' operations of its
existing synthetic fuel plants as well as its study of the EARTHCO plants before
and after their purchase caused Florida Progress' management to believe that the
EARTHCO plants could possibly be operated at much higher output levels than
previously believed. If these higher output levels were achieved and the product
were sold, these new units had the potential to produce substantially more tax
credits and have substantially higher economic benefits than previously believed
by Florida Progress and disclosed to Carolina Power & Light. After determining
this potentially greater economic benefit, Florida Progress approached Carolina
Power & Light and requested that Carolina Power & Light consider paying
additional consideration to Florida Progress shareholders if this greater
economic benefit actually materialized.
From November 1999 through January 2000, representatives of Carolina
Power & Light and Florida Progress discussed the potential enhanced economic
benefits of the four synthetic fuel plants and the alternate forms of
appropriate exchange consideration. The realization of the additional potential
benefit, which was identified by Florida Progress' management after the
execution of the agreement and plan of exchange, is contingent on numerous
factors, including the results from future operation of the plants at projected
levels, the qualification of the plants for tax credits, the marketability and
sale of the product and CP&L Energy's ability to use the tax credits generated,
among
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others. Given these uncertainties, the parties agreed that some form of
contingent consideration was appropriate compensation for the contingent future
benefit. The parties determined that contingent value obligations were an
appropriate mechanism to allow Florida Progress shareholders to participate in
the potential additional benefits from the synthetic fuel plants if those
benefits were in fact realized.
During early January 2000, the parties reached an understanding that
they would seek to develop a contingent value obligation structure that would
provide Florida Progress shareholders with 50% of the net after tax cash flow,
including tax benefits used by CP&L Energy, generated by the four plants in
excess of $80 million per year for each of the years 2001 through 2007. Florida
Progress' acceptance of that structure was based upon Florida Progress
believing, using the assumptions discussed in "The Share Exchange - The
Contingent Value Obligations", that the economic benefit to Florida Progress
shareholders would be at least $150 million net present value (based on an 8%
discount rate). The parties used those assumptions solely for purposes of
structuring the contingent value obligations, but no assurance can be given as
to whether those assumptions will be realized.
During January and February 2000, the parties negotiated the terms of
the contingent value obligations to implement that understanding. In this joint
proxy statement/prospectus, we sometimes refer to the cash and shares of common
stock consideration originally agreed upon in August 1999 as the original
exchange consideration and the cash, shares of common stock and contingent value
obligations agreed upon in the amended and restated agreement and plan of
exchange as the revised exchange consideration. See the "Description of the
Contingent Value Obligations" section of this joint proxy statement/prospectus.
The parties also are considering a sale of a majority interest in Electric Fuels
subsidiaries that own two or more of the synthetic fuel plants from Electric
Fuels to Carolina Power & Light for cash, plus contingent future payments to
Electric Fuels. Consideration of that transaction is ongoing.
At its regularly scheduled meeting held on February 24, 2000, the
Florida Progress board of directors reviewed with Florida Progress management
the changes to the exchange consideration to be received by Florida Progress
shareholders in the share exchange, the terms and value of the contingent value
obligations and the financial benefits and risks of the transaction.
Representatives of Salomon Smith Barney reviewed with the Florida Progress board
of directors the financial aspects of the revised exchange consideration.
Representatives of Florida Progress management and LeBoeuf, Lamb, Greene &
MacRae, L.L.P. summarized the legal issues involved with the contingent value
obligations and the board's continuing legal duties in connection with the
transaction.
The Florida Progress board of directors held a special meeting on March
3, 2000 and received updates from Florida Progress management and LeBoeuf, Lamb,
Greene & MacRae, L.L.P. on the final terms of the revised transaction. In
addition, Salomon Smith Barney reviewed with the Florida Progress board of
directors its financial analyses with respect to the revised exchange
consideration and orally delivered its opinion to the Florida Progress board of
directors, confirmed by delivery of a written opinion dated March 3, 2000, to
the effect that, as of that date and based on and subject to the matters
described in its opinion, the revised exchange consideration was fair, from a
financial point of view, to holders of Florida Progress common stock. After
considering and discussing the various presentations at this meeting and its
prior meetings, as well as the
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recommendation of Florida Progress' management, the Florida Progress board of
directors, by unanimous vote, approved the amended and restated agreement and
plan of exchange, including the related plan of share exchange, and the
transactions contemplated by the amended and restated agreement and plan of
exchange and the related plan of share exchange, authorized the execution of the
amended and restated agreement and plan of exchange and recommended that these
matters be submitted to the shareholders of Florida Progress for their approval.
The Carolina Power & Light board of directors convened a special
meeting on February 25, 2000 to discuss the proposed addition of the contingent
value obligations to the exchange consideration in the transaction. Merrill
Lynch orally delivered its opinion to the Carolina Power & Light board of
directors, confirmed by delivery of a written opinion dated as of February 25,
2000, to the effect that, as of that date and based upon and subject to the
factors and assumptions it described, the revised exchange consideration to be
paid by CP&L Energy under the share exchange was fair to Carolina Power & Light
and CP&L Energy from a financial point of view. After discussion with
representatives of senior management, Merrill Lynch and Hunton & Williams, the
Carolina Power & Light board of directors unanimously approved the amended and
restated agreement and plan of exchange and the contingent value obligation
agreement. At the same time, the CP&L Energy board of directors approved the
amended and restated agreement and plan of exchange and the contingent value
obligation agreement.
Following the meetings of the Carolina Power & Light board of directors
and the Florida Progress board of directors, Carolina Power & Light, CP&L Energy
and Florida Progress executed the amended and restated agreement and plan of
exchange and related documents on March 3, 2000 and publicly announced the
revised terms of the share exchange on March 6, 2000.
REASONS OF FLORIDA PROGRESS FOR AGREEING TO THE SHARE EXCHANGE WITH CP&L ENERGY
The Florida Progress board of directors believes that the share
exchange will join two companies with complementary operations and a common
vision of the future of the energy markets in the southeastern region of the
United States. Based on the prospects of utility deregulation and the increasing
competitive pressures faced by electric utility companies, the Florida Progress
board of directors believes that in order to succeed in such a market, Florida
Progress must have a larger customer base with increased economies of scale to
be an efficient, low cost supplier of energy and related services. The share
exchange is expected to allow Florida Progress to achieve these goals and to
provide substantial strategic and financial benefits to the shareholders of
Florida Progress. The Florida Progress board of directors believes that these
benefits include:
PREMIUM OVER MARKET PRICE
- Florida Progress shareholders will receive $54.00 in value,
subject to adjustment, as a result of the share exchange, to
be paid either in cash, shares of CP&L Energy common stock, or
a combination of the two, which represents an approximate 30%
premium over the average trading price of Florida Progress'
common stock over the 20 trading days before the initial
announcement of the share exchange.
IMPROVED STRATEGIC POSITIONS AND INCREASED CUSTOMER BASE AND GENERATION ASSETS
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- The combination of the complementary expertise and
infrastructure of Florida Progress and Carolina Power & Light
will create a major regional utility in the southeastern
United States, one of the highest customer growth areas in the
country.
- The combined company will have a broader customer base and
more generating assets than Florida Progress as an independent
entity and should have the size and scope to be an effective
participant in the emerging and increasingly competitive
electric and natural gas utility markets.
- Based on the 1998 results for Florida Progress and Carolina
Power & Light, the total annual revenues for the combined
company will be approximately $6.7 billion. In addition, the
combined company will serve approximately 2.5 million
electricity customers in a 50,000-square-mile retail service
area. Moreover, the predominantly residential customer base of
Florida Power Corporation complements Carolina Power & Light's
greater proportion of commercial and industrial customers. The
combined company will also have in excess of 18,500 megawatts
of generating capacity.
POTENTIAL SYNERGIES
- Florida Progress and Carolina Power & Light expect net savings
in operating costs or revenue enhancements from the share
exchange in excess of $100 million for the first full year and
subsequent years following the share exchange. The savings
will primarily result from the elimination of duplicate
corporate and administrative programs and operating
efficiencies, including integration of Florida Progress'
Crystal River nuclear site with Carolina Power & Light's three
existing nuclear sites.
POTENTIAL EXPANSION OPPORTUNITIES
- The combined company is expected to be able to market a
portfolio of energy-related services, particularly generation,
throughout the southeast region. The combination of Florida
Progress and Carolina Power & Light is expected to increase
the opportunities for expansion of Florida Progress'
operations.
RECOMMENDATION OF THE FLORIDA PROGRESS BOARD OF DIRECTORS
At a special meeting held on August 21, 1999, the Florida Progress
board of directors unanimously approved and adopted the agreement and plan of
exchange, including the related plan of share exchange, and the transactions
contemplated by the agreement and plan of exchange and, at a special meeting on
March 3, 2000, the Florida Progress board of directors unanimously approved and
adopted the amended and restated agreement and plan of exchange, including the
related plan of share exchange, and the transactions contemplated by the amended
and restated agreement and plan of exchange after determining that these
transactions were fair to and in the best interests of Florida Progress and its
shareholders. Accordingly, the Florida Progress board of directors recommends
that its shareholders vote FOR the approval of the amended and restated
agreement and plan of
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exchange, including the related plan of share exchange, and the transactions
contemplated by the amended and restated agreement and plan of exchange and
related plan of share exchange.
In approving the agreement and plan of exchange, including the related
plan of share exchange, and the transactions contemplated by the agreement and
plan of exchange and in reaching its recommendation at the special meeting on
August 21, 1999, the Florida Progress board of directors consulted with Florida
Progress' management and legal and financial advisors. The following are the
material factors considered by the Florida Progress board of directors, some of
which contained both positive and negative elements:
- the board of directors' consideration of information
concerning the financial condition, results of operations,
prospects and businesses of Florida Progress and Carolina
Power & Light, including the revenues of the companies and the
recent stock price performance of Florida Progress shares and
Carolina Power & Light shares;
- the effects of the changing regulatory environment and
increased competition in the energy industry;
- the recent trend in the utility industry toward consolidation
and strategic partnerships that create larger, stronger
companies made to face an increasingly competitive
environment;
- other strategic options potentially available to Florida
Progress, including the prospects of positioning Florida
Progress for the future and enhancing long-term shareholder
value by remaining an independent company or by effecting a
strategic business combination with another party, and the
impact of Florida Progress' geographic location upon the
availability of strategic partners;
- the results of the investigation by the management of Florida
Progress of potential business combinations with alternative
parties;
- the financial and business prospects for the combined
business, including general information relating to possible
synergies, cost reductions, and operating efficiencies and
consolidations;
- the strategic fit between Florida Progress and Carolina Power
& Light and the philosophy of the management of Carolina Power
& Light, especially as it relates to the means of meeting the
challenges of industry change and that philosophy's
compatibility with the philosophy of Florida Progress
management;
- the Florida Progress per share consideration of $54.00,
subject to adjustment, which represents an approximate 30%
premium over the average trading price of Florida Progress'
common stock over the 20 trading days before the announcement
of the share exchange;
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- the fact that the $54.00 value of the stock consideration is
subject to adjustment in the event that the Average Closing
Price is greater then $45.39 or less than $37.13;
- the taxable nature of the transaction and the fact that the
exchange of Florida Progress common stock for the exchange
consideration will be a taxable sale of stock for United
States federal income tax purposes;
- the provision in the agreement and plan of exchange of the
opportunity for Florida Progress shareholders to receive cash
for their shares (prorated if Florida Progress shareholders
elect to receive more than 65% of their total consideration in
cash);
- the fact that, under the agreement and plan of exchange,
Florida Progress' obligation to consummate the share exchange
is conditioned upon the average trading price of CP&L Energy
common stock over the 20 trading days ending on the fifth day
before the closing not being less than $30 per share;
- the likelihood of obtaining regulatory approvals for the share
exchange in the current regulatory environment;
- the fact that most administrative functions of Florida
Progress would be relocated to Raleigh, North Carolina, while
a regional headquarters for the operations of Florida Power
Corporation will remain in St. Petersburg, Florida to the
extent consistent with prudent fiscal planning;
- Carolina Power & Light's agreement to continue, for a minimum
of three years, to make annual charitable contributions in
Florida Progress' service territory at no less than the
current level;
- the corporate governance aspects of the share exchange,
including the fact that the combined company will have four
new directors appointed to its board of directors, one of whom
will be Mr. Korpan, the current Chairman, President and Chief
Executive Officer of Florida Progress, and the other three of
whom will be recommended from the current board of directors
of Florida Progress;
- the interests of certain persons in the share exchange,
including Mr. Korpan and other key members of Florida
Progress' management;
- the terms of the agreement and plan of exchange, which provide
for representations, warranties, conditions to closing and
rights relating to termination and payment of termination fees
that are substantially similar to the representations,
warranties, conditions to closing and rights relating to
termination that appear in similar transactions;
- the opinion, dated August 21, 1999, of Salomon Smith Barney to
the Florida Progress board of directors as to the fairness,
from a financial point of view, of the
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original exchange consideration to the holders of Florida
Progress common stock; and
- the other advice from management and the board of directors'
financial and legal advisors over an extended period, and the
discussions of the board of directors, concerning the proposed
agreement and plan of exchange, and related plan of share
exchange, and the transactions contemplated thereby.
The Florida Progress board of directors has also considered:
- the risk that the benefits sought in the share exchange would
not be obtained;
- the risk that the share exchange would not be consummated;
- the effect of the public announcement of the share exchange on
Florida Progress' sales, customer and supplier relationships,
operating results and ability to retain employees, and on the
trading price of Florida Progress common stock;
- the substantial management time and effort that will be
required to consummate the share exchange and integrate the
operations of the two companies;
- the impact of the share exchange on Florida Progress
employees;
- the possibility that provisions of the agreement and plan of
exchange might have the effect of discouraging other persons
potentially interested in a combination with Florida Progress
from pursuing such an opportunity;
- the risk that the value of Carolina Power & Light shares will
decline; and
- other matters described under "Risk Factors Relating to the
Share Exchange" and "A Caution About Forward-Looking
Statements."
In the judgment of the Florida Progress board of directors, the
potential benefits of the share exchange outweigh these considerations.
At a special meeting on March 3, 2000, the Florida Progress board of
directors unanimously approved and adopted the amended and restated agreement
and plan of exchange, including the related plan of share exchange, which
amended the agreement and plan of exchange to, among other things, provide that
the contingent value obligations would be included as part of the revised
exchange consideration payable to Florida Progress shareholders upon
consummation of the share exchange. The following are the material factors
considered by the Florida Progress board of directors, some of which contained
both positive and negative elements:
- the likely performance of the synthetic fuel plants, and their
potential impact on Florida Progress' strategic position as an
independent entity, and as a subsidiary of CP&L Energy;
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- the fact that Florida Progress management projections, which
were based on the assumptions used to structure the contingent
value obligations, demonstrated an economic benefit to Florida
Progress shareholders of at least $150 million net present
value, if those assumptions proved accurate;
- the fact that if the rate of inflation were assumed to be
about 1.5% (consistent with the average rate of inflation over
the last three years) and the other assumptions used to
structure the contingent value obligations remained the same,
the economic benefit of the contingent value obligations to
Florida Progress shareholders would increase by $38 million
net present value;
- the fact that there could be no assurances that the
projections and assumptions of Florida Progress management
discussed above would prove accurate;
- the likely value Florida Progress shareholders would receive
from the contingent value obligations or from the operation of
the synthetic fuel plants if Florida Progress were to remain
an independent entity;
- the fact that, if the synthetic fuel plants operate at Florida
Progress management's estimated level of sales, Florida
Progress shareholders would receive a share of the benefits
from the operation of the synthetic fuel plants under the
contingent value obligations with CP&L Energy receiving the
remaining benefits, and the relative division of these
benefits between Florida Progress shareholders and CP&L
Energy;
- the impact of the addition of the contingent value obligations
on the overall amount of consideration to be received by
Florida Progress shareholders in the share exchange;
- the opinion, dated March 3, 2000, of Salomon Smith Barney to
the Florida Progress board of directors as to the fairness,
from a financial point of view, of the revised exchange
consideration to the holders of Florida Progress common stock;
- the terms of the amended and restated agreement and plan of
exchange; and
- all of the factors which were considered by the board in
determining to adopt and approve the agreement and plan of
exchange on August 21, 1999, as described above.
This discussion of the information and factors considered by the
Florida Progress board of directors is not intended to be all-inclusive. In view
of the wide variety of factors considered, the Florida Progress board of
directors did not quantify or otherwise attempt to assign relative weights to
the factors discussed above or determine that any factor was of particular
importance. In addition, the Florida Progress board of directors did not
undertake to make any specific determination as to whether any particular
factor, or any aspect of any particular factor, supported or did not support the
board's ultimate determination to approve the share exchange. Moreover,
individual members of the Florida Progress board of directors may have given
different weight to different factors. Rather, the
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Florida Progress board of directors based its recommendation on the totality of
the information presented.
CP&L ENERGY AND CAROLINA POWER & LIGHT REASONS FOR THE SHARE EXCHANGE
The CP&L Energy and Carolina Power & Light boards of directors believe
that the share exchange will result in the following significant benefits to
CP&L Energy:
STRONG SOUTHEASTERN REGIONAL PROVIDER OF ENERGY SERVICES
- The share exchange will integrate two strong companies in the
southeastern region of the United States, one of the highest
growth areas in the country, increasing the potential for
growth in shareholder value.
- The combined company is expected to be capable of offering
energy and a broad variety of low-cost, quality energy-related
services to a broader customer base during a time of rapid
change in the utility industry.
POTENTIAL FOR MORE RAPID EARNINGS GROWTH
- Florida Progress' substantial generation capacity,
strategically located in Florida adjacent to the attractive
Georgia market, should complement Carolina Power & Light's
generating assets, located in North Carolina and South
Carolina, and should provide the combined company with greater
access to these competitive markets.
- The financial strength and stability of the combined company's
larger balance sheet of approximately $19.0 billion in total
assets as shown in the Unaudited Pro Forma Combined Condensed
Financial Statements should enhance the combined company's
financing capability and support the growth objectives
established for both regulated and nonregulated businesses.
- In addition, CP&L Energy expects to realize savings in
operations and maintenance expenses relating to the following
items:
- INTEGRATION OF CORPORATE FUNCTIONS. The combined
company should be able to reduce the number of
redundant functions where the staffing levels are
relatively fixed and do not directly vary with an
increase or decrease in the number of employees or
customers. Preliminary analyses indicate the
integration of duplicative functions could result in
net labor savings of $24 to $32 million in 2001 and
increase to $38 to $45 million by 2003.
- INTEGRATION OF CORPORATE PROGRAMS. The combined
company should be able to integrate corporate and
administrative programs which will reduce non-labor
costs in the areas of insurance, advertising,
professional services, benefits plan administration,
credit facilities, association dues, and shareholder
services, among others. In addition, future
operational
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expenditures in the area of information systems that
each company would make on a stand-alone basis should
be significantly reduced. Initial examinations
project the elimination of duplicate corporate
programs could result in savings of $24 to $32
million in 2001 and rise to $30 to $37 million by
2003.
- OTHER PURCHASING ECONOMIES. The combined company
should be able to centralize purchasing functions. It
should also be able to obtain purchasing leverage
resulting in greater volume discounts for materials
and services. Initial estimates indicate the combined
company could save $2 to $3 million in 2001
increasing to $4 to $6 million by 2003 in operations
and maintenance expense through initiatives to
centralize purchasing and utilize greater leverage
with suppliers. The capital investment savings
related to purchasing centralization is expected to
range from $16 to $18 million in 2001 to $11 to $13
million in 2003.
- FUEL PROCUREMENT. The combined company should achieve
economies as a result of its integrated purchasing to
meet its larger combined fuel requirements. More
analyses are necessary and underway to reasonably
estimate the amount of savings anticipated from the
fuel procurement activities of the combined company.
Currently, at least $1 to $2 million annually in
savings is projected.
- BUSINESS OPTIMIZATION. The combined company may
implement best practice initiatives, which initial
estimates indicate could yield savings of $24 to $30
million in 2001 and increase to $32 to $40 million by
2003.
ESTABLISHMENT OF A STRONGER COMPETITIVE POSITION IN CP&L ENERGY'S UTILITY
BUSINESSES
- The combined company's greater generation assets and customer
base should provide the combined company with the size and
scope to compete in the increasingly competitive utility
markets. The combined company will have in excess of 18,500
megawatts of generating capacity and will serve approximately
2.5 million electricity customers in a 50,000-square-mile
retail service area.
- Greater scale should result in significant cost efficiencies
and lower per unit costs, thereby improving the utility
businesses' competitive position in a deregulating and
increasingly competitive industry with resulting benefits to
utility customers. As discussed above, greater scale will
allow for cost savings from efficiencies created by the
integration of corporate functions and corporate programs, as
well as, create opportunities for savings in purchasing
economies and fuel procurement. Since the base over which
initiative costs will be spread will be increased with the
combined company, future initiatives undertaken by the
combined company should be achieved more cost efficiently than
if the same initiatives were implemented by each of the
companies separately, thereby yielding lower per unit costs.
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- The resulting lower cost structure for CP&L Energy's regulated
businesses should reduce potential customer and margin loss
that could occur due to the effects of the deregulation.
IMPROVEMENT OF RISK PROFILE
- The combined company's exposure to different geographic
markets, a broader portfolio of assets and greater financial
resources should improve its ability to withstand risk and
volatility.
RECOMMENDATION OF THE CP&L ENERGY AND CAROLINA POWER & LIGHT BOARDS OF DIRECTORS
At a special meeting held on August 22, 1999, the Carolina Power &
Light board of directors unanimously approved and adopted the agreement and plan
of exchange, including the related plan of share exchange, and the issuance of
shares of CP&L Energy common stock, after determining that these transactions
were fair to and in the best interests of Carolina Power & Light. At a special
meeting held on February 25, 2000, the Carolina Power & Light board of directors
unanimously approved and adopted the amended and restated agreement and plan of
exchange, including the related plan of share exchange and the form of
contingent value obligation agreement, and the issuance of CP&L Energy common
stock after determining that these transactions were fair to and in the best
interests of Carolina Power & Light and CP&L Energy. At the same time, the CP&L
Energy board of directors approved and adopted the amended and restated
agreement and plan of exchange after making the same determination. Accordingly,
the CP&L Energy and Carolina Power & Light boards of directors unanimously
recommends that its shareholders vote FOR approval of the issuance of the shares
of CP&L Energy common stock in the share exchange.
During the course of their deliberations relating to the agreement and
plan of exchange and the amended and restated agreement and plan of exchange,
the CP&L Energy and Carolina Power & Light boards of directors consulted with
their management and legal and financial advisors and considered the following
factors in addition to the expected benefits described above:
- TERMS AND CONDITIONS OF THE AGREEMENT AND PLAN OF EXCHANGE.
The terms and conditions of the agreement and plan of exchange
and the amended and restated agreement and plan of exchange,
including the original exchange consideration and the revised
exchange consideration and the exchange ratio, the contingent
value obligations and the contingent value obligation
agreement, the terms of the termination provisions and the
amount and circumstances in which a termination fee and
expenses could become payable by Florida Progress and the
course of negotiations resulting in the execution of the
agreement and plan of exchange and the amended and restated
agreement and plan of exchange.
- FLORIDA PROGRESS OPERATING AND FINANCIAL CONDITION. The
business, operations, financial condition, operating results
and prospects of Florida Progress.
- FIT AND COMPATIBILITY. The strategic fit, compatible corporate
cultures and visions of the future of the energy business of
Carolina Power & Light and Florida Progress.
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- FAIRNESS OPINION. The opinion and analyses of Merrill Lynch
presented to the Carolina Power & Light board of directors on
August 20, 1999 and February 25, 2000, and the written
opinions dated as of August 22, 1999 and February 25, 2000
from Merrill Lynch to the Carolina Power & Light board of
directors to the effect that, as of each date and based upon
and subject to the factors and assumptions it described, the
exchange consideration to be paid by CP&L Energy under the
share exchange was fair to Carolina Power & Light and CP&L
Energy from a financial point of view.
- TIMING AND ACHIEVABILITY. The anticipated timing required to
complete the share exchange including, in particular, the
expected timing to obtain required regulatory approvals and
management's view as to the likelihood of obtaining the
required approvals without the imposition of conditions that
would materially adversely affect Carolina Power & Light and
CP&L Energy or Florida Progress.
The discussion set forth above of the material factors considered by
the Carolina Power & Light and CP&L Energy boards of directors in their
consideration of the agreement and plan of exchange, the amended and restated
agreement and plan of exchange and the issuance of shares of CP&L Energy common
stock in connection with the agreement and plan of exchange is not intended to
be all-inclusive. In view of the variety of factors and the amount of
information considered, the Carolina Power & Light and CP&L Energy boards of
directors did not find it practicable to, and did not, make specific assessments
of, quantify, or otherwise assign relative weights to the specific factors
considered in reaching its determination. The determination to approve the
agreement and plan of exchange, the amended and restated agreement and plan of
exchange and the issuance of shares of CP&L Energy common stock in connection
with the agreement and plan of exchange was made after consideration of all the
factors taken as a whole, though individual members of the Carolina Power &
Light and CP&L Energy boards of directors may have given different weights to
different factors.
OPINION OF THE FINANCIAL ADVISOR TO FLORIDA PROGRESS
Florida Progress retained Salomon Smith Barney to act as its exclusive
financial advisor in connection with the proposed share exchange. In connection
with its engagement, Florida Progress requested that Salomon Smith Barney
evaluate the fairness, from a financial point of view, to the holders of Florida
Progress common stock of the exchange consideration. On August 21, 1999, at a
meeting of the Florida Progress board of directors held to evaluate the proposed
share exchange, Salomon Smith Barney delivered to the Florida Progress board of
directors an oral opinion, confirmed by delivery of a written opinion dated
August 21, 1999, to the effect that, as of that date and based on and subject to
the matters described in its opinion, the exchange consideration was fair, from
a financial point of view, to the holders of Florida Progress common stock. On
March 3, 2000, at a meeting of the Florida Progress board of directors held to
evaluate the amended and restated agreement and plan of exchange, Salomon Smith
Barney confirmed its earlier opinion by delivery of a written opinion dated
March 3, 2000, the date on which the amended and restated agreement and plan of
exchange was executed. In connection with its opinion dated March 3, 2000,
Salomon Smith Barney updated its analyses performed in connection with its
earlier opinion and reviewed the
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assumptions on which the analyses were based and the factors considered in
connection with its opinion.
In arriving at its opinion, Salomon Smith Barney:
- reviewed the amended and restated agreement and plan of
exchange and a draft dated March 1, 2000 of a form of the
contingent value obligation agreement;
- held discussions with senior officers, directors and other
representatives and advisors of Florida Progress and senior
officers, representatives and advisors of Carolina Power &
Light concerning the businesses, operations and prospects of
Florida Progress and Carolina Power & Light;
- examined publicly available business and financial information
relating to Florida Progress and Carolina Power & Light;
- examined financial forecasts and other information and data
for Florida Progress and Carolina Power & Light which were
provided to or otherwise discussed with it by the managements
of Florida Progress and Carolina Power & Light;
- reviewed the financial terms of the share exchange as
described in the amended and restated agreement and plan of
exchange and the contingent value obligation agreement;
- reviewed current and historical market prices and trading
volumes of Florida Progress common stock and Carolina Power &
Light common stock;
- reviewed the historical and projected earnings and other
operating data of Florida Progress and Carolina Power & Light;
- reviewed the capitalization and financial condition of Florida
Progress and Carolina Power & Light;
- considered, to the extent publicly available, the financial
terms of other transactions recently effected that it
considered relevant in evaluating the share exchange;
- analyzed financial, stock market and other publicly available
information relating to the businesses of other companies
whose operations it considered relevant in evaluating those of
Florida Progress and Carolina Power & Light; and
- conducted other analyses and examinations and considered other
financial, economic and market criteria as it deemed
appropriate in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied,
without independent verification, upon the accuracy and completeness of all
financial and other information and data that it reviewed or considered. With
respect to these financial forecasts and other information and data, the
managements of Florida Progress and Carolina Power & Light advised Salomon Smith
Barney
61
<PAGE>
that they were prepared on bases reflecting the best currently available
estimates and judgments of the managements of Florida Progress and Carolina
Power & Light as to the future financial performance of Florida Progress,
Carolina Power & Light and CP&L Energy and other matters covered by the
financial forecasts and other information and data.
Salomon Smith Barney assumed, with the consent of Florida Progress,
that the Carolina Power & Light/CP&L Energy exchange would be effected in all
material respects in accordance with its terms and that, in the course of
obtaining the necessary regulatory approvals for the share exchange, no
limitations, restrictions or conditions will be imposed that would have a
material adverse effect on Florida Progress, Carolina Power & Light, CP&L Energy
or the combined company. Representatives of Florida Progress advised Salomon
Smith Barney, and therefore Salomon Smith Barney also assumed, that the final
terms of the contingent value obligation agreement would not vary materially
from those described in the draft of the contingent value obligation agreement
reviewed by Salomon Smith Barney. Salomon Smith Barney did not express any
opinion as to what the value of CP&L Energy common stock and the contingent
value obligations will be when issued to Florida Progress shareholders in the
share exchange or the prices at which the CP&L Energy common stock or contingent
value obligations will trade or otherwise be transferable after the share
exchange. Salomon Smith Barney did not make and was not provided with an
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of Florida Progress or Carolina Power & Light, and Salomon Smith
Barney did not make any physical inspection of the properties or assets of
Florida Progress or Carolina Power & Light.
In connection with its engagement, Salomon Smith Barney was not
requested to, and it did not, solicit third party indications of interest in the
acquisition of all or a part of Florida Progress. Salomon Smith Barney expressed
no view as to, and its opinion does not address, the relative merits of the
share exchange as compared to any alternative business strategies that might
exist for Florida Progress or the effect of any other transaction in which
Florida Progress might engage. Salomon Smith Barney's opinion was necessarily
based on information available, and financial, stock market and other conditions
and circumstances existing and disclosed to Salomon Smith Barney, as of the date
of its opinion. Although Salomon Smith Barney evaluated the exchange
consideration from a financial point of view, Salomon Smith Barney was not asked
to and did not recommend the specific consideration payable in the share
exchange, which was determined through negotiation between Florida Progress and
Carolina Power & Light. No other instructions or limitations were imposed by
Florida Progress on Salomon Smith Barney with respect to the investigations made
or procedures followed by Salomon Smith Barney in rendering its opinion.
THE FULL TEXT OF SALOMON SMITH BARNEY'S WRITTEN OPINION, DATED MARCH 3,
2000, WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS
AS ANNEX B AND IS INCORPORATED INTO THIS DOCUMENT BY REFERENCE. SALOMON SMITH
BARNEY'S OPINION IS ADDRESSED TO THE FLORIDA PROGRESS BOARD OF DIRECTORS AND
RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE CONSIDERATION FROM A FINANCIAL
POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE SHARE EXCHANGE OR ANY
RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER
AS TO THE FORM OF THE EXCHANGE CONSIDERATION TO BE ELECTED BY ANY SHAREHOLDER,
HOW ANY SHAREHOLDER SHOULD VOTE ON THE SHARE EXCHANGE OR WITH RESPECT TO ANY
OTHER MATTER RELATING TO THE SHARE EXCHANGE.
62
<PAGE>
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below performed by
Salomon Smith Barney in connection with its opinion dated March 3, 2000. The
summary of these analyses is not a complete description of the analyses
underlying Salomon Smith Barney's opinion. The preparation of a fairness opinion
is a complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, a fairness opinion
is not readily susceptible to summary description. Accordingly, Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors or focusing on information
presented in tabular format, without considering all analyses and factors or the
narrative description of the analyses, could create a misleading or incomplete
view of the processes underlying its analyses and opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
Florida Progress and Carolina Power & Light. No company, transaction or business
used in those analyses as a comparison is identical to Florida Progress,
Carolina Power & Light, CP&L Energy or the share exchange, and an evaluation of
those analyses is not entirely mathematical. Rather, the analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
analyzed.
The estimates contained in Salomon Smith Barney's analyses and the
valuation ranges resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or securities do not
necessarily purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Salomon Smith
Barney's analyses and estimates are inherently subject to substantial
uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many
factors considered by the Florida Progress board of directors in its evaluation
of the share exchange and should not be viewed as determinative of the views of
the Florida Progress board of directors or management with respect to the
exchange consideration or the share exchange.
The following is a summary of the material financial analyses performed
by Salomon Smith Barney in connection with the rendering of its opinion dated
March 3, 2000. THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION
PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND SALOMON SMITH BARNEY'S
FINANCIAL ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH
SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE
FINANCIAL ANALYSES. CONSIDERING THE DATA SET FORTH BELOW WITHOUT CONSIDERING THE
FULL NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING THE
METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A MISLEADING
OR INCOMPLETE VIEW OF SALOMON SMITH BARNEY'S FINANCIAL ANALYSES.
63
<PAGE>
FLORIDA PROGRESS ANALYSES
Given the different mix of Florida Progress' regulated and unregulated
businesses, Salomon Smith Barney performed a "Sum of the Parts Analysis" of
Florida Progress which evaluated separately each type of business of Florida
Progress. However, because many companies in the electric utilities industry are
comprised of both regulated and unregulated businesses, Salomon Smith Barney
also performed a "Consolidated Analysis" of Florida Progress which evaluated
Florida Progress in its entirety. These analyses resulted in implied per share
equity reference ranges which Salomon Smith Barney compared to the per share
equity value implied for Florida Progress by the exchange consideration. Salomon
Smith Barney derived the per share equity value implied by the exchange
consideration by adding the following, assuming equal proration of cash and
stock consideration among Florida Progress' shareholders:
- the value of the cash consideration;
- the value of the stock consideration based on the closing
price of Carolina Power & Light common stock on March 2, 2000
and the exchange ratio provided for in the amended and
restated agreement and plan of exchange;
- the value of the contingent value obligations based on a
discounted cash flow analysis using a 17.5% discount rate,
which represents the midpoint of the range of discount rates
of 15.0% to 20.0% considered by Salomon Smith Barney; and
- the potential value of the ongoing interest of Florida
Progress' shareholders in the synthetic fuels business through
their pro forma ownership of Carolina Power & Light common
stock, using a 17.5% discount rate, which represents the
midpoint of the range of discount rates of 15.0% to 20.0%
considered by Salomon Smith Barney.
This calculation resulted in a per share equity value for Florida
Progress implied by the exchange consideration of approximately $52.42. Salomon
Smith Barney also considered the per share equity value implied by the exchange
consideration without taking into account the potential value of the ongoing
interest of Florida Progress' shareholders in the synthetic fuels business. This
calculation resulted in a per share equity value for Florida Progress implied by
the exchange consideration of approximately $51.26.
SUM OF THE PARTS ANALYSIS. Salomon Smith Barney performed an analysis
of Florida Progress, referred to as a "Sum of the Parts Analysis," whereby
Salomon Smith Barney derived separate equity reference ranges for both the
regulated and unregulated businesses of Florida Progress, which were then added
together to arrive at an aggregate equity reference range. Given the
availability of public information for companies and transactions in the
electric utilities industry, the "Sum of the Parts Analysis" for the regulated
business was based on a "Public Market Analysis," "Discounted Cash Flow
Analyses," "Precedent Transactions Analysis" and "Public Market Plus Premium
Analysis." In the case of the unregulated businesses, for which there was more
limited comparable publicly available information, the "Sum of the Parts
Analysis" was based on a "Discounted Cash Flow Analysis." These analyses are
more fully described below.
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<PAGE>
PUBLIC MARKET ANALYSIS. Using publicly available information, Salomon
Smith Barney reviewed the market values and trading multiples of the following
six publicly traded companies in the electric utilities industry:
- Conectiv Inc.
- Constellation Energy Group
- FPL Group, Inc.
- LG&E Energy Corp.
- Pinnacle West Capital Corporation
- TECO Energy, Inc.
Salomon Smith Barney compared equity values as multiples of estimated
calendar year 2000 and 2001 earnings and September 30, 1999 book value. Salomon
Smith Barney then applied a range of selected multiples derived from the
selected companies of estimated calendar year 2000 and 2001 earnings and
September 30, 1999 book value to corresponding financial data of the regulated
business of Florida Progress. The resulting implied per share equity reference
range was then added to the implied per share equity reference range derived for
the unregulated businesses of Florida Progress based on the "Discounted Cash
Flow Analyses--Unregulated Business" described below. All multiples were based
on closing prices on March 2, 2000, except that in the case of LG&E Energy
Corp., multiples were based on the closing price on February 25, 2000, one
trading day prior to announcement of the proposed transaction between LG&E
Energy and PowerGen plc referred to under the "Precedent Transactions Analysis"
below. Estimated financial data for the selected electric utility companies were
based on publicly available research analysts' estimates and estimated financial
data for Florida Progress were based on internal estimates of the management of
Florida Progress.
This analysis resulted in the following implied aggregate per share
equity reference range for Florida Progress, as compared to the per share equity
value implied for Florida Progress by the exchange consideration, both before
and after taking into account the potential value of the ongoing interest of
Florida Progress shareholders in the synthetic fuels business through their pro
forma ownership of Carolina Power & Light common stock:
<TABLE>
<CAPTION>
Per Share Equity Value for Florida Progress
Implied by the Exchange Consideration
-------------------------------------------
After Taking Into Account Before Taking Into Account
Implied Aggregate Per Share Potential Value of Potential Value of
Equity Reference Range Ongoing Interest in Ongoing Interest in
for Florida Progress Synthetic Fuels Business Synthetic Fuels Business
-------------------- ------------------------ ------------------------
<S> <C> <C> <C>
$31.50 - $40.75 $52.42 $51.26
</TABLE>
DISCOUNTED CASH FLOW ANALYSES. Salomon Smith Barney derived an implied
aggregate per share equity reference range for Florida Progress, based on
internal estimates of the management of Florida Progress, by performing separate
discounted cash flow analyses of the stand-alone cash available after operating
expenses, taxes, capital expenditures and changes in working capital of Florida
Progress' regulated and unregulated businesses over calendar years 2000 through
2004, and then adding the implied per share equity reference ranges resulting
from those analyses.
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<PAGE>
REGULATED BUSINESS. The range of estimated terminal values for
the regulated business of Florida Progress was calculated by applying
terminal value multiples of 5.5x to 6.5x to the projected 2004 earnings
before interest, taxes, depreciation and amortization, commonly known
as EBITDA, of the regulated business of Florida Progress and terminal
value multiples of 13.9x to 17.1x to the projected 2004 earnings of the
regulated business of Florida Progress. These terminal value multiples
were calculated taking into consideration the EBITDA and earnings
multiples of selected electric utilities companies. The cash flows and
terminal values were discounted to present value using discount rates
ranging from 6.75% to 7.50%. These discount rates were calculated
taking into consideration the weighted average cost of capital of
selected electric utilities companies.
UNREGULATED BUSINESSES. The range of estimated terminal values
for Progress Capital Holdings (excluding Progress Telecommunications
and Florida Progress' synthetic fuels business) and Progress
Telecommunications, each a division of the unregulated businesses of
Florida Progress, was calculated by applying terminal value multiples
of 7.5x to 8.5x in the case of Progress Capital Holdings (excluding
Progress Telecommunications and Florida Progress' synthetic fuels
business), and terminal value multiples of 8.0x to 10.0x in the case of
Progress Telecommunications, to the projected 2004 EBITDA of these
unregulated businesses. These terminal value multiples were calculated
taking into consideration the EBITDA multiples of selected companies
for each of the unregulated businesses. The cash flows and terminal
values were discounted to present value using discount rates ranging
from 7.0% to 8.0% in the case of Progress Capital Holdings (excluding
Progress Telecommunications and Florida Progress' synthetic fuels
business), and 15.0% to 20.0% in the case of Progress
Telecommunications. These discount rates were calculated taking into
consideration the weighted average cost of capital analysis of the
selected companies for each of the unregulated businesses. A higher
discount rate was applied in the case of Progress Telecommunications
given the greater risk associated with start-up companies generally.
The range of estimated cash flows generated by Florida Progress'
synthetic fuels business, also an unregulated business of Florida
Progress, was discounted to present value using discount rates ranging
from 15.0% to 20.0%. A range of terminal values for the synthetic fuels
business was not calculated because the synthetic fuels business will
only generate a finite stream of cash flows. The discount rate applied
in the case of the synthetic fuels business was calculated taking into
consideration the risks associated with companies in the early stages
of development generally and with the synthetic fuels business
specifically. Florida Progress has been in the synthetic fuels business
since 1998.
These analyses when added together resulted in the following implied
aggregate per share equity reference range for Florida Progress, as compared to
the per share equity value implied for Florida Progress by the exchange
consideration, both before and after taking into account the potential value of
the ongoing interest of Florida Progress' shareholders in the synthetic fuels
business through their pro forma ownership of Carolina Power & Light common
stock:
66
<PAGE>
<TABLE>
<CAPTION>
Per Share Equity Value for Florida Progress
Implied by the Exchange Consideration
-------------------------------------------
After Taking Into Account Before Taking Into Account
Implied Aggregate Per Share Potential Value of Potential Value of
Equity Reference Range Ongoing Interest in Ongoing Interest in
for Florida Progress Synthetic Fuels Business Synthetic Fuels Business
-------------------- ------------------------ ------------------------
<S> <C> <C> <C>
$45.25 - $58.00 $52.42 $51.26
</TABLE>
PRECEDENT TRANSACTIONS ANALYSIS. Using publicly available information,
Salomon Smith Barney reviewed the purchase prices and implied transaction value
multiples paid or proposed to be paid in the following 15 selected transactions
in the electric utilities industry:
<TABLE>
<CAPTION>
Acquiror Target
-------- ------
<S> <C>
- - PowerGen plc LG&E Energy Corp.
- - Sierra Pacific Resources Portland General Electric Company
- - Berkshire Hathaway Inc. MidAmerican Energy Holdings Company
- - Consolidated Edison, Inc. Northeast Utilities
- - Energy East Corporation CMP Group, Inc.
- - Investor Group TNP Enterprises, Inc.
- - UtiliCorp United Inc. The Empire District Electric Company
- - UtiliCorp United Inc. St. Joseph Light & Power Company
- - New England Electric System Eastern Utilities Associates
- - The National Grid Group plc New England Electric System
- - Boston Edison Company Commonwealth Energy System-
- - ScottishPower plc PacifiCorp
- - The AES Corporation CILCORP, Inc.
- - CalEnergy Company, Inc. MidAmerican Energy Holdings Company
- - Consolidated Edison, Inc. Orange & Rockland Utilities, Inc.
</TABLE>
Salomon Smith Barney compared purchase prices in the selected
transactions as multiples of one-year and two-year forward earnings and latest
book value. Salomon Smith Barney then applied a range of selected multiples
derived from the selected transactions of one-year and two-year forward earnings
and latest book value to the estimated calendar year 2000 and 2001 earnings and
September 30, 1999 book value of the regulated business of Florida Progress.
Salomon Smith Barney observed, however, that only four precedent transactions in
the electric utilities industry have been announced since the initial
announcement of the share exchange on August 23, 1999, and only one has been
announced since November 8, 1999. Salomon Smith Barney also observed that the
median equity values of selected companies in the electric utilities industry as
a measure of one-year and two-year forward earnings had declined by
approximately 25% since the initial announcement of the share exchange. Salomon
Smith Barney adjusted the range of multiples derived from the precedent
transactions to reflect this 25% decline and applied the adjusted multiples to
the estimated calendar year 2000 and 2001 earnings and September 30, 1999 book
value of the regulated business of Florida Progress. The resulting implied per
share equity reference range was then added to the implied per share equity
reference range derived for the unregulated businesses of Florida Progress based
on the "Discounted Cash Flow Analyses--Unregulated Business" described above.
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<PAGE>
All multiples derived from the selected transactions were based on publicly
available financial information.
This analysis resulted in the following implied aggregate per share
equity reference range for Florida Progress, as compared to the per share equity
value implied for Florida Progress by the exchange consideration, both before
and after taking into account the potential value of the ongoing interest of
Florida Progress shareholders in the synthetic fuels business through their pro
forma ownership of Carolina Power & Light common stock:
<TABLE>
<CAPTION>
Implied Aggregate Per Share Per Share Equity Value for Florida Progress
Equity Reference Range for Florida Progress Implied by the Exchange Consideration
-------------------------------------------------- --------------------------------------------------------
After Taking Into Account Before Taking Into Account
Before After Potential Value of Potential Value of
Adjustment for 25% Adjustment for 25% Ongoing Interest in Ongoing Interest in
Decline in Multiples Decline in Multiples Synthetic Fuels Business Synthetic Fuels Business
-------------------- -------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C>
$49.50 - $63.25 $42.00 - $51.00 $52.42 $51.26
</TABLE>
PUBLIC MARKET PLUS PREMIUM ANALYSIS. Salomon Smith Barney also
performed a public market plus premium analysis for Florida Progress by applying
a 25% to 30% change of control premium to the aggregate equity reference range
implied for Florida Progress derived from the "Sum of the Parts Analysis--Public
Market Analysis" described above. This change of control premium range was based
on the premiums paid in the transactions listed in the "Precedent Transactions
Analysis."
This analysis resulted in the following implied aggregate per share
equity reference range for Florida Progress, as compared to the per share equity
value implied for Florida Progress by the exchange consideration, both before
and after taking into account the potential value of the ongoing interest of
Florida Progress shareholders in the synthetic fuels business through their pro
forma ownership of Carolina Power & Light common stock:
<TABLE>
<CAPTION>
Per Share Equity Value for Florida Progress
Implied by the Exchange Consideration
-------------------------------------------
Implied Aggregate Per Share After Taking Into Account Before Taking Into Account
Equity Reference Range Potential Value of Potential Value of
for Florida Progress Ongoing Interest in Ongoing Interest in
Applying a 25% - 30% Premium Synthetic Fuels Business Synthetic Fuels Business
---------------------------- ------------------------ ------------------------
<S> <C> <C> <C>
$39.25 - $52.75 $52.42 $51.26
</TABLE>
CONSOLIDATED ANALYSIS. Salomon Smith Barney also performed an analysis
of Florida Progress on a consolidated basis based on a "Public Market Analysis,"
"Precedent Transactions Analysis," and "Public Market Plus Premium Analysis," as
more fully described below.
PUBLIC MARKET ANALYSIS. Using publicly available information, Salomon
Smith Barney reviewed the market values and trading multiples of the following
six publicly traded companies in the electric utilities industry:
68
<PAGE>
- Conectiv Inc.
- Constellation Energy Group
- FPL Group, Inc.
- LG&E Energy Corp.
- Pinnacle West Capital Corporation
- TECO Energy, Inc.
Salomon Smith Barney compared equity values as multiples of estimated
calendar year 2000 and 2001 earnings and September 30, 1999 book value. Salomon
Smith Barney then applied a range of selected multiples derived from the
selected companies of estimated calendar year 2000 and 2001 earnings and
September 30, 1999 book value to corresponding financial data of Florida
Progress excluding amounts related to Florida Progress' synthetic fuels
business, and then took into account the synthetic fuels business. All multiples
were based on closing prices March 2, 2000, except that in the case of LG&E
Energy Corp., multiples were based on the closing price on February 25, 2000,
one trading day prior to announcement of the proposed transaction between LG&E
Energy and PowerGen plc referred to under the "Precedent Transactions Analysis"
below. Estimated financial data for the selected electric utilities companies
were based on publicly available research analysts' estimates and estimated
financial data for Florida Progress were based on internal estimates of the
management of Florida Progress.
This analysis resulted in the following implied per share equity
reference range for Florida Progress, as compared to the per share equity value
implied for Florida Progress by the exchange consideration, both before and
after taking into account the potential value of the ongoing interest of Florida
Progress shareholders in the synthetic fuels business through their pro forma
ownership of Carolina Power & Light common stock:
<TABLE>
<CAPTION>
Per Share Equity Value for Florida Progress
Implied by the Exchange Consideration
-------------------------------------------------------
After Taking Into Account Before Taking Into Account
Implied Per Share Potential Value of Potential Value of
Equity Reference Range Ongoing Interest in Ongoing Interest in
for Florida Progress Synthetic Fuels Business Synthetic Fuels Business
-------------------- ------------------------ ------------------------
<S> <C> <C>
$29.50 - $35.50 $52.42 $51.26
</TABLE>
PRECEDENT TRANSACTIONS ANALYSIS. Using publicly available information,
Salomon Smith Barney reviewed the purchase prices and implied transaction value
multiples paid or proposed to be paid in the following 15 selected transactions
in the electric utilities industry:
69
<PAGE>
<TABLE>
<CAPTION>
Acquiror Target
-------- ------
<S> <C>
- - PowerGen plc LG&E Energy Corp.
- - Sierra Pacific Resources Portland General Electric Company
- - Berkshire Hathaway Inc. MidAmerican Energy Holdings Company
- - Consolidated Edison, Inc. Northeast Utilities
- - Energy East Corporation CMP Group, Inc.
- - Investor Group TNP Enterprises, Inc.
- - UtiliCorp United Inc. The Empire District Electric Company
- - UtiliCorp United Inc. St. Joseph Light & Power Company
- - New England Electric System Eastern Utilities Associates
- - The National Grid Group plc New England Electric System
- - Boston Edison Company Commonwealth Energy System
- - ScottishPower plc PacifiCorp
- - The AES Corporation CILCORP, Inc.
- - CalEnergy Company, Inc. MidAmerican Energy Holdings Company
- - Consolidated Edison, Inc. Orange & Rockland Utilities, Inc.
</TABLE>
Salomon Smith Barney compared purchase prices in the selected
transactions as multiples of one-year and two-year forward earnings and latest
book value. Salomon Smith Barney then applied a range of selected multiples
derived from the selected transactions of one-year and two-year forward earnings
and latest book value to the estimated calendar year 2000 and 2001 earnings and
September 30, 1999 book value of Florida Progress, excluding amounts related to
Florida Progress' synthetic fuels business, and then took into account the
synthetic fuels business. Salomon Smith Barney also observed that only four
precedent transactions in the electric utilities industry have been announced
since the initial announcement of the share exchange on August 23, 1999, and
only one has been announced since November 8, 1999. Salomon Smith Barney also
observed that the median equity values of the electric utilities companies
involved in the selected transactions as a measure of one-year and two-year
forward earnings had declined by approximately 25% since the initial
announcement of the share exchange. Salomon Smith Barney adjusted the range of
multiples derived from the precedent transactions to reflect this 25% decline
and applied the adjusted multiples to the estimated calendar year 2000 and 2001
earnings and September 30, 1999 book value of the regulated business of Florida
Progress. All multiples derived from the selected transactions were based on
publicly available financial information.
This analysis resulted in the following implied per share equity
reference range for Florida Progress, as compared to the per share equity value
implied for Florida Progress by the exchange consideration, both before and
after taking into account the potential value of the ongoing interest of Florida
Progress shareholders in the synthetic fuels business through their pro forma
ownership of Carolina Power & Light common stock:
<TABLE>
<CAPTION>
Implied Per Share Per Share Equity Value for Florida Progress
Equity Reference Range for Florida Progress Implied by the Exchange Consideration
------------------------------------------- -------------------------------------
After Taking Into Account Before Taking Into
Before After Potential Value of Account Potential Value
Adjustment for 25% Adjustment for 25% Ongoing Interest in of Ongoing Interest in
Decline in Multiples Decline in Multiples Synthetic Fuels Business Synthetic Fuels Business
-------------------- -------------------- ------------------------ ------------------------
<S> <C> <C> <C>
$51.50 - $60.00 $41.50 - $48.25 $52.42 $51.26
</TABLE>
70
<PAGE>
PUBLIC MARKET PLUS PREMIUM ANALYSIS. Salomon Smith Barney also
performed a public market plus premium analysis for Florida Progress by applying
a 25% to 30% change of control premium to the equity reference range implied for
Florida Progress derived from the "Consolidated Analysis--Public Market
Analysis" described above. This change of control premium range was based on the
premiums paid in the transactions listed in the "Precedent Transactions
Analysis."
This analysis resulted in the following implied per share equity
reference range for Florida Progress, as compared to the per share equity value
implied for Florida Progress by the exchange consideration, both before and
after taking into account the potential value of the ongoing interest of Florida
Progress shareholders in the synthetic fuels business through their pro forma
ownership of Carolina Power & Light common stock:
<TABLE>
<CAPTION>
Per Share Equity Value for Florida Progress
Implied by the Exchange Consideration
-------------------------------------------------------
Implied Per Share Equity After Taking Into Account Before Taking Into Account
Reference Range Potential Value of Potential Value of
for Florida Progress Ongoing Interest in Ongoing Interest in
Applying a 25% - 30% Premium Synthetic Fuels Business Synthetic Fuels Business
---------------------------- ------------------------ ------------------------
<S> <C> <C>
$37.00 - $46.25 $52.42 $51.26
</TABLE>
CAROLINA POWER & LIGHT ANALYSES
PUBLIC MARKET ANALYSIS. Using publicly available information, Salomon
Smith Barney reviewed the market values and trading multiples of Carolina Power
& Light and the following eight selected publicly traded companies in the
electric utilities industry:
- Constellation Energy Group
- Dominion Resources, Inc.
- FPL Group, Inc.
- Alliant Energy Corp.
- IPALCO Enterprises, Inc.
- Pinnacle West Capital Corporation
- SCANA Corporation
- Wisconsin Energy Corporation
Salomon Smith Barney compared market values as multiples of estimated
calendar year 2000 and 2001 earnings per share, commonly known as EPS, and
September 30, 1999 book value. Salomon Smith Barney then applied a range of
selected multiples derived from the selected companies of estimated calendar
years 2000 and 2001 EPS and September 30, 1999 book value to corresponding
financial data for Carolina Power & Light. All multiples were based on closing
prices on March 2, 2000. EPS estimates for the selected companies were based on
publicly available research analysts' estimates and EPS estimates for Carolina
Power & Light were based both on internal estimates of the management of
Carolina Power & Light and publicly available research analysts' estimates.
71
<PAGE>
This analysis resulted in the following implied per share equity
reference range for Carolina Power & Light, as compared to the closing price of
Carolina Power & Light common stock on March 2, 2000:
<TABLE>
<CAPTION>
Implied Per Share Equity Closing Price of Carolina Power & Light
Reference Range for Carolina Power & Light Common Stock On March 2, 2000
- ------------------------------------------ -----------------------------
<S> <C>
$28.00 - $36.50 $29.25
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS. Salomon Smith Barney derived an implied
per share equity reference range for Carolina Power & Light, excluding
Interpath, Carolina Power & Light's internet business, by performing a
discounted cash flow analysis of the stand-alone cash available after operating
expenses, taxes, capital expenditures and changes in working capital of Carolina
Power & Light over calendar years 2000 through 2003, based on internal estimates
of the management of Carolina Power & Light. The range of estimated terminal
values for Carolina Power & Light was calculated by applying terminal value
multiples of 6.25x to 7.25x to the projected 2003 EBITDA of Carolina Power &
Light and terminal value multiples of 9.1x to 12.3x to the projected 2003
earnings of Carolina Power & Light. These terminal value multiples were
calculated taking into consideration the trading EBITDA and earnings multiples
of selected electric utilities companies. The cash flows and terminal values
were discounted to present value using discount rates ranging from 6.50% to
7.25%. These discount rates were calculated taking into consideration the
weighted average cost of capital of selected electric utilities companies.
This analysis resulted in the following implied per share equity
reference range for Carolina Power & Light, as compared to the closing price of
Carolina Power & Light common stock on March 2, 2000:
<TABLE>
<CAPTION>
Implied Per Share Equity Closing Price of Carolina Power & Light
Reference Range for Carolina Power & Light Common Stock On March 2, 2000
- ------------------------------------------ -----------------------------
<S> <C>
$32.50 - $43.25 $29.25
</TABLE>
OTHER FACTORS
In rendering its opinion, Salomon Smith Barney also reviewed and
considered other factors for information purposes, including:
- historical market prices and trading volumes for Florida
Progress common stock and Carolina Power & Light common stock;
- the relationship between movements in Florida Progress common
stock and movements in Carolina Power & Light common stock
with movements in the common stock of eight selected companies
in the electric utilities industry and movements in the common
stock of a broad index of 65 selected companies in the
electric utilities industry; and
- selected analysts' reports on Carolina Power & Light,
including EPS growth estimates of those analysts.
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MISCELLANEOUS
Under the terms of its engagement, Florida Progress has agreed to pay
Salomon Smith Barney for its services upon completion of the share exchange an
aggregate financial advisory fee equal to 0.34% of the total consideration
payable in connection with the share exchange, which fee is currently estimated
to be approximately $17 million based on the closing stock price of Carolina
Power & Light common stock as of March 2, 2000. Florida Progress also has agreed
to reimburse Salomon Smith Barney for its reasonable travel and other
out-of-pocket expenses, including the reasonable fees and expenses of its legal
counsel, and to indemnify Salomon Smith Barney and related persons against
liabilities, including liabilities under the federal securities laws, arising
out of Salomon Smith Barney's engagement.
Salomon Smith Barney is an internationally recognized investment
banking firm and was selected by Florida Progress based on its experience,
expertise and familiarity with Florida Progress and its business. Salomon Smith
Barney regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Salomon
Smith Barney has in the past provided investment banking services to Florida
Progress and Carolina Power & Light unrelated to the proposed share exchange,
for which services Salomon Smith Barney has received compensation. In addition,
Salomon Smith Barney and its affiliates, including Citigroup Inc. and its
affiliates, may maintain relationships with Florida Progress, Carolina Power &
Light and their respective affiliates.
In the ordinary course of business, Salomon Smith Barney and its
affiliates may actively trade or hold the securities of Florida Progress,
Carolina Power & Light and CP&L Energy for their own account or for the account
of customers and, accordingly, may at any time hold a long or short position in
those securities.
OPINION OF THE FINANCIAL ADVISOR TO CAROLINA POWER & LIGHT
On August 22, 1999, Merrill Lynch delivered its written opinion to the
Carolina Power & Light board of directors to the effect that, as of that date,
and based upon the assumptions made, matters considered and limits of review set
forth in its opinion, the proposed original exchange consideration to be paid by
CP&L Energy under the share exchange was fair from a financial point of view to
Carolina Power & Light and CP&L Energy. In connection with the evaluation by the
Carolina Power & Light board of directors of the amended and restated agreement
and plan of exchange, on February 25, 2000, Merrill Lynch orally delivered its
opinion to the Carolina Power & Light board of directors, confirmed by delivery
of a written opinion dated as of February 25, 2000, to the effect that, as of
that date, and based upon the assumptions made, matters considered and limits of
review set forth in its opinion, the proposed revised exchange consideration to
be paid by CP&L Energy under the share exchange was fair from a financial point
of view to Carolina Power & Light and CP&L Energy. A copy of Merrill Lynch's
opinion dated as of February 25, 2000 is attached as ANNEX C.
THE MERRILL LYNCH OPINION ATTACHED AS ANNEX C SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF
REVIEW UNDERTAKEN BY MERRILL
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LYNCH. EACH HOLDER OF CAROLINA POWER & LIGHT COMMON STOCK IS URGED TO READ THIS
OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINION WAS INTENDED FOR THE USE AND
BENEFIT OF THE CAROLINA POWER & LIGHT BOARD OF DIRECTORS, WAS DIRECTED ONLY TO
THE FAIRNESS OF THE EXCHANGE CONSIDERATION FROM A FINANCIAL POINT OF VIEW TO
CAROLINA POWER & LIGHT AND CP&L ENERGY, DID NOT ADDRESS THE MERITS OF THE
UNDERLYING DECISION BY CAROLINA POWER & LIGHT TO ENGAGE IN THE SHARE EXCHANGE
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW THAT
SHAREHOLDER SHOULD VOTE ON THE PROPOSED ISSUANCE OF CP&L ENERGY COMMON STOCK
UNDER THE SHARE EXCHANGE OR ANY OTHER MATTER RELATING TO THE SHARE EXCHANGE. THE
EXCHANGE CONSIDERATION WAS DETERMINED ON THE BASIS OF NEGOTIATIONS BETWEEN
CAROLINA POWER & LIGHT AND FLORIDA PROGRESS AND WAS APPROVED BY THE CAROLINA
POWER & LIGHT AND CP&L ENERGY RESPECTIVE BOARDS OF DIRECTORS. THE SUMMARY OF THE
MERRILL LYNCH OPINION, DATED AS OF FEBRUARY 25, 2000, IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION ATTACHED AS ANNEX C.
In arriving at its opinion, dated as of February 25, 2000, Merrill
Lynch, among other things:
- reviewed certain publicly available business and financial
information relating to Carolina Power & Light and Florida
Progress that Merrill Lynch deemed to be relevant;
- reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets,
liabilities and prospects of Carolina Power & Light, CP&L
Energy and Florida Progress, as well as the amount and timing
of the cost savings and related expenses and synergies
expected to result from the share exchange (the "EXPECTED
SYNERGIES") furnished to or discussed with Merrill Lynch by
Carolina Power & Light;
- conducted discussions with members of senior management and
representatives of Carolina Power & Light and Florida Progress
concerning the matters described in the preceding two bullet
points, as well as their respective businesses and prospects
before and after giving effect to the share exchange and the
Expected Synergies;
- reviewed the market prices and valuation multiples for Florida
Progress common stock and Carolina Power & Light common stock
and compared them with those of certain publicly traded
companies that Merrill Lynch deemed to be relevant;
- reviewed the results of operations of Carolina Power & Light
and Florida Progress and compared them with those of certain
publicly traded companies that Merrill Lynch deemed to be
relevant;
- compared the proposed financial terms of the share exchange
with the financial terms of certain other transactions that
Merrill Lynch deemed to be relevant;
- participated in certain discussions and negotiations among
representatives of Carolina Power & Light and Florida Progress
and their financial and legal advisors;
- reviewed the potential pro forma impact of the share exchange;
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- reviewed a draft dated February 21, 2000 of the amended and
restated agreement and plan of exchange, together with a draft
dated February 23, 2000 of the form of contingent value
obligation agreement; and
- reviewed other financial studies and analyses and took into
account other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic,
market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the
accuracy and completeness of all information supplied or otherwise made
available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch,
or publicly available. Merrill Lynch did not assume any responsibility for
independently verifying such information or for undertaking an independent
evaluation or appraisal of any of the assets or liabilities of Carolina Power &
Light or Florida Progress and was not furnished with any such evaluation or
appraisal. In addition, Merrill Lynch did not assume any obligation to conduct
any physical inspection of the properties or facilities of Carolina Power &
Light or Florida Progress. With respect to the financial forecast information
and the Expected Synergies furnished to or discussed with Merrill Lynch by
Carolina Power & Light or Florida Progress, Merrill Lynch assumed that they were
reasonably prepared and reflected the best currently available estimates and
judgment of Carolina Power & Light's or Florida Progress' management as to the
expected future financial performance of Carolina Power & Light or Florida
Progress, as the case may be, and the Expected Synergies. Merrill Lynch further
assumed that the share exchange will not be taxable to Carolina Power & Light,
CP&L Energy or Florida Progress. In addition, Merrill Lynch assumed that the
final forms of the amended and restated share exchange agreement and the
contingent value obligation agreement will be substantially similar to the last
drafts reviewed by Merrill Lynch.
Merrill Lynch's opinion was necessarily based on market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of the date of the Merrill Lynch
opinion. Merrill Lynch assumed that in the course of obtaining the necessary
regulatory or other consents or approvals (contractual or otherwise) for the
share exchange, no restrictions, including any divestiture requirements or
amendments or modifications, would be imposed that would have a material adverse
effect on Carolina Power & Light and CP&L Energy, taken as a whole.
Merrill Lynch's opinion did not address the merits of the underlying
decision by Carolina Power & Light to engage in the share exchange. Merrill
Lynch expressed no opinion as to the prices at which the Carolina Power & Light
common stock, CP&L Energy common stock or contingent value obligations would
trade following the announcement or consummation, as the case may be, of the
holding company restructuring or the share exchange.
In connection with its opinion dated as of February 25, 2000, Merrill
Lynch updated its analyses performed in connection with its earlier opinion and
reviewed the assumptions on which the analyses were based and the factors
considered in connection with its opinion. The following is a summary of the
material portions of the financial and comparative analyses performed by Merrill
Lynch in connection with the opinion delivered to the Carolina Power & Light
board of directors on February 25, 2000. The financial analyses summarized below
include information presented in tabular format. In order to fully understand
Merrill Lynch's financial analyses, the tables must be
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<PAGE>
read together with the text of each summary. The tables alone do not constitute
a complete description of the financial analyses. Considering the data set forth
below without considering the full narrative description of the financial
analyses, including the methodologies and assumptions underlying the analyses,
could create a misleading or incomplete view of Merrill Lynch's financial
analyses.
STOCK TRADING HISTORY. Merrill Lynch compared, for the period beginning
February 17, 1998 and ending February 18, 2000, the per share daily closing
market prices of (1) Florida Progress common stock, (2) the Standard & Poor's
Electric Index, and (3) an index composed of the following companies: Alliant
Energy Corp., Carolina Power & Light, FPL Group, Inc., Pinnacle West Capital,
SCANA Corporation, and TECO Energy, Inc. Merrill Lynch selected the companies to
be used in the above index based on the size and operational, financial and
market characteristics of each company.
<TABLE>
<CAPTION>
Percentage Change
From 2/17/98 - 2/18/00
----------------------
<S> <C>
Florida Progress +10%
Standard & Poor's Electric Index +15%
Comparable Index +26%
</TABLE>
Merrill Lynch also reviewed the performance of the per share market
price of Florida Progress common stock for the 52-week trading period ending on
February 22, 2000.
<TABLE>
<CAPTION>
Florida Progress
Stock Price
-----------
<S> <C>
Market Price on 2/22/00 $42.50
52-Week High $48.00
52-Week Low $35.88
</TABLE>
COMPARABLE PUBLIC COMPANY ANALYSIS. Using publicly available
information, Merrill Lynch compared selected historical and projected financial
and operating data and ratios for Florida Progress' business segments taken as a
whole, which is referred to as a bundled analysis, and separately for Florida
Progress' utility, coal, barge and rail segments, which is referred to as a
segment analysis, with corresponding data and ratios of similar publicly traded
companies.
The utility companies included in the Florida Progress bundled analysis
and utility segment analysis were:
- SCANA Corporation
- Carolina Power & Light Company
- TECO Energy, Inc.
- Alliant Energy Corp.
- Pinnacle West Capital
- FPL Group, Inc.
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<PAGE>
The companies included in the coal segment analysis were:
- Arch Coal Inc.
- CONSOL Energy Inc.
The companies included in the barge segment analysis were:
- Kirby Corporation
- Maritrans Inc.
The companies included in the rail segment analysis were:
- The Greenbrier Companies, Inc.
- Trinity Industries, Inc.
- Wabtec Corporation
Merrill Lynch derived an estimated valuation range for Florida Progress
using both a bundled analysis and a segment analysis by comparing market
capitalization as a multiple of last twelve months, which is referred to as LTM,
earnings before interest, taxes, depreciation and amortization, which is
referred to as EBITDA, and market value as a multiple of estimated 2000 earnings
per share, which is referred to as EPS. The LTM EBITDA results were obtained
from publicly available sources and the EPS estimates were obtained from
Institutional Brokers Estimate System, a data service that monitors and
publishes a compilation of earnings estimates produced by selected research
analysts on companies of interest to investors. The results of these analyses
were as follows:
<TABLE>
<CAPTION>
COMPARABLE UTILITY COMPANIES
CAROLINA
FLORIDA POWER
HIGH LOW PROGRESS & LIGHT
---- --- -------- --------
<S> <C> <C> <C> <C>
Market Capitalization as a multiple of
LTM EBITDA: 8.5x 4.5x 7.2x 6.3x
Market Value as a multiple of Estimated
2000 EPS: 13.3x 8.9x 12.7x 10.0x
</TABLE>
<TABLE>
<CAPTION>
COMPARABLE COAL COMPANIES
HIGH LOW
---- ---
<S> <C> <C>
Market Capitalization as a multiple of
LTM EBITDA: 5.8x 4.6x
Market Value as a multiple of
Estimated 2000 EPS: 10.2x Not meaningful
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
COMPARABLE BARGE COMPANIES
HIGH LOW
---- ---
<S> <C> <C>
Market Capitalization as a multiple of
LTM EBITDA: 6.5x 4.9x
Market Value as a multiple of
Estimated 2000 EPS: 12.7x 11.9x
</TABLE>
<TABLE>
<CAPTION>
COMPARABLE RAIL COMPANIES
HIGH LOW
---- ---
<S> <C> <C>
Market Capitalization as a multiple of
LTM EBITDA: 5.6x 3.2x
Market Value as a multiple of
Estimated 2000 EPS: 8.1x 5.7x
</TABLE>
Using these analyses, Merrill Lynch estimated the following ranges of
value per share of Florida Progress common stock, based on approximately 98.1
million shares of Florida Progress common stock outstanding and assuming net
debt and preferred equity at liquidation value of $2,786.6 million as of
December 31, 1999:
<TABLE>
<CAPTION>
IMPLIED EQUITY VALUE PER SHARE OF FLORIDA PROGRESS COMMON STOCK
HIGH LOW
<S> <C> <C>
BUNDLED ANALYSIS
Estimated 2000 EPS $ 39.24 $ 35.97
LTM EBITDA $ 46.39 $ 36.13
SEGMENT ANALYSIS
Estimated 2000 EPS $ 38.17 $ 34.30
LTM EBITDA $ 43.97 $ 33.45
</TABLE>
The ranges of implied equity value per share of Florida Progress common stock
set forth above using LTM EDITDA were calculated including an estimated $294.5
million in aggregate value attributable on a stand-alone basis to the four
synthetic fuel plants acquired by Florida Progress in 1999. This estimated value
was derived using a discounted cash analysis assuming production levels for
those plants at approximately one-half of the levels projected by management of
Florida Progress for years 2001 through 2007, and further assuming that, in
order to realize that value, Florida Progress would be required to monetize with
a third party the tax credits generated by those plants in excess of the amount
of tax credits that Florida Progress would be able to utilize on a stand-alone
basis.
COMPARABLE ACQUISITIONS ANALYSIS. Merrill Lynch reviewed certain
publicly available information regarding eleven selected business combinations
in the electric utility industry since August 1995, which are referred to as the
Comparable Acquisition Transactions. The Comparable Acquisition Transactions and
the dates these transactions were announced are as follows:
- Northeast Utilities and Consolidated Edison, Inc. (October
1999);
- Unicom Corporation and PECO Energy Company (September 1999);
- New Century Energies and Northern States Power Company (March
1999);
- New England Electric System and The National Grid Group plc
(December 1998);
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- PacifiCorp and Scottish Power PLC (December 1998);
- MidAmerican Energy Holdings Company and CalEnergy Company
(August 1998);
- Central & South West Corporation and American Electric Power
Company, Inc. (December 1997);
- KU Energy Corporation and LG&E Energy Corp. (May 1997);
- Centerior Energy Corporation and Ohio Edison Company
(September 1996);
- Portland General Corporation and Enron Corporation (July
1996); and
- CIPSCO Incorporated and Union Electric Company (August 1995).
With respect to these transactions, Merrill Lynch compared the "offer
price" of each such transaction as a multiple of EPS of the acquired company at
the time of announcement and the "transaction value" of each such transaction as
a multiple of EBITDA of the acquired company. The "offer price" is defined as
the per share price offered for the acquired company, and the "transaction
value" is defined as the sum of the offer price multiplied by the number of
shares and options outstanding, preferred equity at liquidation value, short
term debt, long term debt and minority interests, less cash and marketable
securities. The results of these analyses (excluding the EPS multiple of the
Portland General Corporation-Enron Corporation transaction) were as follows:
<TABLE>
<CAPTION>
COMPARABLE ACQUISITION TRANSACTIONS
HIGH LOW MEAN MEDIAN
---- --- ---- ------
<S> <C> <C> <C> <C>
Multiples of:
EPS 19.7x 10.4x 15.9x 16.8x
EBITDA 9.8x 5.4x 7.4x 7.0x
</TABLE>
Using the above analyses, Merrill Lynch estimated the following ranges
of value per share of Florida Progress common stock, based on approximately 98.1
million shares of Florida Progress common stock outstanding and assuming net
debt and preferred equity at liquidation value of $2,786.6 million as of
December 31, 1999:
<TABLE>
<CAPTION>
IMPLIED EQUITY VALUE PER SHARE OF FLORIDA PROGRESS COMMON STOCK
HIGH LOW
---- ---
<S> <C> <C>
Estimated 2000 EPS $55.59 $45.78
LTM EBITDA $56.64 $46.39
</TABLE>
The ranges of implied equity value per share of Florida Progress common stock
set forth above using LTM EDITDA were calculated including an estimated $294.5
million in aggregate value attributable on a stand-alone basis to the four
synthetic fuel plants acquired by Florida Progress in 1999. This estimated value
was derived in the manner described above in the Comparable Public Company
Analysis.
DISCOUNTED CASH FLOW ANALYSIS. Merrill Lynch performed a discounted
cash flow, or "DCF," analysis for Florida Progress and separate DCFs for each of
Florida Progress' segments, in each case using projections provided by the
management of Florida Progress, except for the projected cash flows for the year
2004, which were extrapolated by Merrill Lynch based upon the projected cash
flows for the years 2000 through 2003 using projections provided by the
management of Florida Progress.
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<PAGE>
The DCF bundled analysis for Florida Progress was calculated assuming
discount rates ranging from 7.0% to 8.0% and was comprised of the sum of the
present values of:
1. the projected cash flows for the years 2000 through 2004; and
2. the 2004 terminal value based upon a range of multiples of
estimated 2004 EBITDA from 6.0x to 7.0x.
The above discount rates were calculated taking into consideration the
estimated weighted average cost of capital of the selected comparable utility
companies used in the bundled analysis, and the above terminal value multiples
were calculated taking into consideration the trading EBITDA multiples of the
selected comparable utility companies used in the bundled analysis.
The DCF segment analysis for Florida Progress was calculated assuming
discount rates ranging from 7.0% to 8.0% and was comprised of the sum of the
present values of:
1. the projected cash flows for the years 2000 through 2004; and
2. the 2004 terminal value based upon a range of multiples of
estimated 2004 EBITDA from 5.0x to 7.0x.
The above discount rates were calculated taking into consideration the
estimated weighted average cost of capital of the selected companies used in the
segment analysis, and the above terminal value multiples were calculated taking
into consideration the trading EBITDA multiples of the selected companies used
in the segment analysis.
These analyses resulted in the following ranges of implied equity value
per share of Florida Progress common stock (both including and excluding
Expected Synergies, the present value of which, based upon estimates furnished
to Merrill Lynch by Carolina Power & Light, were estimated at $8.14 per share of
Florida Progress common stock):
<TABLE>
<CAPTION>
IMPLIED EQUITY VALUE PER SHARE OF FLORIDA PROGRESS COMMON STOCK
HIGH HIGH LOW
(INCLUDING (EXCLUDING (EXCLUDING
EXPECTED EXPECTED EXPECTED
DCF METHOD SYNERGIES) SYNERGIES) SYNERGIES)
- ---------- ---------- ---------- ----------
<S> <C> <C> <C>
Bundled Analysis $60.96 $52.82 $41.34
Segment Analysis $60.49 $52.35 $40.47
</TABLE>
The ranges of implied equity value per share of Florida Progress common stock
set forth above were calculated including an estimated $294.5 million in
aggregate value attributable on a stand-alone basis to the four synthetic fuel
plants acquired by Florida Progress in 1999. This estimated value was derived in
the manner described above in the Comparable Public Company Analysis.
CONTINGENT VALUE OBLIGATIONS--DISCOUNTED CASH FLOW ANALYSIS. Merrill
Lynch performed a DCF analysis for the contingent payments that may be made by
CP&L Energy in respect of the contingent value obligations based upon the net
after-tax cash flow to CP&L Energy generated by four synthetic fuel plants owned
by Florida Progress, using production projections for those plants for years
2001 through 2007 provided by the management of Florida Progress and payout
periods
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from escrow ranging from 5- to 10-years. These analyses resulted in implied
values per contingent value obligation ranging from:
- $0.24 to $1.64, assuming an 8-year escrow period and
production levels ranging from 50% to 100% of those levels
projected by the management of Florida Progress, and
- $1.60 to $1.71, assuming an escrow period ranging from 5- to
10-years and production levels at 100% of those levels
projected by the management of Florida Progress.
The summary of analyses performed by Merrill Lynch set forth above does
not purport to be a complete description of the analyses performed by Merrill
Lynch in arriving at its opinions. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial or summary
description. Accordingly, Merrill Lynch believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by Merrill Lynch, without considering all analyses and
factors, could create an incomplete view of the processes underlying the Merrill
Lynch opinions. Merrill Lynch did not assign relative weights to any of its
analyses in preparing its opinions. The matters considered by Merrill Lynch in
its analyses were based on numerous macroeconomic, operating and financial
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond Carolina Power & Light's
and Merrill Lynch's control and involve the application of complex methodologies
and educated judgment. Any estimates contained in Merrill Lynch analyses are not
necessarily indicative of actual past or future results or values, which may be
significantly more or less favorable than the estimates. Estimated values do not
purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future, and the estimates are
inherently subject to uncertainty.
No company used as a comparison in the analyses described above is
identical to Florida Progress or its business segments, and none of the
Comparable Acquisition Transactions used as a comparison is identical to the
share exchange. In addition, various analyses performed by Merrill Lynch
incorporate projections prepared by research analysts using only publicly
available information. These estimates may or may not prove to be accurate. An
analysis of publicly traded comparable companies and comparable business
combinations is not mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
The Carolina Power & Light board of directors selected Merrill Lynch to
act as its financial advisor because of Merrill Lynch's reputation as an
internationally recognized investment banking firm with substantial experience
in transactions similar to the share exchange and because Merrill Lynch is
familiar with Carolina Power & Light and its businesses. As part of Merrill
Lynch's investment banking businesses, Merrill Lynch is continually engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities and private placements.
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<PAGE>
Under the terms of a letter agreement between Carolina Power & Light
and Merrill Lynch, dated July 13, 1999, Carolina Power & Light has agreed to pay
Merrill Lynch a fee in an amount equal to $10,000,000 in cash. This fee is
payable in three installments as follows: (a) $2.5 million of such fee was
payable upon the execution of the agreement and plan of exchange; (b) $2.5
million of such fee shall be payable upon the successful vote of the
shareholders of Florida Progress approving the share exchange; and (c) the
balance of the fee is payable upon the closing of the share exchange.
In addition, Carolina Power & Light has agreed that if the share
exchange or a similar transaction is not consummated and Carolina Power & Light
receives a termination fee or any similar type of payment, Carolina Power &
Light will pay Merrill Lynch ten percent (10%) of such termination fee, less any
fees previously paid to Merrill Lynch as described above. Carolina Power & Light
also has agreed to reimburse Merrill Lynch for its reasonable out-of-pocket
expenses, including the reasonable fees and disbursements of its legal counsel,
and to indemnify Merrill Lynch and certain related parties from and against
certain liabilities, including liabilities under the federal securities laws
arising out of its engagement.
Merrill Lynch has, in the past, provided financial advisory and
financing services to Carolina Power & Light and may continue to do so and has
received, and may receive, fees for the rendering of those services. In
addition, in the ordinary course of Merrill Lynch's business, Merrill Lynch and
its affiliates may actively trade Carolina Power & Light shares and other
securities of Carolina Power & Light, as well as Florida Progress shares and
other securities of Florida Progress, for their own accounts and for the
accounts of customers. Accordingly, Merrill Lynch and its affiliates may at any
time hold a long or short position in such securities.
NO DISSENTERS' APPRAISAL RIGHTS
Under Florida law, Florida Progress shareholders who object to the
share exchange are not entitled to demand separate payment or appraisal for
their shares in connection with the transactions contemplated by the agreement
and plan of exchange. Therefore, if the agreement and plan of exchange is
approved and the share exchange is completed, Florida Progress shareholders will
be entitled only to the cash or shares of CP&L Energy common stock and any cash
paid for fractional shares or a combination of cash and shares as provided by
the agreement and plan of exchange, even if they did not vote in favor of the
agreement and plan of exchange or voted against the agreement and plan of
exchange. Under North Carolina law, CP&L Energy shareholders who object to the
issuance of shares of CP&L Energy common stock to Florida Progress shareholders
in connection with the share exchange are not entitled to dissenters' rights of
appraisal or other rights to demand fair value for their shares in cash.
ACCOUNTING FOR THE SHARE EXCHANGE UNDER THE PURCHASE METHOD
The share exchange will be accounted for by CP&L Energy using the
purchase method of accounting for a business combination in accordance with
generally accepted accounting principles. Under this method of accounting, the
assets and liabilities of Florida Progress will be recorded at their fair values
and if necessary, any excess of the exchange consideration over those amounts
will be recorded as goodwill. The results of operations and cash flows of
Florida Progress will be
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included in CP&L Energy's financial statements prospectively as of the
completion of the share exchange.
RESTRICTIONS ON RESALES BY FLORIDA PROGRESS AFFILIATES
CP&L Energy has registered under the Securities Act the shares of CP&L
Energy common stock to be received by Florida Progress shareholders in
connection with the share exchange. When CP&L Energy shares are issued to
Florida Progress shareholders, Florida Progress shareholders may trade them
without restriction unless they are deemed to be an "affiliate" of Florida
Progress or CP&L Energy, as defined in the rules promulgated under the
Securities Act.
The shares of CP&L Energy common stock and contingent value obligations
to be issued in connection with the share exchange and received by persons who
are deemed to be affiliates of Florida Progress before the share exchange may be
resold by them only in transactions permitted by the resale provisions of Rule
145 under the Securities Act. Shares of CP&L Energy common stock and contingent
value obligations received by persons who are deemed to be affiliates of CP&L
Energy after the share exchange 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, Florida Progress has
agreed to use its commercially reasonable efforts to cause each person who is an
affiliate of Florida Progress to deliver to CP&L Energy a written agreement
intended to ensure compliance with the Securities Act.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
EACH FLORIDA PROGRESS SHAREHOLDER SHOULD CONSULT WITH HIS OR HER OWN
TAX ADVISOR ABOUT THE TAX CONSEQUENCES OF THE SHARE EXCHANGE 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 share exchange to 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 share
exchange and, in particular, may not address federal income tax consequences
applicable to Florida Progress shareholders who are subject to special treatment
under federal income tax law, such as Florida Progress shareholders who are not
citizens or residents of the United States, shareholders who are financial
institutions, tax-exempt organizations, insurance companies or dealers in
securities, shareholders who acquired their shares of Florida Progress common
stock through the exercise of options or similar derivative securities or
otherwise as compensation, and shareholders who hold their shares of Florida
Progress common stock as part of a straddle or conversion transaction. In
addition, this summary does not address the tax consequences of the share
exchange under applicable state, local or foreign laws. If you are a Florida
Progress shareholder, this discussion assumes you hold your shares of Florida
Progress common stock as a capital asset for federal income tax purposes.
TAX CONSEQUENCES OF THE SHARE EXCHANGE TO FLORIDA PROGRESS
SHAREHOLDERS. The exchange of your Florida Progress common stock for your
portion of the exchange consideration will be a
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taxable sale of your stock for federal income tax purposes. You will have
taxable gain or loss equal to the difference between your federal income tax
basis in your Florida Progress common stock and the amount of the exchange
consideration you receive. The amount of your exchange consideration will be the
sum of the amount of any cash plus the fair market value, on the effective date
of the share exchange, of the contingent value obligations and any shares of
CP&L Energy common stock you receive in the share exchange. If your holding
period for your Florida Progress common stock is more than one year on the
effective date of the share exchange, your capital gain or loss will be
long-term capital gain or loss. The fair market value of the contingent value
obligations should be equal to the excess of (1) the fair market value of the
shares of Florida Progress common stock you surrender over (2) the sum of the
amount of any cash plus the fair market value, on the effective date of the
share exchange, of any shares of CP&L Energy common stock you receive. Your
initial tax basis in shares of CP&L Energy common stock and contingent value
obligations you receive in the share exchange will be equal to each of their
respective fair market values determined as of the effective date of the share
exchange, and your holding period for such shares of CP&L Energy common stock
and contingent value obligations will begin the day after the effective date of
the share exchange.
TAX CONSEQUENCES OF CONTINGENT VALUE OBLIGATIONS TO FLORIDA PROGRESS
SHAREHOLDERS. The federal income tax consequences to you of holding the
contingent value obligations are not clear. There is no published legal
authority addressing the tax treatment of a contingent payment instrument that
is substantially similar to the contingent value obligations. CP&L Energy and
Florida Progress believe that the appropriate federal income tax treatment of
the contingent value obligations is described in the next two paragraphs. For
federal income tax reporting purposes, CP&L Energy intends to treat the
contingent value obligations as described in those paragraphs. The following
discussion assumes that you will hold contingent value obligations as a capital
asset.
A contingent value obligation should not be treated as a "debt
instrument" for federal income tax purposes, because any payments under the
contingent value obligation are wholly contingent. Consequently, any payment to
you under a contingent value obligation should be treated as a payment made
pursuant to a deferred payment obligation to which section 483 of the Internal
Revenue Code applies. Under that treatment, after the share exchange you will
not recognize income relating to a contingent value obligation you hold until a
payment under the contingent value obligation becomes fixed (if you are an
accrual method taxpayer) or is paid (if you are a cash method taxpayer). A
portion of any payment will be treated as interest income. The interest portion
will equal the excess of (1) the amount of the payment over (2) the present
value of the payment determined by discounting the payment from the payment date
to the effective date of the share exchange by the "applicable federal rate" in
effect when the share exchange occurs. The remainder of the payment should be
treated as a tax-free recovery of your tax basis in the contingent value
obligation until you have received the entire amount of the basis. If the total
amount of the non-interest portions of any payments exceeds the tax basis, the
excess should be treated as taxable gain. Upon the termination of a contingent
value obligation, you should recognize a loss equal to any unrecovered tax basis
in the contingent value obligation. The character of any such gain or loss as
capital or ordinary is not clear.
If you sell or otherwise dispose of a contingent value obligation in a
taxable transaction, a portion of the amount you realize on the sale or other
disposition will be treated as interest income. That portion will be determined
under the discounting method that applies to a payment under the
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contingent value obligation. You also will recognize capital gain or loss on the
sale or other taxable disposition equal to the difference between (1) the amount
you realize on the sale or other disposition, reduced by the portion treated as
interest income, and (2) your adjusted tax basis in the contingent value
obligation.
CP&L Energy and Florida Progress do not intend to seek a ruling from
the Internal Revenue Service concerning the federal income tax treatment of the
contingent value obligations. THE INTERNAL REVENUE SERVICE COULD TAKE THE
POSITION THAT THE CONTINGENT VALUE OBLIGATIONS ARE "DEBT INSTRUMENTS" FOR
FEDERAL INCOME TAX PURPOSES. THE CONSEQUENCES TO YOU OF THAT TAX TREATMENT,
WHICH ARE DESCRIBED IN THE NEXT PARAGRAPH, GENERALLY WOULD BE LESS FAVORABLE
THAN THE CONSEQUENCES DESCRIBED ABOVE.
If the contingent value obligations were treated as debt instruments,
you could be required to recognize interest income in each taxable year in which
you hold a contingent value obligation, whether or not you receive any payment.
The total amount of the interest income (subject to adjustment when you receive
a payment or dispose of the contingent value obligation) would equal the excess
of the amounts projected to be paid on the contingent value obligation, based on
an assumed yield, over its fair market value on the date of the share exchange.
You would be required to recognize interest income annually as it accrued on the
contingent value obligation under a constant yield method. If a payment under
the contingent value obligation exceeded the projected amount of the payment,
the excess would be treated as additional interest income. If a payment were
less than the projected amount, the deficiency would reduce the amount of
interest income on the contingent value obligation in the taxable year you
received the payment.
POTENTIAL BACKUP FEDERAL INCOME TAX WITHHOLDING FROM PAYMENTS TO
FLORIDA PROGRESS SHAREHOLDERS. The payment of the exchange consideration and any
payments under the contingent value obligations to you generally will be subject
to backup federal income tax withholding at a rate of 31% unless you provide a
properly completed IRS Form W-9 to the payor or otherwise establish an exemption
from such backup withholding. An IRS Form W-9 or substitute Form W-9 will be
provided to you when you receive instructions for submitting your certificates
of Florida Progress common stock. Any amounts withheld as backup withholding tax
will be allowable as a refund or credit against your federal income tax
liability.
TAX CONSEQUENCES OF THE SHARE EXCHANGE TO CP&L ENERGY SHAREHOLDERS. The
share exchange and contingent value obligations will not have any federal income
tax consequences for you.
PROCEDURES FOR SHAREHOLDER ELECTIONS
CP&L Energy has appointed _________________ as exchange agent in
connection with the share exchange. Immediately before the time the share
exchange becomes effective, CP&L Energy will deposit with the exchange agent in
trust for the benefit of Florida Progress shareholders certificates representing
shares of CP&L Energy common stock and the cash to be issued or paid under the
allocation rules described below. In accordance with the allocation procedures,
record holders of Florida Progress common stock as of the record date for
elections will be entitled to:
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- elect to receive for each share of Florida Progress common
stock either cash consideration or stock consideration, or
- indicate no preference between cash consideration or stock
consideration.
Florida Progress shareholders will receive one contingent value
obligation for each share of Florida Progress common stock they own without
regard to any election made or any allocation or proration procedures.
Shares of Florida Progress common stock in respect of which no
preference between cash consideration and stock consideration is indicated, or
as to which no election is properly made before the election deadline, are
referred to as "NON-ELECTION SHARES." Failure to return a properly completed
election form before the election deadline could result in your receiving
exchange consideration consisting of 100% cash or 100% shares of CP&L Energy
common stock or some combination of cash and shares to be determined by CP&L
Energy under the agreement and plan of exchange, in addition to any contingent
value obligations to be received for your shares of Florida Progress common
stock.
All Florida Progress shareholder elections will be made on the election
form that will be provided to record holders of Florida Progress shares (as of a
record date as close as practicable to the date the election form is mailed and
mutually agreeable to Florida Progress and CP&L Energy) after the special
meeting and at least 30 and no more than 90 days before the anticipated day of
the closing of the share exchange. The exchange agent will use its best efforts
to make an election form available to all persons who become holders of record
of Florida Progress common stock between the record date and the election
deadline. To be effective, an election form must be:
- properly completed and signed;
- accompanied by the certificates for the shares of Florida
Progress common stock for which the election is being made,
duly endorsed in blank or otherwise acceptable for transfer on
the books of Florida Progress (or an appropriate guarantee of
delivery); and
- received by the exchange agent by no later than the election
deadline, which is 5:00 p.m., New York City time, on the
second business day immediately preceding the closing of the
share exchange.
Florida Progress shareholders SHOULD NOT forward their certificates to
the exchange agent or Florida Progress until they have received a form of
election. Florida Progress shareholders SHOULD NOT return certificates with the
enclosed proxy.
CP&L Energy (and, at CP&L Energy's option, the exchange agent) will
have the discretion to determine whether forms of election have been properly
completed, signed and submitted or revoked, and to disregard defects in the
forms of election.
Elections may be revoked or amended upon written notice to the exchange
agent before the election deadline. If a holder fails to submit an effective
election form before the election deadline
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or revokes the election form and does not properly resubmit the form, the
holder's shares will be deemed Non-Election Shares.
In the event that any stock certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate to have been lost, stolen or destroyed and, if required by CP&L
Energy, the posting of a bond in a reasonable amount determined by CP&L Energy
as indemnity against any claim that may be made against it with respect to the
certificate, the exchange agent will issue in exchange for the lost, stolen or
destroyed certificate the share exchange consideration and any cash payable and
related unpaid dividends or other distributions upon due surrender of, and
deliverable in respect of, Florida Progress common stock represented by the
certificate.
ALLOCATION RULES
The aggregate total number of shares of Florida Progress common stock
to be converted into the right to receive cash consideration in the share
exchange will be equal to 65%, and the number of shares of Florida Progress
common stock to be converted into the right to receive stock consideration in
the share exchange will be equal to 35%, in each case of the total number of
shares of Florida Progress common stock issued and outstanding immediately
before the effective time of the share exchange. Florida Progress shareholders
will receive one contingent value obligation for each share of Florida Progress
common stock they own without regard to any allocation or proration procedures.
BECAUSE OF THE LIMITATIONS ON THE NUMBER OF SHARES OF FLORIDA PROGRESS
COMMON STOCK TO BE EXCHANGED FOR THE RIGHT TO RECEIVE CASH CONSIDERATION AND
STOCK CONSIDERATION UNDER THE ELECTION AND ALLOCATION PROCEDURES DESCRIBED IN
THIS JOINT PROXY STATEMENT/PROSPECTUS, NO ASSURANCE CAN BE GIVEN THAT HOLDERS OF
FLORIDA PROGRESS COMMON STOCK WILL RECEIVE THE FORM OF CASH OR STOCK
CONSIDERATION THEY HAVE ELECTED TO RECEIVE.
ALLOCATION OF CASH AVAILABLE FOR ELECTION. The plan of share exchange
provides that 65% of the aggregate number of shares of Florida Progress common
stock issued and outstanding immediately before the effective time of the share
exchange will be converted into cash consideration (the "CASH ELECTION NUMBER").
In the event that the aggregate number of shares of Florida Progress common
stock in respect of which cash elections are received ("CASH ELECTION SHARES")
is greater than 65% of the aggregate number of shares of Florida Progress common
stock issued and outstanding immediately before the effective time of the share
exchange, then:
(1) all Stock Election Shares (as defined below) and all
Non-Election Shares will be exchanged for CP&L Energy stock
and cash in lieu of fractional shares;
(2) a number of Cash Election Shares equal to the Cash Election
Number will be exchanged for cash, which will be prorated
among Florida Progress shareholders who elected to receive
cash; and
(3) the remaining Cash Election Shares not exchanged for cash
under subparagraph (2) above will be exchanged for CP&L Energy
stock and cash in lieu of fractional
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shares, which will be prorated among Florida Progress
shareholders who elected to receive cash.
ALLOCATION OF CP&L ENERGY COMMON STOCK AVAILABLE FOR ELECTION. The
agreement and plan of exchange provides that 35% of the aggregate number of
shares of Florida Progress common stock issued and outstanding immediately
before the effective time of the share exchange will be converted into stock
consideration (the "STOCK ELECTION NUMBER"). In the event that the aggregate
number of shares of Florida Progress common stock in respect of which stock
elections are received ("STOCK ELECTION SHARES") is greater than 35% of the
aggregate number of shares of Florida Progress common stock issued and
outstanding immediately before the effective time of the share exchange, then:
(1) all Cash Election Shares and all Non-Election Shares will be
exchanged for the right to receive cash consideration;
(2) a number of Stock Election Shares will be exchanged for cash
consideration, determined by multiplying the number of Stock
Election Shares by a fraction, (A) the numerator of which is
the Cash Election Number less the number of Cash Election
Shares and Non-Election Shares and (B) the denominator of
which is the aggregate number of Stock Election Shares,
rounded down to the nearest whole number, which will be
prorated among Florida Progress shareholders who elected to
receive stock; and
(3) all Stock Election Shares not exchanged for cash consideration
in accordance with clause (2) above will be exchanged for the
right to receive stock consideration and cash in lieu of
fractional shares, which will be prorated among Florida
Progress shareholders who elected to receive stock.
NO ALLOCATION. In the event that the number of Cash Election Shares is
65% or less of the aggregate number of shares of Florida Progress issued and
outstanding immediately before the effective time of the share exchange, and the
number of Stock Election Shares is 35% or less of the aggregate number of shares
of Florida Progress issued and outstanding immediately before the effective time
of the share exchange, then:
(1) all Cash Election Shares will be exchanged for the right to
receive cash;
(2) all Stock Election Shares will be exchanged for the right to
receive CP&L Energy common stock and cash in lieu of
fractional shares; and
(3) all Non-Election Shares will be exchanged for the right to
receive cash or CP&L Energy common stock and cash in lieu of
fractional shares to the extent necessary to make the total
number of shares exchanged for CP&L Energy common stock and
cash in lieu of fractional shares approximate 35% of the
issued and outstanding shares of Florida Progress common stock
immediately before the effective time of the share exchange,
and the total number of shares exchanged for cash approximate
65% of the issued and outstanding shares of Florida Progress
common stock immediately before the effective time of the
share exchange.
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ILLUSTRATION OF POTENTIAL EFFECTS OF ALLOCATION PROCEDURES. The tables
below illustrate the potential effects of the allocation procedures described
above on a holder of 100 shares of Florida Progress common stock who elects, (1)
in the case of Table 1, to receive stock consideration with respect to all 100
shares and (2) in the case of Table 2, to receive cash consideration with
respect to all 100 shares. Both tables assume an exchange ratio of 1.4543 based
on the assumption that the Average Closing Price is $36.278. THE TABLES SET
FORTH BELOW ARE FOR PURPOSES OF ILLUSTRATION ONLY, AND ARE BASED ON THE
ASSUMPTIONS DESCRIBED IN THE TABLES AND ELSEWHERE UNDER "ALLOCATION RULES." THE
ACTUAL AMOUNTS OF STOCK CONSIDERATION AND/OR CASH CONSIDERATION TO BE RECEIVED
BY A FLORIDA PROGRESS SHAREHOLDER MAY DIFFER BASED ON THE ACTUAL EXCHANGE RATIO
AND THE ACTUAL ELECTIONS MADE BY ALL FLORIDA PROGRESS SHAREHOLDERS IN THE
AGGREGATE. THE TABLES EXCLUDE ANY VALUE ATTRIBUTABLE TO THE CONTINGENT VALUE
OBLIGATIONS.
TABLE 1*
ILLUSTRATION OF POTENTIAL EFFECTS OF ALLOCATION PROCEDURES
ON A HOLDER OF 100 SHARES OF FLORIDA PROGRESS COMMON STOCK WHO
MAKES A STOCK ELECTION WITH RESPECT TO ALL 100 SHARES
<TABLE>
<CAPTION>
COLUMN 1: COLUMN 2: COLUMN 3: COLUMN 4: COLUMN 5: COLUMN 6:
PERCENTAGE
OF ALL SHARES NUMBER OF SHARES NUMBER OF SHARES NUMBER OF
OF FLORIDA PROGRESS OF FLORIDA PROGRESS OF FLORIDA PROGRESS CP&L ENERGY AMOUNT
COMMON STOCK COMMON STOCK COMMON STOCK SHARES RECEIVED OF CASH
MAKING STOCK EXCHANGE ALLOCATED TO CASH ALLOCATED TO STOCK AS STOCK CONSIDERATION
ELECTIONS(1) RATIO CONSIDERATION(2) CONSIDERATION(3) CONSIDERATION(4) RECEIVED(5)
------------ ----- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
25% 1.4543 0 100 145 $ 0.00
35% 1.4543 0 100 145 $ 0.00
50% 1.4543 30 70 101 $1,620.00
75% 1.4543 53 47 68 $2,862.00
85% 1.4543 58 42 61 $3,132.00
100% 1.4543 65 35 50 $3,510.00
</TABLE>
- ---------------
*This table assumes all Non-Election Shares and Cash Election Shares are
exchanged for the right to receive cash consideration in accordance with the
allocation procedures described above. This table excludes the contingent value
obligations.
(1) For any percentage equal to or below 35%, all of that holder's shares
of Florida Progress common stock would be exchanged for stock
consideration.
(2) Calculated by dividing the excess of the Cash Election Number over the
sum of all Cash Election Shares and Non-Election Shares by the number
of Stock Election Shares, and multiplying by 100 shares.
(3) Calculated by subtracting the number of shares in column 3 from 100.
(4) Calculated by multiplying the assumed exchange ratio in column 2 by the
number of shares of Florida Progress common stock allocated to stock
consideration in column 4 and excluding any fractional shares (in lieu
of which cash will be paid).
(5) Calculated by multiplying the number of shares of Florida Progress
common stock allocated to cash consideration in column 3 by $54.00.
Payments in respect of fractional shares are not taken into account in
the table but would be paid in cash.
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TABLE 2*
ILLUSTRATION OF POTENTIAL EFFECTS OF ALLOCATION PROCEDURES
ON A HOLDER OF 100 SHARES OF FLORIDA PROGRESS COMMON STOCK WHO MAKES
A CASH ELECTION WITH RESPECT TO ALL 100 SHARES
<TABLE>
<CAPTION>
COLUMN 1: COLUMN 2: COLUMN 3: COLUMN 4: COLUMN 5: COLUMN 6:
PERCENTAGE
OF ALL SHARES NUMBER OF SHARES NUMBER OF SHARES NUMBER OF
OF FLORIDA PROGRESS OF FLORIDA PROGRESS OF FLORIDA PROGRESS CP&L ENERGY AMOUNT
COMMON STOCK COMMON STOCK COMMON STOCK SHARES RECEIVED OF CASH
MAKING CASH EXCHANGE ALLOCATED TO CASH ALLOCATED TO STOCK AS STOCK CONSIDERATION
ELECTIONS(1) RATIO CONSIDERATION(2) CONSIDERATION(3) CONSIDERATION(4) RECEIVED(5)
------------ ----- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
50% 1.4543 100 0 0 $5,400.00
65% 1.4543 100 0 0 $5,400.00
75% 1.4543 86 14 20 $4,644.00
85% 1.4543 76 24 34 $4,104.00
100% 1.4543 65 35 50 $3,510.00
</TABLE>
- ---------------
*This table assumes all Non-Election Shares and Stock Election Shares are
exchanged for the right to receive stock consideration in accordance with the
allocation procedures described above. This table excludes the contingent value
obligations.
(1) For any percentage equal to or below 65%, all of that Florida Progress
shareholder's common stock would be exchanged for cash consideration.
(2) Calculated by dividing the cash election threshold of 65% by the
percentages in column 1 and multiplying by 100 shares.
(3) Calculated by subtracting the number of shares in column 3 from 100.
(4) Calculated by multiplying the assumed exchange ratio in column 2 by the
number of shares of Florida Progress common stock allocated to stock
consideration in column 4 and excluding any fractional shares (in lieu
of which cash will be paid).
(5) Calculated by multiplying the number of shares of Florida Progress
common stock allocated to cash consideration in column 3 by $54.00.
Payments in respect of fractional shares are not taken into account in
the table but would be paid in cash.
Upon surrender of each certificate representing shares of Florida
Progress common stock, the exchange agent will pay to the holder of that
certificate, as soon as practicable after the effective time of the share
exchange, the exchange consideration, including cash instead of fractional
shares, and that certificate will then be canceled. At the effective time of the
share exchange, certificates representing shares of Florida Progress common
stock will represent solely the right to receive the exchange consideration,
including cash instead of fractional shares. No interest will be paid or accrue
on the exchange consideration.
No dividends or other distributions declared or made after the
effective time of the share exchange with respect to shares of CP&L Energy
common stock will be paid to the holder of any unsurrendered certificate with
respect to those shares of CP&L Energy common stock until the holder of the
certificate surrenders the certificate in accordance with the provisions of the
plan of share exchange.
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At the effective time of the share exchange, all shares of Florida
Progress common stock that are owned by Florida Progress or any subsidiary of
Florida Progress will cease to be outstanding, will be canceled and retired
without payment of any consideration for those shares and will cease to exist.
Promptly after the share exchange is completed, the exchange agent will
mail to each Florida Progress shareholder who failed to return a properly
completed election form before the election deadline, a letter of transmittal
and instructions for use in surrendering Florida Progress certificates. Failure
to return a properly completed election form before the election deadline could
result in your receiving exchange consideration consisting of 100% cash or 100%
shares of CP&L Energy common stock or some combination of cash and shares to be
determined by CP&L Energy under the agreement and plan of exchange, in addition
to the contingent value obligations to be received for your shares of Florida
Progress common stock. Delivery of Florida Progress certificates will be
effected, and risk of loss and title to Florida Progress certificates will pass,
only upon proper delivery of the Florida Progress certificates to the exchange
agent.
If registration or delivery of CP&L Energy common stock is to be made
to a person other than the person in whose name the Florida Progress certificate
surrendered is registered, the Florida Progress 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 share exchange is completed, Florida Progress will not
recognize any transfers on the stock transfer books of Florida Progress of the
shares of Florida Progress. If, after the share exchange is completed, Florida
Progress certificates are presented to CP&L Energy for transfer, they will be
canceled and exchanged for shares of CP&L Energy common stock, any applicable
cash payments and contingent value obligations.
Any shares of CP&L Energy common stock, cash received by the exchange
agent (whether for payments of fractional shares or for payment of accrued
dividends and other distributions on shares of CP&L Energy common stock), and
the contingent value obligations that remain unclaimed by the former Florida
Progress shareholders six months after the effective time will be delivered by
the exchange agent to CP&L Energy. After this time, Florida Progress
shareholders who have not delivered their Florida Progress certificates may look
only to CP&L Energy for satisfaction of their claim for the exchange
consideration due to them, without any interest on the exchange consideration.
Neither CP&L Energy nor Florida Progress will be liable to any Florida Progress
shareholders for any shares of CP&L Energy common stock or cash payments
delivered to a public official under any applicable abandoned property, escheat
or similar law.
CP&L Energy and the exchange agent will be entitled to deduct and
withhold from the consideration otherwise payable to any Florida Progress
shareholder under the plan of share exchange any amount that CP&L Energy 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
Florida Progress shareholder.
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CONFLICTS OF INTEREST
In considering the recommendation of the Florida Progress board of
directors with respect to the agreement and plan of exchange, shareholders
should be aware that several officers and directors of Florida Progress have
interests in the share exchange that are in addition to, or different from, the
interests of shareholders of Florida Progress generally. The Florida Progress
board of directors was aware of these interests and considered them along with
other matters in recommending that Florida Progress shareholders vote to approve
the agreement and plan of exchange, including the related plan of share
exchange.
CP&L ENERGY BOARD OF DIRECTORS
The agreement and plan of exchange provides that at the effective time,
the CP&L Energy board of directors will consist of 14 directors, ten of whom
will be designated by CP&L Energy and four of whom will be designated by Florida
Progress from the Florida Progress board of directors, and acceptable to CP&L
Energy, before the effective time. One of the persons to be designated by
Florida Progress for the CP&L Energy board of directors will be Mr. Korpan, the
current Chairman, President and Chief Executive Officer of Florida Progress.
CP&L Energy will place Mr. Korpan and the three other directors designated by
Florida Progress among the three classes of directors of CP&L Energy so that, to
the extent possible, there are a proportionate number of Florida Progress and
Carolina Power & Light designees in each class.
Under the letter agreement, dated August 19, 1999, Carolina Power &
Light agreed that, following the initial terms, the Florida Progress designees,
will be re-nominated to the CP&L Energy board of directors if they are
interested in continuing to serve, meet the requirements of the CP&L Energy
bylaws, and their performance and contributions have been satisfactory to the
other members of the board. The policy statement of the CP&L Energy Governance
Committee will recognize that representation of Florida interests is important
to the combined company. The CP&L Energy Governance Committee will make the
initial assessment of whether new or existing directors shall be nominated for
the CP&L Energy board of directors; their assessment will be then reviewed by
the entire CP&L Energy board of directors. One director designated by Florida
Progress will sit on the Governance Committee to participate in this review
process.
FLORIDA PROGRESS PHANTOM STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
Non-employee directors of Florida Progress participate in a phantom
stock plan maintained by Florida Progress. The plan provides that in the event
of a change in control of Florida Progress, all unvested phantom stock awards
become immediately vested and participating directors receive lump sum cash
payments equal to the value of all of their phantom stock units. Consummation of
the share exchange would constitute a change in control for purposes of the
plan. As of the date of the agreement and plan of exchange, a total of eight
non-employee directors have been awarded a total of 19,200 phantom stock units,
the value of which at $54 per share including dividend equivalents is
approximately $1,100,000. It is expected that a total of an additional 1,800
phantom stock units will be awarded to a total of three non-employee directors
if they are re-elected at the Florida Progress 2000 annual meeting of
shareholders.
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FLORIDA PROGRESS CHANGE IN CONTROL AGREEMENTS
Florida Progress has change in control agreements with Mr. Korpan, five
Florida Progress executive officers ((1) Joseph H. Richardson, Group Vice
President, Utility Group, (2) Richard D. Keller, Group Vice President, Energy
and Transportation Group, (3) Edward W. Moneypenny, Senior Vice President and
Chief Financial Officer, (4) Kenneth E. Armstrong, Vice President and General
Counsel, and (5) William G. Kelley, Vice President, Human Resources) and twenty
other corporate officers. The purpose of the agreements is to assure the
objective judgment and to retain the loyalty of these individuals in the event
of a change in control of Florida Progress. For purposes of the agreements, the
execution of the agreement and plan of exchange constituted a potential change
in control and the consummation of the share exchange would constitute a change
in control and the beginning of the employment period covered by the agreements.
With the exception of Mr. Moneypenny, who entered into his agreement
upon hire in the first quarter of 1999, each of the executive officers entered
into his agreement in January of 1998. Mr. Korpan's and Mr. Richardson's
agreements were amended in August of 1999 to increase the percentage of
long-term incentive compensation based severance that would be paid out in the
event of termination of employment. Otherwise, the agreements have remained
unmodified since their execution.
The exact terms of the change in control agreements vary, but generally
fit within three categories. Generally, the agreements provide that, while
employed following a change in control, the officers are entitled to
compensation and benefits at least equal to the compensation and benefits they
were receiving before the change in control. Severance benefits would be
provided under the agreements if the individual's employment were to be actually
or constructively terminated within the period ending 36 months after the
consummation of the share exchange. Additionally, severance benefits could be
provided before the consummation of the share exchange if the termination or
constructive termination were shown to be related to the share exchange.
Finally, severance benefits are provided following termination of employment for
any reason during the 13th month following the consummation of the share
exchange. Severance benefits to which the officers would be entitled include the
following:
- a cash payment equal to two, two and one half, or three times
the individual's annual base salary and annual bonus;
- payout in cash at between 150% and 300% of the number of
shares or units granted under the long-term incentive plans
described below less any amounts paid upon consummation of the
share exchange as provided under the long-term incentive
plans;
- credit for three or five additional years of service, not to
exceed the maximum, under the Florida Progress Supplemental
Executive Retirement Plan;
- continuation of welfare benefits comparable to those in place
before the change in control for 24, 30 or 36 months following
termination, with lifetime access to medical insurance at the
individual's expense thereafter;
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- reimbursement of relocation expenses incurred within 24, 30 or
36 months of termination and not covered by another employer,
not to exceed $10,000; and
- reimbursement for reasonable legal fees and disbursements
related to the taxation of payments made to the individual,
not to exceed $15,000.
The agreements also provide for an additional payment, if required, to
make the individuals whole for any excise tax imposed under Section 4999 of the
Internal Revenue Code.
In addition to a change in control agreement, Mr. Korpan has an
employment agreement with Florida Progress which provides that if a payment or
benefit is payable under both the employment agreement and the change in control
agreement, the payment or benefit will be payable to the maximum extent under
either, but not both, of those agreements. The employment agreement provides
severance benefits equal to three times the sum of his annual base salary and
target annual bonus and payment of the number of shares equal to the target
award he could have earned for each uncompleted performance cycle under the
Florida Progress long-term incentive plan, plus the number of shares earned and
not yet paid out for any performance cycle that has been completed. The
employment agreement was amended in August 1999 to provide that if Mr. Korpan's
employment were to terminate as a result of a change in control, his total
retirement benefit would be at a level comparable to his retirement benefit
based on a minimum average annual compensation of $1.2 million.
The total amount that would be payable upon termination or constructive
termination to executive officers of Florida Progress and other corporate
officers in connection with the share exchange under the change in control
agreements and Mr. Korpan's employment agreement would be material. It is
anticipated that if the share exchange is consummated, Mr. Korpan's employment
will be terminated and he will become entitled to severance benefits and Mr.
Richardson will continue with Florida Power. It is not known which other
individuals, if any, will receive severance benefits under their change in
control agreements.
Assuming, solely for purposes of illustration, that all six Florida
Progress executive officers and the twenty other corporate officers with change
in control agreements received severance benefits under the agreements on
September 30, 2000, it is presently estimated that the aggregate cash payments
that would be made under their agreements would be approximately $25.4 million
for the payments based on annual base salary and annual bonus and approximately
$40.3 million for the payments based on the long-term incentive plan grants.
Assuming the share exchange also occurred at the time of severance on September
30, 2000, $29.0 million of the $40.3 million would be paid at the time of the
share exchange under the change in control provisions of the long-term incentive
plans and the remaining $11.3 million would be paid as severance under the
change in control agreements. A breakdown of the cash severance benefits payable
to the six executive officers based on the above assumption is as follows:
(1) Mr. Korpan, three times annual base salary and actual or
target annual bonus ($4.2 million) and the cash value of 200%
of the number of shares granted under the long-term incentive
plan (approximately $10.8 million, of which $8.1 million would
have been paid under the change in control provisions of the
long-term incentive plan);
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(2) Mr. Richardson, three times annual base salary and actual or
target annual bonus ($2.5 million) and the cash value of 275%
of the number of shares granted under the long-term incentive
plan (approximately $5.5 million, of which $3 million would
have been paid under the change in control provisions of the
long-term incentive plan);
(3) Mr. Keller, three times annual base salary and actual or
target annual bonus ($2 million) and the cash value of 275% of
the number of shares granted under the long-term incentive
plan (approximately $5.5 million, of which $3 million would
have been paid under the change in control provisions of the
long-term incentive plan);
(4) Mr. Moneypenny, two and one-half times annual base salary and
actual or target annual bonus ($1.3 million) and the cash
value of 150% of the number of shares granted under the
long-term incentive plan (approximately $1.3 million, all of
which would have been paid under the change in control
provisions of the long-term incentive plan);
(5) Mr. Armstrong, two and one-half times annual base salary and
actual or target annual bonus ($931,000) and the cash value of
150% of the number of shares granted under the long-term
incentive plan (approximately $756,000, all of which would
have been paid under the change in control provisions of the
long-term incentive plan); and
(6) Mr. Kelley, two and one-half times annual base salary and
actual or target annual bonus ($762,500) and the cash value of
150% of the number of shares granted under the long-term
incentive plan (approximately $729,500, all of which would
have been paid under the change in control provisions of the
long-term incentive plan).
In addition, the six executive officers named above, as well as the 20 other
corporate officers with change of control agreements, would be entitled to the
non-cash severance benefits referenced above as well as additional payments, if
required, to make them whole for any excise taxes they incur as a result of
Section 4999 of the Internal Revenue Code.
LONG-TERM INCENTIVE PLANS
All of the 26 officers with change in control agreements also
participate in long-term incentive plans maintained by Florida Progress and its
subsidiaries. The consummation of the share exchange would constitute a change
in control for purposes of these plans. Under these plans, in the event of a
change in control of Florida Progress, 150% of all performance shares or units
granted under the plans and then outstanding would automatically be considered
earned and would be payable in cash or shares of unrestricted common stock,
together with cash or shares of unrestricted common stock payable for dividend
equivalents accrued through the date of the change in control. In connection
with the share exchange, Florida Progress has agreed, subject to the consent of
each participant, to pay its obligations in cash in the amount of $54.00 for
each nominal share of Florida Progress common stock to be awarded, instead of
actual shares of common stock. Amounts paid out under these plans at the time of
the share exchange would not be paid out under the change in control agreements
upon a subsequent termination of employment. Depending on when the share
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exchange is consummated, some of these grants may become vested in the ordinary
course of business and additional annual grants may be made.
As an additional feature of the Florida Progress long-term incentive
plan, under certain circumstances, including the achievement of stock ownership
guidelines upon normal conclusion of applicable cycles, beginning in 2000,
certain officers are entitled to a 25% restricted stock incentive bonus based on
the number of shares of common stock earned under each performance cycle of the
plan. The restricted stock vests over a 10-year period, but all shares would
vest immediately upon consummation of the share exchange and would be converted
into shares of unrestricted common stock. It is currently estimated that prior
to completion of the share exchange a total of approximately 53,000 shares of
restricted common stock will be issued to a total of 25 officers under this
feature of the plan.
INDEMNIFICATION
Under the agreement and plan of exchange, from and after the effective
time, Carolina Power & Light and CP&L Energy will cause Florida Progress to
maintain all rights of indemnification existing in favor of the directors and
officers of Florida Progress on terms no less favorable than those provided in
the articles of incorporation and bylaws of Florida Progress existing on August
22, 1999, with respect to matters occurring before the effective time.
In addition, Carolina Power & Light and CP&L Energy have agreed to
cause to be maintained in effect for six years from the effective time the
current policies for directors' and officers' liability insurance maintained by
Florida Progress with respect to matters occurring before the effective time, to
the extent this insurance is available to Carolina Power & Light and CP&L Energy
in the market. Carolina Power & Light and CP&L Energy may substitute for these
policies new policies of at least the same coverage containing terms and
conditions that are not less advantageous to Florida Progress' directors and
officers. However, if this insurance cannot be so maintained or obtained,
Carolina Power & Light shall maintain or obtain as much of this insurance as can
be so maintained or obtained at a cost equal to twice the current premium rate
of Carolina Power & Light's directors' and officers' liability insurance.
The agreements of Carolina Power & Light and CP&L Energy to maintain
these indemnification rights and insurance are in addition to any other rights
that the directors and officers of Florida Progress may have, including the
indemnification agreements which each officer and director has with Florida
Progress.
EMPLOYEE BENEFIT MATTERS
CP&L Energy shall cause Florida Progress to perform its obligations
under the then outstanding awards under the Florida Progress Long-Term Incentive
Plan and, subject to the consent of the individual plan participant, pay such
obligations in the cash amount of $54.00 for each nominal share of Florida
Progress common stock subject to these awards. CP&L Energy shall cause Florida
Progress to honor its obligations under all employment, severance, consulting,
retention and change in control agreements or arrangements and all Florida
Progress benefit plans. However, CP&L Energy and Florida Progress may continue
to exercise their rights with respect to these agreements and arrangements and
all Florida Progress benefit plans in accordance with their terms,
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including but not limited to, the right to alter, terminate or otherwise amend
these agreements and arrangements and Florida Progress benefit plans.
Florida Progress also has agreed to and has caused shares of Florida
Progress common stock issued under the Florida Progress Plus Stock Plan and the
Florida Progress Savings Plan to be shares acquired in the open market and not
newly issued shares.
HEADQUARTERS AND OTHER SIGNIFICANT OPERATING LOCATIONS
After the share exchange, we will locate the combined company's
corporate headquarters in Raleigh, North Carolina. Following the effective time
and to the extent consistent with prudent fiscal planning, CP&L Energy will
maintain a regional headquarters for the operations of Florida Power Corporation
in St. Petersburg, Florida.
EFFECTIVE TIME
The closing of the share exchange will take place at 10:00 a.m. local
time on the third business day following the date on which the conditions set
forth in the exchange agreement are satisfied or waived, or at any other time
that Carolina Power & Light, CP&L Energy and Florida Progress may mutually
agree. On the date of closing, CP&L Energy and Florida Progress will file the
articles of share exchange in accordance with Florida and North Carolina law and
will make all other filings or recordings required under Florida and North
Carolina law. The share exchange will become effective at the effective time
when the articles of share exchange become effective with the Department of
State of the State of Florida and the Secretary of State of the State of North
Carolina.
REGULATORY APPROVALS REQUIRED TO COMPLETE THE SHARE EXCHANGE
BEFORE WE COMPLETE THE SHARE EXCHANGE, WE MUST OBTAIN A NUMBER OF
REGULATORY APPROVALS. WHILE WE BELIEVE THAT WE WILL RECEIVE THE REQUISITE
REGULATORY APPROVALS AND CLEARANCES FOR THE SHARE EXCHANGE 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 TERMS OR OTHERWISE, OR THAT NO ACTION WILL BE BROUGHT
IN THE COURSE OF THE REGULATORY PROCEEDINGS CHALLENGING THE SHARE EXCHANGE OR
THE GOVERNMENTAL APPROVALS OR OTHER ACTIONS.
Completion of the share exchange is subject to obtaining regulatory
approvals on terms and conditions that may not reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or otherwise), results of operations or prospects of CP&L
Energy, Carolina Power & Light or Florida Progress. Under the agreement and plan
of exchange, Florida Progress, Carolina Power & Light and CP&L Energy have each
agreed to use all commercially reasonable efforts to obtain all consents,
acquiescences, authorizations, orders or approvals of, or any exemption or
non-opposition by any governmental authority required to complete the
transactions contemplated by the agreement and plan of exchange. Various parties
may oppose the share exchange or seek to have conditions imposed upon the
receipt of necessary approvals. While we believe that we will receive the
requisite regulatory approvals for the share
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exchange, we cannot give assurance as to timing or our ability to obtain the
required approvals on satisfactory terms.
ANTITRUST CLEARANCE
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
related rules and regulations prohibit Carolina Power & Light, CP&L Energy and
Florida Progress from completing the share exchange until Carolina Power &
Light, CP&L Energy and Florida Progress submit required information to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and specified Hart-Scott-Rodino Antitrust Improvements Act waiting period
requirements have been satisfied. Even after the Hart-Scott-Rodino Antitrust
Improvements Act waiting period expires or terminates, the Antitrust Division or
the Federal Trade Commission may later challenge the share exchange on antitrust
grounds. If the share exchange is not completed within 12 months after the
expiration or earlier termination of the initial Hart-Scott-Rodino Antitrust
Improvements Act waiting period, Carolina Power & Light, CP&L Energy and Florida
Progress would be required to submit new information to the Antitrust Division
and the Federal Trade Commission, and a new Hart-Scott-Rodino Antitrust
Improvements Act waiting period would begin. We intend to time the filing of our
premerger notifications under the Hart-Scott-Rodino Antitrust Improvements Act
so that the waiting period will expire or terminate within 12 months before the
anticipated closing date of the share exchange.
STATE APPROVALS
FLORIDA PROGRESS. Florida Power Corporation is subject to the
jurisdiction of the Florida Public Service Commission. Subject to the plenary
jurisdiction of the Florida Public Service Commission over the operations of
Florida Power Corporation, no filing or approval of the share exchange by the
Florida Public Service Commission is required by Florida law. We will continue
Florida Progress' practice of constructively working with the Florida Public
Service Commission regarding its ongoing jurisdiction over Florida Power.
Mid-Continent Life Insurance Company, an indirect subsidiary of Florida
Progress, is a life insurance company domiciled in the states of Oklahoma and
Texas. Florida Progress has announced its intention to divest Mid-Continent
Life. However, if Florida Progress does not divest Mid-Continent Life before the
closing of the share exchange, the applicable insurance regulatory authorities
in Oklahoma and Texas would be required to approve the indirect change of
control of Mid-Continent Life caused by the share exchange.
Effective December 31, 1997, Florida Progress established a provision
for loss on investment for the full amount of its investment in Mid-Continent
Life and, in December 1999, accrued a $10 million loss reserve as well as an
accrual for legal fees for pending litigation. Florida Progress deconsolidated
the accounts of Mid-Continent Life because it no longer records any assets of
Mid-Continent Life on its balance sheet and has made the above adjustments to
its balance sheet. Therefore, each of Salomon Smith Barney and Merrill Lynch,
assumed, for purposes of its opinion, that the divestiture would occur. Neither
Florida Progress nor CP&L Energy intends to request an updated opinion of its
financial advisor in light of the divestiture of Mid-Continent Life, should it
occur prior to the vote on the share exchange.
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CAROLINA POWER & LIGHT. Carolina Power & Light is subject to the
plenary jurisdiction of the North Carolina Utilities Commission and the Public
Service Commission of South Carolina. Carolina Power & Light must obtain the
approval of both state commissions to transfer control of Carolina Power & Light
to CP&L Energy. The approval of the North Carolina Utilities Commission of the
share exchange between CP&L Energy and Florida Progress must also be obtained.
On February 3, 2000, CP&L Energy filed an application with the North Carolina
Utilities Commission for authorization to engage in a business combination
transaction between CP&L Energy and Florida Progress and to issue common stock
without par value. Carolina Power & Light will continue its practice of
constructively working with the North Carolina Utilities Commission and the
Public Service Commission of South Carolina regarding each commission's ongoing
jurisdiction over Carolina Power & Light.
THE COMBINED COMPANY. Following the share exchange, the regulatory
authorities in all of the states where we have utility operations will retain
applicable authority over the rates and capital structure of the utilities and
affiliated interest transactions.
PUBLIC UTILITY HOLDING COMPANY ACT
In connection with the share exchange, CP&L Energy must obtain
Securities and Exchange Commission approval under Sections 9(a)(2) and 10 of the
Public Utility Holding Company Act. Section 9(a)(2) requires an entity owning,
directly or indirectly, 5% or more of the outstanding voting securities of a
public utility company to obtain the approval of the Securities and Exchange
Commission under Section 10 before acquiring a direct or indirect interest in 5%
or more of the voting securities of any additional public utility company. Since
the completion of the recent formation of a holding company for Carolina Power &
Light, CP&L Energy holds, directly, or indirectly, in excess of 5% of the voting
securities of two public utility companies, Carolina Power & Light and North
Carolina Natural Gas Corporation, and, in the share exchange, will be indirectly
acquiring the voting securities of Florida Power Corporation.
Under the applicable standards of the Public Utility Holding Company
Act, the Securities and Exchange Commission must determine whether:
- the share exchange would tend towards detrimental interlocking
relations or a detrimental concentration of control of public
utilities;
- the consideration to be paid in connection with the share
exchange is reasonable;
- the share exchange would unduly complicate the capital
structure or be detrimental to the proper functioning of CP&L
Energy's holding company system; or
- the share exchange would violate applicable state law, or be
detrimental to the carrying out of the integration provisions
of the Public Utility Holding Company Act.
In addition, under Section 10 of the Public Utility Holding Company
Act, to approve the share exchange, the Securities and Exchange Commission must
also find that the share exchange would serve the public interest because it
would tend toward the economical and efficient development of an integrated
public-utility system (in this case consisting of our combined electric
properties).
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Although CP&L Energy believes that it will obtain Securities and
Exchange Commission approval of the share exchange under the Public Utility
Holding Company Act on terms acceptable to Carolina Power & Light and CP&L
Energy, CP&L Energy cannot give assurances that the approval will be obtained,
and, if obtained, when it will be obtained or whether the terms of the approval
will ultimately be acceptable.
CP&L Energy and Florida Progress expect that after the completion of
the share exchange, CP&L Energy will have to register with the Securities and
Exchange Commission as a public utility holding company under the Public Utility
Holding Company Act.
The Public Utility Holding Company Act imposes a number of restrictions
on the operations of registered holding company systems. These restrictions
include a requirement that the Securities and Exchange Commission approve, in
advance, securities issuances, sales and acquisitions of utility assets or of
securities of utility companies and acquisitions of interests in other
businesses. The Public Utility Holding Company Act also limits the ability of
registered holding companies to engage in non-utility ventures and regulates
transactions between various affiliates within the holding company system,
including the provision of services by holding company affiliates to the
system's utilities. Although there can be no assurances, we believe that the
Securities and Exchange Commission will permit us to retain our current
non-utility businesses, including Florida Progress' subsidiary, Mid-Continent
Life Insurance Company, which we are requesting authorization to retain until it
can be divested pursuant to a rehabilitation plan approved by the Oklahoma
County district court. In addition, we plan to seek any Securities and Exchange
Commission approvals which we believe are necessary to allow the continued
growth of these businesses.
FEDERAL POWER ACT
The Federal Energy Regulatory Commission also must approve the share
exchange. Under the Federal Power Act, the Federal Energy Regulatory Commission
will approve a share exchange if it finds that share exchange is "consistent
with the public interest." In reviewing a share exchange, the Federal Energy
Regulatory Commission generally evaluates whether the share exchange will:
- adversely affect competition;
- adversely affect rates; and/or
- impair the effectiveness of regulation.
A joint application of CP&L Energy and Florida Progress requesting that the
Federal Energy Regulatory Commission approve the share exchange under the
Federal Power Act was filed on February 3, 2000. The joint application contained
commitments for Carolina Power & Light and Florida Power to
- divest 85 MW of generating capacity in the Carolinas and 50 MW
of generating capacity in Florida for six years after
consummation of the share exchange,
- join an independent regional transmission organization in
their regions to operate the combined company's transmission
facilities,
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- hold each of their wholesale requirements and transmission
customers harmless from any potential adverse rate effects
that might arise as a result of the share exchange, and
- adhere to policies adopted by the Federal Energy Regulatory
Commission with respect to non-power transactions among
affiliated entities within a registered public utility holding
company system.
Approval of the share exchange from the Federal Energy Regulatory Commission may
also be conditioned upon other requirements.
In connection with the share exchange application, we also submitted a Joint
Open Access Transmission Tariff under which transmission services and specified
ancillary services will be offered on a non-discriminatory basis over the
combined systems of Carolina Power & Light and Florida Power and a System
Integration Agreement providing for coordination of operations of Carolina Power
& Light and Florida Power. Those agreements are proposed to be made effective
upon consummation of the share exchange.
ATOMIC ENERGY ACT
Florida Power Corporation holds a Nuclear Regulatory Commission
operating license for its Crystal River nuclear generating facility. The
operating license authorizes Florida Power to own and operate the facility. The
Atomic Energy Act provides that a license may not be transferred or in any
manner disposed of, directly or indirectly, through transfer of control unless
the Nuclear Regulatory Commission finds that the transfer complies with the
Atomic Energy Act and consents to the transfer. On January 31, 2000 we filed
appropriate applications with the Nuclear Regulatory Commission seeking approval
of the change of control of Florida Power resulting from the share exchange and
to reflect the fact that after the share exchange, although continuing to own
and operate the Crystal River facility, Florida Power will become an operating
company subsidiary of the combined company.
FEDERAL COMMUNICATIONS COMMISSION
The Federal Communications Commission must approve the transfer of
control of telecommunications permits or licenses. The Communications Act of
1934 prohibits the transfer, assignment or disposal in any manner of any
construction permit or station license, or any rights thereunder, to any person
without authorization from the Federal Communications Commission. In addition, a
carrier must obtain permission before acquisition or operation of new lines and
may not construct or extend a line, or transmit via such lines, without prior
Federal Communications Commission approval. Under the Communications Act, the
Federal Communications Commission will approve a transfer of control if it
serves the public convenience, interest and necessity. We will seek the
necessary approval from the Federal Communications Commission for the transfer
of control of licenses held by both Florida Power and Progress
Telecommunications Corporation and amend licenses and tariffs as appropriate.
In accordance with the Public Utility Holding Company Act and the
Telecommunications Act of 1996, a registered public utility holding company
system may enter the telecommunications
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market without prior approval from the Securities and Exchange Commission,
through entities determined by the Federal Communications Commission to be
exempt telecommunications companies. We will seek a determination from the
Federal Communications Commission that Progress Telecommunications Corporation
and Interpath Communications, Inc. are exempt telecommunications companies.
OTHER APPROVALS AND FILINGS
In addition to the above-described approvals, the consent or approval
of numerous third parties is required. At this time, we do not anticipate any
difficulties in obtaining consents of third parties. If difficulties do arise,
Florida Progress, Carolina Power & Light and CP&L Energy may negotiate a
mutually acceptable alternative to the structure of the share exchange.
Florida Progress, Carolina Power & Light and CP&L Energy possess
municipal franchises and environmental permits and licenses that may need to be
renewed or replaced as a result of the share exchange. We do not anticipate any
difficulties at the present time in obtaining these renewals or replacements.
OTHER SIGNIFICANT CONDITIONS TO THE SHARE EXCHANGE THAT MUST BE FULFILLED OR
WAIVED
Completion of the share exchange is subject to other conditions. The
exchange agreement provides that each of CP&L Energy, Carolina Power & Light
and Florida Progress have duties to attempt to cause the conditions to be
satisfied. If all conditions are not satisfied or waived or capable of being
satisfied by December 31, 2000 (except if the only remaining condition to be
satisfied is the receipt of all governmental approvals, in which case this
deadline would be extended until June 30, 2001), either party may terminate
the exchange agreement unless the failure of the condition results from the
failure of that party to fulfill its obligations. See "--Termination of the
Agreement and Plan of Exchange; Termination Fee."
The obligations of each of CP&L Energy and Carolina Power & Light and
Florida Progress to complete the share exchange are subject to the satisfaction
of the following conditions:
- the approval of the amended and restated agreement and plan of
exchange, including the related plan of share exchange by the
Florida Progress shareholders;
- the approval of the issuance of additional shares of CP&L
Energy common stock in the share exchange by the CP&L Energy
shareholders;
- that there is no action by any court of competent jurisdiction
or governmental authority which prohibits the completion of
the share exchange;
- the registration statement, of which this joint proxy
statement/prospectus 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;
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- the expiration or termination of the waiting period applicable
to the share exchange under the Hart-Scott-Rodino Antitrust
Improvements Act;
- all approvals of, or filings with, any governmental authority
required in connection with the share exchange shall have been
obtained or made except for any filings to be made after the
effective time and where the failure to obtain any of these
approvals or make any of these filings may not reasonably be
expected to have a material adverse effect on Carolina Power &
Light or Florida Progress following the effective time; and
- that the shares of CP&L Energy common stock to be issued in
the share exchange have been approved for listing on the New
York Stock Exchange, subject to official notice of issuance.
The obligations of each of CP&L Energy and Carolina Power & Light and
Florida Progress to complete the share exchange are also subject to the
satisfaction or waiver of various other conditions specified in the exchange
agreement. For each party, the conditions include:
(1) since August 22, 1999, there has been no material
adverse effect on the business, operations, properties, assets,
condition (financial or otherwise), results of operations or
prospects of the other party, including its subsidiaries, taken as a
whole and there shall exist no fact or circumstance that may have or
may reasonably be expected to result in such a material adverse
effect;
(2) the other party's representations and warranties
set forth in the exchange agreement were true and correct when made
and as of the closing of the share exchange except
- to the extent those representations and warranties
speak as of a specified earlier date, or
- for failures of those representations and
warranties to be true and correct (without giving effect to any
materiality qualification in any of these representations or
warranties) which, in the aggregate, may not reasonably be expected
to have a material adverse effect on the business, operations,
properties, assets, condition (financial or otherwise), results of
operations or prospects of the other party and its subsidiaries,
taken as a whole;
(3) the performance by the other party, in all
material respects, of its agreements and covenants under the
exchange agreement; and
(4) each party shall have delivered to the other, a
certificate executed by a specified officer or officers, in form
satisfactory to counsel for the other party, certifying fulfillment
of the matters referred to in subparagraphs (1) through (3) above.
The obligation of Florida Progress to complete the share exchange is
also subject to the satisfaction or waiver of the condition that the Average
Closing Price shall not be less than $30.00,
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as adjusted to reflect any stock split, reverse stock split, stock dividend,
subdivision, reclassification, combination, exchange, recapitalization or
similar transaction. See "--Florida Progress `Walk-Away' Right." The obligation
of Florida Progress to complete the share exchange is also subject to
satisfaction or waiver of the condition that CP&L Energy and the trustee under
the contingent value obligation agreement shall have executed and delivered the
contingent value obligation agreement.
In addition, the obligation of CP&L Energy and Carolina Power & Light
to complete the share exchange is also subject to the satisfaction or waiver of
the condition that all consents, authorizations, orders, permits, and approvals
by any governmental authorities described in the agreement and plan of exchange
shall contain no terms that may reasonably be expected to have a material
adverse effect on the business, operations, properties, assets, condition
(financial or otherwise), results of operations or prospects of Carolina Power &
Light or Florida Progress.
REPRESENTATIONS AND WARRANTIES
The exchange agreement contains representations and warranties of
Florida Progress, Carolina Power & Light and CP&L Energy as to, among other
things:
- their respective organization and qualification;
- their respective capital structure;
- the authorization, execution, delivery, performance and
enforceability of the exchange agreement;
- the required statutory approvals for the exchange;
- the compliance with applicable laws and agreements;
- the required filings of reports and financial statements with
governmental authorities, the compliance of those reports and
filings with applicable requirements and the absence of
material misstatements or omissions from those reports and
filings and related matters;
- the absence of material adverse changes or events;
- the absence of material misstatements or omissions from the
information supplied for use in this joint proxy
statement/prospectus;
- the absence of material litigation;
- employee benefit and labor matters;
- tax matters;
- environmental compliance and liability;
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- the vote required to approve the agreement and plan of
exchange;
- utility regulatory status;
- the receipt of fairness opinions from financial advisors;
- the ownership of each other's common stock;
- the implementation of programs to ensure Year 2000
functionality and related matters; and
- nuclear and other operations.
The exchange agreement also contains representations and warranties by
Florida Progress as to insurance coverage of Florida Progress and its
subsidiaries and as to the non-applicability of provisions of Florida law and
its rights agreement to the share exchange and related matters. In addition, the
exchange agreement contains representations and warranties by Carolina Power &
Light and CP&L Energy as to the authorization, execution, delivery, performance
and enforceability of the contingent value obligation agreement.
COVENANTS OF EACH OF FLORIDA PROGRESS, CAROLINA POWER & LIGHT AND CP&L ENERGY;
CONDUCT OF BUSINESS BEFORE THE EFFECTIVE TIME
In the exchange agreement, Florida Progress has agreed that pending the
completion of the share exchange, it will conduct its operations in the ordinary
and usual course of business and consistent with past practice. Florida
Progress, on behalf of it and its subsidiaries, has also agreed to use its
commercially reasonable efforts to preserve intact their business organization,
assets and goodwill, to keep available the services of its officers and
employees (subject to prudent management of work force needs) and to maintain
satisfactory relationships with suppliers, contractors, distributors, customers
and others having material business relationships with them to the end that
their goodwill and ongoing businesses will not be impaired in any material
respect at the effective time.
FLORIDA PROGRESS COVENANTS. Florida Progress has agreed that, except as
otherwise provided in the agreement and plan of exchange, or by written consent
of Carolina Power & Light, it will be subject to customary restrictions for the
conduct of its business as to:
- dividends and distributions;
- changes in capital structure;
- acquisition or disposition of its own stock or other
securities;
- the Florida Progress shareholder rights plan;
- organizational documents;
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- acquisitions and other uses of funds, except that Florida
Progress has limited flexibility to make acquisitions;
- dispositions of assets;
- incurrence or guarantees of indebtedness;
- material contracts;
- capital expenditures;
- employee benefit plans and similar arrangements;
- tax matters;
- filings with governmental authorities;
- insurance;
- compensation and severance agreements and other arrangements
with directors and officers;
- changes in status under the Public Utility Holding Company
Act;
- accounting matters;
- payment or discharge of claims and liabilities; and
- negotiation of collective bargaining agreements.
Florida Progress also has agreed to use its commercially reasonable
efforts, subject to the right of the Florida Progress directors to act in
accordance with their fiduciary duties, to obtain the approval of the agreement
and plan of exchange by the Florida Progress shareholders.
During the period from August 22, 1999 to the effective time, Florida
Progress also agreed that its representatives would confer with Carolina Power &
Light's and CP&L Energy's representatives regularly and frequently to discuss
the general status of Florida Progress' ongoing operations.
Florida Progress must inform Carolina Power & Light and CP&L Energy of
any failure or anticipated failure to obtain any required third-party consents.
MUTUAL COVENANTS. The exchange agreement also contains other agreements
relating to the conduct of the parties before the effective time, including
those requiring the parties:
- to cooperate in the preparation of the CP&L Energy
registration statement and this joint proxy
statement/prospectus;
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<PAGE>
- to cooperate in preparing and filing applications for and
obtaining all necessary regulatory approvals;
- to use their commercially reasonable efforts to obtain all
required third-party consents;
- to refrain from issuing press releases regarding the share
exchange without the other party's prior approval, except as
otherwise required by applicable law, regulation or stock
exchange or trading system rule or regulation;
- to deliver to each other letters from their respective
accountants for use in connection with Securities and Exchange
Commission filings made in connection with the share exchange;
and
- to use their good faith efforts to expeditiously complete the
sale by Florida Progress to Carolina Power & Light of its
ownership interests in the two synthetic fuel plants on terms
and provisions customary for transactions of this nature and
as may be mutually satisfactory to Carolina Power & Light and
Florida Progress, subject to Carolina Power & Light's
satisfaction, in its sole discretion, with the results of its
due diligence of two synthetic fuel plants owned by
subsidiaries of Florida Progress.
Each party has agreed to advise the other of significant changes to it
or the occurrence of a change or event that has had or may be expected to have a
material adverse effect with respect to it.
Each party has agreed to provide the other with access to its
facilities and information, subject to each party's obligation of
confidentiality undertaken in connection with the exchange agreement.
CAROLINA POWER & LIGHT AND CP&L ENERGY COVENANTS. Carolina Power &
Light and CP&L Energy have also agreed to customary restrictions for the conduct
of their business as to:
- acquisitions,
- dispositions of a substantial portion of its assets, and
- taking other actions, such as entering into a new line of
business, encumbering shares of their capital stock or making
any change in their accounting methods,
unless the Carolina Power & Light or the CP&L Energy board of directors
concludes in good faith that any of the actions listed above may not reasonably
be expected to impose any material delay in obtaining material authorizations.
Carolina Power & Light and CP&L Energy have also agreed to other customary
restrictions as to:
- repurchases at a premium, recapitalizations, restructurings or
reorganizations of its capital stock, and
- extraordinary dividends or other extraordinary distributions.
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<PAGE>
In addition, CP&L Energy has agreed:
- to execute and deliver the contingent value obligation
agreement and to use its commercially reasonable efforts to
cause the trustee under that agreement to execute and deliver
the contingent value obligation agreement prior to the
effective time; and
- if the share exchange does not close before January 1, 2001,
to revise the contingent value obligation agreement to reduce
the $80 million preference amount for the year of closing to
reflect that the year of closing constitutes less than a full
year of operation, and other changes will be made to reflect
the change in timing.
FLORIDA PROGRESS MAY NOT SOLICIT ALTERNATIVE PROPOSALS
The exchange agreement provides that neither Florida Progress nor any
of its subsidiaries will, and it will cause its officers, directors, employees,
agents and representatives to not initiate, solicit or encourage any inquiries
or proposals regarding:
- any merger, acquisition, consolidation, reorganization, share
exchange, tender offer, exchange offer or similar transaction
involving Florida Progress or any of its significant
subsidiaries;
- any proposal or offer to acquire a substantial equity interest
in, or a substantial portion of the assets of, Florida
Progress or any of its significant subsidiaries;
nor will they provide any non-public information or data to, or have any
discussions with, any person relating to a transaction described above, or
otherwise facilitate any effort or attempt to make or implement a transaction
described above.
Florida Progress also agreed to terminate any existing activities
relating to other proposals and to notify Carolina Power & Light if any
inquiries and proposals for an alternative transaction, requests for
information, or attempts to initiate discussions are received by Florida
Progress.
At any time before the Florida Progress special meeting Florida
Progress or the Florida Progress board of directors may, to the extent required
for the Florida Progress directors to comply with their fiduciary duties to
Florida Progress shareholders imposed by law, as determined in good faith upon
advice of outside counsel, furnish information to and engage in discussions with
other parties, subject to:
- notifying Carolina Power & Light of the intentions of any
other party and Florida Progress;
- taking actions to ensure the confidentiality of information
provided to other parties;
- keeping Carolina Power & Light informed of the progress of any
discussions;
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<PAGE>
- in the event Florida Progress determines to accept an
alternative proposal, providing Carolina Power & Light with a
five-day period to make a counterproposal and considering in
good faith that counterproposal; and
- complying with legal requirements regarding disclosure of
contacts with other parties.
Nothing in the exchange agreement permits Florida Progress to enter
into any agreement (other than permitted confidentiality agreements) with
respect to an alternative proposal unless the exchange agreement is first or
simultaneously terminated in accordance with its terms. See "--Termination of
the Exchange Agreement; Termination Fee."
AMENDMENT AND WAIVER
The exchange agreement may be amended by action taken by both Carolina
Power & Light and Florida Progress at any time before or after approval of the
share exchange by the Florida Progress shareholders. After Florida Progress
shareholder approval, no amendment may be made that by law requires the further
approval of the Florida Progress shareholders without obtaining the required
Florida Progress shareholder approval. The agreement and plan of exchange may
not be amended except in a writing signed by both of the parties.
At any time before the effective time, either party may:
- extend the time for the performance by the other party;
- waive any inaccuracies in the representations and warranties
contained in the agreement and plan of exchange or in any
document delivered by the other party; or
- waive compliance by the other party with any of the agreements
or conditions contained in the agreement and plan of exchange.
Any extension or waiver will be valid only if stated in a writing signed by that
party.
TERMINATION OF THE EXCHANGE AGREEMENT; TERMINATION FEE
The agreement and plan of exchange may be terminated and the share
exchange may be abandoned in any of the following ways:
- by Florida Progress or Carolina Power & Light and CP&L Energy
if the Florida Progress shareholders do not approve the share
exchange or the CP&L Energy shareholders do not approve the
issuance of additional shares of CP&L Energy common stock;
- by mutual written consent of Florida Progress, Carolina Power
& Light and CP&L Energy;
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<PAGE>
- by Florida Progress or Carolina Power & Light and CP&L Energy,
if the share exchange has not occurred on or before December
31, 2000, but the right to terminate the exchange agreement
will not be available to a party whose failure to perform was
the reason for the delay. However, neither Florida Progress
nor Carolina Power & Light and CP&L Energy will be permitted
to terminate the exchange agreement under this provision until
June 30, 2001, if on December 31, 2000, all conditions other
than obtaining regulatory approvals have been satisfied or
waived or are capable of being satisfied;
- by Florida Progress if:
(1) there has been a breach by Carolina Power &
Light or CP&L Energy of any representation
or warranty made in the exchange agreement
that has had or may reasonably be expected
to have a material adverse effect on
Carolina Power & Light, and the breach has
not been cured within 20 business days
following receipt by Carolina Power & Light
or CP&L Energy of written notice of the
breach; or
(2) there has been a breach by Carolina Power &
Light or CP&L Energy of any covenant or
agreement made in the exchange agreement,
and the breach has not been cured within 20
business days following receipt by Carolina
Power & Light or CP&L Energy of written
notice of the breach;
- by Carolina Power & Light and CP&L Energy if:
(1) there has been a breach by Florida Progress
of any representation or warranty made in
the exchange agreement that has had or may
reasonably be expected to have a material
adverse effect on Florida Progress, and the
breach has not been cured within 20 business
days following receipt by Florida Progress
of written notice of the breach;
(2) there has been a breach by Florida Progress
of any covenant or agreement given in the
exchange agreement, which breach has not
been cured within 20 business days following
receipt by Florida Progress of written
notice of the breach; or
(3) the Florida Progress board of directors
fails to recommend or withdraws its
recommendation to the Florida Progress
shareholders that they approve the exchange
agreement;
- by Florida Progress if, before the Florida Progress special
meeting, another party has made a BONA FIDE proposal with
respect to the acquisition of all of Florida Progress'
outstanding capital stock or all or substantially all of
Florida Progress' assets, and:
(1) the Florida Progress board of directors
believes, in good faith after consultation
with its financial advisors, the proposal is
superior, from
110
<PAGE>
a financial point of view, to the
shareholders of Florida Progress than the
share exchange, and is more favorable
generally to the shareholders of Florida
Progress (taking into account all financial
and strategic considerations, including
relevant legal, financial, regulatory and
other aspects of the proposal, and the
conditions, prospects and time required for
completion of the proposal);
(2) the Florida Progress board of directors has
determined in good faith upon the advice of
outside counsel that it is required to
recommend the competing proposal to Florida
Progress shareholders to comply with its
fiduciary duty to its shareholders imposed
by law; and
(3) CP&L Energy has not made, within five
business days of receiving notice of the
competing proposal, an offer that the
Florida Progress board of directors
believes, in good faith after consultation
with its financial advisors, is at least as
favorable to Florida Progress' shareholders
as the competing proposal (taking into
account all financial and strategic
considerations, including relevant legal,
financial, regulatory and other aspects of
the proposal, and the conditions, prospects
and time required for completion of the
proposal); or
- by Florida Progress, Carolina Power & Light or CP&L Energy, 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 share exchange and that order,
decree, ruling or other action has become final and
nonappealable.
If the exchange agreement is terminated and the share exchange is not
completed, the obligations of the parties under the exchange agreement will
terminate, except for confidentiality obligations under the exchange agreement
and the termination and expense provisions of the exchange agreement.
Termination will not relieve any party from liability by reason of any breach of
any provision contained in the exchange agreement.
If Carolina Power & Light and CP&L Energy or Florida Progress
terminates the exchange agreement due to an uncured breach by the other party of
its representations and warranties or covenants and agreements (other than a
breach by Florida Progress of its agreement not to solicit alternative
proposals), 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 exchange agreement. In addition, the
non-breaching, terminating party may recover additional amounts at law or in
equity if the exchange agreement is terminated as a result of a willful breach
of a representation and warranty or covenant and agreement.
Florida Progress must pay CP&L Energy a termination fee of $150 million
plus out-of-pocket expenses and fees not to exceed $25 million if the agreement
and plan of exchange is terminated for the following reasons:
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<PAGE>
- Carolina Power & Light and CP&L Energy terminate the exchange
agreement because the share exchange has not been completed by
December 31, 2000, or by June 30, 2001 if the necessary
governmental approvals were not obtained by December 31, 2000,
and there shall have been a competing proposal that has not
been rejected by Florida Progress and its board of directors
and withdrawn by the party making the competing proposal;
- Florida Progress or Carolina Power & Light and CP&L Energy
terminate the exchange agreement because the Florida Progress
shareholders do not approve the share exchange and there shall
have been a competing proposal that shall not have been
rejected by Florida Progress and its board of directors and
withdrawn by the party making the competing proposal;
- Carolina Power & Light and CP&L Energy terminate the exchange
agreement because Florida Progress breaches its agreement not
to solicit alternative proposals, except for a breach that was
both inadvertent and promptly cured;
- Carolina Power & Light and CP&L Energy terminate the exchange
agreement because the Florida Progress board of directors
fails to recommend to its shareholders approval of the share
exchange or withdraws its recommendation to approve the
exchange agreement; or
- Florida Progress terminates the exchange agreement because
Florida Progress receives a competing proposal that the
Florida Progress board of directors believes to be superior
(taking into account all financial and strategic
considerations, including relevant legal, financial,
regulatory and other aspects of the proposal, and the
conditions, prospects and time required for completion of the
proposal) and CP&L Energy has not modified its proposal to be
at least as favorable within the allotted time.
FLORIDA PROGRESS SHAREHOLDER LAWSUIT REGARDING THE SHARE EXCHANGE
On September 27, 1999, Florida Progress and its directors were served
with a purported class action complaint, Case No. 99-6167CI-20, styled Lisa
Fruchter, on behalf of herself and all others similarly situated, v. Florida
Progress Corporation; Richard Korpan; Clarence V. McKee; Richard A. Nunis, Jean
Giles Wittner; Michael P. Graney; Joan D. Ruffier, Robert T. Stuart, Jr.; W.D.
Frederick; and Vincent J. Naimoli. The complaint was filed in the Circuit Court
of the 6th Judicial Circuit in and for Pinellas County, Florida on September 14,
1999. The complaint seeks class action status and injunctive relief (1)
declaring that the agreement and plan of exchange was entered into in breach of
the fiduciary duties of the Florida Progress board of directors, (2) enjoining
Florida Progress from proceeding with the share exchange, (3) rescinding the
agreement and plan of exchange, (4) enjoining any other business combination
until an auction is conducted to obtain the highest price possible for Florida
Progress, (5) directing the Florida Progress board of directors to commence such
an auction, and (6) awarding the class an unspecified amount of damages. The
complaint also seeks an award of costs and attorneys' fees. Florida Progress
believes this action is without merit and intends to vigorously defend this
action.
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UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION
On ______________, 2000, Carolina Power & Light common stock was
exchanged for CP&L Energy common stock on a one-for-one basis. The following pro
forma financial information should be read in conjunction with the consolidated
financial statements including the notes to the consolidated financial
statements of Carolina Power & Light and Florida Progress that are incorporated
by reference in this joint proxy statement/prospectus. The unaudited pro forma
information is presented for illustration purposes only in accordance with the
assumptions set forth below; is not necessarily indicative of the operating
results or financial position that would have occurred had the share exchange
been consummated; nor is it necessarily indicative of future operating results
or financial position of the combined enterprise. The unaudited pro forma
combined financial information does not contain any adjustments to reflect cost
savings or other benefits anticipated as a result of the share exchange and
integration of the companies, nor does it contain anticipated integration costs.
In addition, the unaudited pro forma combined financial information does not
reflect the potential effects of the contingent value obligations, described
elsewhere in this joint proxy statement/prospectus, due to the uncertainties
about what amounts, if any, will be paid under the contingent value obligation
agreement.
The following unaudited pro forma combined condensed balance sheet
presents, under the purchase method of accounting for business combinations, the
combined consolidated balance sheets of Carolina Power & Light and Florida
Progress as of September 30, 1999, giving effect to the share exchange as if it
had been consummated on that date. If and when the share exchange is
consummated, it is possible that other changes may be required to the combined
financial statements to implement the purchase method of accounting for this
combination.
The following unaudited pro forma combined condensed statements of
income present, under the purchase method of accounting for business
combinations, the combined consolidated statements of income of Carolina Power &
Light and Florida Progress for the nine months ended September 30, 1999 and the
twelve months ended December 31, 1998, giving effect to the share exchange as if
it had been consummated on January 1, 1998, using purchase accounting
adjustments calculated as of September 30, 1999.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
CAROLINA POWER
(IN MILLIONS) & LIGHT FLORIDA PROGRESS PRO FORMA PRO FORMA
(AS REPORTED) (2) (AS RECLASSIFIED)(2) ADJUSTMENTS COMBINED (1)
----------------- -------------------- ----------- ------------
ASSETS:
<S> <C> <C> <C> <C>
UTILITY PLANT
Utility plant, at cost .................. $ 11,411.7 $ 6,850.0 $ -- $ 18,261.7
Accumulated depreciation ................ (4,898.6) (3,288.1) -- (8,186.7)
Nuclear fuel, net of amortization ....... 185.8 70.4 -- 256.2
----------- ---------- ---------- -----------
Total Utility Plant, Net .............. 6,698.9 3,632.3 -- 10,331.2
----------- ---------- ---------- -----------
CURRENT ASSETS
Cash and cash equivalents ............... 76.7 11.3 88.0
Accounts receivable, net ................ 482.5 480.4 -- 962.9
Inventory ............................... 230.5 369.9 -- 600.4
Prepayments and other current assets .... 242.2 154.4 -- 396.6
----------- ---------- ---------- -----------
Total Current Assets .................. 1,031.9 1,016.0 -- 2,047.9
----------- ---------- ---------- -----------
GOODWILL .................................. 288.8 147.3 3,312.2(3) 3,748.3
DEFERRED DEBITS AND OTHER ASSETS .......... 1,275.5 1,617.4 -- 2,892.9
----------- ---------- ---------- -----------
TOTAL ASSETS ................................ $ 9,295.1 $ 6,413.0 $ 3,312.2 $ 19,020.3
=========== ========== ========== ===========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock ............................ $ 1,745.5 $ 1,267.3 $ 549.7 (4b) $ 3,562.5
Other stockholders' equity .............. 1,665.1 762.0 (762.0)(4b) 1,665.1
----------- ---------- ---------- -----------
Total common stock equity ............. 3,410.6 2,029.3 (212.3) 5,227.6
Preferred stock - redemption not required 59.4 33.5 -- 92.9
Company-obligated mandatorily
redeemable preferred securities ........ -- 300.0 -- 300.0
Long-term debt, net ..................... 2,800.1 2,177.5 3,455.7(5a) 8,433.3
----------- ---------- ---------- -----------
Total Capitalization .................. 6,270.1 4,540.3 3,243.4 14,053.8
----------- ---------- ---------- -----------
CURRENT LIABILITIES
Accounts and notes payable .............. 414.7 273.7 39.9(8) 728.3
Other current liabilities ............... 487.8 565.7 28.9(8) 1,082.4
----------- ---------- ---------- -----------
Total Current Liabilities ............. 902.5 839.4 68.8 1,810.7
DEFERRED CREDITS AND OTHER LIABILITIES .... 2,122.5 1,033.3 -- 3,155.8
----------- ---------- ---------- -----------
TOTAL CAPITALIZATION AND LIABILITIES ........ $ 9,295.1 6,413.0 $ 3,312.2 $ 19,020.3
=========== ========== ========== ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information.
114
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
CAROLINA POWER
(IN MILLIONS EXCEPT PER SHARE DATA) & LIGHT FLORIDA PROGRESS PRO FORMA PRO FORMA
(AS REPORTED) (2) (AS RECLASSIFIED)(2) ADJUSTMENTS COMBINED (1)
----------------- -------------------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric .......................... $ 2,419.8 $ 2,037.3 $ -- $ 4,457.1
Natural gas ....................... 48.0 -- -- 48.0
Diversified businesses ............ 82.6 866.7 -- 949.3
----------- ----------- --------- ----------
Total Operating Revenues ........ 2,550.4 2,904.0 -- 5,454.4
----------- ----------- --------- ----------
OPERATING EXPENSES
Fuel, operation and maintenance ... 934.7 774.6 -- 1,709.3
Purchased power and other ......... 418.7 527.2 -- 945.9
Gas purchased for resale .......... 38.0 -- -- 38.0
Depreciation and amortization ..... 368.3 260.8 60.4(3c) 689.5
Diversified businesses ............ 125.0 829.1 -- 954.1
----------- ----------- --------- ----------
Total Operating Expenses ........ 1,884.7 2,391.7 60.4 4,336.8
----------- ----------- --------- ----------
OPERATING INCOME .................... 665.7 512.3 (60.4) 1,117.6
OTHER INCOME (EXPENSE) .............. (24.8) 14.9 -- (9.9)
----------- ----------- --------- ----------
INCOME BEFORE INTEREST CHARGES
AND INCOME TAXES .................. 640.9 527.2 (60.4) 1,107.7
DISTRIBUTIONS ON COMPANY-OBLIGATED
MANDATORILY REDEEMABLE PREFERRED
SECURITIES ........................ -- 9.9 -- 9.9
INTEREST CHARGES, NET ............... 133.4 127.5 194.4(5b) 455.3
----------- ----------- --------- ----------
INCOME BEFORE INCOME TAXES .......... 507.5 389.8 (254.8) 642.5
INCOME TAXES ........................ 204.3 107.2 (77.8)(7) 233.7
----------- ----------- --------- ----------
NET INCOME .......................... 303.2 282.6 (177.0) 408.8
PREFERRED STOCK DIVIDEND REQUIREMENTS 2.2 1.1 -- 3.3
----------- ----------- --------- ----------
EARNINGS FOR COMMON STOCK ........... $ 301.0 $ 281.5 $ (177.0) $ 405.5
============ ============ ========== ==========
AVERAGE COMMON SHARES OUTSTANDING
Basic ............................. 146.8 97.9 196.7
Diluted ........................... 147.1 98.1 197.0
BASIC AND DILUTED EARNINGS PER COMMON
SHARE ............................. $ 2.05 $ 2.87 $ 2.06
============ ============ ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information.
115
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
CAROLINA POWER
(IN MILLIONS EXCEPT PER SHARE DATA) & LIGHT FLORIDA PROGRESS PRO FORMA PRO FORMA
(AS REPORTED)(2) (AS RECLASSIFIED)(2) ADJUSTMENTS COMBINED (1)
---------------- -------------------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric .......................... $ 3,130.0 $ 2,648.2 $ -- $ 5,778.2
Diversified businesses ............ 61.6 972.1 -- 1,033.7
----------- ----------- --------- ----------
Total Operating Revenues ........ 3,191.6 3,620.3 -- 6,811.9
----------- ----------- --------- ----------
OPERATING EXPENSES
Fuel, operation and maintenance ... 1,213.9 1,067.3 -- 2,281.2
Purchased power and other ......... 531.5 722.1 -- 1,253.6
Depreciation and amortization ..... 487.1 347.1 84.2(3c) 918.4
Diversified businesses ............ 111.6 883.5 -- 995.1
----------- ----------- --------- ----------
Total Operating Expenses ........ 2,344.1 3,020.0 84.2 5,448.3
----------- ----------- --------- ----------
OPERATING INCOME .................... 847.5 600.3 (84.2) 1,363.6
OTHER INCOME (EXPENSE) .............. (16.6) 9.2 -- (7.4)
----------- ----------- --------- ----------
INCOME BEFORE INTEREST CHARGES
AND INCOME TAXES .................. 830.9 609.5 (84.2) 1,356.2
INTEREST CHARGES, NET ............... 174.2 177.7 259.2(5b) 611.1
----------- ----------- --------- ----------
INCOME BEFORE INCOME TAXES .......... 656.7 431.8 (343.4) 745.1
INCOME TAXES ........................ 257.5 148.6 (103.7)(7) 302.4
----------- ----------- --------- ----------
NET INCOME .......................... 399.2 283.2 (239.7) 442.7
PREFERRED STOCK DIVIDEND REQUIREMENTS 2.9 1.5 -- 4.4
----------- ----------- --------- ----------
EARNINGS FOR COMMON STOCK ........... $ 396.3 $ 281.7 $ (239.7) $ 438.3
============ ============ ========== ==========
AVERAGE COMMON SHARES OUTSTANDING
Basic ............................. 143.9 97.1 193.3
Diluted ........................... 144.2 97.2 193.6
BASIC EARNINGS PER COMMON SHARE ..... $ 2.75 $ 2.90 $ 2.27
============ ============ ==========
DILUTED EARNINGS PER COMMON SHARE: .. $ 2.75 $ 2.90 $ 2.26
============ ============ ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information.
116
<PAGE>
NOTES TO UNAUDITED COMBINED CONDENSED FINANCIAL INFORMATION
(1) THE SHARE EXCHANGE
The share exchange will be accounted for under the purchase method of
accounting for business combinations. The unaudited pro forma combined
condensed financial information does not give effect to any
restructuring costs, nor any potential cost savings or other benefits
that could result from the share exchange. CP&L Energy is in the
process of developing its plan to integrate the operations of Florida
Progress. There were no material intercompany transactions between CP&L
Energy, Carolina Power & Light and Florida Progress during the periods
presented that require elimination.
(2) RECLASSIFICATIONS
These columns represent historical results of operations and financial
position of the respective companies, in condensed formats. Certain
reclassifications have been made to Carolina Power & Light's 1998
results of operations to conform with the 1999 presentation. In
addition, certain reclassifications have been made to Florida Progress'
historical results to conform with Carolina Power & Light's
presentation. Immaterial reclassifications were made to Florida
Progress' income statements for the presentation of allowance for funds
used during construction and for the presentation of preferred stock
dividend requirements. On the balance sheet, Florida Progress'
non-electric property, plant and equipment has been reclassified to
"Deferred Debits and Other Assets".
(3) PURCHASE PRICE ALLOCATION
The fair value of the consideration exchanged to acquire Florida
Progress common stock will be determined at the closing date and will
be allocated to the assets and liabilities of Florida Progress based on
their estimated fair values. A preliminary allocation of the purchase
price has been presented in the unaudited pro forma combined condensed
financial information in which the fair value of the identifiable net
tangible assets of Florida Progress is assumed to equal the net book
value of such assets. The excess of consideration over the fair value
of the identifiable net tangible assets has been preliminarily
allocated to goodwill as follows (in millions):
<TABLE>
<S> <C>
Consideration exchanged for Florida Progress common stock (a) $5,273.7
Plus: Estimated transaction costs (b) 17.4
--------
Total estimated purchase price $5,291.1
Less: Estimated fair value of Florida Progress' identifiable net assets on
September 30, 1999 1,831.6
--------
Total estimated goodwill $3,459.5
========
</TABLE>
In addition, goodwill was decreased by Florida Progress' historical
goodwill of $147.3 million, as required under the purchase accounting
method.
117
<PAGE>
(a) The estimated consideration and purchase price allocation used for pro
forma purposes are based on (1) 65% of the outstanding shares of Florida
Progress common stock being exchanged for $54 per share in cash and (2) 35% of
the outstanding shares of Florida Progress common stock being exchanged for
Carolina Power & Light common stock, with 1.4543 shares of CP&L Energy common
stock issued for each share of Florida Progress common stock. As discussed more
fully in Note 6 below, the exchange ratio of 1.4543 corresponds to an average
CP&L Energy share price of $36.278. The estimated consideration does not reflect
the potential effects of the contingent value obligations, described elsewhere
in the joint proxy statement/prospectus, due to the uncertainties about what
amounts, if any, will be paid under the contingent value obligation agreement.
If these effects were known, the estimated consideration, goodwill and goodwill
amortization would increase accordingly.
(b) Transaction costs primarily include investment banking fees and other
professional fees.
(c) A valuation of net assets has not been performed and, therefore, for
pro forma purposes, the fair value of the identifiable net tangible assets of
Florida Progress is assumed to equal the net book value of such assets. A pro
forma adjustment has been made for the nine months ended September 30, 1999 and
the twelve months ended December 31, 1998 to reflect estimated amortization
expense on the goodwill resulting from the acquisition and to eliminate Florida
Progress' historical amortization of goodwill. Goodwill is amortized over an
estimated useful life of 40 years. If a portion of goodwill were assigned to net
assets that have lives less than 40 years, or if the estimated life of goodwill
were less than 40 years, pro forma goodwill amortization expense would increase,
with a corresponding decrease in pro forma earnings per share.
(4) STOCK CONSIDERATION
(a) In the share exchange, 65% of the outstanding shares of Florida
Progress common stock will be exchanged for cash consideration of $54.00 per
share. 35% of Florida Progress common stock will be converted into a number of
shares of CP&L Energy common stock based on the exchange ratio to be determined
in the manner described in Note 6 below. Based on the average closing price of
Carolina Power & Light common stock on the New York Stock Exchange for the
twenty trading day period ended on September 23, 1999, which was $36.278, CP&L
Energy would issue approximately 50.113 million shares in the transaction for
35% of Florida Progress common stock outstanding on September 30, 1999. The
unaudited pro forma net earnings per share reflect the weighted-average number
of shares of CP&L Energy common stock that would have been outstanding if the
share exchange had occurred at the beginning of the periods presented, with
conversion of each Florida Progress share not exchanged for cash into 1.4543
shares of CP&L Energy common stock, as provided in the exchange agreement and
discussed in Note 6 below.
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(b) Pro forma adjustments have been made as of September 30, 1999 to: (1)
reflect the issuance of approximately 50.113 million shares of CP&L Energy
common stock to be exchanged together with cash of approximately $3.456 billion
for all of the outstanding shares of Florida Progress common stock (based on the
number of shares of Florida Progress common stock outstanding on September 30,
1999) and (2) eliminate the shareholders' equity accounts of Florida Progress.
(5) CASH CONSIDERATION
(a) A pro forma adjustment has been made to reflect the approximate $3.456
billion cash consideration that CP&L Energy will use to fund the purchase price
of 65% of the Florida Progress common stock, assuming such cash consideration
was funded through the issuance of long-term debt. The remaining exchange
consideration was assumed to be comprised of CP&L Energy common stock.
(b) A pro forma adjustment has been made to reflect increased interest
expense resulting from the issuance of approximately $3.456 billion of long-term
debt to fund part of the Florida Progress purchase price, as if such issuance
had occurred on January 1, 1998 and assuming a weighted-average annual interest
rate of 7.5%. That average interest rate reflects the best estimate available
for the debt facilities expected to be issued in conjunction with the
acquisition. If the average interest rate changed by 1/8%, pro forma net income
would change by approximately $2.6 million on an annual basis.
(6) EXCHANGE RATIO
As provided for in the exchange agreement, Florida Progress
shareholders will be permitted to elect either CP&L Energy common stock
or cash, with the total cash consideration fixed at 65% and the total
stock consideration fixed at 35%. Shareholder elections will be
prorated to the extent necessary to maintain this mix of consideration.
Under the exchange agreement's collar mechanism, if CP&L Energy's
average closing price per share for the twenty trading day period
ending on the fifth trading day prior to the share exchange is either
higher than $45.39 or lower than $37.13, the portion of the purchase
price payable in CP&L Energy shares would be determined based upon a
fixed exchange ratio calculated at such prices. Based upon the average
closing price per share of Carolina Power & Light common stock on the
New York Stock Exchange for the twenty trading day period ended on
September 23, 1999 (which is calculated as if the share exchange were
on September 30, 1999) of $36.278, the fixed exchange ratio would be
1.4543 shares of CP&L Energy common stock for each share of Florida
Progress common stock not exchanged for cash (which is the maximum
exchange ratio), and CP&L Energy would issue approximately 50.113
million shares in this transaction based on the number of shares of
Florida Progress common stock outstanding as of September 30, 1999. Any
decrease in the exchange ratio will cause a corresponding increase in
the pro forma earnings per share amounts. For example, the table below
shows the pro forma combined earnings per share amounts that would
result from the minimum exchange ratio.
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<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
-------------------------------- --------------------------
<S> <C> <C>
Exchange ratio 1.1897 1.1897
--------------- --------------
Basic earnings per share $ 2.38 $ 2.16
Diluted earnings per share $ 2.37 $ 2.16
</TABLE>
(7) INCOME TAXES
A pro forma adjustment has been made for the nine months ended
September 30, 1999 and the twelve months ended December 31, 1998 to
reflect the tax effect of the pro forma adjustments using Carolina
Power & Light's statutory tax rate of approximately 40%. Goodwill
created by the share exchange is nondeductible for tax purposes.
(8) CURRENT LIABILITIES
A pro forma adjustment has been made for accounts payable associated
with the transaction, such as investment banker fees, legal fees and
other professional fees. A pro forma adjustment also has been made to
other current liabilities for amounts due, under the long-term
incentive plans maintained by Florida Progress and its subsidiaries and
under the Florida Progress phantom stock plan for non-employee
directors, upon a change in control of Florida Progress. No adjustments
have been made for severance benefits that may be received by officers
of Florida Progress in the event they are terminated following a change
in control. The potential amount of these payments is set forth under
"The Share Exchange Interests of Florida Progress Directors and
Officers in the Share Exchange."
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ACQUISITION FINANCING
CP&L Energy intends to finance the cash portion of the exchange
consideration through external sources which may include commercial and
investment banks, institutional lenders and the public securities markets.
Approximately $5.3 billion will be paid to Florida Progress shareholders,
consisting of approximately $3.5 billion in cash and the issuance of
approximately $1.8 billion in CP&L Energy common stock (based on an assumed
value of $36.278 per share, which was the applicable 20-day average closing
price used in the pro forma information) as shown in the Unaudited Pro Forma
Combined Condensed Financial Information. See "Risk Factors Relating to the
Share Exchange--The combined company will experience increased leverage." CP&L
Energy will also issue one contingent value obligation for each share of Florida
Progress common stock. See "Risk Factors Associated with the EARTHCO Plants and
Contingent Value Obligations," "The Share Exchange--The Contingent Value
Obligations" and "Description of the Contingent Value Obligations."
INFORMATION ABOUT FLORIDA PROGRESS
FLORIDA PROGRESS
One Progress Plaza
St. Petersburg, Florida 33701
(727) 824-6400
Florida Progress is a diversified electric utility holding company
which was incorporated in Florida on January 21, 1982. Florida Progress is
currently exempt from the registration requirement of the Public Utility Holding
Company Act because its utility operations are predominantly intrastate. Florida
Progress' revenues for the year ended December 31, 1998 were $3.6 billion and
assets at year-end were $6.2 billion. It neither owns nor operates any physical
properties. It operates through its subsidiaries in two principal business
segments: utility and diversified operations.
FLORIDA POWER CORPORATION. Florida Power, Florida Progress' largest
subsidiary, is the utility segment of Florida Progress' business and encompasses
all regulated public utility operations. Florida Power was incorporated in
Florida in 1899, and is an operating public utility engaged in the generation,
purchase, transmission, distribution and sale of electricity. Florida Power has
a system generating capacity of 7,727 megawatts, including electricity generated
at its one nuclear plant. Florida Power provided electric service during 1998 to
an average of 1.3 million customers in central and north Florida. The service
area covers approximately 20,000 square miles and includes the densely populated
areas around Orlando, as well as the cities of St. Petersburg and Clearwater. As
of December 31, 1998, Florida Power had 4,740 full-time employees, of which
approximately 2,016 were represented by the International Brotherhood of
Electrical Workers. In 1998, Florida Power accounted for 73% of Florida
Progress' consolidated revenues, 80% of its assets and 89% of its net income.
PROGRESS CAPITAL HOLDINGS, INC. Florida Progress' diversified
operations are owned directly or indirectly through Progress Capital, a Florida
corporation and wholly owned subsidiary of Florida Progress. Progress Capital
holds the capital stock of, and provides funding for, Florida Progress'
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non-utility subsidiaries. Its primary subsidiary is Electric Fuels Corporation.
As of December 31, 1998, Progress Capital and its subsidiaries had 4,385
full-time employees.
ELECTRIC FUELS CORPORATION. Formed in 1976, Electric Fuels is an energy
and transportation company with operations organized into three business units:
energy and related services, rail services, and inland marine transportation.
Electric Fuels' energy and related services business unit supplies coal to
Florida Power's Crystal River Energy Complex and other utility and industrial
customers. It also owns interests in entities which produce or will produce
synthetic fuels, oil and gas leases, and a manufacturing facility utilizing fly
ash at the Florida Power Energy Complex in Crystal River, Florida. Electric
Fuels' inland marine transportation business unit is led by MEMCO Barge Line,
Inc., which transports coal and dry-bulk cargoes primarily on the Mississippi
and Ohio rivers. The rail services business unit is led by Progress Rail
Services Corporation, one of the largest integrated processors and suppliers of
railroad materials in the country. With operations in 20 states, Progress Rail
offers a full range of railcar parts, maintenance of way equipment, rail and
other track material, railcar repair facilities, railcar scrapping and metal
recycling as well as railcar sales and leasing.
Other subsidiaries of Florida Progress are involved in the wholesale
telecommunications business and insurance businesses. Progress
Telecommunications Corporation sells wholesale fiber-optic-based capacity
service in Florida to long-distance carriers, internet service providers and
other telecommunications companies, as well as large industrial, commercial and
governmental entities. Mid-Continent Life Insurance Company is a life insurance
company domiciled in the states of Oklahoma and Texas. Florida Progress has
announced its intention to divest its interest in Mid-Continent Life Insurance
Company.
For more information about Florida Progress, reference is made to its
periodic filings with the Securities and Exchange Commission, which are
incorporated by referenced into this joint proxy statement/prospectus. See
"Where You Can Find More Information" on page __.
INFORMATION ABOUT CP&L ENERGY AND CAROLINA POWER & LIGHT
CP&L Energy, Inc., formerly known as CP&L Holdings, Inc., was
incorporated in August 1999 under the laws of the State of North Carolina and
became the holding company for Carolina Power & Light on _________, 2000. As a
result of the recent completion of the holding company restructuring, the
holders of Carolina Power & Light common stock became the holders of the
outstanding stock of CP&L Energy, through a one-for-one share exchange. Carolina
Power & Light Company is an electric utility company. Carolina Power & Light's
consolidated revenues for the year ended December 31, 1998 were $3.2 billion and
consolidated assets at year-end were $8.3 billion. The principal executive
offices of CP&L Energy and Carolina Power & Light are located at 411
Fayetteville Street, Raleigh, North Carolina 27601, telephone number (919)
546-6111.
UTILITY OPERATIONS--CAROLINA POWER & LIGHt
Carolina Power & Light 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 1.2 million customers. During 1998, 33% of Carolina
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Power & Light's electric 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, Carolina Power & Light 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. Carolina Power & Light 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.
On July 15, 1999, Carolina Power & Light completed the acquisition of
North Carolina Natural Gas Corporation, a Delaware corporation. North Carolina
Natural Gas Corporation survived the merger as a wholly owned subsidiary of
Carolina Power & Light.
North Carolina Natural Gas Corporation provides natural gas, propane
and related services to about 178,000 customers in 90 towns and cities and on
four municipal gas distribution systems in south-central and eastern North
Carolina. North Carolina Natural Gas Corporation's operating revenues were about
$232 million in the fiscal year that ended September 30, 1998.
Interpath Communications, Inc., a wholly owned subsidiary of Carolina
Power & Light, is a telecommunications company primarily engaged in providing
internet-based services. Interpath's services include consulting, design,
implementation and support related to internet access, intranet development,
electronic commerce, hosting and videoconferencing.
DIVERSIFIED OPERATIONS
Strategic Resource Solutions Corp., a wholly owned subsidiary,
specializes in facilities and energy management software, systems and services
for educational, commercial, industrial and governmental markets nationwide.
For more information about Carolina Power & Light and CP&L Energy,
reference is made to its periodic filings with the Securities and Exchange
Commission, which are incorporated by referenced into this joint proxy
statement/prospectus. See "Where You Can Find More Information" on page ____.
RECENT HOLDING COMPANY RESTRUCTURING
The Carolina Power & Light board of directors decided to reorganize
with a holding company structure before agreeing to the share exchange with
Florida Progress. Consequently, CP&L Energy was incorporated in August 1999
under the laws of the State of North Carolina as a subsidiary of Carolina Power
& Light. On October 20, 1999, shareholders of Carolina Power & Light approved
the formation of the holding company structure. Upon completion of the holding
company restructuring, the holders of Carolina Power & Light common stock became
the holders of the outstanding stock of CP&L Energy, through a one-for-one share
exchange. Carolina Power & Light and CP&L Energy completed the restructuring on
________, 2000, following receipt of required regulatory approvals.
As a result of the recent completion of the holding company
restructuring, CP&L Energy became a holding company, CP&L Energy owns all of the
common stock of Carolina Power & Light, and the former holders of Carolina Power
& Light common stock became the owners of all of
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the CP&L Energy common stock outstanding immediately after the holding
company restructuring. CP&L Energy will operate its utility businesses through
its subsidiaries and subsidiaries of Carolina Power & Light. CP&L Energy
expects that some of Carolina Power & Light's subsidiaries may be moved up the
corporate structure to become direct subsidiaries of CP&L Energy, and that
future new entities or acquisitions may also become direct subsidiaries of CP&L
Energy following completion of the holding company restructuring.
DESCRIPTION OF CP&L ENERGY CAPITAL STOCK
This summary of the characteristics of CP&L Energy's capital stock
below is qualified in all respect by reference to the CP&L Energy articles of
incorporation and bylaws, each as amended, copies of which are on file with the
Securities and Exchange Commission as Exhibits B and C to CP&L Energy's
Registration Statement on Form S-4 (Registration No. 333-86243). Reference is
also made to the laws of the State of North Carolina.
CP&L ENERGY'S CAPITALIZATION
CP&L Energy's authorized equity capitalization consists of 500,000,000
shares of CP&L Energy common stock, no par value per share, and 20,000,000
shares of preferred stock, no par value per share. As of _____________, 2000,
___________ shares of CP&L Energy common stock and no shares of CP&L Energy
preferred stock were issued and outstanding. As of ______________, 2000,
approximately _______ million shares of Carolina Power & Light common stock were
issued and outstanding and we anticipate that approximately the same number of
shares of CP&L Energy common stock will be issued and outstanding following
completion of the holding company restructuring and immediately before the
consummation of the share exchange. No shares of CP&L Energy preferred stock
will be outstanding as of the consummation of the share exchange.
CP&L ENERGY PREFERRED STOCK
The CP&L Energy board of directors has the authority under a "blank
check" provision in the CP&L Energy articles to issue, without any vote or
action by the CP&L Energy shareholders, shares of CP&L Energy preferred stock in
one or more series and to fix the designations, preferences, rights,
qualifications, limitations and restrictions of the stock, including the
dividend rights, conversion rights, terms of redemption--including sinking fund
provisions--liquidation preferences and the number of shares constituting any
series. The CP&L Energy board of directors may also fix the voting rights, if
any, of a series, except that it does not have authority under the "blank check"
provision to issue preferred stock with more than one vote per share.
There are no shares of CP&L Energy preferred stock outstanding as of
the date of this joint proxy statement/prospectus, and there are no existing
agreements or understandings for the designation of any series of preferred
stock or the issuance of preferred shares.
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CP&L ENERGY COMMON STOCK
This description of the CP&L Energy common stock assumes that no CP&L
Energy preferred stock is issued and outstanding and that the CP&L Energy board
of directors has not determined the rights and preferences of any shares of CP&L
Energy preferred stock. The rights and preferences of the CP&L Energy common
stock, as generally described below, may change in relation to any shares of
CP&L Energy preferred stock that might be issued in the future.
PAR VALUE. The CP&L Energy common stock does not have a stated par
value. A designated par value is not required under North Carolina law and has
no useful purpose under modern corporate practice.
DIVIDEND RIGHTS. Subject to the prior rights, if any, of holders of
CP&L Energy preferred stock, holders of CP&L Energy common stock are entitled to
any dividends that might be declared by CP&L Energy's board of directors. CP&L
Energy may purchase or otherwise acquire outstanding shares of CP&L Energy
common stock out of funds or other property legally available for this purpose.
VOTING RIGHTS AND CUMULATIVE VOTING. Each share of CP&L Energy common
stock is entitled to one vote on all matters on which holders of common stock
are entitled to vote. Holders of CP&L Energy common stock do not have cumulative
voting rights for the election of directors. Consequently, the holders of more
than 50% of the shares voting can elect all of CP&L Energy's directors, and in
this event the holders of the remaining shares voting--less than 50%--would not
have sufficient votes to elect any directors.
PREEMPTIVE RIGHTS. The holders of CP&L Energy common stock have no
preemptive rights to purchase additional shares of CP&L Energy common stock or
other securities of CP&L Energy.
CALLS AND ASSESSMENTS. The shares of CP&L Energy common stock to be
issued in connection with the share exchange will be validly issued, fully-paid
and non-assessable after completion of the exchange.
REDEMPTION/CONVERSION. Shares of CP&L Energy common stock are not
subject to any redemption provisions and are not convertible into any other
securities or property.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the CP&L Energy common stock is
Equiserve Trust Company, N.A.
COMPARATIVE RIGHTS OF FLORIDA PROGRESS SHAREHOLDERS
AND CP&L ENERGY SHAREHOLDERS
The rights of the Florida Progress shareholders are based on Florida
law, the Florida Progress articles of incorporation, as restated and amended,
and the Florida Progress bylaws, as amended. The rights of CP&L Energy
shareholders are based on North Carolina law, the CP&L Energy
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articles of incorporation and the CP&L Energy bylaws. In the share exchange,
Florida Progress shareholders may become holders of CP&L Energy common stock.
The material differences between the rights of a Florida Progress shareholder
under the Florida Progress articles, the Florida Progress bylaws and Florida
law, on the one hand, and the rights of a holder of CP&L Energy common stock
under the CP&L Energy articles of incorporation and the CP&L Energy bylaws, at
the time of the completion of the Carolina Power & Light holding company
restructuring, and North Carolina law, on the other hand, are summarized below.
This 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, this summary does not reflect any rules
of the New York Stock Exchange or Pacific Stock Exchange that may apply to CP&L
Energy or Florida Progress in connection with the matters discussed.
AUTHORIZED CAPITAL
CP&L ENERGY: CP&L Energy's authorized equity capitalization consists of
500,000,000 shares of CP&L Energy common stock, no par value per share, and
20,000,000 shares of preferred stock, no par value per share. Under the CP&L
Energy articles, the CP&L Energy board of directors has the power to issue
preferred stock and to designate its rights and preferences, which might be
superior to the rights of the CP&L Energy common stock, except that preferred
stock may not be issued with more than one vote per share. As of the date of
this document, only shares of common stock are issued and outstanding.
FLORIDA PROGRESS: Florida Progress' authorized equity capitalization
consists of 250,000,000 shares of Florida Progress common stock, no par value
per share, and 10,000,000 shares of preferred stock, no par value per share. The
Florida Progress board of directors has the power to issue preferred stock with
rights and preferences superior to those of the Florida Progress common stock,
as provided in the Florida Progress articles. As of the date of this document,
only shares of common stock are issued and outstanding.
SHAREHOLDER ACTION WITHOUT A MEETING
CP&L ENERGY: North Carolina law provides that any action that is
required or permitted under North Carolina law to be taken at a shareholders'
meeting may be taken without a meeting, but only with the unanimous written
consent of all shareholders entitled to vote on the action. If North Carolina
law requires that notice of proposed action be given to nonvoting shareholders,
the corporation must give its nonvoting shareholders a written notice at least
10 days before the action is to be taken by unanimous consent.
FLORIDA PROGRESS: Under Florida law, unless a corporation's articles
provide otherwise, any action required or permitted by law to be taken at any
annual or special shareholders' meeting may be taken without a meeting, without
prior notice and without a vote if approved by written consent of shareholders
with not less than the minimum number of votes necessary to authorize or take
the action at a meeting at which all shares entitled to vote on the action were
present and voted. The Florida Progress articles do not provide otherwise. The
Florida Progress bylaws provide that any action required or permitted by law, or
by the Florida Progress articles or bylaws, to be taken at any annual or special
shareholders' meeting may be taken without a meeting, without prior notice and
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without a vote if approved by written consent of shareholders with not less than
the minimum number of votes necessary to authorize or take the action at a
meeting at which all shares entitled to vote on the action were present and
voted. The Florida Progress bylaws further provide that if any class of shares
is entitled to vote as a class, a majority written consent of each class of
shares entitled to vote as a class and of the total shares entitled to vote is
required. Under Florida law and the Florida Progress bylaws, however, notice of
any action so taken must be given within 10 days to those shareholders who have
not consented in writing or who are not entitled to vote on the action.
SHAREHOLDER INSPECTION RIGHTS
CP&L ENERGY: North Carolina law provides shareholder inspection rights
substantially the same as those provided under Florida law. Under North Carolina
law, however, shareholder inspection rights may be exercised only by a
"qualified shareholder," meaning one who has been a shareholder for at least six
months before making a demand to inspect corporate records or one who holds at
least 5% of the corporation's outstanding shares of any class. Further, North
Carolina law does not permit a shareholder of a public corporation to inspect or
copy any accounting records of the corporation or any records of the corporation
with respect to any matter which the corporation determines in good faith may,
if disclosed, adversely affect the corporation in the conduct of its business or
may constitute material nonpublic information at the time the shareholder's
notice of demand to inspect and copy is received by the corporation.
FLORIDA PROGRESS: Florida law provides shareholder inspection rights
substantially the same as those provided under North Carolina law. Florida law,
however, provides inspection rights to all shareholders while North Carolina law
permits only "qualified shareholders," as described in the preceding paragraph,
to exercise these rights. Further, unlike North Carolina law, Florida law does
not impose special limitations on inspection rights of shareholders of public
corporations. However, a corporation may deny any demand for inspection if the
demand was made for an improper purpose, or if the demanding shareholder has
within two years preceding the demand sold or offered for sale any shareholder
lists, has aided or abetted any person in procuring any shareholder list for any
such purpose, or has improperly used any information secured through any prior
examination of the records of the corporation or any other corporation.
REQUIRED SHAREHOLDER VOTES FOR EXTRAORDINARY TRANSACTIONS
CP&L ENERGY: North Carolina law provides that mergers, share exchanges
or sales of substantially all the assets of a corporation require the approval
of at least a majority of the shares entitled to vote on the subject
transaction, with some limited exceptions in the case of mergers and share
exchanges. Further, North Carolina law provides that a corporation's articles, a
bylaw adopted by its shareholders or an action of the board in submitting the
proposed transaction may require a greater vote. CP&L Energy's governing
documents do not require a greater vote. In the event CP&L Energy should issue
preferred stock, however, some types of business combinations may require the
approval of a majority of the outstanding shares of the CP&L Energy preferred
stock, voting as a single voting group. Other transactions affecting rights of
preferred stock might give rise to voting rights requiring approval by this
class.
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FLORIDA PROGRESS: Florida law requires that mergers, share exchanges or
sales of substantially all the assets of a corporation be approved by a vote of
the holders of a majority of all outstanding shares entitled to vote on the
transaction, with some limited exceptions in the case of mergers and share
exchanges. See "--Anti-Takeover Laws and Provisions--Florida
Progress--Affiliated Transactions" below. Additionally, under Florida law a
corporation may provide for a greater vote, but only in its articles or an
action of the board in submitting the proposed transaction. The Florida Progress
articles require a vote of at least 75% of the voting power of outstanding
shares of capital stock of Florida Progress entitled to vote in the election of
directors for approval of various types of business combinations with an
interested shareholder, including mergers, asset sales, security issuances,
recapitalizations and liquidations. As defined in the Florida Progress articles,
an "interested shareholder" generally means any person who is the beneficial
owner of more than 10% of the outstanding voting stock of Florida Progress. The
special voting requirement does not apply if the business combination has been
approved by a majority of the disinterested directors of Florida Progress, or if
the fair price and other procedural requirements stated in the Florida Progress
articles are satisfied. According to the Florida Progress articles, a
"disinterested director" is a director of Florida Progress who is not affiliated
with an interested shareholder and who was a member of the Florida Progress
board of directors before the time the interested shareholder became one, and
any successor to a continuing director who is not affiliated with the interested
shareholder and who was recommended or elected to succeed a disinterested
director by a majority of the disinterested directors then on the Florida
Progress board of directors. Because CP&L Energy is not an "interested
shareholder," this 75% shareholder approval requirement is inapplicable to the
share exchange.
ANTI-TAKEOVER LAWS AND PROVISIONS
CP&L ENERGY: North Carolina has two principal anti-takeover statutes,
although a corporation may elect not to be subject to them. The statutes are the
Shareholder Protection Act and the Control Share Acquisition Act, Articles 9 and
9A, respectively, of the North Carolina Business Corporation Act. CP&L Energy
has "opted out" of both acts.
CP&L Energy's election to opt out of the Shareholder Protection Act
means that CP&L Energy will not have the statute's potential benefit of
deterring some types of hostile acquisition transactions. The opt-out election
does, however, give the CP&L Energy board of directors and CP&L Energy
shareholders the ability to approve desirable business combination transactions
that they might otherwise be unable to approve because the Shareholder
Protection Act requires a 95% vote for approval of a "business combination," as
defined in the act, with any holder of more than 20% of CP&L Energy's stock, if
the act's "fair price" criteria are not met.
As a result of CP&L Energy's election to opt out of the Control Share
Acquisition Act, a purchaser of CP&L Energy common stock in a "control share
acquisition," as defined in the act, would have full voting rights without the
need to seek these rights from disinterested shareholders, and, therefore, would
not have the right to cause a special meeting of shareholders to be convened for
the purpose of seeking voting rights. The ability to require such a meeting can
be useful to a potential acquiror because, in addition to seeking voting rights,
the potential acquiror can submit other proposals at the special meeting, such
as the election or removal of directors or an amendment to the articles or
bylaws.
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FLORIDA PROGRESS: Florida also has two anti-takeover statutes, dealing
with affiliated transactions and control-share acquisitions.
AFFILIATED TRANSACTIONS. Florida law provides that the approval of the
holders of two-thirds of the voting shares of a corporation, other than the
shares owned by an "interested shareholder"--generally, any person who is the
beneficial owner of more than 10% of the outstanding voting stock of the
corporation--is required in order to effectuate an affiliated transaction. An
"affiliated transaction" is a transaction that involves the corporation and an
interested shareholder or an affiliate of an interested shareholder, including,
among others, a merger, a sale of assets, a sale of shares, a liquidation, or a
reclassification of securities and loans. The special voting requirement does
not apply in any of the following six circumstances:
- the affiliated transaction is approved by a majority of the
corporation's disinterested directors;
- the corporation has not had more than 300 shareholders of
record at any time during the three years preceding the date
of the announcement of the proposed "affiliated transaction;"
- the interested shareholder has beneficially owned at least 80%
of the corporation's voting shares for five years preceding
the date of the announcement of the proposed "affiliated
transaction;"
- the interested shareholder beneficially owns at least 90% of
the corporation's voting shares, exclusive of shares acquired
directly from the corporation in a transaction not approved by
a majority of the disinterested directors;
- the corporation is an investment company registered under the
Investment Company Act of 1940; or
- all of the following conditions are met:
- the cash and fair market value of other consideration
to be paid per share to all holders of the voting
shares are at least equal to the highest per share
price calculated according to the various methods
permitted under Florida law,
- the consideration to be paid in the affiliated
transaction is in cash or in the same form as
previously paid by the interested shareholder, and
- during the portion of the three years preceding the
date of the announcement of the proposed "affiliated
transaction" that the interested shareholder has been
an interested shareholder, except as approved by a
majority of the disinterested directors, there shall
have been
- no failure to declare and pay at the regular
payment date any full periodic dividends,
whether or not cumulative, on any
outstanding shares of the corporation,
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- no reduction in the annual rate of dividends
paid, except to reflect any subdivision of a
class or series,
- an increase in the annual dividend rate to
reflect any reclassification with the effect
of reducing the number of outstanding
shares,
- no increase in the voting shares owned by
the interested shareholder, except as part
of the transaction in which the shareholder
becomes an interested shareholder, and
- no benefit to the interested shareholder
from loans, guarantees or other financial
assistance or tax advantages provided by
the corporation; or
- a proxy or information statement describing the
affiliated transaction has been mailed to holders
of voting shares of the corporation at least 25 days
before the consummation of the affiliated
transaction, except as otherwise approved by a
majority of the disinterested directors.
A corporation may "opt out" of these provisions by electing to do so in its
articles of incorporation or bylaws. Florida Progress has not elected to "opt
out." CP&L Energy, however, is not an "interested shareholder;" thus, these
provisions do not apply to the share exchange.
CONTROL-SHARE ACQUISITIONS. Florida law also provides that the voting
rights to be accorded control shares, as defined below, of a Florida corporation
that has
- 100 or more shareholders,
- its principal place of business, its principal office, or
substantial assets in Florida, and
- either more than 10% of its shareholders residing in Florida,
more than 10% of its shares owned by Florida residents, or
1,000 shareholders residing in Florida,
must be approved by a majority of each class of voting securities of the
corporation, excluding those shares held by interested persons, before the
control shares will be granted any voting rights. "Control shares" are defined
under Florida law to be shares acquired by a person, either directly or
indirectly, that when added to all other shares of the issuing corporation owned
by that person, would entitle that person to exercise, either directly or
indirectly, voting power within any of the following ranges:
- 20% or more but less than 33% of all voting power of the
corporation's voting securities;
- 33% or more but less than a majority of all voting power of
the corporation's voting securities; or
- a majority or more of all of the voting power of the
corporation's voting securities.
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The person acquiring shares in a control share acquisition may request
a special meeting to be held to consider the voting rights to be accorded these
shares. If no request is made, the voting rights will be considered at the next
special or annual meeting.
These provisions do not apply to shares acquired under, among other
things, an agreement or plan of merger or share exchange effected in compliance
with the relevant provisions of Florida law and to which the corporation is a
party, or an acquisition of shares previously approved by the board of directors
of the corporation. In addition, unless otherwise provided in a corporation's
articles of incorporation or bylaws, in the event control shares acquired in a
control-share acquisition are accorded full voting rights and the acquiring
person has acquired control shares with a majority or more of all voting power,
all shareholders of the issuing public corporation shall have dissenters'
rights.
A corporation may "opt out" of these provisions by electing to do so in
its articles of incorporation or bylaws. Florida Progress has not elected to
"opt out." Because CP&L Energy will acquire Florida Progress shares under a plan
of share exchange effected in compliance with relevant provisions of Florida
law, the control-share acquisitions provisions of Florida law summarized above
will not apply to the share exchange.
SHAREHOLDER RIGHTS PLANS
CP&L ENERGY: CP&L Energy does not currently have a shareholder rights
plan, commonly known as a "poison pill" plan.
FLORIDA PROGRESS: Under the Shareholder Rights Plan, dated November 21,
1991, between Florida Progress and Manufacturer's Hanover Trust Company, as
amended, each share of Florida Progress common stock has associated with it
approximately two-thirds of one right to purchase one one-hundredth of a share
of Series A Junior Participating Preferred Stock, subject to adjustment, which
is exercisable in the event of various types of business combinations described
in the Shareholder Rights Plan. If exercised, the rights would cause substantial
dilution of ownership, thus adversely affecting any attempt to acquire Florida
Progress on terms not approved by the Florida Progress board of directors. The
rights themselves have no voting or dividend rights. In connection with the
share exchange, Florida Progress executed a Second Amendment to Shareholder
Rights Agreement, dated August 22, 1999, between Florida Progress and
BankBoston, N.A. The Second Amendment provides, among other things, the
following:
- neither Carolina Power & Light nor CP&L Energy will become an
"Acquiring Person," as defined in the Shareholder Rights
Agreement, as a result of its execution of the share exchange
agreement or the consummation of the share exchange;
- the rights provided by the Shareholder Rights Agreement will
expire immediately before the effective time of the share
exchange; and
- the share exchange will not cause the occurrence of a
"Triggering Event," as defined in the Shareholder Rights
Agreement.
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LOANS TO DIRECTORS
CP&L ENERGY: North Carolina law prohibits loans to directors or the
guaranteeing of their obligations by a North Carolina corporation unless:
- a majority of disinterested shareholders approve the loan or
guarantee, or
- the corporation's board of directors determines that the loan
or guarantee benefits the corporation and either approves the
specific loan or guarantee or a general plan of loans and
guarantees by the corporation.
FLORIDA PROGRESS: Florida law permits a corporation to make a loan to,
guarantee an obligation of or otherwise assist a director if, in the judgment of
the board of directors, the action may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured or secured as the board approves, including by a
pledge of shares of stock of the corporation.
DISSENTERS' RIGHTS
CP&L ENERGY: North Carolina law generally provides dissenters' rights
for
- mergers and share exchanges under which the corporation's
shares will be acquired that require shareholder approval,
- sales of all or substantially all of a corporation's assets,
other than those in the ordinary course of business,
liquidations and court-ordered sales,
- amendments to the articles that materially and adversely
affect rights in respect of dissenters' shares, and
- any corporate action taken in connection with a shareholder
vote to the extent the articles, bylaws or a resolution of the
board entitles shareholders to dissent and obtain payment for
their shares.
No appraisal rights are available in connection with a plan of merger, share
exchange or sale or exchange of property to holders of shares of any class or
series that is listed on a national securities exchange, or held of record by
more than 2,000 shareholders unless the articles of incorporation of the
corporation provide otherwise or in the case of a plan of merger or share
exchange, the holders are required to accept anything other than cash and/or
shares that are similarly listed or held.
The CP&L Energy articles have no provisions regarding appraisal rights.
FLORIDA PROGRESS: Under Florida law, appraisal rights are available in
connection with
- the consummation of a plan of merger or share exchange under
which the corporation's shares will be acquired that requires
a shareholder vote,
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- a sale or exchange of all, or substantially all, of the assets
of a corporation upon which shareholders are entitled to vote,
- a control-share acquisition, as described in "--Anti-Takeover
Laws and Provisions" on page __,
- an amendment to the articles of incorporation if the
shareholder is entitled to vote on the amendment and if the
amendment may adversely affect the rights or preferences of
the shareholder, and
- any corporate action, to the extent the articles provided that
a shareholder is entitled to dissent and obtain payment for
his shares.
Unless otherwise provided in the articles of incorporation, no appraisal rights
are available in connection with a plan of merger, share exchange or a proposed
sale or exchange of property to holders of shares of any class or series that is
- listed on a national securities exchange,
- designated as a national market system security on an
inter-dealer quotation system by the National Association of
Securities Dealers, Inc., or
- held of record by not fewer than 2,000 shareholders.
The Florida Progress articles have no provisions regarding appraisal rights.
SIZE, CLASSIFICATION AND TERMS OF BOARD OF DIRECTORS
CP&L ENERGY: North Carolina law permits a North Carolina corporation,
through its articles or bylaws, to establish a variable range in its articles of
incorporation or bylaws for the size of its board of directors by fixing a
minimum and maximum number of directors. If the corporation establishes a
variable range, the number of directors may be fixed or changed from time to
time, within the minimum and maximum, by the shareholders or, unless the
articles provide otherwise, by the board of directors.
The CP&L Energy articles provide that the number of directors
constituting the CP&L Energy board of directors shall be as specified in the
CP&L Energy bylaws, provided that in no event shall the number be less than 9 or
more than 15. The bylaws provide that the number of directors shall not be less
than 11 or more than 15 and that the board shall determine the authorized number
by majority vote at any regular or special meeting. The bylaws further require
that 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. Under the
terms of the agreement and plan of exchange, upon consummation of the share
exchange, CP&L Energy will have a 14-member board, to which Florida Progress may
appoint 4 directors, subject to approval by CP&L Energy. The CP&L Energy bylaws
provide that the board shall be divided into three classes, each as nearly as
possible equal in number to the others,
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with the classes being elected for staggered 3-year terms. Directors of CP&L
Energy who are full-time employees of CP&L Energy must retire from the board at
age 65, except for the Chairman of the Board. Directors who are not full-time
employees of CP&L Energy must retire at age 71.
FLORIDA PROGRESS: Unlike North Carolina law, Florida law does not
provide for a Florida corporation to establish a variable range for the size of
its board of directors. According to the Florida Progress articles, the number
of directors constituting the Florida Progress board of directors is to be fixed
by amendment to the bylaws, but must be at least three. Currently, Florida
Progress has a 9-member board divided into three classes, each consisting of
three directors, with the classes being elected for staggered 3-year terms.
DIRECTOR AND OFFICER LIABILITY; INDEMNIFICATION
CP&L ENERGY: Under North Carolina law, a director's personal liability
for any monetary damages for breach of duty may be limited or eliminated by the
articles of incorporation, except that the articles may not limit or eliminate
liability in connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation 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.
The CP&L Energy articles contain a provision immunizing a director from
personal liability for breach of duty as a director to the fullest extent
allowed by North Carolina law. The CP&L Energy bylaws also provide directors and
officers with a right to be indemnified by the corporation against loss and
expenses of defense in actions asserting liability based on their status as
directors or officers. The scope of indemnity granted to the directors of CP&L
Energy is as broad as permitted by North Carolina law. The CP&L Energy bylaws
also include specific indemnity provisions relating to conduct by officers or
directors with respect to orders issued under laws applicable to public utility
companies and public utility holding companies.
FLORIDA PROGRESS: Florida law generally provides that a director is not
personally liable for monetary damages to the corporation or any other person
for any statement, vote, decision or failure to act regarding corporate
management or policy, unless the director breached or failed to perform his
duties as a director and the director's breach of or failure to perform those
duties constitutes:
- a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful;
- a transaction from which the director derived an improper
personal benefit, either directly or indirectly;
- an unlawful distribution;
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- conscious disregard for the best interest of the corporation,
or willful misconduct; or
- recklessness or an act or omission which was committed in bad
faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety or
property.
Florida law and the Florida Progress bylaws provide that in discharging
their duties, directors may consider factors they deem relevant, including the
following, which have no counterparts in North Carolina law or in the CP&L
Energy governance documents:
- the long-term prospects and interests of the corporation and
its shareholders; and
- the social, economic, legal or other effects of any action on
the employees, suppliers, customers of the corporation or its
subsidiaries, the communities and society in which the
corporation or its subsidiaries operate, and the economy of
the state and the nation.
The scope of indemnity granted to the directors of Florida Progress is
as broad as permitted by Florida law.
ELECTION OF DIRECTORS
CP&L ENERGY: North Carolina law states that unless the articles of
incorporation or a valid shareholders' agreement provide otherwise, directors
are elected by a plurality of votes cast by shares entitled to vote in the
election at a meeting at which a quorum is present. Shareholders do not have a
right to cumulate their votes for directors unless the articles of incorporation
so provide. The CP&L Energy articles do not allow for cumulative voting.
FLORIDA PROGRESS: Florida law states that unless the articles of
incorporation provide otherwise, directors are elected by a plurality of votes
cast by shares entitled to vote in the election at a meeting at which a quorum
is present. Shareholders do not have a right to cumulate their votes for
directors unless the articles of incorporation so provide. The Florida Progress
articles do not allow for cumulative voting.
REMOVAL OF DIRECTORS
CP&L ENERGY: North Carolina law provides that, in the absence of
cumulative voting, a director may be removed with or without cause, unless the
corporation's articles permit removal only for cause, by the affirmative vote of
the holders of a majority of votes cast for this purpose. Additionally, unless
the corporation's articles or bylaws provide otherwise, the entire board of
directors may be removed with or without cause by the holders of a majority of
the shares entitled to elect the directors. With regard to both the removal of a
director and the removal of the whole board, the notice of the meeting at which
the vote is to be taken must state that director removal is the purpose or one
of the purposes of the meeting. The CP&L Energy articles qualify these
provisions of North Carolina law only by making the removal process subject to
the rights of the holders of any preferred stock then outstanding.
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In addition, North Carolina law provides that an appropriate court can
remove a director upon petition of the holders of at least 10% of the
outstanding shares of any class of stock of a corporation upon a finding by the
court that
- the director engaged in fraudulent or dishonest conduct, or
gross abuse of authority or discretion, with respect to the
corporation, or
- removal is in the best interest of the corporation.
FLORIDA PROGRESS: Florida law provides that shareholders may remove a
director with or without cause, at a meeting called for that purpose, unless the
articles of incorporation provide that any director or the entire board of
directors may be removed only for cause, by the affirmative vote of the holders
of a majority of votes cast for this purpose. The Florida Progress articles
provide that a director may be removed only for cause. The Florida Progress
bylaws provide that a director may be removed for cause only at a meeting of
shareholders called for that purpose and if the number of votes cast to remove
the director exceeds the number of votes cast not to remove the director.
Further, the Florida Progress bylaws and Florida law provide that if a director
is elected by a voting group or class of shares under the articles, only the
shareholders of that voting group or class may participate in the vote to remove
the director.
DIVIDEND AND DISTRIBUTION RIGHTS
With regard to dividends and distributions, the rights of holders of
Florida Progress common stock under Florida law are the same as those of holders
of CP&L Energy common stock under North Carolina law, except that
- the rights of holders of Florida Progress common stock are
subject to the preferences, if any, of Florida Progress
preferred stock subsequently designated by the Florida
Progress board of directors, and
- the rights of holders of CP&L Energy common stock are subject
to the preferences, if any, of CP&L Energy preferred stock
subsequently designated by the CP&L Energy board of directors.
SPECIAL SHAREHOLDER MEETINGS
CP&L ENERGY: North Carolina law provides that a corporation shall hold
a special meeting of shareholders on call of its board of directors or the other
person or persons authorized to do so by the articles or bylaws. Further, under
North Carolina law, shareholders of a public corporation do not have the right
to call a special meeting of shareholders unless provided in the articles or
bylaws of the public corporation. The CP&L Energy bylaws provide that a special
meeting of CP&L Energy shareholders may be called only by a majority of the
board of directors or of the executive committee of the board, the Chairman of
the Board, or the President of CP&L Energy.
FLORIDA PROGRESS: Under Florida law, special shareholder meetings of a
corporation may be called by its board of directors, by any person or persons
authorized to do so by its articles or bylaws
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and by holders of not less than 10% of all the votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting, unless a
greater percentage not to exceed 50% is required by the articles. The Florida
Progress bylaws provide that a special meeting of shareholders may be called by
the board of directors, the Chairman of the Board, the President of Florida
Progress, or by the holders of not less than 10% of the shares entitled to vote
on any proposal to be submitted at the meeting upon delivery to the corporation
of one or more written demands for the meeting describing the purpose or
purposes for which it is to be held.
SHAREHOLDER PROPOSAL AND NOMINATION PROCEDURES
CP&L ENERGY: The CP&L Energy bylaws provide that a shareholder may
propose business for consideration, or nominate candidates for director for
election, only at an annual meeting upon written notice from the shareholder
received not later than the sixtieth day before the first anniversary of the
immediately preceding year's annual meeting.
FLORIDA PROGRESS: The Florida Progress bylaws provide that a
shareholder may propose business for consideration, or nominate candidates for
director for election, at an annual meeting, or, in the case of election of
directors, at any special meeting called for that purpose. Written notice from
the shareholder must be received
- in the case of an annual meeting, not less than 90 days nor
more than 120 days before the date of the annual meeting,
provided, however, if less than 100 days' notice or prior
public disclosure of the date of the annual meeting is given
or made to shareholders, a shareholder's notice must be
received not later than the 10th day following the day the
notice was mailed or publicly disclosed, whichever occurs
earlier, or
- in the case of a special meeting called to elect directors,
not later than the close of business on the tenth day
following the day on which the notice of the date of the
special meeting was mailed or publicly disclosed, whichever
occurs earlier.
AMENDMENT OF ARTICLES
CP&L ENERGY: North Carolina law provides that a corporation's board of
directors may adopt several minor amendments to a corporation's articles of
incorporation without a shareholder vote. Other proposed amendments to the
articles must be submitted to the shareholders by the board of directors. Unless
a greater vote is required by the North Carolina Business Corporation Act, the
articles, a shareholder-adopted bylaw or an action of the board in proposing the
amendment, an amendment requiring shareholder action must be approved by
- a majority of the votes entitled to be cast on the amendment
by any voting group with respect to which the amendment would
create dissenters' rights, and
- for shares entitled to vote as a separate voting group, a
majority of those shares, provided that a quorum of the voting
group is present.
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The CP&L Energy articles require a majority of the votes entitled to be
cast by each voting group to approve an amendment, unless the CP&L Energy board
of directors, in submitting to the shareholders the board's recommendation for
amendments to the CP&L Energy articles, requires a higher vote to pass the
amendment than the vote otherwise required by law or by the CP&L Energy articles
generally.
FLORIDA PROGRESS: Florida law provides that a corporation's board of
directors may adopt several minor amendments to a corporation's articles of
incorporation without a shareholder vote. Other proposed amendments to the
articles must be submitted to the shareholders by the board of directors. Unless
a greater vote is required by the Florida Business Corporation Act, the
articles, a shareholder-adopted bylaw or an action of the board in proposing the
amendment, an amendment requiring shareholder action must be approved by
- a majority of the votes entitled to be cast on the amendment
by any voting group with respect to which the amendment would
create dissenters' rights, and
- for shares entitles to vote as a separate voting group, shares
of a majority of those votes cast provided that a quorum of
the voting group is present.
Florida law permits the articles of incorporation or the board of
directors to require a greater percentage of affirmative votes for any
amendment. The Florida Progress articles provide that Florida Progress may
amend, alter, change or repeal provisions of the Florida Progress articles in
the manner provided by law, with the following exceptions:
- the affirmative vote of holders of at least two-thirds of the
outstanding voting stock of the corporation is required to
amend or repeal or to adopt any provision inconsistent with
provisions of the articles dealing with
- amendment of the articles;
- number, election, terms and removal of directors, and
filling vacancies on the board; and
- amendment of the bylaws; and
- the affirmative vote of 75% of the votes of outstanding voting
stock voting together as a single class is required
- to amend, modify or repeal, or to adopt any provision
to the articles or bylaws inconsistent with, the
provisions of the articles dealing with business
combinations; or
- to approve fixing by the board of any right or
preference of any series of preferred stock that is
inconsistent with the provision of the articles
dealing with business combinations.
See "--Required Shareholder Votes for Extraordinary Transactions" on page __.
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AMENDMENT OF BYLAWS
CP&L ENERGY: The CP&L Energy board of directors generally may adopt,
amend or repeal bylaws. An amendment to the CP&L Energy bylaws generally
requires the approval of a majority of the directors then holding office. 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
in the ordinary course of business; or
- pertains to voting requirements under the North Carolina
Control Share Acquisition Act.
The CP&L Energy bylaws also may be adopted, amended or repealed by vote
of the holders of a majority of the issued and outstanding CP&L Energy shares
that are entitled to vote on the bylaw proposal, voting together as a single
voting group. Any bylaw adopted, amended or repealed by the CP&L Energy
shareholders may not be readopted, amended or repealed by the CP&L Energy board
of directors unless the CP&L Energy articles or a CP&L Energy bylaw adopted by
the CP&L Energy shareholders authorizes the CP&L Energy board of directors to do
so.
FLORIDA PROGRESS: Florida law provides that the directors may amend or
repeal the corporation's bylaws unless
- the corporation's articles or the Florida Business Corporation
Act reserves the power to amend the bylaws generally or a
particular bylaw provision exclusively to the shareholders, or
- the shareholders, in amending or repealing the bylaws
generally or a particular bylaw provision, provide expressly
that the board may not amend or repeal the bylaws or that
bylaw provision.
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Further, a corporation's shareholders may amend or repeal the corporation's
bylaws even though the bylaws may also be amended or repealed by its board of
directors
Contrary to North Carolina law, Florida law does not require
shareholder approval of a bylaw that increases or decreases the number of
directors. Rather, Florida law requires simply that such a bylaw be approved in
the manner provided in the articles or the bylaws of the corporation.
Under Florida law, if authorized by the corporation's articles, the
shareholders may adopt or amend a bylaw that fixes a greater quorum or voting
requirement for shareholders, or voting groups of shareholders, than is
statutorily required. The adoption or amendment of a bylaw that adds, changes or
deletes a greater quorum or voting requirement for shareholders must meet the
same voting and quorum requirements required to take action under the quorum and
voting requirements then in effect or proposed to be adopted, whichever is
greater. A bylaw that fixes a greater quorum or voting requirement for
shareholders may not be adopted, amended or repealed by the board. A bylaw
adopted originally by the shareholders that fixes a greater quorum requirement
for the board of directors may be amended or repealed only by the shareholders;
moreover, such a bylaw adopted originally by the board may be amended or
repealed by either the shareholders or the board. A bylaw adopted or amended by
the shareholders that fixes a greater quorum or voting requirement for the board
may provide that it may be amended or repealed only by a specified vote of
either the shareholders or the board. If the board adopts or amends a bylaw that
changes the quorum or voting requirements for the board, that bylaw must meet
the same quorum and voting requirements as must be met to take action under the
quorum and voting requirements then in effect or proposed, whichever is greater.
The Florida Progress articles provide that the board of directors, by
two-thirds vote of its members, or the shareholders, by two-thirds vote of
holders of outstanding voting stock, may adopt, alter amend or repeal any or all
of the Florida Progress bylaws. Despite this provision, however, the affirmative
vote of 75% of the votes of outstanding voting stock is required to amend,
modify, repeal, or adopt any bylaw inconsistent with the provisions of the
Florida Progress articles dealing with business combinations. See "--Required
Shareholder Votes for Extraordinary Transactions" on page __, and "--Amendment
of Articles" on page __.
DESCRIPTION OF THE CONTINGENT VALUE OBLIGATIONS
SUMMARY
Set forth below is a summary of the provisions of the contingent value
obligations. The contingent value obligations will be issued under a contingent
value obligation agreement between CP&L Energy and The Chase Manhattan Bank, as
trustee, which is qualified under the Trust Indenture Act and is filed as an
exhibit to the registration statement on Form S-4 of which this joint proxy
statement/prospectus is a part. The following summary of the contingent value
obligations and the contingent value obligation agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the contingent value obligation agreement, including
defined terms. The terms of the contingent value obligations include those
stated in the contingent value obligation agreement and those made part of the
contingent value obligation agreement by reference to the Trust Indenture Act of
1939. The definitions of capitalized
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terms used in the following summary are set forth below under the caption
"Certain Definitions Related to the Contingent Value Obligation Certificate"
beginning on page ____. The form of Contingent Value Obligation Certificates is
attached as ANNEX D to this joint proxy statement/prospectus. This form of
certificate and the contingent value obligation agreement will be the legal
documents that govern the contingent value obligations. We encourage you to read
these documents carefully.
CONTINGENT VALUE OBLIGATIONS
Immediately prior to the effective time of the share exchange, CP&L
Energy and the trustee will enter into the contingent value obligation agreement
substantially in the form filed as an exhibit to the registration statement of
which this joint proxy statement/prospectus is a part with such changes as are
agreed to by CP&L Energy, Florida Progress and the trustee. The contingent value
obligations are general, unsecured, contingent payment obligations of CP&L
Energy and are subordinate in right of payment to all senior indebtedness of
CP&L Energy.
Each contingent value obligation will represent the right to receive
contingent payments that may be made by CP&L Energy based upon the net after-tax
cash flow to CP&L Energy, to be generated by four synthetic fuel plants
purchased by Florida Progress in October 1999 and known as the EARTHCO plants.
See "The Shares Exchange--The Contingent Value Obligations" and "Risk Factors
Associated with the EARTHCO Plants and Contingent Value Obligations." The
holders of the contingent value obligations will be responsible for taxes
relating to the contingent value obligations, and the paying agent shall
withhold all amounts required to be withheld under applicable law.
THE CONTINGENT VALUE OBLIGATION DISTRIBUTION
Upon surrender of a certificate of Florida Progress common stock for
cancellation to the exchange agent, together with a letter of transmittal, duly
executed and completed in accordance with the instructions thereto, each holder
of Florida Progress common stock shall be entitled to receive one contingent
value obligation for each share of Florida Progress common stock surrendered.
Contingent value obligations will be represented by one global
security, which will be initially registered in the name of The Depository Trust
Company ("DTC") or its nominee. Each Florida Progress shareholder who receives
contingent value obligations in the share exchange will initially hold his
interest in contingent value obligations through one of the "participants" in
DTC depending on whether such shareholder holds his Florida Progress stock as a
registered holder with Florida Progress' transfer agent or through a broker. A
participant is a broker or transfer agent that will hold a registered position
in contingent value obligations at DTC. Florida Progress shareholders that are
registered shareholders at closing will initially hold their beneficial interest
in contingent value obligations through the current Florida Progress transfer
agent, which will be a participant at DTC. This beneficial interest will be
evidenced by a statement from the transfer agent. These beneficial interest
holders will be able to transfer their interests by giving instructions to the
transfer agent. Florida Progress shareholders that hold their stock through a
broker, will also hold their beneficial interests in contingent value
obligations through their broker and the beneficial interest may be transferred
in the same way as their stock is currently transferred through their broker.
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DESCRIPTION OF THE CONTINGENT VALUE OBLIGATIONS
GENERAL
Each contingent value obligation will represent an assignable and
transferable right to receive a pro rata portion of the contingent payments
which will equal the Excess Cash Flow for each of the Operation Years 2001
through 2007, plus the Excess Carryforward Credits for each tax year after 2007,
plus the Excess Disposition Proceeds for each of the Operation Years 2001
through 2007, and less any Allocable Expenses.
PAYMENT OF CONTINGENT PAYMENT
CP&L Energy shall, on or prior to any Payment Date, pay, to each holder of
a contingent value obligation, a pro rata portion of the contingent payment with
respect to the applicable Operation Year, tax year or Disposition, plus any
earnings.
PAYMENT PROCEDURES
CP&L Energy will pay, or direct the trustee to pay, the contingent payments
at the office of the paying agent whom CP&L Energy will designate for this
purpose. The initial paying agent will be EquiServe. CP&L Energy may at any time
add or delete paying agents or change the office through which any paying agent
acts. CP&L Energy must, however, maintain a paying agent in each place of
payment for the contingent value obligations. For more information, see Section
402 of the contingent value obligation agreement.
Payment of any amounts pursuant to the contingent value obligations shall
be made in coin or currency of the United States of America. CP&L Energy may pay
such amounts by wire transfer or check.
TIMING OF DEPOSITS WITH THE TRUSTEE
CP&L Energy will from time to time deposit the amounts set forth below with
the trustee to be held by the trustee as Contingency Funds and to be used to
support the obligations of CP&L Energy to make payments to the holders of the
contingent value obligations. Contingency Funds will be invested in United
States government obligations, or money market funds investing in government
obligations, selected by the trustee, with advice from CP&L Energy on the
estimated dates for payments of the Contingency Funds to the holders.
EXCESS CASH FLOW DEPOSITS
- ESTIMATE. On March 15th following each Operation Year (each, an
"EXCESS CASH FLOW ESTIMATE DEPOSIT Date"), CP&L Energy shall deliver
to the trustee:
- an officer's certificate identifying the Excess Cash Flow
Estimate for such Operation Year;
- an accountants' certificate; and
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- an amount equal to the Excess Cash Flow Estimate.
- ESTIMATE ADJUSTMENT. Within 20 business days after the Tax Filing Date
for an Operation Year, CP&L Energy shall deliver to the trustee:
- an officer's certificate identifying the revised Excess Cash Flow
Estimate for the applicable Operation Year and the amount of any
Excess Cash Flow Estimate Adjustment to be made for such
Operation Year;
- an accountants' certificate; and
- an amount equal to the Excess Cash Flow Estimate Adjustment (if
positive), together with any earnings (calculated at the average
yield on the portion of the Contingency Funds allocable to such
Operation Year) from the Excess Cash Flow Estimate Deposit Date
to the date of such delivery.
Within 20 business days after receipt of the officer's certificate, the
Excess Cash Flow Estimate Adjustment (if negative), together with any
earnings from the Excess Cash Flow Estimate Deposit Date to the applicable
Payment Date, shall be paid by the trustee to CP&L Energy from the
Contingency Funds, if any, held by the trustee allocable to such Operation
Year.
- - FINAL DEPOSIT ADJUSTMENT. Within 20 business days after the Final
Determination Date for an Operation Year, CP&L Energy shall deliver to the
trustee:
- an officer's certificate identifying the Final Excess Cash Flow
Deposit Adjustment for the applicable Operation Year;
- an accountants' certificate; and
- an amount equal to the Final Excess Cash Flow Deposit Adjustment (if
positive), together with any earnings (calculated at the average yield
on the portion of the Contingency Funds allocable to such Operation
Year) from the Excess Cash Flow Estimate Deposit Date to the date of
such delivery.
Within 20 business days after receipt of the officer's certificate, the
Final Excess Cash Flow Deposit Adjustment (if negative), together with any
earnings from the Excess Cash Flow Estimate Deposit Date to the applicable
Payment Date, shall be paid by the trustee to CP&L Energy from the
Contingency Funds, if any, held by the trustee allocable to such Operation
Year; provided, however, that if such Final Excess Cash Flow Deposit
Adjustment (plus earnings) is more than the remaining Contingency Funds
allocable to such Operation Year, the deficiency shall be paid to CP&L
Energy from remaining Contingency Funds, if any, allocable to one or more
other tax years, and the amounts potentially payable to contingent value
obligation holders with respect to such other tax year or years shall be
reduced by the amount of such deficiency. For purposes of the preceding
sentence, the deficiency shall be paid
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to CP&L Energy from the Contingency Funds allocable to the earliest tax
year or years for which Contingency Funds remain.
EXCESS CARRYFORWARD CREDITS DEPOSITS
- - ESTIMATE. On March 15th following each tax year after 2007 (each, an
"EXCESS CARRYFORWARD CREDITS ESTIMATE DEPOSIT DATE"), CP&L Energy shall
deliver to the trustee:
- an officer's certificate identifying the Excess Carryforward Credits
Estimate for such tax year;
- an accountants' certificate; and
- an amount equal to the Excess Carryforward Credits Estimate.
- - ESTIMATE ADJUSTMENT. Within 20 business days after the Tax Filing Date for
a tax year after 2007, CP&L Energy shall deliver to the trustee:
- an officer's certificate identifying the revised Excess Carryforward
Credits Estimate for the applicable tax year and the amount of any
Excess Carryforward Credits Estimate Adjustment to be made for such
tax year;
- an accountants' certificate; and
- an amount equal to the Excess Carryforward Credits Estimate Adjustment
(if positive), together with any earnings (calculated at the average
yield on the portion of the Contingency Funds allocable to such tax
year) from the Excess Carryforward Credits Estimate Deposit Date to
the date of such delivery.
Within 20 business days after receipt of the officer's certificate, the
Excess Carryforward Credits Estimate Adjustment (if negative), together
with any earnings from the Excess Carryforward Credits Estimate Deposit
Date to the applicable Payment Date, shall be paid by the trustee to CP&L
Energy from the Contingency Funds, if any, held by the trustee allocable to
such tax year.
- - FINAL DEPOSIT ADJUSTMENT. Within 20 business days after the Final
Determination Date for a tax year after 2007, CP&L Energy shall deliver to
the trustee:
- an officer's certificate identifying the Final Excess Carryforward
Credits Deposit Adjustment for the applicable tax year;
- an accountants' certificate; and
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- an amount equal to the Final Excess Carryforward Credits Deposit
Adjustment (if positive), together with any earnings (calculated at
the average yield on the portion of the Contingency Funds allocable to
such tax year) from the Excess Carryforward Credits Estimate Deposit
Date to the date of such delivery.
Within 20 business days after receipt of such officer's certificate, the
Final Excess Carryforward Credits Deposit Adjustment (if negative),
together with any earnings from the Excess Carryforward Credits Estimate
Deposit Date to the applicable Payment Date, shall be paid by the trustee
to CP&L Energy from the Contingency Funds, if any, held by the trustee
allocable to such tax year; provided, however, that if such Final Excess
Carryforward Credits Deposit Adjustment (plus earnings) is more than the
remaining Contingency Funds allocable to such tax year, the deficiency
shall be paid to CP&L Energy from remaining Contingency Funds, if any,
allocable to one or more other tax years, and the amounts potentially
payable to contingent value obligation holders with respect to such other
tax year or years shall be reduced by the amount of such deficiency. For
purposes of the preceding sentence, the deficiency shall be paid to CP&L
Energy from the Contingency Funds allocable to the earliest tax year or
years for which Contingency Funds remain.
EXCESS DISPOSITION PROCEEDS
- - ESTIMATE. As soon as practicable after the receipt of Disposition Proceeds
in cash by CP&L Energy (each, an "EXCESS DISPOSITION PROCEEDS DEPOSIT
DATE"), CP&L Energy shall deliver to the trustee:
- an officer's certificate identifying:
- the Excess Disposition Proceeds attributable to such Disposition
Proceeds;
- the Maximum Indemnity Obligation Amount with respect to such
Disposition; and
- CP&L Energy's good faith estimate of the time frame during which
any indemnity obligation with respect to such Disposition is
expected to remain outstanding;
- an accountants' certificate; and
- an amount equal to any Excess Disposition Proceeds attributable to
such cash Disposition Proceeds.
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- FINAL DEPOSIT ADJUSTMENT. Within 20 Business Days after the
termination (by payment or expiration) of all indemnity obligations
with respect to a particular Disposition, CP&L Energy shall deliver to
the trustee:
- an officer's certificate identifying the Final Excess Disposition
Proceeds Deposit Adjustment with respect to such Disposition (if
applicable); and
- an accountants' certificate.
Within 20 business days after receipt of such officer's certificate,
the Final Excess Disposition Proceeds Deposit Adjustment (if
applicable), together with any earnings from the Excess Disposition
Proceeds Estimate Deposit Date to the applicable Payment Date, shall
be paid by the trustee to CP&L Energy from the Contingency Funds, if
any, held by the trustee allocable to such Disposition; provided,
however, that if such Final Excess Disposition Proceeds Deposit
Adjustment (plus earnings) is more than the remaining Contingency
Funds allocable to such Disposition, the deficiency shall be paid to
CP&L Energy from remaining Contingency Funds allocable to one or more
tax years or other Dispositions, and the amounts potentially payable
to contingent value obligation holders with respect to such tax year
or years or other Dispositions shall be reduced by the amount of such
deficiency. For purposes of the preceding sentence, the deficiency
shall be paid to CP&L Energy from the Contingency Funds allocable to
the earliest tax year or years or other Dispositions for which
Contingency Funds remain.
TIMING OF PAYMENTS TO HOLDERS OF CONTINGENT VALUE OBLIGATIONS
CP&L Energy shall pay, or by officer's certificate (delivered with an
accountants' certificate) direct the trustee to pay from Contingency Funds, to
the holders of contingent value obligations of record on the date that is 15
business days prior to the applicable Payment Date, the following:
EXCESS CASH FLOW PAYMENTS
- INTERIM PAYMENT. With respect to each Operation Year for which an
Interim Determination Date occurs prior to the Final Determination
Date, within 30 business days after the Interim Determination Date for
such Operation Year, for each contingent value obligation, a pro rata
portion of the Interim Excess Cash Flow Payment with respect to such
Operation Year, together with any earnings on the portion from the
Excess Cash Flow Estimate Deposit Date to the applicable Payment Date,
and less any Allocable Expenses allocable to such Operation Year;
- ADJUSTMENT TO INTERIM PAYMENT. With respect to each Operation Year for
which an Interim Determination Date occurs prior to the Final
Determination Date, within 30 business days after the Final
Determination Date for such Operation
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Year, for each contingent value obligation, a pro rata portion of the
Excess Cash Flow Payment Adjustment (if positive) with respect to such
Operation Year, together with any earnings on the portion from the
Excess Cash Flow Estimate Deposit Date to the applicable Payment Date,
less any Allocable Expenses allocable to such Operation Year and not
taken into account under the previous paragraph;
- FINAL PAYMENT. With respect to each Operation Year for which no
Interim Determination Date occurs prior to the Final Determination
Date, within 30 business days after the Final Determination Date for
such Operation Year, for each contingent value obligation, a pro rata
portion of the actual Excess Cash Flow for such Operation Year,
determined as of the Final Determination Date, together with any
earnings on the portion from the Excess Cash Flow Estimate Deposit
Date to the applicable Payment Date, and less any Allocable Expenses
allocable to such Operation Year.
EXCESS CARRYFORWARD CREDITS PAYMENTS
- INTERIM PAYMENT. With respect to each tax year after 2007 for which an
Interim Determination Date occurs prior to the Final Determination
Date, within 30 business days after the Interim Determination Date for
such tax year, for each contingent value obligation, a pro rata
portion of the Interim Excess Carryforward Credits Payment for such
tax year, together with any earnings on the portion from the Excess
Carryforward Credits Estimate Deposit Date to the applicable Payment
Date, and less any Allocable Expenses allocable to such tax year;
- ADJUSTMENT TO INTERIM PAYMENT. With respect to each tax year after
2007 for which an Interim Determination Date occurs prior to the Final
Determination Date, within 30 business days after the Final
Determination Date for such tax year, for each contingent value
obligation, a pro rata portion of the Excess Carryforward Credits
Payment Adjustment (if positive) for such tax year, together with any
earnings on the portion from the Excess Carryforward Credits Estimate
Deposit Date to the applicable Payment Date, less any Allocable
Expenses allocable to such tax year and not taken into account under
the previous paragraph;
- FINAL PAYMENT. With respect to each tax year after 2007 for which no
Interim Determination Date occurs prior to the Final Determination
Date, within 30 business days after the Final Determination Date for
such tax year, for each contingent value obligation, a pro rata
portion of the actual Excess Carryforward Credits for such tax year,
determined as of the Final Determination Date, together with any
earnings on the portion from the Excess Carryforward Credits Estimate
Deposit Date to the applicable Payment Date, and less any Allocable
Expenses allocable to such tax year;
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EXCESS DISPOSITION PROCEEDS
- INTERIM PAYMENT. With respect to each Disposition, as soon as
practicable after the receipt of Excess Disposition Proceeds by the
trustee, for each contingent value obligation, a pro rata portion of
the Interim Excess Disposition Proceeds Payment with respect to such
Disposition; and
- ADJUSTMENT TO INTERIM PAYMENT. With respect to each Disposition:
- within 30 Business Days after the termination of all indemnity
obligations with respect to such Disposition, for each contingent
value obligation, a pro rata portion of the Excess Disposition
Proceeds Payment Adjustment (if positive) with respect to such
Disposition, together with any earnings on the portion from the
Excess Disposition Proceeds Deposit Date to the applicable
Payment Date; and
- for any tax year following the termination of the indemnity
obligations and in which CP&L Energy receives any Disposition
Proceeds with respect to such Disposition, as soon as practicable
following the receipt by the trustee of any Excess Disposition
Proceeds attributable to such Disposition Proceeds, for each
contingent value obligation, a pro rata portion of such Excess
Disposition Proceeds.
Payments which would otherwise be due to the holders of the contingent
value obligations may be deferred and combined with the next payment to be made
if the payment is in the aggregate less than one million dollars. No payment
will be deferred if CP&L Energy reasonably believes that it will be the final
payment to the holders of the contingent value obligations.
SUBORDINATION
The contingent value obligations will be subordinate and junior in right of
payment to all CP&L Energy's senior indebtedness. No contingent payment may be
made if:
- any senior indebtedness is not paid when due;
- any applicable grace period with respect to default in payment of
senior indebtedness has ended, and the default has not been cured or
waived; or
- the maturity of any senior indebtedness has been accelerated because
of a default.
Upon any distribution of CP&L Energy's assets to creditors upon any
dissolution, winding-up, liquidation or reorganization, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
principal of, and any premium and interest due or to become due on all senior
indebtedness must be paid in full before the holders of the contingent value
obligations are entitled to payment. For more information, see Section 1202 of
the contingent value obligation agreement. The rights of the holders of the
contingent value obligations will be
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subrogated to the rights of the holders of senior indebtedness to receive
payments or distributions applicable to senior indebtedness until all amounts
owing on the contingent value obligations are paid in full. For more
information, see Section 1204 of the contingent value obligation agreement.
As defined in the contingent value obligation agreement, the term "SENIOR
INDEBTEDNESS" means:
- obligations of, or guaranteed or assumed by, CP&L Energy
- for borrowed money; or
- for the payment of money relating to any lease which is
capitalized on the consolidated balance sheet of CP&L Energy and
its subsidiaries in accordance with generally accepted accounting
principles; or
- indebtedness evidenced by bonds, debentures, notes or other similar
instruments.
The term "SENIOR INDEBTEDNESS" shall not include:
- indebtedness issued under the contingent value obligation agreement;
- obligations of CP&L Energy that by their terms are expressly PARI
PASSU in right of payment to the contingent value obligations;
- obligations of CP&L Energy to any subsidiary of CP&L Energy or any
other affiliate of CP&L Energy; or
- non-recourse obligations.
In the case of any such indebtedness or obligations, senior indebtedness
includes amendments, renewals, extensions, modifications and refundings, whether
existing as of the date of the contingent value obligation agreement or
subsequently incurred by CP&L Energy.
The contingent value obligation agreement does not limit the aggregate
amount of senior indebtedness that CP&L Energy may incur.
REDEMPTION
CP&L Energy shall not have the right to redeem, in whole or in part, at any
time the contingent value obligations and the holders of the contingent value
obligations shall not have the right to require CP&L Energy to make any such
redemption. Nothing in the contingent value obligation agreement prohibits CP&L
Energy from purchasing or acquiring contingent value obligations in the open
market, in privately negotiated transactions or otherwise.
EVENTS OF DEFAULT
The term "EVENT OF DEFAULT" as defined in the contingent value obligations
agreement with respect to contingent value obligations means any of the
following:
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- failure to pay the amounts payable when due on contingent value
obligations;
- breach of or failure to perform any other covenant or warranty in the
contingent value obligation agreement for either 30 or 60 days,
depending on the covenant or warranty, after CP&L Energy receives
notice from the trustee, or CP&L Energy and the trustee receive notice
from the holders of at least 33% of the outstanding contingent value
obligations according to the provisions of the contingent value
obligation agreement; and
- certain events of bankruptcy, insolvency or reorganization.
For more information, see Section 501 of the contingent value obligation
agreement.
After the occurrence of an event of default for failure to pay amounts
payable with respect to the contingent value obligations, all unpaid amounts
will bear interest at a rate equal to the three- month London Interbank Offered
Rate (as published in THE WALL STREET JOURNAL) plus 300 basis points.
The contingent value obligations agreement includes provisions as to the
duties the trustee in case an event of default occurs and is continuing.
Consistent with these provisions, the trustee will be under no obligation to
exercise any of its rights or powers at the request or direction of any of the
holders, unless those holders have offered to the trustee indemnity satisfactory
to the trustee in its reasonable judgment. For more information, see Section 603
of the contingent value obligation agreement. Subject to these provisions for
indemnification, the holders of a majority of the outstanding contingent value
obligations may direct the time, method and place of conducting any proceeding
for any remedy available to the trustee, or exercising any trust or power
conferred on the trustee, with respect to the contingent value obligations. For
more information, see Section 511 of the contingent value obligation agreement.
No contingent value obligation holder may institute any proceeding
regarding the contingent value obligation agreement, or for the appointment of a
receiver or a trustee, or for any other remedy under the contingent value
obligation agreement unless:
- the holder has previously given to the trustee written notice of a
continuing event of default;
- the holders of 33% of the outstanding contingent value obligations
with respect to which an event of default is continuing have made a
written request to the trustee, and have offered reasonable indemnity
to the trustee to institute the proceeding as trustee; and
- the trustee has failed to institute the proceeding, and has not
received from the holders of a majority of the outstanding contingent
value obligations a direction inconsistent with the request, within 60
days after notice, request and offer of reasonable indemnity.
For more information, see Section 506 of the contingent value obligation
agreement.
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CP&L Energy must furnish annually to the trustee a statement by an
appropriate officer as to that officer's knowledge of CP&L Energy compliance
with all conditions and covenants under the contingent value obligation
agreement. CP&L Energy compliance is to be determined without regard to any
grace period or notice requirement under the contingent value obligation
agreement. For more information, see Section 405 of the contingent value
obligation agreement.
CERTAIN COVENANTS
CP&L Energy has agreed:
- not to allow the EARTHCO business entities to incur obligations for
borrowed money, or to guarantee or assume any such obligations, or to
allow liens on any of their assets; and
- to exercise good faith and fair dealing with respect to the holders of
the contingent value obligations in all matters concerning the
contingent value obligations.
OPERATION OF PLANTS; TAX MATTERS
Subject to CP&L Energy's duty of good faith and fair dealing:
- CP&L may hold and operate the EARTHCO plants in accordance with its
determination, in its sole discretion, of the appropriate extent and
manner of ownership and operation, including reduction or termination
of operations or dispositions of whole or partial interests, except
that CP&L Energy may not sell entities that own the EARTHCO business
entities except to affiliates, and may not engage in non-cash
Dispositions; and
- CP&L will have complete and full control and sole discretion with
respect to reporting items on its tax returns and conducting tax
audits and proceedings.
LIMITATION ON LIABILITY
CP&L Energy will have no liability to any holder of a contingent value
obligation arising from any action taken with respect to the EARTHCO plants, the
EARTHCO business entities, the availability of the Section 29 credits, or its
tax reporting or tax proceedings, except to the extent arising from its failure
to perform or breach of any express covenant or warranty contained in the
contingent value obligation agreement or certificate.
CONSOLIDATION, MERGER, AND SALE OF ASSETS
CP&L Energy may not consolidate with or merge into any other person, nor
may CP&L Energy transfer or lease substantially all of its assets and property
to any person, unless:
- the corporation formed by the consolidation or into which CP&L Energy
is merged, or the person which acquires by conveyance or transfer, or
which leases, substantially all of its property and assets:
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- is organized and validly existing under the laws of the United
States; and
- expressly assumes CP&L Energy's obligations on the contingent
value obligations and under the contingent value obligation
agreement;
- immediately after the transaction becomes effective, no event of
default, and no event which would become an event of default, shall
have occurred and be continuing; and
- CP&L Energy will have delivered to the trustee an officer's
certificate and opinion of counsel as provided in the contingent value
obligation agreement.
For more information, see Section 801 of the contingent value obligation
agreement.
REPORTS BY CP&L ENERGY
CP&L Energy will deliver to the "participants" in DTC for delivery to the
holders of beneficial interests in the contingent value obligations, with a copy
to the trustee, not later than 60 days after the end of each of the first three
calendar quarters and 120 days after the end of each year, a report describing
the results of operations for each EARTHCO plant for that quarter, and updating
material developments , including any adjustments for previous periods and
relevant tax proceedings and positions.
CP&L Energy shall file with the trustee copies of the annual reports and of
the information, documents and other reports (or copies of such portions of any
of the foregoing as the Securities and Exchange Commission may from time to time
by rules and regulations prescribe) which CP&L Energy may be required to file
with the Securities and Exchange Commission pursuant to Section 13 or Section
15(d) of the Securities Exchange Act; or, in accordance with rules and
regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to CP&L Energy's compliance with
the conditions and covenants of the contingent value obligation agreement as may
be required from time to time by such rules and regulations. Within 30 days
after the filing of these documents with the trustee, CP&L Energy shall transmit
by mail to all registered holders of contingent value obligations summaries of
any information documents and reports required to be filed by CP&L Energy. For
more information see Section 702 of the contingent value obligation agreement.
RESALES OF CONTINGENT VALUE OBLIGATIONS
The contingent value obligations will be freely transferable by the holders
of such contingent value obligations under the Securities Act, except for
contingent value obligations issued to any holder of contingent value
obligations who may be deemed to be an "affiliate" of CP&L Energy for purposes
of Rule 145 under the Securities Act. Such affiliates may not sell their
contingent value obligations, except pursuant to an effective registration
statement under the Securities Act or other applicable exemption from the
registration requirements of the Securities Act. CP&L Energy does not intend to
list the contingent value obligations on any national securities exchange or
have them included in any inter dealer quotation system.
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MODIFICATION AND WAIVER
CP&L Energy and the trustee, without the consent of the holders of the
contingent value obligations, may enter into one or more amendments to the
contingent value obligation agreement for any of the following purposes:
- to evidence the assumption by any permitted successor of CP&L Energy's
covenants in the contingent value obligation agreement;
- to add one more covenants or other provisions that CP&L Energy and the
trustee consider to be for the benefit of the holders of outstanding
contingent value obligations or to surrender any right or power
conferred upon CP&L Energy by the contingent value obligation
agreement;
- to add any additional events of default;
- to change or eliminate any provision of the contingent value
obligation agreement or add any new provision to it, but only if this
action will not adversely affect the interests of the holders of
contingent value obligations;
- to provide collateral security for the contingent value obligations;
- to change, but only if such changes will not adversely affect the
interests of the holders of contingent value obligations, any place
where:
- the amounts due and payable on the contingent value obligations
shall be payable;
- any contingent value obligation may be surrendered for
registration of transfer or exchange; or
- notices and demands to or upon us regarding contingent value
obligations and the contingent value obligation agreement may be
served;
- to cure any ambiguity or inconsistency (but only if such changes will
not adversely affect the interests of the holders of contingent value
obligations); or
- to provide for issuance or authentication of securities other than
Global Securities.
For more information, see Section 901 of the contingent value obligation
agreement .
The holders of at least a majority of the outstanding contingent value
obligations may waive any past default under the contingent value obligation
agreement, except a default in the payment of amounts payable on the contingent
value obligations, and certain covenants and provisions of the contingent value
obligation agreement that cannot be modified or amended without consent of the
holder of each outstanding contingent value obligation affected (see Section 512
of the contingent value obligation agreement).
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The Trust Indenture Act may be amended after the date of the contingent
value obligation agreement in a manner that may require changes to the
contingent value obligation agreement. In this event, the contingent value
obligation agreement will be deemed to have been amended so as to effect the
changes, and CP&L Energy and the trustee may, without the consent of any holders
of contingent value obligations, enter into one or more amendments to evidence
or effect the amendment. For more information, see Section 901 of the contingent
value obligation agreement.
With the consent of the holders of a majority of the outstanding contingent
value obligations, CP&L Energy and the trustee may enter into one or more
amendments to the contingent value obligation agreement or to the contingent
value obligations for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the contingent value obligation
agreement or the contingent value obligations. However, an amendment:
- may not reduce the amounts payable on the contingent value
obligations, or otherwise modify the method of payment of amounts
payable on the contingent value obligations (other than modifications
that would not adversely affect the interests of the holders of
contingent value obligations in any material respect);
- may not impair the right of any holder of contingent value obligations
to receive the amounts payable on the contingent value obligations on
or after the due dates therefore or to institute suit for the
enforcement of any payment on such holder's contingent value
obligations;
- may not reduce the number of contingent value obligations, the consent
of whose holders is required for any amendment, or for any waiver of
compliance with any provision of or any default under the contingent
value obligation agreement, or reduce the requirements for quorum or
voting, without the consent of the holder of each outstanding
contingent value obligation affected; or
- may not make any change in the provisions of the contingent value
obligation agreement relating to amendments, except to increase any
such percentage or to provide that certain other provisions of the
contingent value obligation cannot be modified without the consent of
the holder of each contingent value obligation affected.
For more information see Section 902 of the contingent value obligation
agreement.
If CP&L Energy solicits from holders of the contingent value
obligations any type of action, CP&L Energy may at its option by board
resolution fix in advance a record date for the determination of the holders
entitled to vote on the action. CP&L Energy shall have no obligation, however,
to do so. If CP&L Energy fixes a record date, the action may be taken before or
after the record date, but only the holders of record at the close of business
on the record date shall be deemed to be holders for the purposes of determining
whether holders of the requisite proportion of the outstanding contingent value
obligations have authorized the action. For that purpose, the outstanding
contingent value obligations shall be computed as of the record date. Any holder
action shall bind every future holder of the same security and the holder of
every security issued upon the registration of transfer of or in exchange for or
in lieu of the security in respect of anything done or
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permitted by the trustee or us in reliance on that action, whether or not
notation of the action is made upon the security. For more information, see
Section 104 of the contingent value obligation agreement.
RESIGNATION OF THE TRUSTEE
The trustee may resign at any time by giving written notice to CP&L Energy
or may be removed at any time by an action of the holders of a majority of the
outstanding contingent value obligations delivered to the trustee and CP&L
Energy. No resignation or removal of the trustee and no appointment of a
successor trustee will become effective until a successor trustee accepts
appointment in accordance with the requirements of the contingent value
obligation agreement. So long as no event of default or event which would become
an event of default has occurred and is continuing, and except with respect to a
trustee appointed by an action of the holders, if CP&L Energy has delivered to
the trustee a resolution of their Board of Directors appointing a successor
trustee and the successor trustee has accepted the appointment in accordance
with the terms of the contingent value obligation agreement, the trustee will be
deemed to have resigned and the successor trustee will be deemed to have been
appointed as trustee in accordance with the contingent value obligation
agreement. For more information, see Section 610 of the contingent value
obligation agreement.
NOTICES
CP&L Energy will give notices to holders of contingent value obligations by
mail to their addresses as they appear in the security register. For more
information, see Section 106 of the contingent value obligation agreement.
GOVERNING LAW
The contingent value obligation agreement and the contingent value
obligations will be governed by, and construed in accordance with, the law of
the State New York. For more information, see Section 112 of the contingent
value obligation agreement.
GLOBAL SECURITIES
CP&L Energy shall issue the contingent value obligations as global
securities. The contingent value obligations will be deposited with, or on
behalf of, DTC as the depository. The contingent value obligations will be
represented by one or more global securities registered in the name of Cede &
Co., as nominee of DTC. The interest of the beneficial owners in the global
securities will be represented through financial institutions acting on their
behalf as direct or indirect participants in DTC.
Ownership of beneficial interests in a global security will be limited to
persons who have accounts with DTC ("direct participants") or persons such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct participant, either directly or
indirectly ("indirect participants"). Ownership of beneficial interests in the
global securities will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by
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- DTC or its nominee, with respect to direct participant's interests
and;
- direct participants, with respect to interests of persons held by the
direct participants on their behalf.
As long as DTC or its nominee is the registered holder of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner and holder of the contingent value obligations represented by such global
security for all purposes under the contingent value obligations and the
contingent value obligation agreement. In addition, no beneficial owner of an
interest in a global security will be able to transfer that interest except in
accordance with DTC's applicable procedures (in addition to those under the
contingent value obligation agreement).
CP&L Energy will make all payments on a global security to DTC or its
nominee as the holder of the global security. None of the following will have
any responsibility or liability for any aspect of the records relating to, or
for payments made on account of, beneficial ownership interests in the global
securities, or for maintaining, supervising or reviewing any records relating to
these beneficial ownership interests:
- CP&L Energy;
- the trustee under the contingent value obligation agreement;
- the paying agent under the contingent value obligation agreement;
- the security registrar under the contingent value obligation agreement
(except for liability to persons that maintain their beneficial
interests with the security registrar); or
- any agent of each of the above.
CP&L Energy expects that DTC or its nominee will credit direct
participants' accounts on the payment date with payments in respect of a global
security in amounts proportionate to their respective beneficial interest in the
amount of such global security as shown on the records of DTC or its nominee,
unless DTC has reason to believe that it will not receive payments on the
payment date. CP&L Energy also expects that payments by direct participants to
owners of beneficial interests in such global security held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in "street name." Such payments will be the responsibility of such participants.
Transfers between direct and indirect participants in DTC will be
effectuated in accordance with DTC rules. The laws of some jurisdictions require
that certain purchasers of contingent value obligations take physical delivery
of contingent value obligations in definitive form. These laws may impair the
ability to transfer beneficial interests in a global security. Because DTC can
only act on behalf of direct participants, who in turn act on behalf of indirect
participants and certain banks, the ability of the person having a beneficial
interest in a global security to pledge such interest to persons that do not
participate in the DTC system, or otherwise take actions in respect or such
interest, may be affected by the lack of physical certificate of such interest.
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We believe that it is the policy of DTC that it will take any action
permitted to be taken by a holder of contingent value obligations only at the
direction of one or more direct participants to whose account interests in the
global securities are credited and only in respect of such portion of the number
of the contingent value obligations as to which such direct participant or
participants has or have given such direction.
The contingent value obligation agreement provides that if:
- the depository notifies us that it is unwilling or unable to continue
as a depository, or
- if the depository ceases to be eligible under the contingent value
obligation agreement and a successor depository is not appointed by
CP&L Energy within 90 days,
the global securities will be exchanged for contingent value obligations in
definitive form of like tenor and of an equal aggregate number. Such definitive
contingent value obligations shall be registered in such name or names as the
depository shall instruct the trustee. It is expected that such instructions may
be based upon directions received by the depository from direct participants
with respect to ownership of beneficial interests in global securities.
DTC has advised CP&L Energy as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC holds securities that its direct
participants deposit with DTC and facilitates the settlement among participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in direct
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. DTC is owned by a number of its direct participants, including
Merrill Lynch, Salomon Smith Barney, the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. The rules applicable to DTC and its direct and indirect
participants are on file with the Commission.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global notes among direct and indirect
participants of DTC, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
CP&L Energy nor the trustee will have any responsibility for the performance by
DTC or its direct or indirect participants of their respective obligations under
the rules and procedures governing their operations.
According to DTC, the foregoing information with respect to DTC has been
provided to the financial community for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of any
kind.
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DEFINITIONS RELATED TO THE CONTINGENT VALUE OBLIGATION CERTIFICATE
"ACCOUNTANTS" means CP&L Energy's independent public accountants.
"ACCOUNTANTS' CERTIFICATE" means a certificate of the accountants in the
form attached as Appendix C to the contingent value obligation agreement.
"ALLOCABLE EXPENSES" means all fees and expenses of the trustee, expenses
of maintaining, investing and administering the Contingency Funds, costs
reasonably incurred by CP&L Energy in establishing and administering the
contingent value obligations, costs of transferring interests in the contingent
value obligations and other typical transfer agent functions, and that portion
of any of our tax administration, audit or controversy expenses reasonably
allocable to the contingent value obligations (including, within limitation,
expenses relating to the determination of any tax item associated with EARTHCO
plants).
"CARRYFORWARD CREDITS" means any Section 29 credits earned during an
Operation Year and carried forward (after taking into account the assumptions
with respect to the priority of use of tax credits in the definition of Net Cash
Flow) as part of CP&L Energy's minimum tax credit (within the meaning of Section
53 of the Internal Revenue Code) and utilized in one or more tax years after
2007.
"CONTINGENCY FUNDS" means all payments made by CP&L Energy to the trustee
and held by the trustee, plus earnings on amounts held, and less Allocable
Expenses.
"DISPOSITION" means any sale or other transfer during an Operation Year to
a Person outside CP&L Energy consolidated United States federal income tax group
of an interest in an EARTHCO business entity or EARTHCO plant that would result
in a loss or reduction of any Section 29 Credits available to CP&L Energy.
"DISPOSITION PROCEEDS" means proceeds received by CP&L Energy with respect
to a Disposition less
- CP&L Energy's unrecovered Initial Investment (or a PRO RATA portion in
the event of a partial Disposition),
- expenses incurred in connection with the Disposition, and
- taxes on the Disposition, assuming for this purpose that the taxable
gain shall be as reported on CP&L Energy's IRS Form 1120 and taxed at
a combined federal and state income tax rate of 40%.
For purposes of calculating CP&L Energy's unrecovered Initial Investment,
CP&L Energy shall be deemed to have recovered its Initial Investment with
respect to the interest that is the subject of such Disposition
- to the extent it shall have been recovered from previous Disposition
Proceeds with respect to such Disposition, and
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- to the extent there shall have been cumulative Excess Cash Flow
attributable to the relevant EARTHCO business entity for previous
Operation Years (other than that in which such Disposition occurs).
The Excess Cash Flow that shall be attributable, for each previous
Operation Year, to the relevant EARTHCO business entity or EARTHCO plant that is
the subject of the Disposition shall be determined by multiplying the Excess
Cash Flow for that Operation Year by a fraction, whose numerator shall be the
weighted average annual CP&L Energy's ownership interest (whether direct or
indirect) in the EARTHCO plant and whose denominator shall be the sum of the
weighted average annual CP&L Energy's ownership interest (whether direct or
indirect) in all EARTHCO plants. If such Disposition relates to less than a 100%
interest in the relevant EARTHCO plant, the recovery of the Initial Investment
will only be the cumulative Excess Cash Flow during all previous Operation Years
attributable to the fractional interest that is the subject of the Disposition.
For example, for each Operation Year before any Disposition has occurred,
100/400, or 25%, of Excess Cash Flow will be allocated to each EARTHCO plant;
for each Operation Year after there has been no Disposition except a Disposition
of a 50% interest in one EARTHCO plant, 100/350 of Excess Cash Flow will be
allocated to each 100%-owned EARTHCO plant and 50/350 of Excess Cash Flow will
be allocated to the one 50%-owned EARTHCO plant; and so forth.
"EARTHCO BUSINESS ENTITY" means any corporation, partnership, limited
liability company, or other entity owning (for United States federal income tax
purposes) an interest in an Earthco plant, including Ceredo Synfuel, LLC, Sandy
River Synfuel, LLC, Solid Energy, LLC, and Solid Fuel, LLC.
"EARTHCO PLANTS" means the following:
- the secondary coal recovery system facility owned by Solid Energy LLC
and currently located at Kentucky May Coal Company, Inc.'s Arnolds
Fork Preparation Plant near Kite, Kentucky;
- the secondary coal recovery system facility owned by Solid Fuel LLC
and currently located at Powell Mountain Coal Company, Inc.'s
Preparation Plant near St. Charles, Virginia;
- the secondary coal recovery system facility owned by Ceredo Synfuel
LLC and currently located at Kanawha River Terminal, Inc.'s Ceredo
Dock in Ceredo, West Virginia; and
- the secondary coal recovery system facility owned by Sandy River
Synfuel LLC and currently located at Kanawha River Terminal, Inc.'s
Ceredo Dock in Ceredo, West Virginia.
"EXCESS CARRYFORWARD CREDITS" means the amount equal to:
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the Carryforward Credits, for a particular Operation Year
50% x - any amount by which the Preference exceeded Net Cash
Flow for the Operation Year in which they were earned.
--------------------------------------------------------
"EXCESS CARRYFORWARD CREDITS ESTIMATE" means for each tax year after 2007,
the Excess Carryforward Credits originally estimated by CP&L Energy on March
15th following such tax year and revised within 20 business days after the Tax
Filing Date for such tax year.
"EXCESS CARRYFORWARD CREDITS ESTIMATE ADJUSTMENT" means the amount equal
to:
the revised Excess Carryforward the original Excess Carryforward
Credits Estimate for a Credits Estimate for such tax
particular tax year, determined - year, determined as of March
as of the Tax Filing Date for 15th following such tax year.
such tax year
"EXCESS CARRYFORWARD CREDITS PAYMENT ADJUSTMENT" means the amount equal to:
the actual Excess Carryforward the Interim Excess Carryforward
Credits for a particular tax - Credits Payment for such tax
year, determined as of the Final year.
Determination Date
"EXCESS CASH FLOW" means, for each Operation Year, 50% of the Net Cash Flow
in excess of the Preference.
"EXCESS CASH FLOW ESTIMATE" means for each Operation Year the Excess Cash
Flow originally estimated by CP&L Energy on March 15th following such Operation
Year and revised within 20 business days after the Tax Filing Date for such
Operation Year.
"EXCESS CASH FLOW ESTIMATE ADJUSTMENT" means the amount equal to:
the revised Excess Cash Flow the original Excess Cash Flow
Estimate for a particular Estimate for such Operation
Operation Year, determined as of - Year, determined as of March
the Tax Filing Date - for such 15th following such tax year.
Operation Year
"EXCESS CASH FLOW PAYMENT ADJUSTMENT" means the amount equal to
the actual Excess Cash Flow for the Interim Excess Cash Flow
a particular Operation Year, Payment for such Operation Year.
determined as of the Final -
Determination Date
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"EXCESS DISPOSITION PROCEEDS" means the amount equal to either,
- in the event of a Disposition prior to March 16, 2002, 25% of the
Disposition Proceeds for such Disposition; or
- in the event of a Disposition after March 15, 2002, the Ratio
multiplied by the Disposition Proceeds for such Disposition.
"EXCESS DISPOSITION PROCEEDS PAYMENT ADJUSTMENT" means the amount equal to:
the remaining Contingency Funds the total Final Excess
allocable to a particular Disposition Proceeds Deposit
Disposition - Adjustment paid to CP&L Energy
for such Disposition.
"FINAL DETERMINATION DATE" means for each tax year, the later of:
- the date when the statute of limitations for a tax year under both
sections 6501 and, if applicable, 6229 of the Internal Revenue Code
and in the case of an examination by any state taxing authority, the
statute of limitations under the applicable state law, has expired or
- in the event any taxing authority has proposed any adjustment for a
tax year, the date when there has occurred with respect to all such
proposed adjustments by all such taxing authorities for such tax year,
- a decision, judgment, decree, or other order of a court of
competent jurisdiction that has become final and not subject to
further appeal (through the passage of time or otherwise);
- a nonappealable written agreement with the applicable taxing
authority; or
- the completion of administrative proceedings with the applicable
taxing authority, if a judicial contest is not, or ceases to be,
available or, in the taxpayer's sole discretion, is not to be
commenced or continued.
"FINAL EXCESS CARRYFORWARD CREDITS DEPOSIT ADJUSTMENT" means the amount
equal to:
the actual Excess Carryforward the Excess Carryforward Credits
Credits for a particular tax Estimate for such tax year.
year, determined as of the Final -
Determination Date
"FINAL EXCESS CASH FLOW DEPOSIT ADJUSTMENT" means the amount equal to:
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the actual Excess Cash Flow for the Excess Cash Flow Estimate
a particular Operation Year, for such Operation Year.
determined as of the Final -
Determination Date
"FINAL EXCESS DISPOSITION PROCEEDS DEPOSIT ADJUSTMENT" means the amount
equal to either:
in the event of a Disposition prior to the event of a Disposition
March 16, 2002, 25% of the Indemnity after March 15, 2002 the Ratio
Obligation Amount for such - multiplied by the Indemnity
Disposition or Obligation Amount for such
Disposition.
"INDEMNITY OBLIGATION AMOUNT" means the total actual indemnity obligation
incurred by CP&L Energy or any subsidiary with respect to any Disposition plus
all out-of-pocket expenses incurred in connection with any indemnity claim
relating to such Disposition.
"INITIAL INVESTMENT" means the cost to acquire an EARTHCO plant or EARTHCO
business entity plus any costs to move and reassemble an EARTHCO plant at a new
location, all as reflected on the books of CP&L Energy or its subsidiaries
(including the applicable EARTHCO business entity), without any deduction for
depreciation or amortization.
"INTERIM DETERMINATION DATE" means, with respect to a tax year, the date
when all the following facts are true:
- the Examination Division of the Internal Revenue Service has completed
its examination of, and issued its final written report relating to,
the CP&L Energy consolidated United States federal income tax return
for that tax year;
- no adjustment is then proposed and remains unresolved with respect to
any item relating to an EARTHCO plant for that tax year;
- there then exists no examination or other proceeding with respect to
the United States federal income tax return for such tax year or any
prior tax year of any EARTHCO business entity; and
- there are remaining Contingency Funds deposited with respect to one or
more subsequent tax years for which neither an Interim Determination
Date nor a Final Determination Date has occurred.
"INTERIM EXCESS CARRYFORWARD CREDITS PAYMENT" means for each tax year after
2007, the lesser of
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- the Excess Carryforward Credits Estimate for such tax year previously
deposited into the Contingency Funds, or
- the Excess Carryforward Credits for such tax year, determined as of
the Interim Determination Date, and based upon the proposed
redetermination of our consolidated tax liability and taxable income
as shown on the IRS examination report for such tax year.
"INTERIM EXCESS CASH FLOW PAYMENT" means for each Operation Year, the
lesser of
- the Excess Cash Flow Estimate for such Operation Year previously
deposited into the Contingency Funds, or
- the Excess Cash Flow for such Operation Year, determined as of the
Interim Determination Date, and based upon the proposed
redetermination of our consolidated tax liability and taxable income
as shown on the Internal Revenue Service examination report for such
Operation Year.
"INTERIM EXCESS DISPOSITION PROCEEDS PAYMENT" means the amount equal to
either:
- in the event of a Disposition prior to March 16, 2002
the amount deposited by CP&L 25% of the Maximum Indemnity
Energy with the trustee with Obligation Amount
respect to a Disposition -
or
- in the event of a Disposition after March 15, 2002
the amount deposited by CP&L the Ratio multiplied by the
Energy with the trustee with Maximum Indemnity Obligation
respect to a Disposition - Amount
and;
- For any Disposition for which CP&L Energy is to receive one or more
additional payments of Disposition Proceeds, the preceding formula
shall be applied by replacing "Maximum Indemnity Obligation Amount"
with a PRO RATA portion thereof based upon the ratio of the amount so
deposited to the total Excess Disposition Proceeds received and to be
received for such Disposition.
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"INTERNAL REVENUE CODE" means the United States Internal Revenue Code of
1986, as amended, or any successors thereto.
"IRS" means the United States Internal Revenue Service.
"MAXIMUM INDEMNITY OBLIGATION AMOUNT" means either:
- the total maximum indemnity obligation that could be incurred by CP&L
Energy or any subsidiary with respect to any Disposition, as set forth
in the agreement providing for indemnity with respect to such
Disposition, or
- if no such maximum is set forth in any agreement, CP&L Energy's good
faith estimate of the total maximum indemnity obligation that could be
incurred by CP&L Energy or any subsidiary with respect to such
Disposition; provided that, in the case of an indemnity obligation
concerning an environmental matter, CP&L Energy shall take into
consideration (in forming its good faith estimate) the written
evaluation of an independent third party.
"NET CASH FLOW" means CP&L Energy's share of each EARTHCO business entity's
income or loss adjusted for depreciation and other non-cash items, plus (A)
income tax benefits, less income taxes incurred and (B) income tax credits
realized. CP&L Energy's share of each EARTHCO business entity's partnership
income or loss shall be determined from Internal Revenue Service Schedule K-1,
of Form 1065, received in connection with each partnership's tax filing. Such
amount shall be adjusted to a cash basis by adjusting for depreciation and other
non-cash items creating such income or loss. Income tax benefits will be
determined for the Operation Year under consideration by multiplying (i) CP&L
Energy's statutory United States federal income tax rate by any partnership
losses relating to an EARTHCO plant reported on such Forms K-1 that CP&L Energy
realizes on its Internal Revenue Service Form 1120 and (ii) CP&L Energy's
effective state income tax rate (after taking into account the deduction of
state income taxes for United States federal income tax purposes) by any such
partnership losses that CP&L Energy or a subsidiary realize on the applicable
state income tax returns. Income taxes incurred shall be determined for the
Operation Year under consideration by multiplying (i) CP&L Energy's statutory
United States federal income tax rate by any partnership income reported on such
Forms K-1 that CP&L Energy realizes on CP&L Energy's Internal Revenue Service
Form 1120 and (ii) CP&L Energy's effective state income tax rate (after taking
into account the deduction of state income taxes for United States federal
income tax purposes) by any such partnership income that CP&L Energy or a
subsidiary realizes on the applicable state income tax returns. The income tax
credits realized will be determined by CP&L Energy's share of Section 29 credits
on such Forms K-1 and any unused Section 29 credits, related to the Earthco
plants, carried forward (as part of our minimum tax credit) from previous
Operation Years, that reduce total tax on CP&L Energy's Form 1120 for the
current Operation Year. For purposes of the calculation of Net Cash Flow, in any
Operation Year for which CP&L Energy generates carryforwards of tax credits of
equal priority with the Section 29 credits under the Internal Revenue Code or
Treasury Regulation ordering rules because of limitations on their use, the
Section 29 credits will be deemed to be the first such credits used in such
Operation Year. Additionally, Section 29 credits will be deemed utilized in the
order in which they were earned.
"OPERATION YEAR" means each tax year from 2001 through and including 2007.
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"PAYMENT DATE" means the date specified in the applicable officer's
certificate as a date on which the trustee or CP&L Energy is to make a payment
to the holders of the contingent value obligations or the trustee is to make a
payment to CP&L Energy.
"PREFERENCE" means $80 million for each Operation Year, subject to the
following adjustments:
- In the event of a Disposition of 100% of an EARTHCO plant or EARTHCO
business entity, the Preference will be reduced by the following
amounts (and for the year of the Disposition, by a PRO RATA portion
based on the portion of the years remaining after the Disposition):
<TABLE>
<CAPTION>
EARTHCO BUSINESS ENTITY OR EARTHCO PLANT DOLLAR AMOUNT
---------------------------------------- --------------
OWNED BY
-------
<S> <C>
Solid Energy, LLC $15.8 million
Solid Fuel, LLC $15.8 million
Ceredo Synfuel, LLC $27.6 million
Sandy River Synfuel, LLC $20.8 million
</TABLE>
; and
- In the event of a Disposition of less than 100% of an EARTHCO plant or
EARTHCO business entity, the Preference will be reduced by PRO RATA
portions of the above amounts, based on the percentage sold and, for
the year of the Disposition, the portion of the years remaining after
the Disposition.
"RATIO" means the ratio of Excess Cash Flow to Net Cash Flow for prior
Operation Years, determined on a cumulative basis, assuming for this purpose
that in each prior Operation Year our share of
- the aggregate net income (as computed for United States federal income
tax purposes) of the EARTHCO business entities is taxed at a combined
federal and state income tax rate of 40%,
- the aggregate net loss (as computed for United States federal income
tax purposes) of the EARTHCO business entities produces a combined
federal and state income tax benefit equal to 40% of such loss, and
- Section 29 credits are utilized in full in the tax year earned.
"SECTION 29 CREDITS" means any credit against the United States federal
income tax liability of CP&L Energy resulting from the production and sale of
"qualified fuels" from the EARTHCO plants to an unrelated person as provided for
in Section 29 of the Internal Revenue Code.
"TAX FILING DATE" means the date of the filing of our annual United States
federal income tax return for the applicable tax year.
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"TAX YEAR" means a calendar year or any fiscal year that CP&L Energy may
adopt as its taxable year for United States federal income tax purposes.
LEGAL MATTERS
The legality of the CP&L Energy common stock and contingent value
obligations to be issued in connection with the share exchange will be passed
upon by Hunton & Williams.
EXPERTS
The financial statements and the related financial statement schedules of
Florida Progress Corporation as of December 31, 1998 and 1997, and for each of
the years in the three-year period ended December 31, 1998, have been
incorporated by reference in this joint proxy statement/prospectus in reliance
upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference in this joint proxy statement/prospectus, and upon the
authority of KPMG LLP as experts in accounting and auditing.
Representatives of KPMG LLP are expected to be present at the Florida
Progress 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.
The financial statements and the related financial statement schedules
incorporated in this joint proxy statement/prospectus by reference from the
Carolina Power & Light Company 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 Deloitte & Touche
LLP given upon their authority as experts in accounting and auditing.
Representatives of Deloitte & Touche LLP are expected to be present at the
Carolina Power & Light special meeting. Representatives of that firm will have
the opportunity to make a statement if they so desire and are expected to be
available to respond to appropriate questions.
OTHER MATTERS
Neither the Florida Progress board of directors nor the CP&L Energy board
of directors currently intends to bring before either company's special meeting
any matters other than those specified in the notice and neither board has
knowledge of any other matters which may be brought up by other persons.
However, if any other matters properly come before either company's special
meeting or any adjournment of either company's special meeting, and are voted
upon, the enclosed proxies will be deemed to confer discretionary authority on
the persons named as proxies to vote the shares represented by those proxies as
to those other matters. Those persons named as Florida Progress proxies intend
to vote or not vote in accordance with the recommendation of the management of
Florida Progress. Those persons named as proxies in the CP&L Energy proxies
intend to vote or not vote in accordance with the recommendation of the
management of CP&L Energy.
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SHAREHOLDER PROPOSALS
FLORIDA PROGRESS. Proposals of Florida Progress shareholders intended to be
included in the Florida Progress proxy statement and presented at the 2001
Annual Meeting must be received by Florida Progress on or before _____________,
2001. Shareholder proposals submitted outside this process must satisfy the
advance notice provisions of the Florida Progress bylaws, which require timely
notice by shareholders in proper form for other business to be conducted at an
annual meeting. To be timely, in addition to other requirements, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of Florida Progress not less than 90 days nor more than 120 days before
the date of the annual meeting; provided, however, that in the event that less
than 100 days' notice or before public disclosure of the date of the annual
meeting is given or made to shareholders, notice by the shareholder in order to
be timely must be received not later than the close of business on the 10th day
following the day on which the notice of the date of the annual meeting was
mailed or the public disclosure of the date of the annual meeting was made,
whichever is first. Proposals should be sent to Florida Progress Corporation,
P.O. Box 33042, St. Petersburg, Florida 33733, Attn: Secretary.
CP&L ENERGY. CP&L Energy expects to maintain the same annual meeting
schedule as Carolina Power & Light has followed in the past. Accordingly,
shareholder proposals submitted for inclusion in the proxy statement for the
2001 annual meeting must be received no later than December __, 2000 at the CP&L
Energy's principal executive offices, addressed to the attention of:
William D. Johnson
Senior Vice President and Corporate Secretary
CP&L Energy, Inc.
Post Office Box 1551
Raleigh, North Carolina 27602-1551
In the event that CP&L Energy is unable to meet the anticipated 2000 annual
meeting schedule and the meeting date is changed by more than 30 calendar days
from May 12, 2000, shareholder proposals for the 2000 annual meeting must be
received at the address above a reasonable time before we print and mail our
proxy statement.
Any other proposal that a shareholder desires to be presented for action at
an annual meeting must be received by the Secretary of CP&L Energy no later than
the close of business on the 60th day before the first anniversary of the
immediately preceding year's annual meeting. The proposal must include a brief
description of the business desired to be brought before the meeting, the
shareholder's name and address, the class and number of shares owned by the
shareholder and disclosure of any material interest the shareholder may have in
the matter proposed.
WHERE YOU CAN FIND MORE INFORMATION
DOCUMENTS INCORPORATED BY REFERENCE. CP&L Energy, Carolina Power & Light
and Florida Progress file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
CP&L Energy also has filed with the Securities and Exchange Commission a
Registration Statement on Form S-4 (333-_______) under the Securities
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Act, with respect to the CP&L Energy common stock to be issued in the share
exchange. This joint proxy statement/prospectus is part of that registration
statement and constitutes a prospectus of CP&L Energy.
This joint proxy statement/prospectus does not contain all of the
information discussed in the registration statement or the exhibits to the
registration statement, parts of which have been omitted in accordance with the
rules and regulations of the Securities and Exchange Commission. For further
information, you should refer to the registration statement, copies of which may
be obtained from the Securities and Exchange Commission as set forth below.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this joint proxy
statement/prospectus and information that we file later with the Securities and
Exchange Commission will automatically update and supersede this information.
CP&L Energy and Florida Progress incorporate by reference the documents
listed below. As a result of the recent completion of the holding company
restructuring, CP&L Energy incorporates by reference the documents of Carolina
Power & Light. Some of these filings have been amended by later filings, which
also are listed. CP&L Energy and Florida Progress may be required by the
Securities and Exchange Commission to file other documents under Section 13(a),
13(c), 24 or 15(d) of the Securities Exchange Act of 1934 between the time this
joint proxy statement/prospectus is mailed and the date the special meetings are
held. These other documents will be deemed incorporated by reference in this
joint proxy statement/prospectus and to be a part of it from the date they are
filed with the Securities and Exchange Commission. Any statements contained in
this joint proxy statement/prospectus concerning the provisions of any document
filed with the Securities and Exchange Commission 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 joint proxy statement/prospectus, dated _______________, 2000.
You should not assume that the information in this joint proxy
statement/prospectus is accurate as of any date other than that date.
Florida Progress and CP&L Energy also incorporate by reference additional
documents that may be filed with the Securities and Exchange Commission between
the date of this joint proxy statement/prospectus and the completion of the
share exchange or the termination of the agreement and plan of exchange. These
include Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current
Reports on Form 8-K. CP&L Energy incorporates by reference the description of
the CP&L Energy common stock in the CP&L Energy Registration Statement on Form
S-4 (Registration No. 333-86243) filed August 31, 1999 with respect to the CP&L
Energy common stock, including all amendments and reports filed for the purpose
of updating the description.
168
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<CAPTION>
CAROLINA POWER & LIGHT SECURITIES AND EXCHANGE COMMISSION FILINGS PERIOD/AS OF DATE
------------------------------------------------------------------ -----------------
(FILE NO. 1-3382)
-----------------
<S> <C>
Definitive Proxy Statement April 1, 1999
Annual Report on Form 10-K Fiscal year ended December 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Quarterly Report on Form 10-Q Quarter ended June 30, 1999
Quarterly Report on Form 10-Q Quarter ended September 30, 1999
Current Report on Form 8-K February 26, 1999
Current Report on Form 8-K March 1, 1999
Current Report on Form 8-K July 15, 1999
Current Report on Form 8-K August 22, 1999
Current Report on Form 8-K August 22, 1999
Current Report on Form 8-K October 25, 1999
CP&L ENERGY SECURITIES AND EXCHANGE COMMISSION FILINGS (FILE NO. PERIOD/AS OF DATE
--------------------------------------------------------------- -----------------
1- )
----------
Registration Statement on Form S-4 (Registration No. 333-86243) Filed August 31, 1999
FLORIDA PROGRESS SECURITIES AND EXCHANGE COMMISSION FILINGS (FILE PERIOD/AS OF DATE
------------------------------------------------------------------ -----------------
NO. 1-3274)
-----------
Definitive Proxy Statement March 11, 1999
Annual Report on Form 10-K Fiscal year ended December 31, 1998
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Quarterly Report on Form 10-Q Quarter ended June 30, 1999
Quarterly Report on Form 10-Q Quarter ended September 30, 1999
Current Report on Form 8-K January 25, 1999
Current Report on Form 8-K February 18, 1999
Current Report on Form 8-K April 16, 1999
Current Report on Form 8-K July 16, 1999
Current Report on Form 8-K August 22, 1999
Current Report on Form 8-K August 23, 1999
Current Report on Form 8-K October 14, 1999
Current Report on Form 8-K January 27, 2000
Current Report on Form 8-K February 24, 2000
</TABLE>
169
<PAGE>
WHERE TO OBTAIN DOCUMENTS. Securities and Exchange Commission filings are
available to the public over the internet at the Securities and Exchange
Commission's web site at http://www.sec.gov. You may also read and copy any
documents that are filed at the Securities and Exchange Commission'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 Securities and Exchange
Commission 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).
Documents incorporated by reference are available from the companies
without charge by first class mail or equally prompt means within one business
day of receipt of your request, excluding exhibits unless the exhibit has been
specifically incorporated by reference into the information that this joint
proxy statement/prospectus 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:
CP&L ENERGY, INC. FLORIDA PROGRESS CORPORATION
CAROLINA POWER & LIGHT COMPANY Investor Services
Shareholder Relations P.O. Box 14042 (BT11B)
411 Fayetteville Street St. Petersburg, Florida 33733
Raleigh, North Carolina 27601 Telephone: (800) 937-2640
Telephone: (800) 662-7232
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, REQUESTS SHOULD BE
MADE BY _____________, 2000.
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
JOINT PROXY STATEMENT/PROSPECTUS OR IN THE OTHER DOCUMENTS THAT WE SPECIFICALLY
INCORPORATE BY REFERENCE, OR IN OTHER DOCUMENTS WE HAVE PUBLICLY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THEREFORE, IF ANYONE GIVES YOU DIFFERENT OR
ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS SPEAKS
ONLY AS OF ITS DATE UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER
DATE APPLIES. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO EXCHANGE OR SELL, OR A SOLICITATION OF AN OFFER TO EXCHANGE OR PURCHASE, THE
FLORIDA PROGRESS 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 JOINT PROXY STATEMENT/PROSPECTUS DOES
NOT APPLY TO YOU.
170
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ANNEX A
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF EXCHANGE
By and Among
Carolina Power & Light Company,
Florida Progress Corporation
and
CP&L Energy, Inc.
================================================================================
DATED AS OF AUGUST 22, 1999
AMENDED AND RESTATED AS OF MARCH 3, 2000
<PAGE>
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS.............................................................................................2
Section 1.1. Agreement...................................................................................2
Section 1.2. Alternative Proposal........................................................................2
Section 1.3. Atomic Energy Act...........................................................................2
Section 1.4. Certificates................................................................................2
Section 1.5. Closing; Closing Date.......................................................................3
Section 1.6. COBRA.......................................................................................3
Section 1.7. Code........................................................................................3
Section 1.8. Confidentiality Agreement...................................................................3
Section 1.9. Contracts...................................................................................3
Section 1.10. CP&L Common Stock..........................................................................3
Section 1.11. CP&L Companies.............................................................................4
Section 1.12. CP&L Disclosure Schedule...................................................................4
Section 1.13. CP&L Exchange..............................................................................4
Section 1.14. CP&L Exchange Agreement....................................................................4
Section 1.15. CP&L Exchange Registration Statement.......................................................4
Section 1.16. CP&L Exchange Special Meeting..............................................................5
Section 1.17. CP&L SEC Reports...........................................................................5
Section 1.18. Effective Time.............................................................................5
Section 1.19. Encumbrances...............................................................................5
Section 1.20. Environmental Claim and Environmental Laws.................................................6
Section 1.21. Environmental Permits......................................................................6
Section 1.22. ERISA......................................................................................6
Section 1.23. Exchange...................................................................................6
Section 1.24. Exchange Act...............................................................................6
Section 1.25. Exchange Agent.............................................................................6
Section 1.26. Exchange Consideration.....................................................................7
Section 1.27. FBCA.......................................................................................7
Section 1.28. FCC........................................................................................7
Section 1.29. FERC.......................................................................................7
Section 1.30. Final Stock Price..........................................................................7
Section 1.31. FPC Articles of Exchange...................................................................7
Section 1.32. FPC Benefit Plans..........................................................................8
Section 1.33. FPC Common Stock...........................................................................8
Section 1.34. FPC Companies..............................................................................8
Section 1.35. FPC Disclosure Schedule....................................................................8
Section 1.36. FPC LTIP...................................................................................8
Section 1.37. FPC Pension Plan...........................................................................8
Section 1.38. FPC Plan of Exchange.......................................................................8
Section 1.39. FPC Qualified Plan.........................................................................9
Section 1.40. FPC Rights.................................................................................9
</TABLE>
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Section 1.41. FPC Rights Agreement.......................................................................9
Section 1.42. FPC SEC Reports............................................................................9
Section 1.43. FPC Share.................................................................................10
Section 1.44. FPC Special Meeting.......................................................................10
Section 1.45. FPC Utility Subsidiary....................................................................10
Section 1.46. FPSC......................................................................................10
Section 1.47. Fund......................................................................................10
Section 1.48. GAAP......................................................................................10
Section 1.49. Governmental Authority....................................................................11
Section 1.50. Hazardous Material........................................................................11
Section 1.51. Holdco....................................................................................11
Section 1.52. Holdco Common Stock.......................................................................11
Section 1.53. Holdco Special Meeting....................................................................11
Section 1.54. HSR Act...................................................................................12
Section 1.55. IRS.......................................................................................12
Section 1.56. Knowledge of CP&L.........................................................................12
Section 1.57. Knowledge of FPC..........................................................................12
Section 1.58. Law.......................................................................................12
Section 1.59. Material Adverse Effect...................................................................12
Section 1.60. Merrill Lynch.............................................................................13
Section 1.61. NCBCA.....................................................................................13
Section 1.62. NCUC......................................................................................13
Section 1.63. NRC.......................................................................................13
Section 1.64. NYSE......................................................................................14
Section 1.65. Partnership; Partnerships.................................................................14
Section 1.66. Permits...................................................................................14
Section 1.67. Power Act.................................................................................14
Section 1.68. Proxy Statement/Prospectus................................................................14
Section 1.69. PUHCA.....................................................................................15
Section 1.70. Registration Statement....................................................................15
Section 1.71. Release...................................................................................15
Section 1.72. Salomon Smith Barney......................................................................15
Section 1.73. SCPSC.....................................................................................15
Section 1.74. SEC.......................................................................................15
Section 1.75. Securities Act............................................................................16
Section 1.76. Significant Subsidiary....................................................................16
Section 1.77. Subsidiary; Subsidiaries..................................................................16
Section 1.78. Superior Proposal.........................................................................16
Section 1.79. Tax or Taxes..............................................................................16
Section 1.80. Tax Return................................................................................17
Section 1.81. CVO.......................................................................................17
Section 1.82. CVO Agreement.............................................................................17
Section 1.83. Trustee...................................................................................17
ARTICLE II THE EXCHANGE..........................................................................................18
</TABLE>
(ii)
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Section 2.1. The Exchange...............................................................................18
Section 2.2. Closing; Filing of Articles of Exchange....................................................19
Section 2.3. Exchange of Certificates...................................................................20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CP&L AND HOLDCO....................................................20
Section 3.1. Organization and Authority of the CP&L Companies...........................................20
Section 3.2. Capitalization.............................................................................21
Section 3.3. Authority Relative to this Agreement.......................................................22
Section 3.4. Consents and Approvals; No Violations......................................................23
Section 3.5. Reports....................................................................................25
Section 3.6. Absence of Certain Events..................................................................26
Section 3.7. Proxy Statement/Prospectus.................................................................27
Section 3.8. Litigation.................................................................................27
Section 3.9. Contracts; No Default......................................................................28
Section 3.10. Employee Benefit Plans....................................................................29
Section 3.11. Tax Matters...............................................................................31
Section 3.12. Compliance with Law.......................................................................33
Section 3.13. Environmental Matters.....................................................................33
Section 3.14. CP&L Action...............................................................................35
Section 3.15. Votes Required............................................................................36
Section 3.16. Material Interests of Certain Persons.....................................................36
Section 3.17. Regulation as a Utility...................................................................37
Section 3.18. Absence of Undisclosed Liabilities........................................................37
Section 3.19. Year 2000 Matters.........................................................................38
Section 3.20. Nuclear Operations........................................................................39
Section 3.21. NRC Actions...............................................................................39
Section 3.22. Fees and Expenses of Brokers and Others...................................................40
Section 3.23. Opinion of Financial Advisor..............................................................40
Section 3.24. Ownership of FPC Common Stock.............................................................40
Section 3.25. CP&L Partnerships.........................................................................41
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF FPC.................................................................41
Section 4.1. Organization and Authority of the FPC Companies............................................41
Section 4.2. Capitalization.............................................................................41
Section 4.3. Authority Relative to this Agreement.......................................................43
Section 4.4. Consents and Approvals; No Violations......................................................43
Section 4.5. Reports....................................................................................45
Section 4.6. Absence of Certain Events..................................................................46
Section 4.7. Proxy Statement/Prospectus.................................................................47
Section 4.8. Litigation.................................................................................48
Section 4.9. Real and Personal Property.................................................................49
Section 4.10. Contracts; No Default.....................................................................50
Section 4.11. Labor Matters.............................................................................51
Section 4.12. Employee Benefit Plans....................................................................52
Section 4.13. Tax Matters...............................................................................57
</TABLE>
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Section 4.14. Compliance with Law.......................................................................61
Section 4.15. Environmental Matters.....................................................................62
Section 4.16. FPC Action................................................................................65
Section 4.17. Vote Required.............................................................................66
Section 4.18. Material Interests of Certain Persons.....................................................66
Section 4.19. Insurance.................................................................................67
Section 4.20. Fees and Expenses of Brokers and Others...................................................67
Section 4.21. Opinion of Financial Advisor..............................................................68
Section 4.22. Regulation as Utility or as Part of Utility Holding Company System........................68
Section 4.23. Absence of Undisclosed Liabilities........................................................68
Section 4.24. Intellectual Property.....................................................................69
Section 4.25. Year 2000 Matters.........................................................................70
Section 4.26. Nuclear Operations........................................................................71
Section 4.27. NRC Actions...............................................................................71
Section 4.28. Ownership of CP&L Common Stock............................................................72
Section 4.29. FPC Partnerships..........................................................................72
ARTICLE V COVENANTS..............................................................................................72
Section 5.1. Conduct of the Business of FPC.............................................................72
Section 5.2. Conduct of the Business of CP&L............................................................79
Section 5.3. No Solicitation............................................................................80
Section 5.4. The Registration Statement; Listing........................................................82
Section 5.5. Special Meetings...........................................................................84
Section 5.6. Access to Information; Confidentiality Agreement...........................................85
Section 5.7. Approvals..................................................................................86
Section 5.8. Public Announcements.......................................................................87
Section 5.9. Letter of FPC's Accountants................................................................88
Section 5.10. Letter of CP&L's Accountants..............................................................88
Section 5.11. Indemnification; Insurance................................................................89
Section 5.12. Affiliate Agreements......................................................................90
Section 5.13. Formation of Holdco.......................................................................90
Section 5.14. Directors.................................................................................92
Section 5.15. Regional Headquarters.....................................................................92
Section 5.16. Dividends.................................................................................92
Section 5.17. Employee Benefit Matters..................................................................93
Section 5.18. Certain Stock Plans.......................................................................93
Section 5.19. Sale of Certain Synthetic Fuel Operations.................................................94
Section 5.20. Execution of CVO Agreement................................................................94
Section 5.21. Revisions to CVO Agreement................................................................94
ARTICLE VI CONDITIONS PRECEDENT TO CONSUMMATION OF THE EXCHANGE..................................................95
Section 6.1. Conditions Precedent to Each Party's Obligation to Effect the Exchange.....................95
Section 6.2. Conditions Precedent to Obligations of FPC.................................................97
Section 6.3. Conditions Precedent to Obligations of CP&L and Holdco.....................................98
</TABLE>
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ARTICLE VII TERMINATION; AMENDMENT; WAIVER......................................................................100
Section 7.1. Termination...............................................................................100
Section 7.2. Effect of Termination.....................................................................102
Section 7.3. Termination Fee...........................................................................103
Section 7.4. Amendment.................................................................................105
Section 7.5. Extension; Waiver.........................................................................105
ARTICLE VIII MISCELLANEOUS......................................................................................106
Section 8.1. Survival of Representations, Warranties and Covenants.....................................106
Section 8.2. Disclosure Schedules......................................................................106
Section 8.3. Entire Agreement; Assignment..............................................................106
Section 8.4. Notices...................................................................................107
Section 8.5. Governing Law.............................................................................108
Section 8.6. Descriptive Headings......................................................................109
Section 8.7. Parties in Interest.......................................................................110
Section 8.8. Counterparts..............................................................................110
Section 8.9. Specific Performance......................................................................110
Section 8.10. Fees and Expenses........................................................................110
Section 8.11. Severability.............................................................................111
</TABLE>
EXHIBITS
A. FPC Plan of Exchange
B. Form of FPC Affiliate Letter
C. Form of CP&L Exchange Agreement
D. Form of CVO Certificate
E. Form of CVO Agreement
(v)
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF EXCHANGE
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF EXCHANGE (the
"Agreement"), dated as of August 22, 1999, as amended and restated as of March
3, 2000 (the "Amendment"), is by and among CAROLINA POWER & LIGHT COMPANY, a
North Carolina corporation ("CP&L"), FLORIDA PROGRESS CORPORATION, a Florida
corporation ("FPC"), and CP&L ENERGY, INC., formerly known as CP&L Holdings,
Inc., a North Carolina corporation ("Holdco").
RECITALS
A. Holdco is a wholly owned subsidiary of CP&L. Prior to the
Exchange, CP&L and Holdco will effect the CP&L Exchange.
B. The respective Boards of Directors of FPC, CP&L and Holdco
have approved a share exchange pursuant to which all outstanding shares of FPC
Common Stock will be exchanged for shares of Holdco Common Stock and cash and
CVOs (as defined below) to be allocated among the holders of FPC Common Stock in
accordance with the FPC Plan of Exchange and this Agreement.
C. This Agreement amends and restates the Agreement and Plan
of Exchange among the parties hereto, dated as of August 22, 1999 (the "Original
Agreement"), to include the CVOs as Exchange Consideration and to provide that
the Holdco Special Meeting may be a meeting of shareholders of CP&L.
<PAGE>
D. The parties intend, notwithstanding such amendment and
restatement, that this Agreement continues to speak as of August 22, 1999 unless
otherwise expressly provided herein and that "the date hereof" shall mean August
22, 1999 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" means this Agreement and Plan of Exchange,
together with the Disclosure Schedules delivered pursuant hereto and Exhibits
attached hereto, as amended from time to time in accordance with the terms
hereof.
Section 1.2. ALTERNATIVE PROPOSAL.
"Alternative Proposal" has the meaning given in SECTION 5.3
hereof.
Section 1.3. ATOMIC ENERGY ACT.
"Atomic Energy Act" means the Atomic Energy Act of 1954, as
amended.
Section 1.4. CERTIFICATES.
"Certificates" has the meaning given in SECTION 2.3 hereof.
2
<PAGE>
Section 1.5. CLOSING; CLOSING DATE.
"Closing" means the closing conference held pursuant to
SECTION 2.2 hereof, and "Closing Date" will mean the date on which the Closing
occurs.
Section 1.6. COBRA.
"COBRA" means the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended.
Section 1.7. CODE.
"Code" means, as appropriate, the Internal Revenue Code of
1954 or of 1986, each as amended, and the Treasury Regulations promulgated
thereunder.
Section 1.8. CONFIDENTIALITY AGREEMENT.
"Confidentiality Agreement" means the letter agreement, dated
July 16, 1999, between FPC and CP&L.
Section 1.9. CONTRACTS.
"Contracts" means any contracts, agreements, leases, licenses,
arrangements, understandings, relationships and commitments, written or oral.
Section 1.10. CP&L COMMON STOCK.
"CP&L Common Stock" means the common stock, no par value, of
CP&L.
3
<PAGE>
Section 1.11. CP&L COMPANIES.
"CP&L Companies" means CP&L, Holdco and their Subsidiaries.
Section 1.12. CP&L DISCLOSURE SCHEDULE.
"CP&L Disclosure Schedule" means the letter dated as of the
date hereof and signed by an authorized officer of CP&L and delivered to FPC,
hereby incorporated by reference into this Agreement.
Section 1.13. CP&L EXCHANGE.
"CP&L Exchange" means the exchange of shares of CP&L Common
Stock for shares of Holdco Common Stock contemplated by SECTION 5.13 hereof.
Section 1.14. CP&L EXCHANGE AGREEMENT.
"CP&L Exchange Agreement" means the Agreement and Plan of
Share Exchange between CP&L and Holdco, substantially in the form attached
hereto as EXHIBIT C.
Section 1.15. CP&L EXCHANGE REGISTRATION STATEMENT.
"CP&L Exchange Registration Statement" means the Registration
Statement on Form S-4, including the Proxy Statement/Prospectus contained
therein, filed by Holdco with the SEC with respect to the Holdco Common Stock to
be offered to the holders of CP&L Common Stock in the CP&L Exchange.
4
<PAGE>
Section 1.16. CP&L EXCHANGE SPECIAL MEETING.
"CP&L Exchange Special Meeting" means the special meeting of
shareholders of CP&L called to consider and approve the CP&L Exchange, and any
adjournments thereof.
Section 1.17. CP&L SEC REPORTS.
"CP&L SEC Reports" means (a) CP&L's Annual Reports on Form
10-K for the fiscal years ended December 31, 1997 and 1998, (b) CP&L's Reports
on Form 10-Q for the quarters ended March 31 and June 30, 1999, (c) all other
documents filed by CP&L or Holdco 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, 1998 and (d) all registration statements and
other documents filed by CP&L with the SEC pursuant to the Securities Act since
January 1, 1997.
Section 1.18. EFFECTIVE TIME.
"Effective Time" means the effective time specified in the FPC
Articles of Exchange.
Section 1.19. ENCUMBRANCES.
"Encumbrances" has the meaning given in SECTION 4.9 hereof.
5
<PAGE>
Section 1.20. ENVIRONMENTAL CLAIM AND ENVIRONMENTAL LAWS.
"Environmental Claim" and "Environmental Laws" have the
meanings given in SECTION 4.15 hereof.
Section 1.21. ENVIRONMENTAL PERMITS.
"Environmental Permits" has the meaning given in SECTION 4.15
hereof.
Section 1.22. ERISA.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
Section 1.23. EXCHANGE.
"Exchange" means the exchange of all outstanding shares of FPC
Common Stock for the Exchange Consideration pursuant to the FPC Plan of
Exchange.
Section 1.24. EXCHANGE ACT.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
Section 1.25. EXCHANGE AGENT.
"Exchange Agent" means the entity designated by Holdco and
reasonably acceptable to FPC to perform the duties of exchange agent in
connection with the Exchange.
6
<PAGE>
Section 1.26. EXCHANGE CONSIDERATION.
"Exchange Consideration" has the meaning given in SECTION 2.1
hereof.
Section 1.27. FBCA.
"FBCA" means the Florida Business Corporation Act, as amended.
Section 1.28. FCC.
"FCC" means the Federal Communications Commission.
Section 1.29. FERC.
"FERC" means the Federal Energy Regulatory Commission.
Section 1.30. FINAL STOCK PRICE.
"Final Stock Price" means the average of the closing sale
price per share of Holdco Common Stock as reported on the NYSE Composite Tape on
each of the twenty (20) consecutive trading days ending with the fifth trading
day immediately preceding the Closing Date.
Section 1.31. FPC ARTICLES OF EXCHANGE.
"FPC Articles of Exchange" means the Articles of Exchange to
be filed with the Department of State of the State of Florida and the Secretary
of State of the State of North Carolina with respect to the FPC Plan of
Exchange.
7
<PAGE>
Section 1.32. FPC BENEFIT PLANS.
"FPC Benefit Plans" has the meaning given in SECTION 4.12
hereof.
Section 1.33. FPC COMMON STOCK.
"FPC Common Stock" means the Common Stock, no par value, of
FPC.
Section 1.34. FPC COMPANIES.
"FPC Companies" means FPC and its Subsidiaries.
Section 1.35. FPC DISCLOSURE SCHEDULE.
"FPC Disclosure Schedule" means the letter dated as of the
date hereof and signed by an authorized officer of FPC and delivered to CP&L,
hereby incorporated by reference into this Agreement.
Section 1.36. FPC LTIP.
"FPC LTIP" has the meaning given in SECTION 5.17 hereof.
Section 1.37. FPC PENSION PLAN.
"FPC Pension Plan" has the meaning given in SECTION 4.12
hereof.
Section 1.38. FPC PLAN OF EXCHANGE.
"FPC Plan of Exchange" means the plan of share exchange with
respect to the Exchange, attached hereto as EXHIBIT A.
8
<PAGE>
Section 1.39. FPC QUALIFIED PLAN.
"FPC Qualified Plan" has the meaning given in SECTION 4.12
hereof.
Section 1.40. FPC RIGHTS.
"FPC Rights" means the Rights defined in and issued pursuant
to the FPC Rights Agreement.
Section 1.41. FPC RIGHTS AGREEMENT.
"FPC Rights Agreement" means the Rights Agreement dated as of
November 21, 1991 between FPC and Manufacturers Hanover Trust Company, as
amended by an Amendment dated February 20, 1997 between FPC and The First
National Bank of Boston.
Section 1.42. FPC SEC REPORTS.
"FPC SEC Reports" means (a) FPC's Annual Reports on Form 10-K
for the fiscal years ended December 31, 1997 and 1998, (b) FPC's Reports on Form
10-Q for the quarters ended March 31 and June 30, 1999, (c) all other documents
filed by FPC 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 FPC's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 and (d) all registration statements and other documents
filed by FPC with the SEC pursuant to the Securities Act since January 1, 1997.
9
<PAGE>
Section 1.43. FPC SHARE.
"FPC Share" means a share of FPC Common Stock, including each
associated FPC Right.
Section 1.44. FPC SPECIAL MEETING.
"FPC Special Meeting" means the special or annual meeting of
shareholders of FPC called to consider and approve the transactions contemplated
herein, and any adjournments thereof.
Section 1.45. FPC UTILITY SUBSIDIARY.
"FPC Utility Subsidiary" means Florida Power Corporation, a
Florida corporation and a wholly owned subsidiary of FPC.
Section 1.46. FPSC.
"FPSC" means the Florida Public Service Commission.
Section 1.47. FUND.
"Fund" has the meaning given in SECTION 3.11 hereof.
Section 1.48. GAAP.
"GAAP" means generally accepted accounting principles as in
effect in the United States of America at the time of the preparation of the
subject financial statement.
10
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Section 1.49. GOVERNMENTAL AUTHORITY.
"Governmental Authority" means 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 1.50. HAZARDOUS MATERIAL.
"Hazardous Material" has the meaning given in SECTION 4.15
hereof.
Section 1.51. HOLDCO.
"Holdco" means CP&L Energy, Inc., formerly known as CP&L
Holdings, Inc., a North Carolina corporation.
Section 1.52. HOLDCO COMMON STOCK.
"Holdco Common Stock" means the Common Stock, no par value, of
Holdco.
Section 1.53. HOLDCO SPECIAL MEETING.
"Holdco Special Meeting" means the special or annual meeting
of shareholders of either (i) Holdco or (ii) in the event the CP&L Exchange has
not occurred prior to the date set for the Holdco Special Meeting, CP&L, called
to consider and approve the issuance of Holdco Common Stock in the Exchange
contemplated herein, and any adjournments thereof.
11
<PAGE>
Section 1.54. HSR ACT.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
Section 1.55. IRS.
"IRS" means the Internal Revenue Service.
Section 1.56. KNOWLEDGE OF CP&L.
"Knowledge of CP&L" means the actual knowledge, after due
inquiry, of those officers of CP&L identified on the CP&L Disclosure Schedule.
Section 1.57. KNOWLEDGE OF FPC.
"Knowledge of FPC" means the actual knowledge, after due
inquiry, of those officers of FPC identified on the FPC Disclosure Schedule.
Section 1.58. LAW.
"Law" means any foreign, federal, state, provincial, local or
other law or governmental requirement of any kind, and the rules, regulations
and orders promulgated thereunder.
Section 1.59. MATERIAL ADVERSE EFFECT.
"Material Adverse Effect" means, with respect to CP&L or FPC
as the context requires, a material adverse effect on the business, operations,
properties, assets, condition
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(financial or otherwise), results of operations or prospects of such entity,
together with its Subsidiaries, taken as a whole; PROVIDED, HOWEVER that none of
the following events or any consequences thereof shall be deemed to have a
Material Adverse Effect on CP&L or FPC: (a) any requirement that Holdco become a
registered holding company pursuant to Section 5 of PUHCA; (b) the Exchange and
any financing entered into by CP&L or Holdco related thereto; or (c) the CP&L
Exchange. For purposes of this Agreement, references to a Material Adverse
Effect on CP&L shall mean a Material Adverse Effect on CP&L and Holdco and each
of their Subsidiaries collectively as a whole.
Section 1.60. MERRILL LYNCH.
"Merrill Lynch" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, financial advisor to CP&L.
Section 1.61. NCBCA.
"NCBCA" means the North Carolina Business Corporation Act, as
amended.
Section 1.62. NCUC.
"NCUC" means the North Carolina Utilities Commission.
Section 1.63. NRC.
"NRC" means the Nuclear Regulatory Commission.
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Section 1.64. NYSE.
"NYSE" means The New York Stock Exchange, Inc.
Section 1.65. PARTNERSHIP; PARTNERSHIPS.
"Partnership" means (i) any general partnership or joint
venture in which the relevant party has an interest, and (ii) any limited
partnership, limited liability company, or other business association, other
than a Subsidiary, in which the relevant party has a direct or indirect interest
of 5% or more or in respect of which such party is obligated, absolutely or
contingently, to contribute debt or equity in excess of $1,000,000, or which
contributes 5% or more of such party's consolidated revenues, expenses or assets
(collectively, "Partnerships").
Section 1.66. PERMITS.
"Permits" means permits, licenses and governmental
authorizations, registrations and approvals.
Section 1.67. POWER ACT.
"Power Act" means the Federal Power Act, as amended.
Section 1.68. PROXY STATEMENT/PROSPECTUS.
"Proxy Statement/Prospectus" means the Joint Proxy Statement
of Holdco or CP&L, as the case may be, and FPC and the Prospectus of Holdco
included in the Registration Statement and distributed to the shareholders of
FPC in connection with the FPC Special
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Meeting and the shareholders of Holdco or CP&L, as the case may be, in
connection with the Holdco Special Meeting.
Section 1.69. PUHCA.
"PUHCA" means the Public Utility Holding Company Act of 1935,
as amended.
Section 1.70. REGISTRATION STATEMENT.
"Registration Statement" means the Registration Statement on
Form S-4, including the Proxy Statement/Prospectus contained therein, to be
filed by Holdco with the SEC with respect to the Holdco Common Stock and the
CVOs to be offered to the holders of FPC Common Stock in the Exchange.
Section 1.71. RELEASE.
"Release" has the meaning given in SECTION 4.15 hereof.
Section 1.72. SALOMON SMITH BARNEY.
"Salomon Smith Barney" means Salomon Smith Barney Inc.,
financial advisor to FPC.
Section 1.73. SCPSC.
"SCPSC" shall mean the South Carolina Public Service
Commission.
Section 1.74. SEC.
"SEC" means the Securities and Exchange Commission.
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Section 1.75. SECURITIES ACT.
"Securities Act" means the Securities Act of 1933, as amended.
Section 1.76. SIGNIFICANT SUBSIDIARY.
"Significant Subsidiary" means any "significant subsidiary" as
defined in Rule 1-02 of Regulation S-X adopted under the Exchange Act.
Section 1.77. SUBSIDIARY; SUBSIDIARIES.
"Subsidiary" means each corporate entity with respect to which
a party owns (directly or indirectly through one or more entities or otherwise)
outstanding capital stock or other voting securities having the power, under
ordinary circumstances, to elect a majority of the directors of such entity, or
otherwise to direct the management and policies of such entity (collectively,
"Subsidiaries").
Section 1.78. SUPERIOR PROPOSAL.
"Superior Proposal" has the meaning given in SECTION 7.1
hereof.
Section 1.79. TAX OR TAXES.
"Tax" or "Taxes" means any federal, state, county, local, or
foreign taxes, charges, levies, imposts, duties, other assessments, or similar
charges of any kind whatsoever, including any interest, penalties, and additions
imposed thereon or with respect thereto.
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Section 1.80. TAX RETURN.
"Tax Return" means any report, return, information return, or
other information required to be supplied to a taxing authority in connection
with Taxes, including any return of an affiliated or combined or unitary group.
Section 1.81. CVO.
"CVO" or "CVOs" means the Contingent Value Obligation issued
to holders of FPC Shares pursuant to the CVO Agreement and evidenced by a
certificate in the form attached hereto as EXHIBIT D with such revisions,
changes or modifications as may be mutually agreed upon by CP&L and Holdco, on
the one hand, and FPC, on the other.
Section 1.82. CVO AGREEMENT.
"CVO Agreement" means the Contingent Value Obligation
Agreement, to be entered into by Holdco and the Trustee, in the form attached
hereto as EXHIBIT E with such revisions, changes or modifications as may be
mutually agreed upon by CP&L and Holdco, on the one hand, and FPC, on the other.
Section 1.83. TRUSTEE.
"Trustee" means The Chase Manhattan Bank.
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ARTICLE II
THE EXCHANGE
Section 2.1. THE EXCHANGE.
(a) At the Effective Time, by virtue of the Exchange and
without any action on the part of FPC, CP&L, Holdco, or the holders of Holdco
Common Stock or FPC Shares:
(i) In accordance with the FPC Plan of Exchange, each
FPC Share issued and outstanding immediately prior to the Effective Time (other
than FPC Shares canceled pursuant to SECTION 2.1(a)(ii) hereof) shall, by reason
of the Exchange be exchanged for the right to receive:
(1) $54.00 in cash and one CVO, or
(2) that number of shares of Holdco Common
Stock determined by dividing $54.00 by the Final Stock Price and one
CVO; PROVIDED, HOWEVER, that:
(a) if the Final Stock Price is less
than $37.13, then the number of shares of Holdco Common Stock
to be delivered pursuant to this clause (2) shall be equal to
1.4543; and
(b) if the Final Stock Price is more
than $45.39, then the number of shares of Holdco Common Stock
to be delivered pursuant to this clause (2) shall be equal to
1.1897; or
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(3) a combination of cash and Holdco Common
Stock determined in accordance with Section 4.2 of the FPC Plan of
Exchange and one CVO (the "Exchange Consideration").
(ii) Each FPC Share owned by FPC or held in the
treasury of FPC immediately prior to the Effective Time shall be automatically
canceled and retired and cease to exist, and no cash or securities or other
property shall be paid or payable in respect thereof.
(b) No certificates or scrip representing fractional shares of
Holdco Common Stock shall be issued upon the delivery of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a shareholder of Holdco. All holders of FPC Shares who would otherwise
be entitled to receive a fractional share of Holdco Common Stock shall receive,
in lieu thereof upon delivery or exchange of its FPC Shares, an amount of cash
equal to the amount determined by multiplying the fraction of a share of Holdco
Common Stock to which such shareholder would otherwise be entitled by the Final
Stock Price. Immediately prior to the Effective Time, Holdco shall deliver to
the Exchange Agent cash in such amount as shall be necessary to pay to the
holders of FPC Shares cash in lieu of such fractional shares.
Section 2.2. CLOSING; FILING OF ARTICLES OF EXCHANGE.
Unless otherwise mutually agreed upon in writing by the
parties hereto, the Closing shall take place at the office of Hunton & Williams,
One Hannover Square, 14th Floor, Raleigh, North Carolina at 10:00 a.m., local
time, on the third business day following the date that all conditions to the
obligations of the parties specified in this Agreement have been satisfied or
waived (the "Closing Date"). On or prior to the Closing Date, Holdco shall in
the manner
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required by the FBCA and the NCBCA deliver to and file with the Department of
State of the State of Florida and the Secretary of State of the State of North
Carolina the FPC Articles of Exchange, duly executed by Holdco and FPC in
accordance with the provisions of the FBCA and the NCBCA. The parties hereto
shall take all such other action as may be required by law to make the Exchange
effective. The effects of the Exchange shall be as provided in the applicable
provisions of the FBCA and the NCBCA.
Section 2.3. EXCHANGE OF CERTIFICATES.
The exchange of certificates that immediately prior to the
Effective Time represented outstanding shares of FPC Common Stock (the
"Certificates") shall be made in accordance with the provisions of Section 4.3
of the FPC Plan of Exchange.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CP&L AND HOLDCO
Each of CP&L and Holdco represents and warrants to FPC as
follows:
Section 3.1. ORGANIZATION AND AUTHORITY OF THE CP&L COMPANIES.
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 may
reasonably be expected to have a Material Adverse
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Effect on CP&L. The copies of the Amended and Restated Articles of Incorporation
and Bylaws of CP&L which have been delivered to FPC are complete and correct and
in full force and effect on the date hereof.
Section 3.2. CAPITALIZATION.
(a) CP&L's authorized equity capitalization consists of
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
August 20, 1999, 159,589,744 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 and no additional shares of such capital stock have been issued
between such time and the date hereof. Such shares of CP&L Common Stock, $5
Preferred Stock and Serial Preferred Stock 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, $5 Preferred Stock and Serial Preferred
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
set forth in the CP&L Disclosure Schedule, owned by CP&L, directly or
indirectly, free and clear of all liens, claims, charges or encumbrances of any
nature whatsoever. Except as set forth in the CP&L Disclosure Schedule, 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 any of CP&L or its Subsidiaries
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is bound to sell or issue any shares of its capital stock or any such options,
warrants, subscriptions or rights.
(b) At the date hereof, Holdco's authorized equity
capitalization consists of 500,000,000 shares of Holdco Common Stock, 100 of
which are issued and held by CP&L, and 20,000,000 shares of Preferred Stock,
none of which are issued.
(c) All of the shares of Holdco Common Stock to be issued to
holders of FPC Common Stock in the Exchange will 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. All of the CVOs to be issued to
holders of FPC Common Stock in the Exchange will have been duly authorized and,
when executed and authenticated in accordance with the provisions of the CVO
Agreement and this Agreement, will be valid and binding obligations of Holdco
entitled to the benefits of the CVO Agreement.
Section 3.3. AUTHORITY RELATIVE TO THIS AGREEMENT.
The execution, delivery and performance of the Original
Agreement, the CP&L Exchange Agreement, the Amendment and the CVO Agreement and
of all of the other documents and instruments required hereby by CP&L and by
Holdco are within the respective corporate power of CP&L and Holdco. The
execution and delivery of the Original Agreement and, as of March 3, 2000, the
Amendment and the CVO Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of each of CP&L and Holdco and, except for approval of the CP&L
Exchange by the
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shareholders of CP&L and the approval of the issuance of Holdco Common Stock in
the Exchange by the shareholders of Holdco or CP&L, as the case may be, no other
corporate proceedings on the part of CP&L or Holdco are necessary to authorize
the Original Agreement or the Amendment or the CVO Agreement or to consummate
the transactions contemplated herein or therein. The Original Agreement, the
Amendment, the CVO Agreement and all of the other documents and instruments
required hereby have been or will be (in the case of documents and instruments
permitted to be delivered after the date hereof) duly and validly executed and
delivered by CP&L and Holdco and (assuming the due authorization, execution and
delivery hereof and thereof by FPC and any other party thereto) constitute or
will constitute valid and binding agreements of CP&L and Holdco, enforceable
against CP&L and Holdco 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 3.4. 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 CP&L Exchange
Registration Statement and 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 articles of exchange with respect to the CP&L Exchange with
the Secretary of State of the State of North Carolina and the FPC Articles of
Exchange with the Department of State of the State of Florida and the Secretary
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of State of the State of North Carolina; (iv) such filings and approvals as may
be required by any applicable state securities or "blue sky" laws; and (v) any
required filings with and approvals of the NCUC, the SCPSC, the NRC, the SEC
(with respect to PUHCA), the FCC and the 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 CP&L or Holdco or for the consummation by CP&L or Holdco of
the transactions contemplated by this Agreement or the CVO Agreement other than
as may not reasonably be expected to have a Material Adverse Effect on CP&L.
Assuming that all filings, registrations, permits, authorizations, consents,
orders and approvals contemplated by the immediately preceding sentence have
been duly made or obtained, and the approval of the CP&L Exchange by the CP&L
shareholders has been received, and assuming receipt of the required approval of
the holders of Holdco Common Stock or CP&L Common Stock, as the case may be, at
the Holdco Special Meeting, neither the execution, delivery and performance of
this Agreement and the CVO Agreement nor the consummation of the transactions
contemplated hereby and thereby by CP&L and Holdco 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) subject to obtaining necessary third party consents,
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, acceleration or increased cost) 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 security, 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
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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 CP&L
Companies or any of their properties or assets except, in the case of clauses
(ii) or (iii) above, for violations, breaches or defaults that, individually or
in the aggregate, may not reasonably be expected to have a Material Adverse
Effect on CP&L and that will not prevent or delay the consummation of the
transactions contemplated hereby.
Section 3.5. REPORTS.
The filings required to be made by any CP&L Company since
January 1, 1996 under NYSE rules or any applicable Law, including the Securities
Act, the Exchange Act, PUHCA, the Power Act, the Atomic Energy Act, and
applicable North Carolina and South Carolina laws and regulations, have been
filed with the NYSE or each applicable Governmental Authority, including the
SEC, the FERC, the NRC, the NCUC, and the SCPSC, as the case may be, and each of
the CP&L Companies has complied in all material respects with all requirements
of such acts, Laws and rules and regulations thereunder with such exceptions
that may not reasonably be expected to have, in the aggregate, 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 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
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and schedules) included therein fairly presented the results of operations and
cash flows of CP&L and its Subsidiaries for the respective fiscal periods set
forth therein. Each of the financial statements (including the related notes and
schedules) included in the CP&L SEC Reports (i) complied as to form in all
material respects 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 CP&L and, after the CP&L
Exchange, Holdco, none of the CP&L 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 3.6. ABSENCE OF CERTAIN EVENTS.
Except as set forth in the CP&L SEC Reports filed prior to the
date hereof or the CP&L Disclosure Schedule, since December 31, 1998, none of
the CP&L Companies has suffered any change in its business, financial condition
or results of operations that has had or may reasonably be expected to have a
Material Adverse Effect on CP&L and no event has occurred and no facts or
conditions exist that have had or may reasonably be expected to have a Material
Adverse Effect on CP&L. Except as disclosed in the CP&L SEC Reports filed prior
to the date hereof or as otherwise disclosed in the CP&L Disclosure Schedule,
there has not been since December 31, 1998: (i) any change in the accounting
policies or practices of CP&L; or (ii) any damage, destruction or loss, whether
covered by insurance or not, which has had or may reasonably be expected to have
a Material Adverse Effect on CP&L.
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Section 3.7. PROXY STATEMENT/PROSPECTUS.
None of the information to be supplied by CP&L for inclusion
or incorporation by reference 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 FPC Special
Meeting, or, in the case of the Registration Statement, at the time it becomes
effective and, as the same may be amended, at the effective time of such
amendment, 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 or Holdco with respect to information supplied by
FPC or any affiliate of FPC for inclusion in the Proxy Statement/Prospectus.
Section 3.8. LITIGATION.
Except as specifically disclosed in the CP&L SEC Reports filed
prior to the date hereof, or in the CP&L Disclosure Schedule, (a) there are no
complaints, claims, suits, actions, mediations, arbitrations or proceedings
(including proceedings related to the rates charged by CP&L) pending or, to the
Knowledge of CP&L, threatened, nor are there any investigations or reviews
pending or, to the Knowledge of CP&L, threatened against or affecting CP&L or
any of
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its Subsidiaries or Partnerships that, in the aggregate, may reasonably
be expected to have a Material Adverse Effect on CP&L, (b) there have not been
any developments since December 31, 1998 with respect to any such disclosed
complaints, claims, suits, actions, mediations, arbitrations, proceedings,
investigations or reviews which, in the aggregate, may reasonably be expected to
have a Material Adverse Effect on CP&L, and (c) there are no judgments, decrees,
injunctions, rules or orders of any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator applicable to CP&L or any
of the CP&L Companies that, in the aggregate, may reasonably be expected to have
a Material Adverse Effect on CP&L or the transactions contemplated by this
Agreement.
Section 3.9. CONTRACTS; NO DEFAULT.
(a) The CP&L Disclosure Schedule lists all of the Contracts to
which any CP&L Company is a party that constitute a material contract as defined
in Item 601(10) of Regulation S-K under the Exchange Act. Each such Contract is
a valid and binding agreement of such CP&L 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 CP&L Companies have performed and, to the Knowledge of CP&L,
every other party has performed, each material term, covenant and condition of
each of such Contracts that is to be performed by any of them at or before the
date hereof. 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 CP&L Company or, to the Knowledge of CP&L, any other party under any of
such Contracts, and, to the Knowledge of CP&L, no party to
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any of such Contracts intends to cancel, terminate or exercise any option under
any of such Contracts.
(b) 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) its respective
charter, bylaws or other governing or organizational 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
its 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 clauses (ii) and (iii) above for defaults or violations
which in the aggregate may not reasonably be expected to have a Material Adverse
Effect on CP&L.
Section 3.10. EMPLOYEE BENEFIT PLANS.
(a) Each CP&L employee benefit plan (the "CP&L Benefit Plans")
that is intended to be "qualified" within the meaning of Code Section 401(a) has
been determined by the IRS within the last three (3) years to be so qualified
(or will be submitted to the IRS for a determination letter prior to the
applicable Code Section 401(b) deadline) and, to the Knowledge of CP&L, no event
or condition exists or has occurred that may reasonably be expected to result in
the revocation of such determination. CP&L has operated each CP&L Benefit Plan
in material compliance with all applicable Laws, including ERISA and the Code.
(b) All material contributions required to have been made to
the CP&L Benefit Plans have been made. As of the date hereof, each CP&L Benefit
Plan which is subject
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to the funding requirements of Code Section 412 has assets that have a fair
market value equal to or exceeding the present value of the accrued benefit
obligations thereunder on a termination basis, based on the actuarial methods,
tables and assumptions theretofore utilized by such plan's actuary in preparing
such plan's most recently prepared actuarial valuation report.
(c) Except as set forth in the CP&L Disclosure Schedule, (i)
none of the CP&L Benefit Plans has experienced a "reportable event" as defined
in Section 4043(b) of ERISA and its regulations within the last five (5) years
for which the 30-day notice requirement has not been waived, except for
reportable events which would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect on CP&L and (ii) CP&L has
not engaged in any prohibited transactions with respect to any CP&L Benefit
Plan, any or all of which would reasonably be expected to have a Material
Adverse Effect on CP&L.
(d) The consummation of the Exchange will not constitute a
"change in control" under the CP&L Benefit Plans, any employment agreements, any
plan, program or arrangement for deferred compensation, severance, change of
control, supplemental retirement, excess benefit or other non-qualified employee
benefit plan, program, or arrangement, or any plan, program or arrangement which
involves stock of CP&L; PROVIDED that no holder of FPC Common Stock (including a
group, within the meaning of Section 13(d) of the Exchange Act), acquires
beneficial ownership of 15% or more of Holdco Common Stock in the Exchange, and
will not, whether alone or in conjunction with a termination of employment,
otherwise accelerate or increase the time or amount of payment or vesting due to
any current or former employee, officer, director, shareholder or consultant of
CP&L except as may not reasonably be expected to have a Material Adverse Effect
on CP&L.
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Section 3.11. TAX MATTERS.
Except as set forth in the CP&L Disclosure Schedule:
(i) CP&L 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 CP&L is the common parent, such affiliated group files a
consolidated federal income tax return and neither CP&L 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 CP&L Companies has timely filed or
caused to be filed all material 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 material respects;
(iii) each of the CP&L Companies has paid or made
adequate provision on its books and records in accordance with GAAP for all
material Taxes covered by such Tax Returns;
(iv) each of the CP&L Companies has collected or
withheld all material 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;
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(v) there are no unpaid Taxes due and payable by any
of the CP&L Companies or by any other person that are or may become a lien on
any asset of, or otherwise may reasonably be expected to have a Material Adverse
Effect on, CP&L;
(vi) none of the CP&L 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 CP&L Companies by any
Governmental Authority; there are no currently pending administrative or
judicial proceedings, or any deficiency or refund litigation, with respect to
Taxes of any of the CP&L Companies, the adverse outcome of which may reasonably
be expected to have a Material Adverse Effect on CP&L; and any such assertion,
assessment, proceeding or litigation disclosed in the CP&L Disclosure Schedule
hereto is being contested in good faith through appropriate measures, and its
status is described in the CP&L Disclosure Schedule hereto;
(vii) the most recent audited consolidated balance
sheet included in the CP&L SEC Reports fully and properly reflects, as of the
date thereof, the liabilities of CP&L 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
liability for all accrued Taxes; and
(viii) with respect to any Nuclear Decommissioning
Reserve Fund ("Fund") within the meaning of Section 468A of the Code that is
established by or for the benefit of any CP&L Company, (A) such Fund is in
compliance with (i) all requirements of Sections 468A and 4951 of the Code and
(ii) all Tax Return and Tax payment requirements resulting from
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the application of Section 468A of the Code (and any similar provision of state
or local Law) to the Fund, and (B) such CP&L Company (i) has not claimed any
deduction for contributions to the Fund in excess of the amounts permitted by
Section 468A(b) and (ii) has included in income all amounts includible in its
income under Section 468A(c).
Section 3.12. 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 may not reasonably be expected to have a
Material Adverse Effect on CP&L. Except as set forth in the CP&L Disclosure
Schedule, the CP&L Companies are in compliance with the terms of the CP&L
Permits, except where the failure so to comply may not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on CP&L.
Except as disclosed in the CP&L SEC Reports filed prior to the date hereof or as
set forth in the CP&L Disclosure Schedule, the business 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, individually or in
the aggregate, may not reasonably be expected to have a Material Adverse Effect
on CP&L.
Section 3.13. ENVIRONMENTAL MATTERS.
(a) Except as set forth in the CP&L SEC Reports filed prior to
the date hereof or in the CP&L Disclosure Schedule, each of the CP&L Companies
is in compliance with all applicable Environmental Laws except for noncompliance
which may not reasonably be
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expected to have a Material Adverse Effect on CP&L. Except as set forth in the
CP&L Disclosure Schedule, and except for matters that have been fully resolved,
no CP&L Company has received any written communication from any person or
Governmental Authority that alleges that it is not in compliance with applicable
Environmental Laws where such noncompliance may reasonably be expected to have a
Material Adverse Effect on CP&L.
(b) Except as set forth in the CP&L Disclosure Schedule, the
CP&L Companies have obtained all 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 CP&L Companies are
in compliance with all terms and conditions of the Environmental Permits except
where the absence of such permits or such noncompliance may not reasonably be
expected to have a Material Adverse Effect on CP&L.
(c) Except as set forth in the CP&L Disclosure Schedule or in
the CP&L SEC Reports filed prior to the date hereof, there is no Environmental
Claim pending or, to the Knowledge of CP&L, threatened (i) against a CP&L
Company, (ii) against any person or entity whose liability for any Environmental
Claim a CP&L Company has or may have retained or assumed either contractually or
by operation of law or (iii) against or concerning any real property or
operations which a CP&L Company owns, leases or manages, in whole or in part,
which claim, if adversely determined, may reasonably be expected to have a
Material Adverse Effect on CP&L.
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(d) Except as set forth in the CP&L Disclosure Schedule or in
the CP&L SEC Reports filed prior to the date hereof, and except for any Releases
of Hazardous Materials the liability for which may not reasonably be expected to
have a Material Adverse Effect on CP&L, no Releases of any Hazardous Material
(i) has occurred on any of the properties owned, leased or occupied by a CP&L
Company or any predecessor, or (ii) is related to the business or operations of
a CP&L Company or any predecessor, which in either case requires investigation,
assessment, monitoring, remediation or cleanup under Environmental Laws.
(e) CP&L has disclosed to FPC all material facts that CP&L
reasonably believes form the basis of a Material Adverse Effect on CP&L 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 CP&L
Company that may be reasonably expected to have a Material Adverse Effect on
CP&L.
(f) Capitalized terms in this SECTION 3.13 shall have the
meaning set forth in SECTION 4.15 hereof but any reference therein to FPC shall
be deemed to refer to CP&L for purposes of this SECTION 3.13.
Section 3.14. CP&L ACTION.
The Board of Directors of CP&L (at meetings duly called,
constituted and held) and the Board of Directors of Holdco have unanimously (a)
determined that the Exchange is advisable and in the best interests of CP&L and
its shareholders, and (b) approved the Original Agreement, and, as of March 3,
2000, the Amendment and the CVO Agreement, and the
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transactions contemplated hereby, including the Exchange, and (c) directed that
the issuance of Holdco Common Stock in the Exchange be submitted with the
recommendation of the Board of Directors of Holdco for consideration by Holdco's
shareholders or CP&L's shareholders, as applicable, at the Holdco Special
Meeting.
Section 3.15. VOTES REQUIRED.
The affirmative vote of holders of (a) a majority of the
outstanding shares of CP&L Common Stock entitled to vote thereon, and (b) a
majority of the outstanding shares of CP&L Common Stock, $5 Preferred Stock and
Serial Preferred Stock, voting as a single class, are the only votes of the
holders of any class or series of CP&L capital stock necessary to approve the
CP&L Exchange. The affirmative vote of a majority of votes cast by shareholders
of Holdco or CP&L, as applicable, at the Holdco Special Meeting is the only
approval of Holdco or CP&L shareholders required to approve the issuance of
Holdco Common Stock in the Exchange.
Section 3.16. MATERIAL INTERESTS OF CERTAIN PERSONS.
Except as disclosed in CP&L's Proxy Statement for its 1999
Annual Meeting of Shareholders or as set forth in the CP&L Disclosure Schedule,
no officer or director of CP&L, 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 CP&L or any
CP&L Subsidiary.
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Section 3.17. REGULATION AS A UTILITY.
CP&L is regulated as a public utility company in the states of
North Carolina and South Carolina and North Carolina Natural Gas Corporation is
regulated as a public utility company in the state of North Carolina. CP&L is
currently a holding company exempt from all provisions of PUHCA except Section
9(a)(2) thereof under Section 3(a)(2) pursuant to Rule 2 promulgated thereunder.
Interpath Communications, Inc. is regulated as a telephone company in the states
of Florida, Georgia, North Carolina, South Carolina, Tennessee and Virginia and
by the FCC. Except as set forth above and with respect to their relationship to
CP&L and Holdco under PUHCA, neither CP&L nor any subsidiary company, affiliate
or associate company of CP&L is subject to regulation as a holding company, a
public utility or a public service company (or similar designation) by any other
state in the United States or any agency or instrumentality thereof, by the
United States or any agency or any agency or instrumentality of the United
States or by any foreign country. As used in this SECTION 3.17, the terms
"holding company", "subsidiary company", "associate company" and "affiliate"
shall have the respective meanings ascribed to them in PUHCA.
Section 3.18. ABSENCE OF UNDISCLOSED LIABILITIES.
Except as disclosed in the CP&L SEC Reports filed prior to the
date hereof or the CP&L Disclosure Schedule, none of the CP&L Companies has, 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, except to the extent such liabilities, obligations or
contingencies were (a) reflected on or accrued or reserved against in the
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consolidated balance sheet of CP&L dated June 30, 1999, or reflected in the
notes thereto, or (b) incurred after the date of such balance sheet in the
ordinary course of business and consistent with past practices and which, in the
case of either subsection (a) or subsection (b) of this SECTION 3.18,
individually or in the aggregate, has not had and may not reasonably be expected
to have a Material Adverse Effect on CP&L.
Section 3.19. YEAR 2000 MATTERS.
The CP&L 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). Resolution of problems
associated with the Year 2000 issue with respect to the software and hardware of
the CP&L Companies can be achieved so as to allow the conduct of the business of
the CP&L Companies as currently conducted, except for interruptions in service
that may not reasonably be expected to have a Material Adverse Effect on CP&L.
CP&L reasonably believes, as of the date hereof, that the remaining cost of
resolution of the problems discussed above will not exceed the amounts reflected
in CP&L's Report on Form 10-Q for the period ended June 30, 1999. While CP&L has
made diligent inquiry of supplier, vendor and other third party Year 2000 plans,
and, to the Knowledge of CP&L, there are no problems arising from the Year 2000
issue with respect to third parties that may reasonably be expected to have a
Material Adverse Effect on CP&L, CP&L makes no representation or warranty with
respect to Year 2000 compliance by any supplier, vendor or other third party.
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Section 3.20. NUCLEAR OPERATIONS.
None of the CP&L Subsidiaries operates nuclear generating
stations. The operations of CP&L's nuclear generating stations are being
conducted in compliance with applicable health, safety, regulatory and other
legal requirements, except where the failure to so comply may not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
CP&L. CP&L's nuclear generating stations maintain emergency plans designed to
respond to an unplanned release therefrom of radioactive materials into the
environment and liability insurance to the extent required by Law, and such
further insurance (other than liability insurance) as is consistent with CP&L's
view of the risks inherent in the operation of a nuclear power facility. CP&L's
plans for the decommissioning of each of its nuclear generating stations and for
the short-term storage of spent nuclear fuel conform with applicable regulatory
or other legal requirements, and such plans have at all times been funded to the
extent required by Law, which is consistent with CP&L's reasonable budget
projections for such plans. CP&L has not incurred any liability as a result of
operating nuclear power facilities for third parties which liability, in the
aggregate, may reasonably be expected to have a Material Adverse Effect on CP&L.
Section 3.21. NRC ACTIONS.
CP&L has not been given notice of or been charged with actual
or potential violation of, or is the subject of any ongoing proceeding, inquiry,
special inspection, diagnostic evaluation or other NRC action (including
rulemakings of general application that may effect the conduct of CP&L's
business regarding CP&L's nuclear power facilities) of which CP&L has
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received notice under the Atomic Energy Act, any applicable regulations
thereunder or the terms and conditions of any license granted to CP&L regarding
CP&L's nuclear power facilities operated by CP&L that would have, or may
reasonably be expected to have, a Material Adverse Effect on CP&L.
Section 3.22. 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 Merrill Lynch to represent it in connection with such transactions and
shall pay all of Merrill Lynch's fees and expenses in connection with such
engagement.
Section 3.23. OPINION OF FINANCIAL ADVISOR.
CP&L has received the opinions of Merrill Lynch to the
effect that, as of August 22, 1999 and February 25, 2000, the Exchange
Consideration to be paid by Holdco pursuant to the FPC Plan of Exchange was
fair from a financial point of view to CP&L and to Holdco.
Section 3.24. OWNERSHIP OF FPC COMMON STOCK.
Neither CP&L nor any of the Subsidiaries of CP&L or other
affiliates thereof owns any shares of FPC Common Stock either beneficially or of
record.
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Section 3.25. CP&L PARTNERSHIPS.
The representations and warranties set forth in Section 3.4,
3.6, 3.8, 3.10, 3.12, 3.13 and 3.18 are, to the Knowledge of CP&L, true and
correct in all material respects with regard to the Partnerships of CP&L.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FPC
FPC represents and warrants to CP&L and Holdco as follows:
Section 4.1. ORGANIZATION AND AUTHORITY OF THE FPC COMPANIES.
Each of the FPC 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 FPC 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 may reasonably be
expected to have a Material Adverse Effect on FPC. The copies of the Certificate
of Incorporation and Bylaws of FPC which have been delivered to CP&L are
complete and correct and in full force and effect on the date hereof.
Section 4.2. CAPITALIZATION.
(a) FPC's authorized equity capitalization consists of 250,000,000 shares of FPC
Common Stock. As of the close of business on August 20, 1999, 98,338,571 shares
of FPC
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Common Stock were issued and outstanding and no additional shares of such
capital stock have been issued between such time and the date hereof in each
case not including shares issued under the FPC Plus Stock Plan on August 20,
1999. Such shares of FPC Common Stock constituted all of the issued and
outstanding shares of capital stock of FPC as of such date. All issued and
outstanding shares of FPC 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 FPC's Subsidiaries are validly issued, fully paid and
nonassessable and are, except as set forth in the FPC Disclosure Schedule, owned
by FPC, directly or indirectly, free and clear of all liens, claims, charges or
encumbrances of any nature whatsoever. Except as set forth in the FPC Disclosure
Schedule, there are no outstanding options, warrants, subscriptions or other
rights to purchase or acquire any capital stock of FPC or its Subsidiaries, and
there are no Contracts pursuant to which any of FPC or its Subsidiaries is bound
to sell or issue any shares of its capital stock or any such options, warrants,
subscriptions or rights.
(b) The FPC Disclosure Schedule lists all Subsidiaries of FPC,
their respective states of incorporation or organization, the jurisdictions in
which they are qualified or licensed to do business, the authorized equity
capitalization thereof, a brief description of the principal line or lines of
business conducted by each such entity, and the interest of FPC therein.
(c) The FPC Disclosure Schedule lists all Partnerships of FPC
or its Subsidiaries, their respective states of organization, the jurisdictions
in which they are qualified or licensed to do business, and the interest of FPC
therein.
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Section 4.3. AUTHORITY RELATIVE TO THIS AGREEMENT.
The execution, delivery and performance of the Original
Agreement and the Amendment and of all of the other documents and instruments
required hereby by FPC are within the corporate power of FPC. The execution and
delivery of the Original Agreement and, as of March 3, 2000, the Amendment and
the consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of FPC and no other corporate proceedings
on the part of FPC are necessary to authorize the Original Agreement or the
Amendment or to consummate the transactions contemplated herein (other than,
with respect to the Exchange, the approval of the Exchange by a majority of the
outstanding shares of FPC Common Stock at the FPC Special Meeting). The Original
Agreement and, as of March 3, 2000, the Amendment, and all of the other
documents and instruments required hereby have been or will be (in the case of
documents and instruments permitted to be delivered after the date hereof) duly
and validly executed and delivered by FPC and (assuming the due authorization,
execution and delivery hereof and thereof by CP&L and Holdco) constitute or will
constitute valid and binding agreements of FPC, enforceable against FPC 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
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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 FPC Articles of Exchange with the Department of
State of the State of Florida and the Secretary of State of the State of North
Carolina; (iv) such filings and approvals as may be required by any applicable
state securities or "blue sky" laws; and (v) any required filings with and
approvals of the NRC, the SEC, the Interstate Commerce Commission, the Surface
Transportation Board, the FERC, the FCC and the insurance regulatory authorities
of the States of Oklahoma and Texas, 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 FPC or for the consummation by FPC of the transactions contemplated
by this Agreement other than as may not reasonably be expected to have a
Material Adverse Effect on FPC. Subject to the FPSC's plenary jurisdiction over
the operations of FPC Utility Subsidiary, no filing with or approval of the FPSC
is required by Florida Law in connection with the execution and delivery of this
Agreement by FPC or for the consummation by FPC 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, and assuming receipt of the
required approval of the holders of FPC Shares at the FPC Special Meeting,
neither the execution, delivery and performance of this Agreement nor the
consummation of the transactions contemplated hereby by FPC will (i) conflict
with or result in any breach of any provision of the Certificates of
Incorporation, bylaws, partnership or joint venture agreements or other
organizational documents of any of the FPC Companies, (ii) subject
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to obtaining the third party consents identified in the FPC Disclosure Schedule,
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, acceleration or increased cost) under, or otherwise result in any
diminution of any of the rights of the FPC Companies with respect to, any of the
terms, conditions or provisions of any security, note, bond, mortgage,
indenture, license, Contract or other instrument or obligation to which any of
the FPC 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 FPC Companies or
any of their properties or assets except, in the case of clauses (ii) or (iii)
above, for violations, breaches or defaults that, individually or in the
aggregate, may not reasonably be expected to have a Material Adverse Effect on
FPC and that will not prevent or delay the consummation of the transactions
contemplated hereby.
Section 4.5. REPORTS.
The filings required to be made by any FPC Company since
January 1, 1996 under NYSE rules or any applicable Law, including the Securities
Act, the Exchange Act, PUHCA, the Power Act, the Atomic Energy Act and
applicable Florida laws and regulations, have been filed with the NYSE or each
applicable Governmental Authority, including the SEC, the FERC, the NRC, the
FPSC, the Interstate Commerce Commission, the Surface Transportation Board, and
the insurance regulatory authorities of the States of Oklahoma and Texas as the
case may be, and each of the FPC Companies has complied in all material respects
with all requirements of such acts, Laws and rules and regulations thereunder
with such exceptions that may not reasonably be expected to have, in the
aggregate, a Material Adverse
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Effect on FPC. As of their respective dates, none of the FPC 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 FPC SEC Reports fairly presented the consolidated
financial position of FPC 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 the results of operations and
cash flows of FPC and its Subsidiaries for the respective fiscal periods set
forth therein. Each of the financial statements (including the related notes and
schedules) included in the FPC SEC Reports (i) complied as to form in all
material respects 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 FPC, FPC Utility Subsidiary
and except as disclosed in the FPC Disclosure Schedule, none of the FPC
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 4.6. ABSENCE OF CERTAIN EVENTS.
Except as set forth in the FPC SEC Reports filed prior to the
date hereof or the FPC Disclosure Schedule, since December 31, 1998, each of the
FPC Companies has conducted its business only in the ordinary course consistent
with past practice, and none of the FPC
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Companies has suffered any change in its business, financial condition or
results of operations that has had or may reasonably be expected to have a
Material Adverse Effect on FPC, and no event has occurred and no facts or
conditions exist that have had or may reasonably be expected to have a Material
Adverse Effect on FPC. Except as disclosed in the FPC SEC Reports filed prior to
the date hereof or in the FPC Disclosure Schedule, there has not been since
December 31, 1998: (i) any material increase in the obligations of any of the
FPC Companies in respect of compensation, severance or termination benefits or
any adoption of or material 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); (ii) any entry by any of the FPC Companies into any material
commitment, agreement, license or transaction other than in the ordinary and
usual course of business; (iii) any declaration or payment of any dividend or
other distribution with respect to FPC Common Stock, except for regular cash
dividends consistent with past practice; (iv) any change in the accounting
policies or practices of FPC; (v) any damage, destruction or loss, whether
covered by insurance or not, which has had or may reasonably be expected to have
a Material Adverse Effect on FPC; or (vi) any agreement to do any of the
foregoing.
Section 4.7. PROXY STATEMENT/PROSPECTUS.
None of the information to be supplied by FPC for inclusion or
incorporation by reference with respect to the FPC 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
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FPC Special Meeting, or, in the case of the Registration Statement, at the time
it becomes effective and, as the same may be amended, at the effective time of
such amendment, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of the Securities Act, the Exchange Act
and the rules and regulations promulgated thereunder, except that no
representation is made by FPC with respect to information supplied by CP&L or
Holdco or any affiliate of CP&L or Holdco for inclusion in the Proxy
Statement/Prospectus.
Section 4.8. LITIGATION.
Except as specifically disclosed in the FPC SEC Reports filed
prior to the date hereof, or in the FPC Disclosure Schedule, (a) there are no
complaints, claims, suits, actions, mediations, arbitrations or proceedings
(including proceedings related to the rates charged by the FPC Utility
Subsidiary) pending or, to the Knowledge of FPC, threatened, nor are there any
investigations or reviews pending or, to the Knowledge of FPC, threatened
against or affecting FPC or any of its Subsidiaries or Partnerships that, in the
aggregate, may reasonably be expected to have a Material Adverse Effect on FPC,
(b) there have not been any developments since December 31, 1998 with respect to
any such disclosed complaints, claims, suits, actions, mediations, arbitrations,
proceedings, investigations or reviews which, in the aggregate, may reasonably
be expected to have a Material Adverse Effect on FPC, and (c) there are no
judgments, decrees, injunctions, rules or orders of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
applicable to FPC or any of
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the FPC Companies that, in the aggregate, may reasonably be expected to have a
Material Adverse Effect on FPC or the transactions contemplated by this
Agreement.
Section 4.9. REAL AND PERSONAL PROPERTY.
(a) The FPC Companies own, or have a valid and enforceable
right to use or a valid and enforceable leasehold interest in, all real property
(including all buildings, fixtures and other improvements thereto) used by them
in the conduct of their respective businesses as such businesses are now being
conducted. Except as disclosed in the FPC SEC Reports or the FPC Disclosure
Schedule, none of the FPC Companies' ownership of or leasehold interest in any
such property is subject to any mortgage, pledge, lien, option, conditional sale
agreement, encumbrance, security interest, title exception or restriction or
claim or charge of any kind ("Encumbrances"), except for such Encumbrances that
in the aggregate may not reasonably be expected to have a Material Adverse
Effect on FPC. All such property is in good condition and repair and is suitable
in all material respects for the purposes for which it is now being used in the
conduct of the businesses of the FPC Companies, except to the extent that the
poor condition or unsuitability of any such property would not in the aggregate
reasonably be expected to have a Material Adverse Effect on FPC. To the
Knowledge of FPC, there are no conditions existing in respect of such assets
which would require FPC or any of its Subsidiaries to incur any capital
expenditures relating thereto which are materially in excess of the amounts
budgeted by FPC (as reflected in existing budgets of FPC, true and correct
copies of which were delivered to CP&L) for maintenance, repair or renewal of
the assets.
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(b) Except as otherwise disclosed in the FPC Disclosure
Schedule or in the FPC SEC Reports filed prior to the date hereof, all personal
property that is owned by the FPC Companies or used by any of them in the
conduct of their respective businesses is owned free and clear of any
Encumbrances, except for such Encumbrances that in the aggregate may not
reasonably be expected to have a Material Adverse Effect on FPC. All such
property is in good working condition, subject to normal wear and tear, and is
suitable in all material respects for the purposes for which it is now being
used in the conduct of the businesses of the FPC Companies, except to the extent
that the poor condition or unsuitability of any such property in the aggregate
may not reasonably be expected to have a Material Adverse Effect on FPC.
Section 4.10. CONTRACTS; NO DEFAULT.
(a) The FPC Disclosure Schedule lists all of the Contracts to
which any FPC Company is a party that constitute: (i) a material contract as
defined in Item 601 of Regulation S-K under the Exchange Act; (ii) an agreement
relating to the borrowing or lending of money or the purchase or sale of
securities; (iii) a guaranty, contribution agreement or other agreement that
includes any material indemnification, surety, contribution or support
obligation; (iv) an agreement limiting in any material respect the ability of
any FPC Company to compete in any line of business or with any person; (v) any
collective bargaining agreement; and (vi) an employment or consulting agreement
to which any of the FPC Companies is a party or by which any of the FPC
Companies is bound. Each such Contract is a valid and binding agreement of such
FPC 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 FPC Companies have performed and,
to the Knowledge of FPC, every
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other party has performed, each material term, covenant and condition of each of
such Contracts that is to be performed by any of them at or before the date
hereof. 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 FPC
Company or, to the Knowledge of FPC, any other party under any of such
Contracts, and, to the Knowledge of FPC, no party to any of such Contracts
intends to cancel, terminate or exercise any option under any of such Contracts.
(b) No FPC 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) its respective
charter, bylaws or other governing or organizational documents, (ii) any note,
bond, mortgage, indenture, license, agreement or other instrument or obligation
to which any FPC Company is now a party or by which any FPC Company or any of
its respective properties or assets may be bound or (iii) any order, writ,
injunction, decree, statute, rule or regulation applicable to any FPC Company,
except in the case of clauses (ii) and (iii) above for defaults or violations
which in the aggregate may not reasonably be expected to have a Material Adverse
Effect on FPC.
Section 4.11. LABOR MATTERS.
(a) Except as set forth in the FPC Disclosure Schedule, with
respect to employees of the FPC Companies: (i) to the Knowledge of FPC, no
senior executive, key employee or group of employees has any plans to terminate
employment with any of the FPC Companies; (ii) there is no unfair labor practice
charge or complaint against any FPC Company pending or, to the Knowledge of FPC,
threatened before the National Labor Relations Board or
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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 FPC, no claims therefor exist or have been threatened; (iv) there
is no litigation, arbitration proceeding, governmental investigation,
administrative charge, citation or action of any kind pending or, to the
Knowledge of FPC, proposed or threatened against any FPC Company relating to
employment, employment practices, terms and conditions of employment or wages
and hours; (v) there is no strike, dispute, slowdown, work stoppage or lockout
pending, or to the best knowledge of FPC, threatened against or involving FPC;
and (vi) FPC is in compliance with all applicable Laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of work
and occupational safety and health, except, in the cases of the preceding
clauses (iii), (iv), (v) and (vi), for such proceedings, actions, or violations
which in the aggregate may not reasonably be expected to have a Material Adverse
Effect on FPC.
(b) Except as described in the FPC Disclosure Schedule, no FPC
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 FPC Company has recognized any Labor
Organization as the collective bargaining representative of any of its
employees.
Section 4.12. EMPLOYEE BENEFIT PLANS.
(a) For purposes of this SECTION 4.12, the term "FPC 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,
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and all other payroll practices, employee programs, arrangements or agreements,
whether arrived at through collective bargaining or otherwise, 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 FPC Companies (which term, for purposes of this
SECTION 4.12, includes any entity that is a member of the FPC controlled group
or otherwise affiliated with FPC under Code Sections 414(b), (c), (m) or (o))
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 FPC 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 an "FPC Pension Plan."
(b) No FPC Benefit Plan is or has been a multiemployer plan
within the meaning of Section 3(37) of ERISA and none of the FPC Companies has
contributed to any such plan at any time during the current year or the
preceding six (6) calendar years.
(c) All FPC 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, the
breach or violation of which could have a Material Adverse Effect on the FPC
Companies. To the Knowledge of FPC, each FPC 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 Department
of Labor, the
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Pension Benefit Guaranty Corporation or any other governmental agency (federal,
state, or local) have been properly filed with the appropriate governmental
agency on a timely basis or distributed as required, in each instance in which
the failure to file or distribute such reports, returns, and other documents may
reasonably be expected to result in a Material Adverse Effect on FPC. Except as
set forth in the FPC Disclosure Schedule, no lawsuits or complaints to or by any
person or governmental authority are pending, or to the Knowledge of FPC, are
contemplated or threatened, with respect to any FPC Benefit Plan.
(d) Except as set forth in the FPC Disclosure Schedule, no FPC
Benefit Plan provides for post-retirement medical benefit obligations (without
regard to COBRA obligations). FPC has not incurred any material liability with
respect to any "welfare plan" (as defined in Section 3(1) of ERISA) or for
"welfare benefits" (as defined in Code Section 419) that are not fully reflected
in FPC's audited financial statements. Except as set forth in the FPC Disclosure
Schedule, no FPC Pension Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A) of
ERISA, and the present fair market value of the assets of any such plan exceeds
the plan's "benefit liabilities," as that term is defined in Section 4001(a)(16)
of ERISA, when determined under actuarial factors that would apply if the plan
terminated in accordance with all applicable legal requirements.
(e) The FPC Disclosure Schedule contains a true and correct
list of all FPC Benefit Plans. None of the FPC Benefit Plans will be breached by
FPC's execution, delivery, and performance of this Agreement. The FPC Disclosure
Schedule identifies each FPC Pension Plan and denotes those intended to be
qualified under Section 401(a) of the Code (the "FPC Qualified Plans"). FPC has
provided CP&L with access to true and correct copies of each
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governing document for each FPC Benefit Plan or a summary of any such FPC
Benefit Plan that is not evidenced by a written plan document, together with the
most recent summary plan description, the last three (3) years' annual reports
and audited financial statements for each such plan and the actuarial report for
any FPC Pension Plan that is a defined benefit pension plan or funded welfare
benefit plan. To the Knowledge of FPC, each FPC Benefit Plan is enforceable in
accordance with its terms.
(f) To the Knowledge of FPC, each FPC Qualified Plan complies
in all material respects with applicable law as of the date hereof, and the IRS
has issued favorable determination letters to the effect that the form of each
FPC Qualified Plan satisfies the requirements of Section 401(a) and related
sections of the Code. To the Knowledge of FPC, there are no facts or
circumstances that would jeopardize or adversely affect in any material respect
the qualification under Section 401(a) of the Code of any FPC Qualified Plan.
(g) As of the Closing Date, full payment will be made to each
FPC Benefit Plan of all contributions (including all employer contributions and
employee salary reduction contributions), costs, benefits, premiums, and other
amounts due in connection with the FPC Benefit Plans that are required under the
terms thereof, and under ERISA or the Code, to be made prior to that date. No
FPC Company, and no organization to which FPC 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 FPC Benefit
Plans has experienced a "reportable event" as defined in Section 4043(b) of
ERISA and its regulations within the last five (5) years for which the 30-day
notice requirement has not been waived,
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except for reportable events which may not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on FPC.
(h) To the Knowledge of FPC, no FPC Company has engaged in any
prohibited transaction, as defined in Section 4975 of the Code or Section 406 of
ERISA, that could subject any FPC Benefit Plan to any tax or penalty imposed
under Section 4975(a) of the Code or Section 502(i) of ERISA which may be
reasonably expected to have a Material Adverse Effect on FPC. No FPC Company (i)
has engaged in any transaction that may result in the imposition on FPC or its
affiliates of any such excise tax under Sections 4971, 4972, 4975, and 4976
through 4980 of the Code, or otherwise incurred a liability for any excise tax,
other than excise taxes that have heretofore been paid or have been accrued,
and, in either case, are fully reflected in FPC's audited financial statements,
or (ii) is now, nor at any time will be by virtue of any action taken prior to
the Effective Time, subject to a requirement to provide security under Section
401(a)(29) of the Code, nor shall any asset of a FPC Company be subject to a
lien by reason of the provisions of Section 412(n) of the Code. To the Knowledge
of FPC, the FPC Benefit Plans comply and have in the past complied in all
material respects with all applicable non-discrimination and coverage
requirements under the Code. FPC currently complies and has in the past complied
with all applicable workers' compensation statutes.
(i) Except as set forth in the FPC Disclosure Schedule, there
are no FPC employment or severance agreements that cannot be terminated without
triggering severance or "parachute" obligations thereunder. The FPC Disclosure
Schedule lists all payments required to be made to employees, officers or
directors of any FPC Company as a result of this Agreement or the transactions
contemplated thereby.
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(j) An aggregate number of 314,458 nominal FPC Shares are
currently subject to grants under the FPC LTIP. If an FPC change in control were
to occur as of the date this Agreement is signed, 150% of such FPC Shares would
be distributable thereunder together with dividend equivalents, for a total of
580,175 FPC Shares, assuming a 23% dividend equivalency rate. Grants will
continue to be made or adjusted in the normal course of business consistent with
past practice under the FPC LTIP through the Effective Time. In addition, as
each three-year performance cycle is completed, an additional amount of 25% of
the FPC Shares awarded under the FPC LTIP may be issued to current participants
who have met certain stock ownership guidelines. The maximum total additional
FPC Shares which could be issued under these provisions as of the date of this
Agreement is 769,856, based upon the FPC Disclosure Schedule which includes
FPC's good faith estimate of the impact of the FPC LTIP and the related
provisions of this Agreement as of an estimated Closing Date of December 31,
2000.
(k) Neither FPC nor any FPC Subsidiary has any liability under
the Coal Industry Retiree Health Benefit Act of 1992.
Section 4.13. TAX MATTERS.
(a) Except as set forth in the FPC Disclosure Schedule:
(i) FPC 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 FPC is the common parent, such affiliated group files a
consolidated federal income tax return and neither FPC nor any of its
Subsidiaries
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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 FPC Companies has timely filed or
caused to be filed all material 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 material respects;
(iii) each of the FPC Companies has paid or made
adequate provision on its books and records in accordance with GAAP for all
material Taxes covered by such Tax Returns;
(iv) each of the FPC Companies is in material
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 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) each of the FPC Companies has collected or
withheld all material 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;
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(vi) there are no unpaid Taxes due and payable by any
of the FPC Companies or by any other person that are or may become a lien on any
asset of, or otherwise may reasonably be expected to have a Material Adverse
Effect on, FPC;
(vii) none of the FPC 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 FPC 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 FPC Companies; there
are no currently pending administrative or judicial proceedings, or any
deficiency or refund litigation, with respect to Taxes of any of the FPC
Companies, the adverse outcome of which may reasonably be expected to have a
Material Adverse Effect on FPC; and any such assertion, assessment, proceeding
or litigation disclosed in the FPC Disclosure Schedule hereto is being contested
in good faith through appropriate measures, and its status is described in the
FPC Disclosure Schedule hereto;
(viii) none of the FPC Companies has made or entered
into, or holds any asset subject to, a consent filed pursuant to Section 341(f)
of the Code or a "safe harbor lease" subject to former Section 168(f)(8) of the
Code;
(ix) none of the FPC Companies is required to include
in income any material amount from an adjustment pursuant to Section 481 of the
Code or any similar provision of state or local Law, and to the Knowledge of FPC
no Governmental Authority has proposed any such adjustment;
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(x) none of the FPC 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 Section 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
FPC is the common parent which may reasonably be expected to have a Material
Adverse Effect on FPC if taken into account;
(xii) the most recent audited consolidated balance
sheet included in the FPC SEC Reports fully and properly reflects, as of the
date thereof, the liabilities of FPC 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
liability for all accrued Taxes;
(xiii) since April 16, 1997, none of the FPC Companies
has distributed to its stockholders or security holders stock or securities of a
controlled corporation in a transaction to which Section 355(a) of the Code
applies; and
(xiv) with respect to any Fund within the meaning of
Section 468A of the Code that is established by or for the benefit of any FPC
Company, (A) such Fund is in compliance with (i) all requirements of Sections
468A and 4951 of the Code and (ii) all Tax Return and Tax payment requirements
resulting from the application of Section 468A of the Code (and any similar
provision of state or local Law) to the Fund, and (B) such FPC Company (i) has
not claimed any deduction for contributions to the Fund in excess of the amounts
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permitted by Section 468A(b) and (ii) has included in income all amounts
includible in its income under Section 468A(c).
(b) The FPC Disclosure Schedule describes all material
and continuing Tax elections, consents and agreements made by or affecting any
of the FPC Companies, lists all types of material Taxes paid and Tax Returns
filed by or on behalf of any of the FPC Companies and expressly indicates each
Tax with respect to which any of the FPC Companies is or has been included in a
consolidated, unitary or combined return.
Section 4.14. COMPLIANCE WITH LAW.
The FPC Companies hold, and immediately after the Effective
Time will continue to 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 "FPC Permits"), except where
the failure so to hold may not reasonably be expected to have a Material Adverse
Effect on FPC. Except as set forth in the FPC Disclosure Schedule, the FPC
Companies are in compliance with the terms of the FPC Permits, except where the
failure so to comply may not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on FPC. Except as disclosed in the FPC
SEC Reports filed prior to the date hereof or as set forth in the FPC Disclosure
Schedule, the business of the FPC Companies is not being conducted in violation
of any Law, ordinance or regulation of any Governmental Authority, except for
possible violations which, individually or in the aggregate, may not reasonably
be expected to have a Material Adverse Effect on FPC.
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Section 4.15. ENVIRONMENTAL MATTERS.
(a) Except as set forth in the FPC SEC Reports filed prior to
the date hereof or in the FPC Disclosure Schedule, each of the FPC Companies is
in compliance with all applicable Environmental Laws except for noncompliance
which may not reasonably be expected to have a Material Adverse Effect on FPC.
Except as set forth in the FPC Disclosure Schedule, and except for matters that
have been fully resolved, no FPC Company has received any written communication
from any person or Governmental Authority that alleges that it is not in
compliance with applicable Environmental Laws where such noncompliance may
reasonably be expected to have a Material Adverse Effect on FPC.
(b) Except as set forth in the FPC Disclosure Schedule, the
FPC 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 FPC Companies are in compliance with all terms and conditions of the
Environmental Permits except where the absence of such permits or such
noncompliance may not reasonably be expected to have a Material Adverse Effect
on FPC.
(c) Except as set forth in the FPC Disclosure Schedule, or in
the FPC SEC Reports filed prior to the date hereof, there is no Environmental
Claim pending or to the Knowledge of FPC, threatened (i) against a FPC Company,
(ii) against any person or entity whose liability for any Environmental Claim a
FPC Company has or may have retained or
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assumed either contractually or by operation of law or (iii) against or
concerning any real property or operations which a FPC Company owns, leases or
manages, in whole or in part, which claim, if adversely determined, may
reasonably be expected to have a Material Adverse Effect on FPC.
(d) Except as set forth in the FPC Disclosure Schedule or in
the FPC SEC Reports filed prior to the date hereof, and except for any Releases
(as hereinafter defined) of Hazardous Materials (as hereinafter defined) the
liability for which may not reasonably be expected to have a Material Adverse
Effect on FPC, no Release of any Hazardous Material (i) has occurred on any of
the properties owned, leased or occupied by a FPC Company or any predecessor, or
(ii) is related to the business or operations of a FPC Company or any
predecessor, which in either case requires investigation, assessment,
monitoring, remediation or cleanup under Environmental Laws.
(e) FPC has disclosed to CP&L all material facts that FPC
reasonably believes form the basis of a Material Adverse Effect on FPC 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 FPC
Company that may be reasonably expected to have a Material Adverse Effect on
FPC. To the Knowledge of FPC, it has delivered to CP&L prior to the date hereof
copies of all material environmental investigations, studies, audit tests,
reviews or other analyses (including all Phase I environmental assessments)
conducted of the properties or operations of any FPC Company within the last
five (5) years.
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(f) 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, manufacture,
disturbance, generation, use, transportation, treatment, storage, disposal or
the Release or threatened Release into the environment, of any Hazardous
Materials at any location, whether or not owned, operated, leased or managed by
a FPC Company or (b) circumstances forming the basis of any violation of any
Environmental Law; (ii) "Environmental Laws" means any Law 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, disturbance, generation, use, transportation, treatment, storage,
disposal, or handling of Hazardous Materials. "Environmental Laws" include
without limitation, the Clean Air Act, the Clean Water Act of 1977, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the National Environmental Policy Act of 1969, the Oil Pollution Act of 1990,
the Resource Conservation and Recovery Act of 1976, the Hazardous and Solid
Waste Amendments of 1984, the Outer Continental Shelf Lands Act, the Superfund
Amendments and Reauthorization Act of 1986, the River and Harbor Act, and the
Toxic Substances Control Act; (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, manufactured
gas waste, and transformers or other equipment that contain dielectric fluid
containing polychlorinated biphenyls; (b) any chemicals, materials or substances
which are now defined as
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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 Law; and (c) any other chemical, material, substance or waste,
exposure to or the manufacture, disturbance, generation, use, transportation or
treatment of which is now prohibited, limited or regulated under any Law in a
jurisdiction in which a FPC Company operates; and (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 4.16. FPC ACTION.
The Board of Directors of FPC (at meetings duly called,
constituted and held) has unanimously (a) determined that the Exchange is
advisable and in the best interests of FPC and its shareholders, (b) approved
the Original Agreement, and, as of March 3, 2000, the Amendment, and the CVO
Agreement, and the transactions contemplated hereby, including the Exchange, and
(c) subject to the provisions of SECTION 5.5(B)(II), directed that the Exchange
be submitted with the recommendation of the Board of Directors for consideration
by FPC's shareholders at the FPC Special Meeting. FPC has taken all steps
necessary to exempt (i) the execution and delivery of the Original Agreement and
the Amendment, (ii) the Exchange and (iii) the transactions contemplated hereby
and thereby from, (x) assuming that the representation contained in SECTION 3.24
is accurate, any statute of the State of Florida that purports to limit or
restrict business combinations or the ability to acquire or to vote shares,
including, without limitation, Sections 607.0901 and 607.0902 of the FBCA, and
(y) any applicable provision of FPC's Articles of Incorporation or Bylaws
containing change of control or anti-takeover
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provisions. FPC has (A) duly entered into an appropriate amendment to the FPC
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 Exchange),
do not and will not (I) result in the ability of any person to exercise any FPC
Rights or enable or require the FPC Rights to separate from the shares of FPC
Common Stock to which they are attached, (II) cause CP&L or any of its
Affiliates or Associates to be an Acquiring Person (as each such term is defined
in the FPC Rights Agreement) or (III) trigger any other provisions of the FPC
Rights Agreement, including giving rise to a Distribution Date or a Triggering
Event (as each such term is defined in the FPC Rights Agreement), and such
amendment shall be in full force and effect from and after the date hereof.
Section 4.17. VOTE REQUIRED.
The affirmative vote of holders of a majority of the
outstanding shares of FPC Common Stock entitled to vote thereon is the only vote
of the holders of any class or series of FPC capital stock necessary to approve
this Agreement and the transactions contemplated by the Agreement.
Section 4.18. MATERIAL INTERESTS OF CERTAIN PERSONS.
Except as disclosed in FPC's Proxy Statement for its 1999
Annual Meeting of Shareholders or as set forth in the FPC Disclosure Schedule,
no officer or director of FPC, or any "associate" (as such term is defined in
Rule 14a-1 under the Exchange Act) of any such officer or
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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
FPC or any FPC Subsidiary.
Section 4.19. INSURANCE.
Except as set forth in the FPC Disclosure Schedule, each FPC
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 FPC Company has received any notice of
cancellation or termination with respect to any material insurance policy
thereof and no FPC Company has received notice that any such policy is invalid
or unenforceable.
Section 4.20. FEES AND EXPENSES OF BROKERS AND OTHERS.
None of the FPC 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 FPC has
engaged Salomon Smith Barney to represent it in connection with such
transactions, and shall pay all of Salomon Smith Barney's fees and expenses in
connection with such engagement.
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Section 4.21. OPINION OF FINANCIAL ADVISOR.
The Board of Directors of FPC has received the opinions of
Salomon Smith Barney, dated August 21, 1999 and March 3, 2000, to the effect
that, as of such date, the Exchange Consideration was fair from a financial
point of view to the holders of shares of FPC Common Stock.
Section 4.22. REGULATION AS UTILITY OR AS PART OF UTILITY HOLDING
COMPANY SYSTEM.
FPC Utility Subsidiary is regulated as a public utility in the
State of Florida and in no other state. FPC is a holding company exempt from all
provisions of PUHCA except Section 9(a)(2) thereof under Section 3(a)(1)
pursuant to Rule 2 promulgated thereunder. Except as set forth above and with
respect to their relationship to FPC under PUHCA, neither FPC nor any subsidiary
company, affiliate or associate company of FPC is subject to regulation as a
holding company, a public utility or public service company (or similar
designation) by any other state in the United States or any agency or
instrumentality thereof, by the United States or any agency or instrumentality
of the United States or by any foreign country. As used in this SECTION 4.22,
the terms "holding company", "subsidiary company", "associate company" and
"affiliate" shall have the respective meanings ascribed to them in PUHCA.
Section 4.23. ABSENCE OF UNDISCLOSED LIABILITIES.
Except as disclosed in the FPC SEC Reports filed prior to the
date hereof or the FPC Disclosure Schedule, none of the FPC Companies has, as of
the date hereof, or will have, as of the Effective Time, any liabilities or
obligations of any kind, whether absolute, accrued,
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asserted or unasserted, contingent or otherwise, except to the extent such
liabilities, obligations or contingencies were (a) reflected on or accrued or
reserved against in the consolidated balance sheet of FPC dated June 30, 1999,
or reflected in the notes thereto, or (b) incurred after the date of such
balance sheet in the ordinary course of business and consistent with past
practices and which, in the case of either subsection (a) or subsection (b) of
this SECTION 4.23, individually or in the aggregate, has not had and may not
reasonably be expected to have a Material Adverse Effect on FPC.
Section 4.24. INTELLECTUAL PROPERTY.
The FPC Companies own, or are licensed or otherwise possess,
legally enforceable and otherwise adequate rights to use, all patents,
trademarks, trade names, service marks, logos, trade dress, fictitious names,
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 businesses as currently conducted, except as would not,
individually or in the aggregate, have a Material Adverse Effect on FPC
(collectively, the "FPC Intellectual Property Rights"). All of the FPC
Intellectual Property Rights are owned or licensed by a FPC Company, free and
clear of any and all Encumbrances, except as set forth in applicable license
agreements or as would not, individually or in the aggregate, have a Material
Adverse Effect on FPC. To the Knowledge of FPC, the use of the FPC Intellectual
Property Rights by the FPC 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 FPC nor
any FPC Company has received notice of any claim or otherwise have Knowledge
that any FPC
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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 FPC.
Section 4.25. YEAR 2000 MATTERS.
The FPC 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). Resolution of problems
associated with the Year 2000 issue with respect to the software and hardware of
the FPC Companies can be achieved so as to allow the conduct of the business of
the FPC Companies as currently conducted, except for interruptions in service
that may not reasonably be expected to have a Material Adverse Effect on FPC.
FPC reasonably believes, as of the date hereof, that the remaining cost of
resolution of the problems discussed above will not exceed the amounts reflected
in FPC's Report on Form 10-Q for the period ended June 30, 1999. While FPC has
made diligent inquiry of supplier, vendor and other third party Year 2000 plans,
and, to the Knowledge of FPC, there are no problems arising from the Year 2000
issue with respect to third parties that may reasonably be expected to have a
Material Adverse Effect on FPC, FPC makes no representation or warranty with
respect to Year 2000 compliance by any supplier, vendor or other third party.
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Section 4.26. NUCLEAR OPERATIONS.
The operations of FPC's and its Subsidiaries' nuclear
generating station are conducted in compliance with applicable health, safety,
regulatory and other legal requirements except where the failure to so comply
may not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on FPC. FPC's and its Subsidiaries' nuclear generating
station maintains emergency plans designed to respond to an unplanned release
therefrom of radioactive materials into the environment and liability insurance
to the extent required by Law, and such further insurance (other than liability
insurance) as is consistent with FPC's view of the risks inherent in the
operation of a nuclear power facility. FPC's and its Subsidiaries' plans for the
decommissioning of its nuclear generating station and for the short-term storage
of spent nuclear fuel conform with applicable regulatory or other legal
requirements, and such plans have at all times been funded to the extent
required by Law, which is consistent with FPC's reasonable budget projections
for such plans. Neither FPC nor any of its Subsidiaries has incurred any
liability as a result of operating nuclear power facilities for third parties
which liability, in the aggregate, may reasonably be expected to have a Material
Adverse Effect on FPC.
Section 4.27. NRC ACTIONS.
Neither FPC nor any of its Subsidiaries has been given notice
of or been charged with actual or potential violation of, or is the subject of
any ongoing proceeding, inquiry, special inspection, diagnostic evaluation or
other NRC action (including rulemakings of general application that may effect
the conduct of FPC's business regarding FPC's nuclear power facilities) of which
FPC or any of its Subsidiaries has received notice under the Atomic Energy
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Act, any applicable regulations thereunder or the terms and conditions of any
license granted to FPC or any of its Subsidiaries regarding FPC's or any of its
Subsidiaries' nuclear power facilities operated by FPC or any of its
Subsidiaries that would have, or may reasonably be expected to have, a Material
Adverse Effect on FPC.
Section 4.28. OWNERSHIP OF CP&L COMMON STOCK.
Neither FPC nor any of the Subsidiaries of FPC or other
affiliates thereof owns any shares of CP&L Common Stock or Holdco Common Stock
either beneficially or of record.
Section 4.29. FPC PARTNERSHIPS.
The representation and warranties set forth in SECTIONS 4.4,
4.6, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.23, 4.24 and 4.25, are, to
the Knowledge of FPC, true and correct in all material respects with regard to
the Partnerships of FPC; PROVIDED that for purposes of the representations and
warranties contained in SECTION 4.13, Partnerships of FPC shall include only
those Partnerships for which FPC is the tax matters partner.
ARTICLE V
COVENANTS
Section 5.1. CONDUCT OF THE BUSINESS OF FPC.
(a) Except as otherwise expressly provided in this Agreement,
during the period from the date of this Agreement to the Effective Time, FPC
shall, and shall cause the Subsidiaries of FPC to, conduct their respective
operations according to their ordinary and usual course of business and
consistent with past practice, and use all their respective commercially
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reasonable efforts to preserve intact their respective business organizations,
assets and goodwill, to keep available the services of their officers and
employees (subject to prudent management of workforce needs) and to maintain
satisfactory relationships with suppliers, contractors, distributors, customers
and others having material business relationships with them to the end that
their goodwill and ongoing businesses will not be impaired in any material
respect at the Effective Time. Without limiting the generality of the foregoing,
and except as otherwise expressly provided in this Agreement, prior to the
Effective Time, none of the FPC Companies will, without the prior written
consent of CP&L:
(i) except as set forth in the FPC Disclosure
Schedule, amend its Articles or Certificate of Incorporation or bylaws, or, to
the extent such action is within the control of an FPC Company, any agreements
or other governing or organizational documents in respect of any Partnerships;
(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, except pursuant to any plans, options, warrants
or rights outstanding as of the date hereof to the extent set forth in the FPC
Disclosure Schedule and to the extent consistent with past practice and, in the
case of the FPC LTIP, to the extent permitted by SECTION 5.1(a)(XVII);
(iii) (a) declare or pay any dividends on or make
other distributions in respect of any of their capital stock other than (i) to
another FPC Company or its wholly owned Subsidiaries, (ii) stated dividends on
the preferred stock outstanding on the date hereof of any
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FPC Company, and (iii) regular quarterly dividends on FPC Common Stock with
usual record and payment dates and not in excess of an annual rate of $2.18 per
share, provided that FPC may increase the annualized amount of such dividends at
FPC's regular Board of Directors' meetings in each of February, 2000 and
February, 2001 at a rate of up to 2% greater than the annualized amount in the
preceding year; (b) split, combine or reclassify any of their capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of, or in substitution for, shares of its capital stock; or (c)
redeem, repurchase or otherwise acquire any shares of their capital stock other
than (i) redemptions, repurchases and other acquisitions of shares of capital
stock in the ordinary course of business consistent with past practice
including, without limitation, repurchases, redemptions and other acquisitions
in connection with the administration of employee benefit and dividend
reinvestment plans as in effect on the date hereof in the ordinary course of the
operation of such plans, (ii) redemptions, purchases or acquisitions required by
the respective terms of any series of FPC preferred stock, (iii) redemptions in
connection with refunding an equivalent principal amount of FPC Utility
Subsidiary preferred stock at a lower cost of funds, and (iv) intercompany
acquisitions of capital stock;
(iv) (a) redeem the FPC Rights, (b) amend the FPC
Rights Agreement (other than the amendment contemplated by SECTION 4.16 hereof)
or (c) except in connection with a Superior Proposal that would allow FPC to
terminate this Agreement under SECTION 7.1, take any action that would allow any
Person (as defined in the FPC Rights Agreement) other than CP&L or Holdco to
become a Beneficial Owner (as defined in the FPC Rights Agreement) of 15% or
more of the FPC Shares without causing a Distribution Date or a Triggering Event
(as such terms are defined in the FPC Rights Agreement) to occur;
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(v) except as set forth in the FPC Disclosure
Schedule, incur or assume any indebtedness for borrowed money or guarantee any
such indebtedness, other than (a) in connection with the refinancing of an
equivalent principal amount of existing indebtedness or preferred stock either
at their stated maturity or at a lower cost of funds, (b) indebtedness between
FPC or any of its Subsidiaries and another of its Subsidiaries, or (c)
additional indebtedness in the ordinary course of business, consistent with past
practice, under existing credit facilities;
(vi) except in the ordinary course of business
consistent with past practice or as set forth in the FPC Disclosure Schedule,
(a) enter into any material operating lease or create any mortgages, liens,
security interests or other encumbrances on the property of any of the FPC
Companies, except with respect to indebtedness permitted pursuant to this
SECTION 5.1, or (b) enter into any material Contract, or alter, amend, modify,
terminate, purchase any rights of any other party to, or exercise any option
under, any material existing Contract, other than as required by this Agreement;
(vii) adopt or amend (except as may be required by Law
or pursuant to an existing obligation or agreement described in the FPC
Disclosure Schedule 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
(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)
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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 any stock or equity interests or any
assets of any other entity, or make any capital expenditures, except as follows:
(a) to the extent such acquisitions or expenditures are within the amounts
contained in the FPC 1999 Profit Plan and 2000-2003 Financial Forecast (the
"Forecast"), CP&L's consent will be required only if any expenditure or
transaction, or series of related expenditures or transactions, involves
expenditures of more than $50,000,000; and (b) to the extent such acquisitions
or expenditures are beyond the amounts shown in the Forecast, but do not exceed
the amounts shown under "Amendments to Forecast" and "Acquisition Expenditures"
in Exhibit 5.1A to the FPC Disclosure Schedule, CP&L's consent will be required
only if any expenditure or transaction, or series of related expenditures or
transactions, involves expenditures of more than $10,000,000;
(ix) except as set forth in the FPC Disclosure
Schedule, sell, lease or dispose of any material assets outside the ordinary
course of business consistent with past practice;
(x) 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 as may be required by changes in Law,
rules, regulations or GAAP;
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(xi) except as set forth in the FPC Disclosure
Schedule, make any material Tax election or settle or compromise any material
federal, state, local or foreign income Tax liability for which adequate
reserves have not been provided in FPC's June 30, 1999 financial statements;
(xii) except as set forth in the FPC Disclosure
Schedule, make any filing with any Governmental Authority to change rates on
file, take any other action that could result in an increase or decrease of
rates or change in standards of service or accounting or that could affect costs
of service, or take any other action to enter into any agreement, commitment,
arrangement or consent, whether written or oral, formal or informal with respect
thereto;
(xiii) except as set forth in the FPC Disclosure
Schedule, fail to maintain insurance against risks and losses in accordance with
past practice;
(xiv) fail to use all commercially reasonable efforts
to maintain in effect any existing FPC Permit;
(xv) except for the payment of professional fees, 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 FPC's June 30, 1999 financial statements or
incurred in the ordinary course of business since the date thereof or as
disclosed in the FPC Disclosure Schedule;
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(xvi) except as otherwise provided in this Agreement,
voluntarily engage in any activities which are reasonably expected to cause a
change in status of FPC as an exempt holding company under PUHCA;
(xvii) add new participants to the FPC LTIP or, except
in accordance with past practice (including adjustments relating to salary
increases, target award percentages and share price changes) as set forth in the
provisions of the FPC Disclosure Schedule described in SECTION 4.12(j), change
the method of allocating or the terms of awards under the LTIP in any manner
that would increase the nominal FPC Shares pertaining thereto;
(xviii) negotiate with union representatives of a
collective bargaining unit or enter into any collective bargaining with any
labor union without affording representatives of CP&L the opportunity to review
proposals and discuss negotiation strategy prior to as well as during such
negotiations; or
(xix) agree in writing or otherwise to take any of the
foregoing actions.
(b) CP&L and FPC agree that, during the period from the date
of this Agreement to the Effective Time: (i) FPC will confer and coordinate on a
regular and frequent basis with one or more representatives of CP&L and Holdco
to discuss the general status of FPC's ongoing operations, including labor
relations, union negotiations and material contractual and regulatory matters;
and (ii) each of CP&L and FPC will (x) promptly notify the other of any
significant changes in its business, operations, properties, assets, condition
(financial or other), prospects or results of operations, (y) advise the other
of any change or event that has had or, may reasonably be expected to have a
Material Adverse Effect and (z) promptly provide the
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other with copies of all filings made by it or any of its Subsidiaries with any
state or federal court, administrative agency, commission or other Governmental
Authority in connection with this Agreement and the transactions contemplated
hereby.
Section 5.2. CONDUCT OF THE BUSINESS OF CP&L.
Prior to the Effective Time, except as set forth in the CP&L
Disclosure Schedule, CP&L and Holdco shall not, and shall not permit any of
their Subsidiaries to, (a) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of or
equity in, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets, (b) dispose or agree to dispose of a
substantial portion of their assets, or (c) take any other action, including
without limitation, entering into a new line of business, encumbering shares of
their capital stock or making any changes in their accounting methods (except as
required by changes in Law, rules, regulations or GAAP), unless the Board of
Directors of CP&L or Holdco, as the case may be, concludes in good faith that
any such action set forth in subsections (a), (b) or (c) of this SECTION 5.2 may
not reasonably be expected to impose any material delay in the obtaining of, or
materially increase the risk of not obtaining, any material authorizations,
consents, orders, declarations or approvals of any Governmental Authority
necessary to consummate the Exchange. Except as otherwise expressly provided in
this Agreement, prior to the Effective Time, neither CP&L nor Holdco will,
without the prior written consent of FPC, engage in any material repurchase at a
premium, recapitalization, restructuring or reorganization with respect to its
respective capital stock, including, without limitation, the making of any
extraordinary dividends or other extraordinary distributions.
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Section 5.3. NO SOLICITATION.
Prior to the Effective Time, FPC agrees (a) that neither it
nor any of its Subsidiaries shall, and it shall direct and use all commercially
reasonable efforts to cause its officers, directors, employees, agents 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 shareholders) with respect to an
Alternative Proposal (as defined below) 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 5.3; and (c) that it will notify CP&L 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
5.3 shall prohibit the Board of Directors of FPC from (i) prior to the FPC
Special Meeting, furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited BONA FIDE
proposal or offer to the shareholders of FPC that constitutes an Alternative
Proposal, if, and only to the extent that (a) the Board of Directors of FPC
determines in good faith upon the advice of outside counsel that such action is
required for the Board of
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Directors to comply with its fiduciary duties to shareholders imposed by Law,
(b) prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, FPC provides written notice to CP&L of
the identity of the person or entity making the Alternative Proposal and that it
intends to furnish information to, or intends to enter into discussions or
negotiations with, such person or entity, (c) FPC enters into a confidentiality
agreement with such person or entity on terms in the aggregate not more
favorable to such person or entity than the terms of the Confidentiality
Agreement, (d) FPC keeps CP&L informed on a timely basis of the status of any
such discussions or negotiations and all material terms and conditions thereof
and promptly provides CP&L with copies of any written inquiries or proposals
relating thereto, and (e) in the event that the Board of Directors of FPC
determines to accept any such Alternative Proposal (in accordance with subclause
(i)(a) above), FPC provides CP&L with at least five (5) days' prior written
notice thereof, during which time CP&L may make, and in such event, FPC shall in
good faith consider, a counterproposal to such Alternative Proposal; and (ii) to
the extent applicable, complying with Rule 14e-2 promulgated under the Exchange
Act with regard to an Alternative Proposal. Nothing in this SECTION 5.3 shall
(x) permit FPC to terminate this Agreement (except as specifically provided in
ARTICLE VII hereof), (y) permit FPC to enter into any agreement with respect to
an Alternative Proposal during the term of this Agreement (it being agreed that
during the term of this Agreement, FPC shall not enter into any agreement with
any person that provides for, or in any way facilitates, an Alternative Proposal
other than the confidentiality agreement referred to in subclause (i)(c) above),
or (z) affect any other obligation of FPC under this Agreement. "Alternative
Proposal" means any merger, acquisition, consolidation, reorganization, share
exchange, tender offer, exchange offer or similar transaction involving FPC or
any of FPC's Significant Subsidiaries, or any proposal or offer to
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acquire in any manner, directly or indirectly, a substantial equity interest in
or a substantial portion of the assets of FPC or any of FPC's Significant
Subsidiaries.
Section 5.4. THE REGISTRATION STATEMENT; LISTING.
(a) FPC and Holdco shall, as soon as practicable following the
execution of this Agreement, prepare, and FPC shall file with the SEC, a draft
of the Proxy Statement/Prospectus (in a form mutually agreeable to FPC and
Holdco). FPC and Holdco shall cooperate to respond promptly to any comments made
by the SEC with respect thereto.
(b) Upon resolution of any SEC comments with respect to the
draft Proxy Statement/Prospectus, or at such other time as may be mutually
determined by the parties hereto, Holdco shall file the Registration Statement
(including the then-current draft of the Proxy Statement/Prospectus) with the
SEC, and shall:
(i) after consultation with FPC, respond promptly to
any comments made by the SEC with respect thereto; PROVIDED, HOWEVER, that
Holdco will not file any amendment or supplement to the Registration Statement
without first furnishing to FPC a copy thereof for its review and will not file
any such proposed amendment or supplement to which FPC reasonably and promptly
objects;
(ii) use all commercially reasonable efforts to cause
the Registration Statement to become effective under the Securities Act as soon
as practicable, and FPC shall cause the Proxy Statement/Prospectus to be mailed
to its shareholders as promptly as practicable after effectiveness of the
Registration Statement;
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(iii) cause the registration or qualification of the
Holdco Common Stock to be issued in exchange for shares of FPC Common Stock in
accordance with the Exchange under the state securities or "blue sky" laws of
each state of residence of a record holder of FPC Common Stock as reflected in
its stock transfer ledger;
(iv) promptly advise FPC (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 Holdco of any notification with respect
to the suspension of the registration or qualification of Holdco Common Stock
for sale in any jurisdiction or the institution or threatening of any proceeding
for that purpose;
(v) use all commercially reasonable 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 all commercially reasonable efforts to cause
the shares of Holdco Common Stock to be issued upon the exchange of shares of
FPC Common Stock in accordance with the Exchange to be approved for listing on
the NYSE.
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
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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, FPC and Holdco will cooperate to prepare and
file with the SEC, subject to clause (a) of this SECTION 5.4, an amendment or
supplement that will correct such statement or omission or effect such
compliance.
Section 5.5. SPECIAL MEETINGS.
(a) FPC shall (i) call the FPC Special Meeting to be held for
the purpose of voting upon the adoption of this Agreement, (ii) through its
Board of Directors, recommend to the holders of FPC Common Stock the adoption of
this Agreement and not rescind such recommendation (PROVIDED that nothing
contained in this SECTION 5.5 shall require the FPC Board of Directors to make
or not rescind such recommendation if such Board determines in good faith, based
upon the advice of counsel and such other matters as such Board in good faith
deems relevant, that the continuation of such recommendation, would result in a
breach of its fiduciary duties), (iii) use all commercially reasonable efforts
to have the holders of FPC Common Stock adopt this Agreement and (iv) use all
commercially reasonable efforts to hold such meeting as soon as practicable
after the date upon which the Registration Statement becomes effective. The FPC
Special Meeting shall be held on such date, as soon as practicable after the
date upon which the Registration Statement becomes effective, as the parties
shall mutually determine.
(b) Holdco or CP&L, as the case may be, shall (i) call the
Holdco Special Meeting for the purpose of voting upon the issuance of Holdco
Common Stock to the holders of FPC Common Stock pursuant to the Exchange, and
(ii) through its Board of Directors
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recommend to the holders of Holdco Common Stock or CP&L voting stock, as the
case may be, the issuance of such shares; PROVIDED that nothing contained in
this SECTION 5.5 shall require the Holdco or CP&L Board of Directors, as the
case may be, to make or not rescind such recommendation if such Board determines
in good faith, based upon the advice of counsel and such other matters as such
Board in good faith deems relevant, that the continuation of such recommendation
would result in a breach of its fiduciary duties.
Section 5.6. 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, each party shall
afford to the authorized representatives of the other party reasonable access
during normal business hours to all facilities and to all books and records, and
will cause their respective officers and employees and officers and employees of
their respective Subsidiaries 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 5.8 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 to
permit the solicitation of votes of the shareholders of FPC and Holdco or CP&L
pursuant to the Proxy Statement/Prospectus and to permit consummation of the
transactions
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contemplated hereby. Each party further acknowledges that the Confidentiality
Agreement shall survive any termination of this Agreement pursuant to SECTION
7.1 hereof.
Section 5.7. APPROVALS.
(a) FPC, CP&L and Holdco 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.
FPC, CP&L and Holdco 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) FPC, CP&L and Holdco shall cooperate and use all
commercially reasonable 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 FPC, CP&L or Holdco in
connection with the Exchange or the taking of any action contemplated thereby or
by this Agreement. CP&L shall have the right to review and approve in advance
all characterizations of the information relating to CP&L on the one hand and
FPC shall have the right to review and approve in advance all characterizations
of the information relating to FPC, on the other hand, in either case, which
appear in any filing made in connection with the transactions contemplated by
this Agreement, such approvals not to be unreasonably withheld. CP&L and FPC
shall each
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consult with the other with respect to the obtaining of all such necessary
approvals of Governmental Authorities and shall keep each other informed of the
status thereof.
(c) FPC, CP&L and Holdco each will use all commercially
reasonable efforts to obtain consents of all other third parties necessary to
the consummation of the transactions contemplated by this Agreement. FPC shall
promptly notify CP&L and Holdco of any failure or anticipated failure to obtain
any such consents and, if requested by CP&L and Holdco, shall provide copies of
all such consents obtained by FPC to CP&L and Holdco.
Section 5.8. 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. FPC, CP&L and Holdco will consult with each other before issuing any
additional press release or otherwise making any additional public statement
with respect to this Agreement, the Exchange 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 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 all commercially reasonable efforts
to consult in good faith with the other party before issuing any such press
release or making any such public announcements.
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Section 5.9. LETTER OF FPC'S ACCOUNTANTS.
FPC shall use all commercially reasonable efforts to obtain
two (2) letters of KPMG, LLP dated as of a date within two (2) business days
before the date on which the Registration Statement shall become effective and
as of a date within two (2) business days before the Closing Date, and addressed
to FPC, CP&L and Holdco, in form and substance reasonably satisfactory to CP&L
and Holdco and FPC and customary in scope and substance to the "cold comfort"
letters customarily delivered by independent public accountants in connection
with registration statements and proxy statements similar to the Registration
Statement and the Proxy Statement/Prospectus and transactions such as those
contemplated by the Agreement.
Section 5.10. LETTER OF CP&L'S ACCOUNTANTS.
CP&L and Holdco shall use all commercially reasonable efforts
to obtain two (2) letters of Deloitte & Touche, LLP, dated as of a date within
two (2) business days before the date on which the Registration Statement shall
become effective and as of a date within two (2) business days before the
Closing Date, and addressed to CP&L, Holdco and FPC, in form and substance
reasonably satisfactory to FPC, CP&L and Holdco and customary in scope and
substance to the "cold comfort" letters customarily delivered by independent
public accountants in connection with registration statements and proxy
statements similar to the Registration Statement and the Proxy
Statement/Prospectus and transactions such as those contemplated by the
Agreement.
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Section 5.11. INDEMNIFICATION; INSURANCE.
(a) Except as may be limited by applicable Law, from and after
the Effective Time, CP&L and Holdco shall cause FPC to maintain all rights of
indemnification existing in favor of the directors and officers of FPC on terms
no less favorable than those provided in the Certificate of Incorporation and
bylaws of FPC on the date of this Agreement with respect to matters occurring
prior to the Effective Time.
(b) CP&L and Holdco 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 FPC (PROVIDED that CP&L and Holdco
may substitute therefor policies of at least the same coverage containing terms
and conditions that are not less advantageous) with respect to matters occurring
prior to the Effective Time, to the extent such insurance is available to CP&L
or Holdco in the market; PROVIDED that if such insurance cannot be so maintained
or obtained, CP&L shall maintain or obtain as much of such insurance as can be
so maintained or obtained at a cost equal to twice the current premium rate of
CP&L's directors' and officers' liability insurance.
(c) In the event Holdco or any of its successors or assigns (i)
consolidates with or merges into any other person or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person or entity, then, and in each such case, proper provision shall be
made so that the successors and assigns of Holdco shall assume the obligations
set forth in this SECTION 5.11.
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(d) The provisions of this SECTION 5.11 are intended to be for
the benefit of, and shall be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification that such person may have
by contract or otherwise.
Section 5.12. AFFILIATE AGREEMENTS.
FPC will use all commercially reasonable efforts to ensure
that each person who is an "affiliate" of FPC within the meaning of Rule 145
under the Securities Act will enter into an agreement in the form attached
hereto as EXHIBIT B as soon as practical after the date hereof.
Section 5.13. FORMATION OF HOLDCO.
CP&L and Holdco shall take all commercially reasonable efforts
to cause the CP&L Exchange to be completed as soon as reasonably practicable
following execution of this Agreement. Without limiting the foregoing, CP&L and
Holdco shall:
(i) cause the CP&L Exchange Registration Statement to
be declared effective by the SEC as promptly as practicable;
(ii) cause the registration or qualification of the
Holdco Common Stock to be issued in exchange for shares of CP&L Common Stock in
accordance with the CP&L Exchange under the state securities or "blue sky" laws
of each state of residence of a record holder of CP&L Common Stock as reflected
in its stock transfer ledger;
(iii) promptly advise FPC (A) when the CP&L Exchange
Registration Statement becomes effective, (B) when any amendment to the CP&L
Exchange Registration
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Statement shall be filed or become effective, (C) of the issuance by the SEC of
any stop order suspending the effectiveness of the CP&L Exchange Registration
Statement or the institution or threatening of any proceeding for that purpose
and (D) of the receipt by Holdco of any notification with respect to the
suspension of the registration or qualification of Holdco Common Stock for sale
in any jurisdiction or the institution or threatening of any proceeding for that
purpose;
(iv) use all commercially reasonable efforts to
prevent the issuance of any such stop order and, if issued, obtain as soon as
possible the withdrawal thereof;
(v) use all commercially reasonable efforts to
cause the shares of Holdco Common Stock to be issued upon the exchange of shares
of CP&L Common Stock in accordance with the CP&L Exchange to be approved for
listing on the NYSE;
(vi) call the CP&L Exchange Special Meeting for the
purpose of voting upon the CP&L Exchange Agreement, and through its Board of
Directors recommend to the holders of the CP&L Common Stock its approval;
(vii) promptly prepare and file all necessary
documentation, to effect all necessary applications, notices, petitions, filings
and other documents, and to use all commercially reasonably efforts to obtain
any consent, acquiescence, authorization, order or approval of, or any exemption
or nonopposition by, any Governmental Authority required to be obtained or made
by CP&L or Holdco in connection with the CP&L Exchange; and
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(viii) obtain consents of all third parties necessary
to the consummation of the transactions contemplated by the CP&L Exchange
Agreement.
Section 5.14. DIRECTORS.
Holdco's Board of Directors will take such action as may be
necessary to cause the number of directors comprising the full Board of
Directors of Holdco at the Effective Time to be fourteen (14), ten (10) of whom
shall be designated by CP&L prior to the Effective Time from its existing Board
of Directors (each, a "CP&L Designee") and four (4) of whom shall be designated
by FPC, and acceptable to CP&L, prior to the Effective Time from its then
existing Board of Directors (each, a "FPC Designee"). The initial designation of
such directors among the three (3) classes of the Directors of Holdco shall be
accomplished in such a manner so that, to the extent possible, there are a
proportionate number of FPC Designees and CP&L Designees in each class.
Section 5.15. REGIONAL HEADQUARTERS.
Following the Effective Time and to the extent consistent with
prudent fiscal planning, Holdco shall maintain a regional headquarters for the
operations of FPC Utility Subsidiary in St. Petersburg, Florida.
Section 5.16. DIVIDENDS.
Prior to the Closing Date, each of the parties agrees to
coordinate the timing of dividend declaration, record and payment dates and the
Closing Date so as not to adversely affect either party's shareholders because
of such timing.
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Section 5.17. EMPLOYEE BENEFIT MATTERS.
At the Effective Time, Holdco shall cause FPC to perform its
obligations under the then outstanding awards under the FPC Long-Term Incentive
Plan (the "FPC LTIP") and, subject to the consent of the individual plan
participant, pay such obligations in the cash amount of $54.00 for each nominal
share of FPC Common Stock subject to such awards. After the Effective Time,
Holdco shall cause the FPC Companies to honor their obligations under all
employment, severance, consulting, retention and change in control agreements or
arrangements and all FPC Benefit Plans as in effect on the date hereof, as set
forth on the FPC Disclosure Schedule or that are entered into prior to the
Closing Date in accordance with the provisions of SECTION 5.1(a) hereof;
PROVIDED, HOWEVER, that this SECTION 5.17 is not intended to prevent Holdco or
the FPC Companies from exercising their rights with respect to such agreements
and arrangements and all FPC Benefit Plans in accordance with their terms,
including but not limited to, the right to alter, terminate or otherwise amend
such agreements and arrangements and FPC Benefit Plans.
Section 5.18. CERTAIN STOCK PLANS.
FPC agrees, as of the earliest practicable date, to cause
shares of FPC Common Stock issued pursuant to the FPC Plus Stock Plan and the
FPC Savings Incentive Plan identified in the FPC Disclosure Schedule to be
shares acquired in the open market and not newly issued shares.
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Section 5.19. SALE OF CERTAIN SYNTHETIC FUEL OPERATIONS.
FPC and CP&L agree to use good faith efforts to expeditiously
complete the sale by FPC to CP&L of certain interests in Solid Energy, LLC and
Solid Fuel, LLC on terms and provisions customary for transactions of this
nature and as may be mutually satisfactory to FPC and CP&L; provided, that
CP&L's obligation under this SECTION 5.19 shall be subject to CP&L's
satisfaction, in its sole discretion, with the results of its due diligence
review of Solid Energy, LLC and Solid Fuel, LLC.
Section 5.20. EXECUTION OF CVO AGREEMENT.
Holdco shall execute and deliver the CVO Agreement and shall
use commercially reasonable efforts to cause the Trustee to execute and deliver
the CVO Agreement prior to the Effective Time.
Section 5.21. REVISIONS TO CVO AGREEMENT.
(a) If the Effective Time occurs after December 31, 2000,
Holdco shall revise the CVO Agreement and the CVO Certificate (i) to revise the
definition of the "Preference" to reflect a pro rata reduction, based on the
percentage of the year completed prior to the Effective Time, in the amount of
the Preference (as defined therein) for the year in which the Effective Time
occurs, and to reflect a pro rata reduction, based on the percentage of the year
completed prior to the Effective Time, in the Dollar Amount listed for each
EARTHCO Business Entity in paragraph (a) of the definition of Preference, (ii)
to delete from the definition of "Operation Year" any year prior to the year in
which the Effective Time occurs, (iii) to revise the definition
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of "Operation Year" to reflect that in the year in which the Effective Time
occurs, only the portion of the year after the Effective Time shall be included
(except with respect to the use of Section 29 Credits generated in such portion
of the year), (iv) to revise the definition of "Net Cash Flow" to reflect that
for the initial Operation Year, the references to IRS Schedule K-1's will refer
only to Schedule K-1's for the portion of such year after the Effective Time,
and the parties agree that separate K-1's will be prepared for each portion of
such year and (v) to revise the definition of Ratio to reflect that Excess Cash
Flow and Net Cash Flow for the initial Operation Year will only include the
portion of the year after the Effective Time occurs, and (vi) to make such other
changes to the definitions contained in the CVO Certificate as may be reasonably
necessary to implement the intent of the foregoing revisions.
(b) Holdco and CP&L will provide FPC with copies of any
proposed revisions to the CVO Agreement or the CVO Certificate before the
Effective Time. No such revisions shall be made to the CVO Agreement or the CVO
Certificate without FPC's consent, which consent shall not be unreasonably
withheld unless such revisions could reasonably be expected to adversely affect
the rights of holders of the CVOs issued thereunder.
ARTICLE VI
CONDITIONS PRECEDENT TO CONSUMMATION OF THE EXCHANGE
Section 6.1. CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATION TO
EFFECT THE EXCHANGE.
The respective obligation of each party to consummate the
Exchange is subject to the satisfaction at or prior to the Effective Time of the
following conditions precedent:
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(a) this Agreement shall have been approved and adopted by the
affirmative vote of the shareholders of FPC by the requisite vote in accordance
with the FBCA and the rules of the NYSE;
(b) the CP&L Exchange shall have been consummated and the
issuance of Holdco Common Stock in the Exchange shall have been approved by the
affirmative vote of the shareholders of Holdco or CP&L, as the case may be, by
the requisite vote in accordance with the rules of the NYSE;
(c) no order, decree or injunction shall have been enacted,
entered, promulgated or enforced by any court of competent jurisdiction or
Governmental Authority and remain in effect which prohibits the consummation of
the Exchange; PROVIDED, HOWEVER, that the parties hereto shall use all
commercially reasonable efforts to have any such order, decree or injunction
vacated or reversed;
(d) 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;
(e) any waiting period applicable to the Exchange under the
HSR Act shall have terminated or expired;
(f) 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 and the transactions
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contemplated hereby shall have been obtained or made, except for filings in
connection with the Exchange 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 may not
reasonably be expected to have a Material Adverse Effect on CP&L or FPC
following the Effective Time; and
(g) the shares of Holdco Common Stock required to be issued
hereunder shall have been approved for listing on the NYSE subject to official
notice of issuance.
Section 6.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF FPC.
The obligations of FPC to consummate the Exchange 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 Effect with
respect to CP&L and there shall exist no fact or circumstance that may have, or
may be reasonably be expected to result in a Material Adverse Effect with
respect to CP&L;
(b) the representations and warranties of CP&L and Holdco
contained in ARTICLE III shall be true and correct 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 to the extent such
representations and warranties speak as of a specified earlier date, in which
case, such representations and warranties shall be true and correct as of such
earlier date), except for such failures of representations and warranties to be
true and correct (without giving effect to any materiality qualification or
standard contained in any such representations and
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warranties) which, in the aggregate, may not reasonably be expected to have a
Material Adverse Effect with respect to CP&L;
(c) CP&L and Holdco 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) FPC shall have received a certificate of the President or
Executive Vice President of Holdco, in form satisfactory to counsel for FPC,
certifying fulfillment of the matters referred to in paragraphs (a) through (c)
of this SECTION 6.2;
(e) the Final Stock Price shall not be less than $30.00 (as
adjusted to reflect any transaction that would require an adjustment of the
Exchange Consideration pursuant to Section 4.3(e) of the FPC Plan of Exchange);
and
(f) Holdco and the Trustee shall have executed and delivered
the CVO Agreement.
Section 6.3. CONDITIONS PRECEDENT TO OBLIGATIONS OF CP&L AND
HOLDCO.
The obligations of CP&L and Holdco to consummate the Exchange
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 Effect with
respect to FPC and there shall exist no fact or circumstance that may or may
reasonably be expected to result in a Material Adverse Effect with respect to
FPC;
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(b) the representations and warranties of FPC contained in
ARTICLE IV shall be true and correct 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 to the extent such representations
and warranties speak as of a specified earlier date, in which case, such
representations and warranties shall be true and correct as of such earlier
date), except for such failures of representations and warranties to be true and
correct (without giving effect to any materiality qualification or standard
contained in any such representations and warranties) which, in the aggregate,
may not reasonably be expected to have a Material Adverse Effect with respect to
FPC;
(c) FPC 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) Holdco shall have received a certificate of the President
or Senior Vice President of FPC, in form satisfactory to counsel for Holdco,
certifying fulfillment of the matters referred to in paragraphs (a) through (c)
of this SECTION 6.3; and
(e) the consents, authorizations, orders, permits, and
approvals described in SECTION 6.1(f) shall contain no terms or conditions that
may reasonably be expected to have a Material Adverse Effect on CP&L or FPC.
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ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
Section 7.1. TERMINATION.
This Agreement may be terminated by FPC or CP&L and Holdco if
the requisite shareholder approvals specified in SECTION 6.1(a) OR (b) are not
obtained at the meetings called therefor or at any adjournment thereof. This
Agreement may also be terminated and the Exchange contemplated hereby may be
abandoned at any time prior to the Effective Time whether or not approval
thereof by the shareholders of FPC and Holdco or CP&L, as the case may be, has
been obtained:
(a) by mutual written consent of FPC, CP&L and Holdco;
(b) by FPC or CP&L and Holdco, if the Effective Time shall not
have occurred on or before December 31, 2000 (the "Initial Termination Date");
PROVIDED that if, on the Initial Termination Date the conditions set forth in
SECTION 6.1(f) have not been satisfied but all other conditions in ARTICLE VI
either have been satisfied or waived or are capable of satisfaction, then such
date shall be June 30, 2001; PROVIDED FURTHER that the right to terminate this
Agreement under this SECTION 7.1(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 FPC if (i) there has been a breach by CP&L or Holdco of
any representation or warranty set forth in this Agreement, which breach,
individually or in the aggregate, has had or may reasonably be expected to have
a Material Adverse Effect on CP&L,
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and such breach has not been cured within twenty (20) business days following
receipt by the breaching party of written notice of such breach; or (ii) there
has been a breach by CP&L or Holdco of any covenant or agreement set forth in
this Agreement, which breach has not been cured within twenty (20) business days
following receipt by the breaching party of written notice of such breach;
(d) by CP&L and Holdco if (i) there has been a breach by FPC
of any representation or warranty set forth in this Agreement, which breach,
individually or in the aggregate, has had or may reasonably be expected to have
a Material Adverse Effect on FPC, and such breach has not been cured within
twenty (20) business days following receipt by the breaching party of written
notice of such breach; (ii) there has been a breach by FPC of any covenant or
agreement set forth in this Agreement, which breach has not been cured within
twenty (20) business days following receipt by the breaching party of written
notice of such breach; or (iii) the Board of Directors of FPC 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 FPC if, prior to the FPC Special Meeting, a
corporation, partnership, person or other entity or group shall have made a BONA
FIDE proposal with respect to the acquisition of all of FPC's outstanding
capital stock, or all or substantially all of FPC's assets, that the Board of
Directors of FPC believes, in good faith after consultation with its financial
advisors, to be superior, from a financial point of view, to the shareholders of
FPC than the proposal set forth in this Agreement, and to be more favorable
generally to the shareholders of FPC (taking into account all financial and
strategic considerations, including relevant legal,
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financial, regulatory and other aspects of such proposal, and the conditions,
prospects and time required for completion of such proposal) and the Board of
Directors of FPC has determined in good faith upon the advice of outside counsel
that it is required to recommend such proposal to FPC's shareholders to comply
with its fiduciary duty to its shareholders imposed by Law (a "Superior
Proposal"); PROVIDED that CP&L or Holdco does not make, within five (5) business
days of receiving notice of such third party proposal, an offer that the Board
of Directors of FPC believes, in good faith after consultation with its
financial advisors, is at least as favorable to FPC's shareholders as such
Superior Proposal (taking into account all financial and strategic
considerations, including relevant legal, financial, regulatory and other
aspects of such proposal, and the conditions, prospects and time required for
completion of such proposal); or
(f) by FPC or CP&L or Holdco, 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 Exchange and such order, decree, ruling or other action shall
have become final and nonappealable.
Section 7.2. EFFECT OF TERMINATION.
If this Agreement is so terminated and the Exchange is not
consummated, this Agreement shall forthwith become void and have no effect,
without any liability on the part of either party or its directors, officers or
shareholders, other than the provisions of SECTION 5.6(b), this SECTION 7.2,
SECTION 7.3 and SECTION 8.10.
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Section 7.3. TERMINATION FEE.
(a) If this Agreement is terminated (i) by CP&L and Holdco
pursuant to SECTION 7.1(b) hereof, and there shall have been an Alternative
Proposal that at such time shall not have been (y) rejected by FPC and its Board
of Directors and (z) withdrawn by the party making such Alternative Proposal;
(ii) by FPC or CP&L and Holdco pursuant to the first sentence of SECTION 7.1
hereof because the FPC shareholder approval specified in SECTION 6.1(a) is not
obtained at the meeting called therefor or at any adjournment thereof; PROVIDED
that at the time of the FPC Special Meeting there shall have been an Alternative
Proposal that at such time shall not have been (y) rejected by FPC and its Board
of Directors and (z) withdrawn by the party making such Alternative Proposal;
(iii) by CP&L and Holdco pursuant to SECTION 7.1(d)(ii) and the breach by FPC
giving rise to such right of termination was a breach of SECTION 5.3 hereof
(except for a breach that was both inadvertent and was cured as promptly as
commercially practicable after FPC became aware of such breach); (iv) by CP&L
and Holdco pursuant to clause (iii) of SECTION 7.1(d); or (v) by FPC pursuant to
SECTION 7.1(e) hereof, then FPC shall promptly (and in any event within two (2)
days of receipt by FPC of written notice from Holdco) pay to Holdco (by wire
transfer of immediately available funds to an account designated by Holdco) a
termination fee of $150,000,000.00, together with an amount equal to all
documented out-of-pocket expenses and fees (including, without limitation, fees
and expenses payable to all legal, accounting, financial, public relations and
other professional advisors arising out of, in connection with or related to the
Exchange or the other transactions contemplated by this Agreement) not to exceed
$25,000,000.00 in the aggregate ("Out-of-Pocket Expenses") incurred by CP&L and
Holdco or on their behalf.
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(b) If this Agreement is terminated (i) by FPC pursuant to
SECTION 7.1(c), or (ii) by CP&L and Holdco pursuant to either clause (i) or (ii)
of SECTION 7.1(d) and the breach by FPC giving rise to such right of termination
was not a breach described in SECTION 7.3(a)(iii) hereof, then, (y) in the event
of a termination pursuant to SECTION 7.1(d)(i) or SECTION 7.1(d)(ii), FPC shall
promptly (but not later than five (5) business days after notice of termination)
pay to CP&L or Holdco their Out-of-Pocket Expenses or (x) in the event of a
termination pursuant to SECTION 7.1(c), then CP&L and Holdco shall promptly (but
not later than five (5) business days after notice of termination) pay to FPC
its Out-of-Pocket Expenses; PROVIDED that in either case, if this Agreement is
terminated as a result of a willful breach of a representation, warranty,
covenant or agreement by the other party, the non-breaching party may pursue any
remedies available to it at law or in equity and shall be entitled to recover
any additional amounts pursuant thereto.
(c) The parties agree that the agreements contained in this
SECTION 7.3 are an integral part of the transactions contemplated by this
Agreement and constitute liquidated damages and not a penalty. If one party
fails to promptly pay to the other any fees due hereunder, such defaulting party
shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment, together with interest on the amount of any
unpaid fee at the publicly announced prime rate of Citibank, N.A. in effect from
time to time from the date such fee was required to be paid.
(d) This SECTION 7.3 shall be the sole remedy of the parties
hereto in the event of any termination of this Agreement.
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Section 7.4. AMENDMENT.
This Agreement may be amended by action taken by both CP&L and
FPC at any time before or after approval of the transactions contemplated herein
by the shareholders of FPC or Holdco or CP&L, as the case may be, but, after any
such approval by the shareholders of FPC, no amendment shall be made that would
have any of the effects specified in FBCA Section 607.1103(8) without the
approval of the holders of a majority of the outstanding shares of FPC Common
Stock. This Agreement may not be amended except by an instrument in writing
signed on behalf of all of the parties hereto.
Section 7.5. EXTENSION; WAIVER.
At any time prior to the Effective Time, any party hereto may
(i) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in the representations
and warranties contained herein or in any document, certificate or writing
delivered pursuant hereto by any other party hereto or (iii) waive compliance
with any of the agreements or conditions contained herein by any other party
hereto. Any agreement on the part of any party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
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ARTICLE VIII
MISCELLANEOUS
Section 8.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations, warranties and covenants made herein
shall not survive beyond the Effective Time, except for the covenants contained
in ARTICLE II and in SECTIONS 5.11, 5.14, and 5.17.
Section 8.2. DISCLOSURE SCHEDULES.
From time to time prior to the Closing Date, the parties shall
promptly supplement or amend their respective Disclosure Schedules with respect
to any matter, condition or occurrence arising after the date hereof through the
Closing Date which, if existing or occurring on the date of this Agreement,
would have been required to be listed or described in such Disclosure Schedules.
No supplement or amendment of such Disclosure Schedules, and no disclosure
contained in FPC SEC Reports or CP&L SEC Reports filed after the date hereof
shall be deemed to cure any breach of any representation or warranty made in
this Agreement or have any effect for the purpose of determining satisfaction of
the conditions set forth in ARTICLE VI hereof.
Section 8.3. ENTIRE AGREEMENT; ASSIGNMENT.
This Agreement, the FPC Plan of Exchange, the letter agreement
between CP&L and FPC dated August 19, 1999, and the Confidentiality Agreement
(a) constitute the entire agreement between the parties with respect to the
subject matter hereof and this Agreement supersedes, except as set forth in
SECTION 5.6(b) hereof, all other prior agreements and
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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 8.4. 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 or Holdco:
Carolina Power & Light Company
Center Plaza Building - CPB1249
411 Fayetteville Street
Raleigh, North Carolina 27602
Attn: William D. Johnson, Esq.
Telecopy: (919) 546-3210
Telephone: (919) 546-6463
with copies to:
Hunton & Williams
200 Park Avenue
New York, New York 10166
Attn: James A. Jones, III, Esq.
Jerry E. Whitson, Esq.
Telecopy: (212) 309-1100
Telephone: (212) 309-1000
and
Hunton & Williams
One Hannover Square, Suite 1400
Raleigh, North Carolina 27602
Attn: Timothy S. Goettel, Esq.
Telecopy: (919) 833-6352
Telephone: (919) 899-3000
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if to FPC:
Florida Progress Corporation
NationsBank Tower, Suite 2600
One Progress Plaza
St. Petersburg, Florida 33701
Attn: Kenneth E. Armstrong, Esq.
Telecopy: (727) 820-5845
Telephone: (727) 820-5153
with copies to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P
125 West 55th Street
New York, New York 10019
Attn: Steven H. Davis, Esq.
Benjamin G. Clark, Esq.
Telecopy: (212) 424-8500
Telephone: (212) 424-8000
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 8.5. GOVERNING LAW.
This Agreement shall be governed by and construed in
accordance with the Laws of the State of New York regardless of the Laws that
might otherwise govern under applicable principles of conflicts of Laws thereof.
In addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of the court of the United States of America for the
Southern District of New York and the courts of the State of New York located in
the Borough of Manhattan, City of New York and State of New York in the event
any dispute arises out of this Agreement or any of the transactions contemplated
by this Agreement, (b) agrees that it will not
108
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attempt to deny such personal jurisdiction by motion or other request for leave
from any such court and (c) agrees that it will not bring any action relating to
this Agreement or any other transaction contemplated by this Agreement in any
court other than a federal or state court sitting in the State of New York. Each
of the parties hereby irrevocably consents, to the fullest extent permitted by
Law, to the service of process in any suit, action or proceeding in said courts
by the giving of notice thereof to such party in accordance with SECTION 8.4 at
its address specified therein. EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT OF
ANY THEREOF BROUGHT IN ANY OF THE AFORESAID COURTS AND HEREBY FURTHER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM THAT ANY
SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ITS RIGHT TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR
PROCEEDING ARISING AS A RESULT OF OR RELATING TO THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT.
Section 8.6. 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.
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Section 8.7. PARTIES IN INTEREST.
This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and, except for rights of indemnified parties as
set forth in SECTION 5.11 hereof, 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 8.8. COUNTERPARTS.
This Agreement may be executed in two (2) 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 8.9. 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 8.10. FEES AND EXPENSES.
Subject to SECTION 7.3(a) AND (b) hereof, 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 Exchange is consummated, except that those expenses incurred in
connection with the printing of the Proxy Statement/Prospectus, as well as the
filing fees for the Proxy Statement/Prospectus and the Registration Statement
and the HSR
110
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Act filing fee shall be shared equally by FPC, on the one hand, and
CP&L or Holdco, on the other hand.
Section 8.11. 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 any
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
-----------------------------------------
Name: William Cavanaugh III
Title: Chairman of the Board, President
and Chief Executive Officer
FLORIDA PROGRESS CORPORATION
By: /s/ Richard Korpan
-----------------------------------------
Name: Richard Korpan
Title: Chairman of the Board, President
and Chief Executive Officer
CP&L ENERGY, INC.
By: /s/ William Cavanaugh III
-----------------------------------------
Name: William Cavanaugh III
Title: Chairman of the Board, President
and Chief Executive Officer
<PAGE>
EXHIBIT A
PLAN OF SHARE EXCHANGE OF
SHARES OF FLORIDA PROGRESS CORPORATION
FOR SHARES OF CP&L ENERGY, INC.
This Plan of Share Exchange (the "Plan of Exchange") is by and between
Florida Progress Corporation, a Florida corporation ("FPC"), and CP&L Energy,
Inc., formerly known as CP&L Holdings, Inc., a North Carolina corporation
("Holdco").
RECITALS
1. FPC, Holdco and Carolina Power & Light Company are parties to an
Amended and Restated Agreement and Plan of Exchange dated as of August 22, 1999
(the "Agreement of Exchange").
2. The respective Boards of Directors of FPC and Holdco have by
resolution duly approved the Agreement of Exchange and this Plan of Exchange,
and the Board of Directors of FPC has recommended and directed that the
Agreement of Exchange, including this Plan of Exchange, be submitted to its
shareholders for adoption.
ARTICLE I
PARTIES TO THE SHARE EXCHANGE
1.1. PARTIES.
The name of the corporation the shares of which shall be acquired is
Florida Progress Corporation (the "Acquired Corporation"), and CP&L Energy, Inc.
is the acquiring corporation (the "Acquiring Corporation" and collectively with
the Acquired Corporation, the "Constituent Corporations").
ARTICLE II
EFFECTIVE TIME
2.1. EFFECTIVE TIME.
The share exchange (the "Exchange") shall become effective upon the
effective time specified in the Articles of Share Exchange filed with respect to
this Plan of Exchange with the Department of State of the State of Florida and
the Secretary of State of the State of North Carolina (the "Effective Time"), by
virtue of this Plan of Exchange and without any action on the part of the
shareholders thereof.
<PAGE>
ARTICLE III
EFFECT OF THE SHARE EXCHANGE
3.1. EFFECT OF THE SHARE EXCHANGE.
The Exchange shall have the effects set forth herein and in Sections
607.1106 and 607.1107 of the Florida Business Corporation Act (the "FBCA") and
Section 55-11-06 of the North Carolina Business Corporation Act ("NCBCA").
Pursuant to the Exchange, Holdco shall become the owner and holder of all of the
outstanding shares of the common stock, no par value, of FPC ("FPC Common
Stock").
ARTICLE IV
MANNER AND BASIS OF CONVERTING SHARES OF FPC; EXCHANGE
PROCEDURES
4.1. CERTAIN DEFINITIONS.
(a) "Certificate" has the meaning given in SECTION 4.3(a) hereof.
(b) "Closing Date" has the meaning given in SECTION 1.13 of the
Agreement of Exchange.
(c) "CVO" or "CVOs" means the contingent value obligations issued to
holders of FPC Shares pursuant to the CVO Agreement.
(d) "CVO Agreement" means the Contingent Value Obligation Agreement
by and between Holdco and the Trustee.
(e) "Election Deadline" has the meaning given in SECTION 4.3(b)(i)
hereof.
(f) "Exchange Agent" means the entity designated by Holdco and
reasonably acceptable to FPC to perform the duties of exchange agent in
connection with the Exchange.
(g) "Exchange Consideration" has the meaning given in SECTION
4.2(a)(i) hereof.
(h) "Final Stock Price" means the average of the closing sale price
per share of Holdco Common Stock as reported on the NYSE Composite Tape on each
of the twenty (20) consecutive trading days ending with the fifth trading day
immediately preceding the Closing Date.
(i) "Form of Election" has the meaning given in SECTION 4.3(b)(i)
hereof.
(j) "FPC Cash Consideration" shall have the meaning as set forth in
SECTION 4.2(a)(i)(A) hereof.
<PAGE>
(k) "FPC Cash Election" has the meaning given in SECTION 4.2(d)
hereof.
(l) "FPC Cash Election Shares" has the meaning given in SECTION
4.2(e) hereof.
(m) "FPC Cash Number" has the meaning given in SECTION 4.2(c) hereof.
(n) "FPC Cash Shares" has the meaning given in SECTION 4.2(f) hereof.
(o) "FPC Non-Election" has the meaning given in SECTION 4.2(d)
hereof.
(p) "FPC Non-Election Shares" has the meaning given in SECTION 4.2(d)
hereof.
(q) "FPC Share" means one share of FPC Common Stock, including each
associated right issued pursuant to the Rights Agreement dated as of November
21, 1991 between FPC and Manufacturers Hanover Trust Company, as amended by an
Amendment dated February 20, 1997 between FPC and The First National Bank of
Boston.
(r) "FPC Stock Consideration" shall have the meaning as set forth in
SECTION 4.2(a)(i)(B) hereof.
(s) "FPC Stock Election" has the meaning given in SECTION 4.2(d)
hereof.
(t) "FPC Stock Election Shares" has the meaning given in SECTION
4.2(e) hereof.
(u) "FPC Stock Number" has the meaning given in SECTION 4.2(c)
hereof.
(v) "Holdco Common Stock" means the Common Stock, no par value per
share, of Holdco.
(w) "Trustee" means The Chase Manhattan Bank.
4.2. THE EXCHANGE.
(a) EXCHANGE OF FPC SHARES. At the Effective Time, by virtue of the
Exchange and without any action on the part of FPC, Holdco, or the holders of
Holdco Common Stock or FPC Common Stock:
(i) Each FPC Share issued and outstanding immediately prior to
the Effective Time (other than FPC Shares canceled pursuant to SECTION
4.2(a)(ii) hereof) shall by reason of the Exchange be exchanged for the right to
receive:
(A) $54.00 in cash (the "FPC Cash Consideration") and one CVO,
or
<PAGE>
(B) that number of shares of Holdco Common Stock (the "FPC Stock
Consideration") determined by dividing $54.00 by the Final Stock Price and one
CVO, PROVIDED, HOWEVER, that:
(1) if the Final Stock Price is less than $37.13,
then the number of shares of Holdco Common Stock to
be delivered pursuant to this clause (B) shall be
equal to 1.4543; and
(2) if the Final Stock Price is more than $45.39,
then the number of shares of Holdco Common Stock to
be delivered pursuant to this clause (B) shall be
equal to 1.1897, or
(C) a combination of cash and Holdco Common Stock determined in
accordance with this SECTION 4.2 and one CVO, (the FPC Cash Consideration, the
FPC Stock Consideration, or a combination of cash and Holdco Common Stock, as
the case may be, and the CVOs, the "Exchange Consideration"), in each case as
the holder thereof shall have elected or be deemed to have elected, and subject
to allocation, in accordance with this SECTION 4.2.
(ii) Each FPC Share owned by FPC or held in the treasury of
FPC immediately prior to the Effective Time shall be automatically canceled and
retired and cease to exist, and no cash or securities or other property shall be
paid or payable in respect thereof.
(iii) Holdco shall acquire and become the owner and holder
of each issued and outstanding FPC Share so exchanged.
(b) FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of Holdco Common Stock shall be issued upon the delivery of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a shareholder of Holdco. All holders of FPC
Shares who would otherwise be entitled to receive a fractional share of Holdco
Common Stock shall receive, in lieu thereof upon delivery or exchange of its FPC
Shares, an amount of cash equal to the amount determined by multiplying the
fraction of a share of Holdco Common Stock to which such shareholder would
otherwise be entitled by the Final Stock Price. Immediately prior to the
Effective Time, Holdco shall deliver to the Exchange Agent cash in such amount
as shall be necessary to pay to the holders of FPC Shares cash in lieu of such
fractional shares.
(c) GENERAL ALLOCATION. Notwithstanding anything in this Plan of
Exchange to the contrary, the aggregate number of FPC Shares that may be
exchanged for the right to receive the FPC Cash Consideration in the Exchange
(the "FPC Cash Number") shall be equal to 65% of the total number of FPC Shares
issued and outstanding immediately prior to the Effective Time (ignoring for
this purpose any FPC Shares canceled pursuant to SECTION 4.2(a)(ii)), rounded to
the nearest full share. The number of FPC Shares to be exchanged for the right
to receive FPC Stock Consideration (and cash in lieu of fractional shares) in
the Exchange (the "FPC Stock Number")
<PAGE>
shall be equal to (x) the number of FPC Shares issued and outstanding
immediately prior to the Effective Time (ignoring for this purpose any FPC
Shares canceled pursuant to SECTION 4.2(a)(ii)) less (y) the FPC Cash Number.
(d) ELECTION. Subject to allocation in accordance with the
provisions of this SECTION 4.2, each record holder of FPC Shares (other than
shares to be canceled in accordance with SECTION 4.2(a)(ii)), issued and
outstanding immediately prior to the Election Deadline will be entitled, in
accordance with SECTION 4.3(b), (i) to elect to receive in respect of each such
FPC Share (A) the FPC Cash Consideration (a "FPC Cash Election") or (B) the FPC
Stock Consideration (a "FPC Stock Election") or (ii) to indicate that such
record holder has no preference as to the receipt of FPC Cash Consideration or
FPC Stock Consideration for all such FPC Shares held by such holder (a "FPC
Non-Election"). FPC Shares in respect of which a FPC Non-Election is made or as
to which no election is made (collectively, "FPC Non-Election Shares") shall be
deemed to be FPC Shares in respect of which FPC Cash Elections or FPC Stock
Elections have been made on a proportionate basis so that the total number of
FPC Shares exchanged for the right to receive shares of Holdco Common Stock and
cash, respectively, approximate the FPC Stock Number and the FPC Cash Number,
respectively, as closely possible.
(e) ALLOCATION OF FPC CASH ELECTION SHARES. In the event that
the aggregate number of FPC Shares in respect of which FPC Cash Elections have
been made (the "FPC Cash Election Shares") exceeds the FPC Cash Number, all FPC
Shares in respect of which FPC Stock Elections have been made (the "FPC Stock
Election Shares") and all FPC Non-Election Shares will be exchanged for the
right to receive FPC Stock Consideration (and cash in lieu of fractional shares
in accordance with SECTION 4.2(b)), and all FPC Cash Election Shares will be
exchanged for the right to receive FPC Cash Consideration or FPC Stock
Consideration in the following manner:
(i) the number of FPC Cash Election Shares covered by each
Form of Election to be exchanged for FPC Cash Consideration will be determined
by multiplying the number of FPC Cash Election Shares covered by such Form of
Election by a fraction, (A) the numerator of which is the FPC Cash Number and
(B) the denominator of which is the aggregate number of FPC Cash Election
Shares, rounded down to the nearest whole number; and
(ii) all FPC Cash Election Shares not exchanged for FPC Cash
Consideration in accordance with SECTION 4.2(e)(i) will be exchanged for the
right to receive FPC Stock Consideration (and cash in lieu of fractional shares
in accordance with SECTION 4.2(b)).
(f) ALLOCATION OF FPC STOCK ELECTION SHARES. In the event that
the aggregate number of FPC Stock Election Shares exceeds the FPC Stock Number,
all FPC Cash Election Shares and all FPC Non-Election Shares (together, the "FPC
Cash Shares") will exchanged for the right to receive FPC Cash Consideration,
and all FPC Stock Election Shares will be exchanged for the right to receive FPC
Cash Consideration or FPC Stock Consideration in the following manner:
<PAGE>
(i) the number of FPC Stock Election Shares covered by each
Form of Election to be exchanged for FPC Cash Consideration will be determined
by multiplying the number of FPC Stock Election Shares covered by such Form of
Election by a fraction, (A) the numerator of which is the FPC Cash Number less
the number of FPC Cash Shares and (B) the denominator of which is the aggregate
number of FPC Stock Election Shares, rounded down to the nearest whole number;
and
(ii) all FPC Stock Election Shares not exchanged for FPC
Cash Consideration in accordance with SECTION 4.2(f)(i) will be exchanged for
the right to receive FPC Stock Consideration (and cash in lieu of fractional
shares in accordance with SECTION 4.2(b)).
(g) NO ALLOCATION. In the event that neither SECTION 4.2(e) nor
SECTION 4.2(f) is applicable, all FPC Cash Election Shares will be exchanged for
the right to receive FPC Cash Consideration, all FPC Stock Election Shares will
be exchanged for the right to receive FPC Stock Consideration (and cash in lieu
of fractional shares in accordance with SECTION 4.2(b)) and FPC Non-Election
Shares will be exchanged for the right to receive FPC Cash Consideration or FPC
Stock Consideration (and cash in lieu of fractional shares in accordance with
Section 4.2(b)) on a proportionate basis so that the total number of FPC Shares
exchanged for the right to receive shares of Holdco Common Stock and cash,
respectively, approximate the FPC Stock Number and the FPC Cash Number,
respectively, as closely as possible.
(h) COMPUTATIONS. The Exchange Agent, in consultation with
Carolina Power & Light Company, Holdco and FPC, will make all computations to
give effect to this SECTION 4.2.
(i) CVOS. Notwithstanding any elections or allocations pursuant
to SECTION 4.2(d), (e), (f) OR (g) hereof, each holder of FPC Shares shall
receive for each FPC Share one CVO in addition to any FPC Cash Consideration,
any FPC Stock Consideration or any combination of cash and Holdco Common Stock
received in accordance with this SECTION 4.2. The CVOs shall be issued in
book-entry only form.
4.3. EXCHANGE OF CERTIFICATES.
(a) Prior to the Effective Time, Holdco shall appoint the Exchange
Agent to act as the exchange agent in connection with the Exchange. From and
after the Effective Time, each holder of a certificate which immediately prior
to the Effective Time represented outstanding FPC Shares (the "Certificates")
shall be entitled to receive in exchange therefor, upon surrender thereof to the
Exchange Agent, the Exchange Consideration. Immediately prior to the Effective
Time, Holdco will deliver to the Exchange Agent, in trust for the benefit of the
holders of FPC Shares, shares of Holdco Common Stock (together with cash in
immediately available funds in an amount sufficient to pay cash in lieu of any
fractional share thereof, as provided in SECTION 4.2(b) hereof), and cash
necessary to make the exchange contemplated by SECTION 4.2 hereof on a timely
basis.
(b) (i) Not more than 90 days nor fewer than 30 days prior to the
anticipated Closing Date as determined by Holdco and FPC, the Exchange Agent
will mail a form of
<PAGE>
election (the "Form of Election") to holders of record of FPC Shares (as of a
record date as close as practicable to the date of mailing and mutually agreed
to by Holdco and FPC). In addition, the Exchange Agent will use its best efforts
to make the Form of Election available to the persons who become shareholders of
FPC during the period between such record date and the Closing Date. Any
election to receive Exchange Consideration contemplated by SECTION 4.2(d) will
have been properly made only if the Exchange Agent shall have received at its
designated office or offices by 5:00 p.m., New York City time, on the second
business day immediately preceding the Closing Date (the "Election Deadline"), a
Form of Election properly completed and accompanied by a Certificate for the FPC
Shares to which such Form of Election relates, duly endorsed in blank or
otherwise acceptable for transfer on the books of FPC (or an appropriate
guarantee of delivery), as set forth in such Form of Election. An election may
be revoked only by written notice received by the Exchange Agent prior to 5:00
p.m., New York City time, on the Election Deadline. In addition, all elections
shall automatically be revoked if the Exchange Agent is notified in writing by
Holdco and FPC that the Exchange has been abandoned. If an election is so
revoked, the Certificate(s) or guarantee of delivery, as appropriate, to which
such election relates will be promptly returned to the person submitting the
same to the Exchange Agent. Holdco shall have the discretion, which it may
delegate in whole or in part to the Exchange Agent, to determine whether Forms
of Election have been properly completed, signed and submitted or revoked
pursuant to this ARTICLE IV, and to disregard immaterial defects in Forms of
Election. The decision of Holdco (or the Exchange Agent) in such matters shall
be conclusive and binding.
(ii) Promptly after the Effective Time, the Exchange Agent shall
mail to each record holder of FPC Shares as of the Effective Time who failed to
return a properly completed Form of Election (A) 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 will be in such form and have such other provisions as
Holdco and FPC may specify consistent with this Plan of Exchange and the
Agreement of Exchange and (B) instructions for use in effecting the surrender of
Certificates in exchange for the Exchange Consideration.
(iii) At the Effective Time, with respect to elections properly
made in accordance with SECTION 4.3(b)(i), and upon surrender in accordance with
SECTION 4.3(b)(ii) 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 the
Exchange Consideration that such holder has the right to receive pursuant to the
provisions of this ARTICLE IV, and such Certificate shall forthwith be canceled.
No holder or transferee of a Certificate or Certificates shall be entitled to
receive any dividend or other distribution from Holdco with respect to the
shares of Holdco Common Stock represented thereby, no payment shall be paid to
any such holder pursuant to the CVOs or the CVO Agreement, and no cash payment
in lieu of any fractional shares shall be paid to any such holder pursuant to
SECTION 4.2, until the surrender of such holder's Certificate for the Exchange
Consideration in accordance with this ARTICLE IV. Subject to the effect of any
unclaimed property, escheat and other applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder (or transferee)
of the whole shares of Holdco Common Stock
<PAGE>
issued in exchange therefor, without interest, (i) at the time of such delivery,
the amount of any cash payable in lieu of a fractional share of Holdco Common
Stock to which such holder (or transferee) is entitled pursuant to SECTION
4.2(b) and the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Holdco Common Stock and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to delivery or exchange and a payment date subsequent to delivery or
exchange payable with respect to such whole shares of Holdco Common Stock. If
delivery of CVOs, Holdco Common Stock or cash 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 Holdco Common Stock or any CVO 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 Holdco that such tax has been paid or is not
applicable. Until surrendered in accordance with the provisions of this SECTION
4.3, each Certificate shall represent for all purposes only the right to receive
the Exchange Consideration as provided in SECTION 4.2 hereto, without any
interest thereon.
(c) The Exchange Consideration issued upon the surrender for exchange
of Certificates in accordance with the terms of this ARTICLE IV shall be deemed
to have been issued and paid in full satisfaction of all rights pertaining to
the FPC Shares theretofore represented by such Certificates, SUBJECT, HOWEVER,
to any obligation of FPC to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been authorized or
made with respect to FPC Shares which remain unpaid at the Effective Time. From
and after the Effective Time, the stock transfer books of FPC shall be closed
and no transfer of any shares of FPC Common Stock shall thereafter be made. If,
after the Effective Time, Certificates are presented to Holdco, they shall be
canceled and exchanged for the Exchange Consideration (and cash in lieu of any
fractional share) as provided in SECTION 4.2 hereof, in accordance with the
procedures set forth in this SECTION 4.3.
(d) Any CVOs, shares of Holdco Common Stock (and any accrued
dividends and distributions thereon), any cash delivered to the Exchange Agent
to make the exchange contemplated by SECTION 4.2 hereof and any cash delivered
to the Exchange Agent for payment in lieu of fractional shares, that remain
unclaimed by the former shareholders of FPC six (6) months after the Effective
Time shall be delivered by the Exchange Agent to Holdco. Any former shareholders
of FPC who have not theretofore complied with this SECTION 4.3 shall thereafter
look only to Holdco for satisfaction of their claim for the consideration set
forth herein, without any interest thereon subject to the effect of any
unclaimed property, escheat and other applicable laws. Notwithstanding the
foregoing, neither FPC nor Holdco shall be liable to any holder of FPC Shares
for any CVOs, cash or shares of Holdco Common Stock (or dividends or
distributions with respect thereto) delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
<PAGE>
(e) In the event that, subsequent to the date hereof but prior to the
Effective Time, the outstanding shares of FPC Common Stock or Holdco Common
Stock, respectively, shall have been changed into a different number of shares
or a different class as a result of a stock split, reverse stock split, stock
dividend, subdivision, reclassification, combination, exchange, recapitalization
or other similar transaction, the Exchange Consideration shall be appropriately
adjusted to provide the holders of FPC Shares the same economic effect as
contemplated by this Plan of Exchange prior to such event.
(f) Each of Holdco and the Exchange Agent shall be entitled to deduct
and withhold from the consideration otherwise payable pursuant to this Plan of
Exchange to any holder of FPC Shares such amounts as it is required to deduct
and withhold with respect to the making of such payment under the Internal
Revenue Code of 1986, as amended, or any provision of state, local or foreign
tax law. To the extent that amounts are so withheld, such withheld amounts shall
be treated for all purposes of this Plan of Exchange as having been paid to the
holder of FPC Common Stock in respect of which such deduction and withholding
was made.
(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 Holdco, the
posting by such person of a bond, in such reasonable amount as Holdco 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 Exchange Consideration (including, any cash
in lieu of fractional shares) and any dividends or other distributions to which
the holders thereof are entitled pursuant to this ARTICLE IV.
ARTICLE V
TERMINATION
5.1. TERMINATION.
This Plan of Exchange shall be terminated and the Exchange
contemplated hereby shall be abandoned (notwithstanding approval hereof by the
holders of FPC Shares) if, at any time prior to the Effective Time, the
Agreement of Exchange is terminated in accordance with its terms.
ARTICLE VI
AMENDMENT
6.1. AMENDMENT.
At any time before the Effective Time, this Plan of Exchange may be
amended, provided that:
<PAGE>
(a) any such amendment is approved by the respective Boards of
Directors of Holdco and FPC; and
(b) no such amendment made subsequent to the approval of this Plan of
Exchange by the shareholders of FPC shall be effective without the approval of
the holders of a majority of the FPC Shares if such amendment (i) changes the
Exchange Consideration, (ii) changes any other term or condition of this Plan
of Exchange if such change would materially and adversely affect FPC or the
holders of FPC Shares (it being understood that amending the agreement to move
the election period to after the Effective Time would not materially and
adversely affect FPC or the holders of FPC Shares), or (iii) changes any
provision of the articles of incorporation of FPC.
FLORIDA PROGRESS CORPORATION
By:_________________________________
Name: Richard Korpan
Title: Chairman of the Board, President
and Chief Executive Officer
CP&L ENERGY, INC.
By:_________________________________
Name: William Cavanaugh, III
Title: Chairman of the Board, President
and Chief Executive Officer
<PAGE>
EXHIBIT B
[Form of letter to be signed by each affiliate of FPC]
__________ __, 2000
Florida Progress Corporation
Barnett Tower
One Progress Plaza
St. Petersburg, Florida 33701
Dear Sirs:
In accordance with SECTION 5.12 of the Agreement and Plan of
Exchange (the "Agreement") by and among Carolina Power & Light Company ("CP&L"),
Florida Progress Corporation ("FPC"), and CP&L Energy, Inc. ("Holdco"), 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 Holdco Common Stock or CVOs that I will receive in the
Exchange except in compliance with Rule 145 under the Securities Act or
following receipt of an opinion of counsel to Holdco that the provisions of such
rule need not be observed.
2. I agree that the certificates for shares of Holdco
Common Stock I will receive in the Exchange 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
<PAGE>
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 FPC,
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:__________________________
[EXHIBITS C-D INTENTIONALLY OMMITTED]
<PAGE>
ANNEX B
OPINION OF SALOMON SMITH BARNEY INC.
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
March 3, 2000
Board of Directors
Florida Progress Corporation
One Progress Plaza
St. Petersburg, Florida 33701
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Florida Progress Corporation
("Florida Progress") of the Exchange Consideration (defined below) to be
received by such holders pursuant to the terms and subject to the conditions
set forth in the Amended and Restated Agreement and Plan of Exchange, dated
as of August 22, 1999 and amended and restated as of March 3, 2000 (the
"Exchange Agreement") by and among Carolina Power & Light Company ("CP&L"),
Florida Progress and CP&L Energy, Inc., a wholly owned subsidiary of CP&L
("Holdco"), and a Contingent Value Obligation Agreement (the "CVO Agreement"
and, together with the Exchange Agreement, the "Agreements") to be entered
into by and between Holdco and The Chase Manhattan Bank, as Trustee. As more
fully described in the Agreements, each outstanding share of the common
stock, no par value, of Florida Progress (the "Florida Progress Common
Stock") will be exchanged (the "Exchange"), subject to certain allocation and
election procedures specified in the Agreements (as to which we express no
opinion), for the right to receive (i) one contingent value obligation
("CVO") representing the right to receive contingent payments based upon the
net after-tax cash flow to Holdco generated by four synthetic fuel plants
(the "Plants") currently owned by Florida Progress and (ii) either (a) $54.00
in cash, without interest, (b) that number of shares of the common stock, no
par value, of Holdco ("Holdco Common Stock") equal to the Exchange Ratio
(defined below), or (c) a combination thereof (collectively, the "Exchange
Consideration"). The Exchange Agreement provides that the Exchange Ratio will
be a number of shares of Holdco Common Stock equal to $54.00 divided by the
average of the closing sale price per share of Holdco Common Stock as
reported on the New York Stock Exchange (the "NYSE") Composite Tape for each
of the 20 consecutive trading days ending on the fifth trading day
immediately preceding the closing date of the Exchange (the "Final Stock
Price"); provided, that (a) if the Final Stock Price is less than $37.13,
then the number of shares of Holdco Common Stock will equal 1.4543, and (b)
if the Final Stock Price is more than $45.39, then the number of shares of
Holdco Common Stock will equal 1.1897. The Exchange Agreement further
provides that, as soon as reasonably practicable following execution of the
Agreement, CP&L and Holdco will take all commercially reasonable efforts to
effect an exchange as a result of which, among other things, shares of CP&L
Common Stock will be exchanged for shares of Holdco Common Stock and Holdco
Common Stock will be listed on the NYSE (the "CP&L Exchange").
In arriving at our opinion, we reviewed the Exchange Agreement and a draft
dated March 1, 2000 of a form of the CVO Agreement and held discussions
with certain senior officers, directors and other representatives and
advisors of Florida Progress and certain senior officers and other
representatives and advisors of CP&L concerning the businesses, operations
and prospects of Florida Progress and CP&L. We examined certain publicly
available business and financial information relating to Florida Progress and
CP&L as well as certain financial forecasts and other information and data
for Florida Progress and CP&L which were provided to or otherwise discussed
with us by the respective managements of Florida Progress and CP&L. We
reviewed the financial terms of the Exchange as set forth in the Agreements
in relation to, among other things: current and historical market prices and
trading volumes of Florida Progress Common Stock and
<PAGE>
Board of Directors
Florida Progress Corporation
March 3, 2000
Page 2
CP&L Common Stock; the historical and projected earnings and other operating
data of Florida Progress and CP&L; and the capitalization and financial
condition of Florida Progress and CP&L. We considered, to the extent publicly
available, the financial terms of other transactions recently effected which we
considered relevant in evaluating the Exchange and analyzed certain financial,
stock market and other publicly available information relating to the businesses
of other companies whose operations we considered relevant in evaluating those
of Florida Progress and CP&L. In addition to the foregoing, we conducted such
other analyses and examinations and considered such other financial, economic
and market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with
us, we have been advised by the managements of Florida Progress and CP&L that
such forecasts and other information and data were reasonably prepared
reflecting the best currently available estimates and judgments of the
respective managements of Florida Progress and CP&L as to the future
financial performance of Florida Progress and CP&L and other matters covered
thereby. We have assumed, with your consent, that the CP&L Exchange will be
effected in all material respects in accordance with its terms and that, in
the course of obtaining the necessary regulatory approvals for the Exchange,
no limitations, restrictions or conditions will be imposed that would have a
material adverse effect on Florida Progress, CP&L, Holdco or the combined
company. Representatives of Florida Progress have advised us, and therefore
we also have assumed, that the final terms of the CVO Agreement will not vary
materially from those set forth in the draft reviewed by us. We are not
expressing any opinion as to what the value of the Holdco Common Stock or the
CVOs actually will be when issued to Florida Progress stockholders pursuant
to the Exchange or the prices at which the Holdco Common Stock or CVOs will
trade or otherwise be transferable subsequent to the Exchange. We have not
made or been provided with an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Florida Progress or CP&L
nor have we made any physical inspection of the properties or assets of
Florida Progress or CP&L. In connection with our engagement, we were not
requested to, and we did not, solicit third party indications of interest in
the acquisition of all or a part of Florida Progress. We express no view as
to, and our opinion does not address, the relative merits of the Exchange as
compared to any alternative business strategies that might exist for Florida
Progress or the effect of any other transaction in which Florida Progress
might engage. Our opinion is necessarily based upon information available to
us, and financial, stock market and other conditions and circumstances
existing and disclosed to us, as of the date hereof.
Salomon Smith Barney Inc. has been engaged to render financial advisory services
to Florida Progress in connection with the Exchange and will receive a fee for
such services, a significant portion of which is contingent upon consummation of
the Exchange. We have in the past provided investment banking services to
Florida Progress and CP&L unrelated to the proposed Exchange, for which services
we have received compensation. In the ordinary course of our business, we and
our affiliates may actively trade or hold the securities of Florida Progress,
CP&L and Holdco for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, we and our affiliates (including Citigroup Inc. and its affiliates)
may maintain relationships with Florida Progress, CP&L and their respective
affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Florida Progress in its evaluation of
the proposed Exchange, and our opinion is not intended to be and does not
constitute a recommendation to any shareholder as to the form of the Exchange
Consideration to be elected by such shareholder in the Exchange or how such
shareholder should vote on any matters relating to the proposed Exchange.
<PAGE>
Board of Directors
Florida Progress Corporation
March 3, 2000
Page 3
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Exchange Consideration is fair, from a
financial point of view, to the holders of Florida Progress Common Stock.
Very truly yours,
/s/ Salomon Smith Barney Inc.
- -----------------------------
SALOMON SMITH BARNEY INC.
<PAGE>
ANNEX C
[Letterhead of Merrill Lynch, Pierce, Fenner & Smith Incorporated]
February 25, 2000
Board of Directors
Carolina Power & Light Company
411 Fayetteville Street
Raleigh, North Carolina 27602
Members of the Board of Directors:
Carolina Power & Light Company (the "Acquiror"), CP&L Holdings, Inc.
("Holdco") and Florida Progress Corporation (the "Company") propose to enter
into an Amended and Restated Agreement and Plan of Exchange, dated as of August
22, 1999, as amended and restated (the "Agreement") pursuant to which each
outstanding share of the Company's common stock, no par value (the "Company
Common Stock"), will be exchanged (the "Company Exchange") for shares of common
stock, no par value, of Holdco (the "Holdco Common Stock") or cash, or a
combination of Holdco Common Stock and cash, plus a contingent value obligation
(individually, a "CVO" and collectively, the "CVOs") representing the right to
receive contingent payments that may be made by Holdco based upon the excess
cash flow that may be derived from certain synthetic fuel plants currently owned
by the Company. Prior to consummation of the Company Exchange, each outstanding
share of the Acquiror's common stock, no par value (the "Acquiror Common
Stock"), will be exchanged (the "Acquiror Exchange") for 1 share of Holdco
Common Stock. As a result of the Acquiror Exchange and the Company Exchange, the
Acquiror and the Company will become wholly-owned subsidiaries of Holdco.
Pursuant to the Company Exchange, each outstanding share of the Company Common
Stock will be converted into the right to receive (a) $54.00 in cash (the "Cash
Consideration"), (b) such number of shares of Holdco Common Stock as shall be
equal to the Cash Consideration divided by the Final Stock Price (as defined
below), or (c) a combination of cash and Holdco Common Stock, in each case as
the holder thereof shall have elected or be deemed to have elected, subject to
the terms, limitations and procedures set forth in the Agreement, which include
a limitation on the aggregate amount of cash available to be paid and the
aggregate number of shares of Holdco Common Stock available to be issued in the
Company Exchange, plus 1 CVO. The Agreement also provides that if the Final
Stock Price is less than $37.13 per share, then the number of shares of Holdco
Common Stock to be delivered pursuant to clause (b) above shall be equal to
1.4543, and if the Final Stock Price is greater than $45.39 per share, then the
number of shares of Holdco Common Stock to be delivered pursuant to clause (b)
above shall be equal to 1.1897. For purposes of our opinion, the term "Final
Stock Price" means the average of the closing sales price of Holdco Common Stock
as reported on the New York Stock Exchange Composite Tape on each of the twenty
consecutive trading days ending with the fifth trading day immediately preceding
the closing date of the Company Exchange, and the term "Consideration" means the
aggregate amount of cash, Holdco Common Stock and CVOs to be paid by Holdco
pursuant to the Company Exchange.
<PAGE>
You have asked us whether, in our opinion, the Consideration to be paid
by Holdco pursuant to the Company Exchange is fair from a financial point of
view to the Acquiror and to Holdco.
In arriving at the opinion set forth below, we have, among other
things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and the Acquiror that we
deemed to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets,
liabilities and prospects of the Company, the Acquiror and
Holdco, as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the
Company Exchange (the "Expected Synergies") furnished to or
discussed with us by the Acquiror;
(3) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the
matters described in clauses 1 and 2 above, as well as their
respective businesses and prospects before and after giving
effect to the Company Exchange and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the
Company Common Stock and the Acquiror Common Stock and compared
them with those of certain publicly traded companies that we
deemed to be relevant;
(5) Reviewed the results of operations of the Company and the
Acquiror and compared them with those of certain publicly traded
companies that we deemed to be relevant;
(6) Compared the proposed financial terms of the Company Exchange
with the financial terms of certain other transactions that we
deemed to be relevant;
(7) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their
financial and legal advisors;
(8) Reviewed the potential pro forma impact of the Company Exchange;
(9) Reviewed a draft dated February 21, 2000 of the Agreement,
together with a draft dated February 23, 2000 of the form of
Contingent Value Obligation Agreement to be entered into by
Holdco and The Chase Manhattan Bank, as Trustee (the "CVO
Agreement"); and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the
2
<PAGE>
assets or liabilities of the Company or the Acquiror or been furnished with any
such evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or the Acquiror. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Company or the
Acquiror, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of the Company's or the
Acquiror's management as to the expected future financial performance of the
Company, the Acquiror or Holdco, as the case may be, and the Expected Synergies.
We have further assumed that the Company Exchange will not be taxable to the
Acquiror, Holdco or the Company. In addition, we have assumed that the final
forms of the Agreement and the CVO Agreement will be substantially similar to
the last drafts reviewed by us.
Our opinion is necessarily based upon market, economic and other
conditions as they exist and can be evaluated on, and on the information made
available to us as of, the date hereof. We have assumed that in the course of
obtaining the necessary regulatory or other consents or approvals (contractual
or otherwise) for the Company Exchange, no restrictions, including any
divestiture requirements or amendments or modifications, will be imposed that
will have a material adverse effect on the Acquiror and Holdco, taken as a
whole.
We are acting as financial advisor to the Acquiror in connection with
the Company Exchange and will receive a fee from the Acquiror for our services,
a significant portion of which is contingent upon the consummation of the
Company Exchange. In addition, the Acquiror has agreed to indemnify us for
certain liabilities arising out of our engagement. We have provided financing
services to the Acquiror and may continue to do so and have received, and may
receive, fees for the rendering of such services. In addition, in the ordinary
course of our business, we may actively trade the Company Common Stock and the
Acquiror Common Stock for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of
the Acquiror. Our opinion does not address the merits of the underlying decision
by the Acquiror to engage in the Acquiror Exchange or the Company Exchange and
does not constitute a recommendation to any shareholders of the Acquiror as to
how such shareholder should vote on the proposed issuance of Holdco Common Stock
pursuant to the Company Exchange or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
Acquiror Common Stock, the Holdco Common Stock or the CVOs will trade following
the announcement or consummation, as the case may be, of the Acquiror Exchange
or the Company Exchange.
On the basis of and subject to the foregoing, we are of the opinion
that, as of the date hereof, the Consideration to be paid by Holdco pursuant to
the Company Exchange is fair from a financial point of view to the Acquiror and
to Holdco.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
3
<PAGE>
ANNEX D
--------------------------------------------------
CP&L ENERGY, INC.
TO
THE CHASE MANHATTAN BANK,
TRUSTEE
------------
CONTINGENT VALUE OBLIGATION AGREEMENT
DATED AS OF ______________, 2000
--------------------------------------------------
<PAGE>
TABLE OF CONTENTS*
<TABLE>
<S> <C> <C>
PARTIES.............................................................................................1
RECITAL OF THE COMPANY..............................................................................1
ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION..................................1
Section 101. Definitions...................................................................1
Section 102. Compliance Certificates and Opinions..........................................7
Section 103. Form of Documents Delivered to Trustee........................................8
Section 104. Acts of Holders...............................................................9
Section 105. Notices, Etc. to Trustee and Company.........................................10
Section 106. Notice to Holders of Securities; Waiver......................................11
Section 107. Conflict with Trust Indenture Act............................................12
Section 108. Effect of Headings and Table of Contents.....................................12
Section 109. Successors and Assigns.......................................................12
Section 110. Separability Clause..........................................................12
Section 111. Benefits of Agreement........................................................12
Section 112. Governing Law................................................................12
Section 113. Legal Holidays...............................................................12
ARTICLE II SECURITY FORMS.........................................................................13
Section 201. Forms Generally..............................................................13
Section 202. Form of Trustee's Certificate of Authentication..............................13
Section 203. Securities Issuable in the Form of a Global Security.........................13
ARTICLE III THE SECURITIES........................................................................15
Section 301. Title and Terms..............................................................15
Section 302. Number.......................................................................15
Section 303. Execution, Authentication, Delivery and Dating...............................16
Section 304. Temporary Securities.........................................................16
Section 305. Registration, Registration of Transfer and Exchange..........................17
Section 306. Mutilated, Destroyed, Lost and Stolen Securities.............................18
Section 307. Payments in U.S. Currency....................................................19
Section 308. Persons Deemed Owners........................................................19
Section 309. Cancellation by Security Registrar...........................................20
</TABLE>
- --------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Agreement.
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IV COVENANTS..............................................................................20
Section 401. Payment of Amounts, if any, to Holders.......................................20
Section 402. Maintenance of Office or Agency..............................................20
Section 403. Money for Securities Payments to be Held in Trust............................21
Section 404. Corporate Existence..........................................................22
Section 405. Annual Officer's Certificate as to Compliance................................22
Section 406. Good Faith and Fair Dealing..................................................22
Section 407. Books and Records............................................................22
Section 408. Insurance....................................................................22
Section 409. Indebtedness.................................................................22
Section 410. Prohibited Transactions......................................................23
Section 411. Income Tax Treatment.........................................................23
ARTICLE V EVENTS OF DEFAULT; REMEDIES.............................................................23
Section 501. Events of Default............................................................23
Section 502. Collection of Indebtedness and Suits for Enforcement by Trustee..............24
Section 503. Trustee May File Proofs of Claim.............................................25
Section 504. Trustee May Enforce Claims Without Possession of Securities..................25
Section 505. Application of Money Collected...............................................26
Section 506. Limitation on Suits..........................................................26
Section 507. Unconditional Right of Holders to Receive Payments...........................27
Section 508. Restoration of Rights and Remedies...........................................27
Section 509. Rights and Remedies Cumulative...............................................27
Section 510. Delay or Omission Not Waiver.................................................27
Section 511. Control by Holders of Securities.............................................27
Section 512. Waiver of Past Defaults......................................................28
Section 513. Undertaking for Costs........................................................28
Section 514. Operating and Ownership Decisions............................................29
Section 515. Tax Decisions and Procedures.................................................29
Section 516. Limitation of Liability......................................................29
Section 517. No Rights of Acceleration; Unsecured Obligations.............................29
Section 518. Non Interest-Bearing Obligations.............................................29
Section. 519 No Redemption................................................................30
ARTICLE VI THE TRUSTEE............................................................................30
Section 601. Certain Duties and Responsibilities..........................................30
Section 602. Notice of Defaults...........................................................31
Section 603. Certain Rights of Trustee....................................................32
Section 604. Not Responsible for Recitals or Issuance of Securities.......................33
Section 605. May Hold Securities..........................................................33
Section 606. Money Held in Trust..........................................................34
Section 607. Compensation and Reimbursement...............................................34
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C> <C>
Section 608. Disqualification; Conflicting Interests......................................35
Section 609. Corporate Trustee Required; Eligibility......................................35
Section 610. Resignation and Removal; Appointment of Successor............................36
Section 611. Acceptance of Appointment by Successor.......................................37
Section 612. Merger, Conversation, Consolidation or Succession to Business................38
Section 613. Preferential Collection of Claims Against Company............................38
Section 614. Co-trustees and Separate Trustees............................................39
Section 615. Appointment of Authenticating Agent..........................................40
Section 616. Paying Agents Afforded Protection............................................41
ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY.....................................42
Section 701. Lists of Holders.............................................................42
Section 702. Reports by Trustee and Company...............................................42
ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE OR OTHER TRANSFER..................................43
Section 801. Company May Consolidate, Etc., Only on Certain Terms.........................43
Section 802. Successor Corporation Substituted............................................44
ARTICLE IX AMENDMENTS.............................................................................44
Section 901. Amendments Without Consent of Holders........................................44
Section 902. Amendments With Consent of Holders...........................................46
Section 903. Execution of Amendments......................................................47
Section 904. Effect of Amendments.........................................................47
Section 905. Conformity With Trust Indenture Act..........................................47
Section 906. Reference in Securities to Amendments........................................47
ARTICLE X MEETINGS OF HOLDERS; ACTION WITHOUT MEETING.............................................47
Section 1001. Purposes for Which Meetings May be Called...................................47
Section 1002. Call, Notice and Place of Meetings..........................................48
Section 1003. Persons Entitled to Vote at Meetings........................................48
Section 1004. Quorum; Action..............................................................48
Section 1005. Attendance at Meetings; Determination of Voting Rights; Conduct
and Adjournment of Meetings.................................................49
Section 1006. Counting Votes and Recording Action of Meetings.............................50
Section 1007. Action Without Meeting......................................................50
ARTICLE XI IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS........................51
Section 1101. Liability Solely Corporate..................................................51
ARTICLE XII SUBORDINATION OF SECURITIES...........................................................51
Section 1201. Securities Subordinate to Senior Indebtedness...............................51
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C> <C>
Section 1202. Payment Over of Proceeds of Securities......................................52
Section 1203. Disputes with Holders of Certain Senior Indebtedness........................53
Section 1204. Subrogation.................................................................54
Section 1205. Obligation of the Company Unconditional.....................................54
Section 1206. Priority of Senior Indebtedness Upon Maturity...............................55
Section 1207. Trustee as Holder of Senior Indebtedness....................................55
Section 1208. Notice to Trustee to Effectuate Subordination...............................55
Section 1209. Modification, Extension, etc. of Senior Indebtedness........................55
Section 1210. Trustee Has No Fiduciary Duty to Holders of Senior Indebtedness.............55
Section 1211. Paying Agents Other than the Trustee........................................56
Section 1212. Rights of Holders of Senior Indebtedness Not Impaired.......................56
Section 1213. This Article Not to Prevent Events of Default...............................56
Section 1214. Effect of Subordination Provisions; Termination.............................56
ARTICLE XIII MAINTENANCE OF CONTINGENCY FUNDS......................................................57
Section 1301. Payments to Trustee.........................................................57
Section 1302. Maintenance of Accounts.....................................................57
Section 1303. Investment and Application of Contingency Funds.............................57
Section 1304. Officer's Certificates Relating to Contingency Funds; Tax Reporting.........58
Section 1305. Officer's Certificate Relating to Satisfaction of Payment Obligations.......58
TESTIMONIUM........................................................................................59
SIGNATURE AND SEALS................................................................................60
</TABLE>
APPENDIX A - CERTIFICATE REPRESENTING THE SECURITIES
APPENDIX B - COMPANY ORDER, OFFICER'S CERTIFICATE, AND OPINION OF COUNSEL
APPENDIX C - ACCOUNTANTS' CERTIFICATE
(iv)
<PAGE>
CP&L ENERGY, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939
AND CONTINGENT VALUE OBLIGATION AGREEMENT, DATED AS OF ___________, 2000
<TABLE>
<CAPTION>
TRUST INDENTURE ACT SECTION AGREEMENT SECTION
<S> <C> <C>
Section 310 (a)(1) ...................................................................... 609
(a)(2) ...................................................................... 609
(a)(3) ...................................................................... 614
(a)(4) ...................................................................... Not Applicable
(b) ...................................................................... 608
610
Section 311 (a) ...................................................................... 613
(b) ...................................................................... 613
(c) ...................................................................... 613
Section 312 (a) ...................................................................... 701
(b) ...................................................................... 701
(c) ...................................................................... 701
Section 313 (a) ...................................................................... 702
(b) ...................................................................... 702
(c) ...................................................................... 702
(d) ...................................................................... 702
Section 314 (a) ...................................................................... 702
(a)(4) ...................................................................... 405
(b) ...................................................................... Not Applicable
(c)(1) ...................................................................... 102
(c)(2) ...................................................................... 102
(c)(3) ...................................................................... Not Applicable
(d) ...................................................................... Not Applicable
(e) ...................................................................... 102
Section 315 (a) ...................................................................... 601
603
(b) ...................................................................... 602
(c) ...................................................................... 601
(d) ...................................................................... 601
(e) ...................................................................... 513
Section 316 (a) ...................................................................... 511
...................................................................... 512
(a)(1)(A)...................................................................... Not Applicable
511
(a)(1)(B)...................................................................... 512
(a)(2) ...................................................................... Not Applicable
(b) ...................................................................... 507
Section 317 (a)(1) ...................................................................... 502
(a)(2) ...................................................................... 503
(b) ...................................................................... 403
Section 318 (a) ...................................................................... 107
</TABLE>
(v)
<PAGE>
CONTINGENT VALUE OBLIGATION AGREEMENT, dated as of
________________, 2000, between CP&L ENERGY, INC., a corporation duly organized
and existing under the laws of the State of North Carolina (herein called the
"Company"), having its principal office at 411 Fayetteville Street, Raleigh,
North Carolina 27601-1748, and THE CHASE MANHATTAN BANK, a banking corporation
organized under the laws of the State of New York, having its principal
corporate trust office at 450 West 33rd Street, New York, New York 10001, as
Trustee (herein called the "Trustee").
RECITAL OF THE COMPANY
The Company has duly authorized the execution and delivery of
this Agreement to provide for the issuance of its Contingent Value Obligations
(herein called the "Securities" or "CVOs"), to be issued as contemplated herein;
and all acts necessary to make this Agreement a valid agreement of the Company
have been performed.
For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires, capitalized terms
used herein shall have the meanings assigned to them in Article One of this
Agreement.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(b) all terms used herein without definition which are
defined in the form of Security attached as Appendix A either directly
or by reference therein, have the meanings assigned to them therein;
(c) all terms used herein without definition which are
defined in the Trust Indenture Act, either directly or by reference
therein, have the meanings assigned to them therein;
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(d) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with generally
accepted accounting principles in the United States, and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are
generally accepted in the United States at the date of such
computation; provided, however, that in determining generally accepted
accounting principles applicable to the Company, the Company shall, to
the extent required, conform to any order, rule or regulation of any
administrative agency, regulatory authority or other governmental body
having jurisdiction over the Company; and
(e) the words "herein", "hereof' and "hereunder" and
other words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in
that Article.
"ACT", when used with respect to any Holder of a Security, has
the meaning specified in Section 104.
"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"CONTROL" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the
foregoing.
"AGENT MEMBERS" means members of, or participants in, the
Depository.
"AGREEMENT" means this instrument as originally executed and
delivered and as it may from time to time be supplemented or amended by one or
more agreements supplemental hereto entered into pursuant to the applicable
provisions hereof.
"AUTHORIZED OFFICER" means the Chairman of the Board, the
President, any Vice President, the Treasurer or any other duly authorized
officer of the Company.
"BOARD OF DIRECTORS" means either the board of directors of
the Company or any committee thereof or any director or directors and/or officer
or officers of the Company to whom that board or committee shall have duly
delegated its authority duly authorized to act in respect of matters relating to
this Agreement.
"BOARD RESOLUTION" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
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"BUSINESS DAY", when used with respect to a Place of Payment
or any other particular location specified in the Securities or this Agreement,
means any day, other than a Saturday or Sunday, which is not a day on which
banking institutions or trust companies in such Place of Payment or other
location are generally authorized or required by law, regulation or executive
order to remain closed.
"CERTIFICATE" means the form of certificate representing the
Securities attached hereto as Appendix A.
"COMMISSION" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, or, if at any time after the date of execution and delivery of this
Agreement such Commission is not existing and performing the duties now assigned
to it under the Trust Indenture Act, then the body, if any, performing such
duties at such time.
"COMPANY" means the Person named as the "Company" in the first
paragraph of this Agreement until a successor Person shall have become such
pursuant to the applicable provisions of this Agreement, and thereafter
"Company" shall mean such successor Person.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request
or order signed in the name of the Company by an Authorized Officer and
delivered to the Trustee.
"CONTINGENCY FUNDS" means amounts held by the Trustee in
support of the obligation of the Company to make payments to the Holders, as
specified in the Securities. Contingency Funds shall consist of amounts paid to
the Trustee pursuant to Section 1301, plus earnings on amounts held as
Contingency Funds, less Allocable Expenses.
"CORPORATE TRUST OFFICE" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office at the date of execution and delivery of this
Agreement is located at 450 West 33rd Street, New York, New York 10001.
"CORPORATION" means a corporation, association, company,
limited liability company, joint stock company or business trust.
"DEFAULT INTEREST RATE" means the three month London Interbank
Offered Rate, as published in the Wall Street Journal, as such rate may change
from time to time, plus 300 basis points.
"DEPOSITORY" shall mean The Depository Trust Company, New
York, New York, another clearing agency, or any successor registered as a
clearing agency under the Exchange Act or other applicable statute or
regulation, which, in each case, shall be designated by the Company pursuant to
Section 203(c)(1).
"DESIGNATED TRUSTEE OFFICE" means any office or offices of the
Trustee or any Affiliate, servicer or other agent of the Trustee from time to
time established by the Trustee in its
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discretion as the location at which particular actions or functions will occur.
The Trustee shall, upon the written request of the Company or any Holder,
provide the Company or such Holder with a written list of its Designated Trustee
Offices hereunder, but, in the absence of such written request or unless
otherwise provided herein or unless necessary for the proper performance by the
Trustee of its responsibilities hereunder, the Trustee may establish and change
its Designated Trustee Offices hereunder without notice to the Company or any
Holder.
"DOLLAR" or "$" means a dollar or other equivalent unit in
such coin or currency of the United States as at the time shall be legal tender
for the payment of public and private debts.
"EFFECTIVE TIME" has the meaning given thereto in the Exchange
Agreement.
"EVENT OF DEFAULT" has the meaning specified in Section 501.
"EXCHANGE AGREEMENT" shall mean the Amended and Restated
Agreement and Plan of Exchange dated March 3, 2000 between the Company, Carolina
Power & Light Company and Florida Progress Corporation.
"GLOBAL SECURITY" shall mean a Security executed by the
Company and delivered by the Trustee to the Depository or pursuant to the
Depository's instruction, all in accordance with this Agreement, which shall be
registered in the name of the Depository or its nominee.
"GOVERNMENTAL AUTHORITY" means the government of the United
States or of any State or Territory thereof or of the District of Columbia or of
any county, municipality or other political subdivision of any thereof, or any
department, agency, authority or other instrumentality of any of the foregoing.
"GOVERNMENT OBLIGATIONS" means:
(a) direct obligations of, or obligations the principal
of and interest on which are unconditionally guaranteed by, the United
States entitled to the benefit of the full faith and credit thereof;
(b) certificates, depositary receipts or other
instruments which evidence a direct ownership interest in obligations
described in clause (a) above or in any specific interest or principal
payments due in respect thereof; provided, however, that the custodian
of such obligations or specific interest or principal payments shall be
a bank or trust company (which may include the Trustee or any Paying
Agent) subject to United States federal or state supervision or
examination with a combined capital and surplus of at least
$100,000,000; and provided, further, that except as may be otherwise
required by law, such custodian shall be obligated to pay to the
holders of such certificates, depositary receipts or other instruments
the full amount received by such custodian in respect of such
obligations or specific payments and shall not be permitted to make any
deduction therefrom; and
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(c) money market funds subject to the provisions of Rule
2a-7 under the Investment Company Act of 1940 which invest solely in
obligations described in paragraphs (a) and (b) above.
"HOLDER" means a Person in whose name a Security is registered
in the Security Register.
"MATURITY", when used with respect to any Senior Indebtedness,
means the date on which the principal of such indebtedness or an installment of
principal becomes due and payable as provided therein.
"OFFICER'S CERTIFICATE" means a certificate signed by an
Authorized Officer and delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel, who
may be counsel for the Company, or other counsel acceptable to the Trustee.
"OUTSTANDING", when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Agreement, except:
(a) Securities theretofore canceled by the Trustee or the
Security Registrar or delivered to the Trustee or the Security
Registrar for cancellation; and
(b) Securities which have been paid pursuant to Section
306 or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Agreement, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it and the Company that such
Securities are held by a bona fide purchaser or purchasers in whose
hands such Securities are valid obligations of the Company;
provided, however, that in determining whether or not the Holders of the
requisite amount of the Securities Outstanding under this Agreement have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder or whether or not a quorum is present at a meeting of Holders of
Securities, Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver or upon any such
determination as to the presence of a quorum, only Securities which the Trustee
knows to be so owned shall be so disregarded.
"PAYING AGENT" means any Person authorized by the Company to
make payments on any Securities on behalf of the Company.
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"PAYMENT DATE" means the date specified in the applicable
Officer's Certificate as a date on which the Trustee or the Company is to make a
payment to the Holders or the Trustee is to make a payment to the Company.
"PERSON" means any individual, corporation, partnership,
limited liability company, joint venture, trust or unincorporated organization
or any Governmental Authority.
"PLACE OF PAYMENT", when used with respect to the Securities,
means the offices or agencies of the Paying Agent maintained for that purpose
from time to time, or at any other office or agency maintained by the Company
for such purpose; provided, however, that at the option of the Company, payment
may be made by check or wire transfer.
"PREDECESSOR SECURITY" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed (to the
extent lawful) to evidence the same debt as the mutilated, destroyed, lost or
stolen Security.
"RESPONSIBLE OFFICER", when used with respect to the Trustee,
means any officer or other authorized representative of the Trustee assigned by
the Trustee to administer its corporate trust matters.
"SECURITIES" has the meaning stated in the first recital of
this Agreement and more particularly means any securities authenticated and
delivered under this Agreement.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the
respective meanings specified in Section 305.
"SENIOR INDEBTEDNESS" means all obligations of, or guaranteed
or assumed by, the Company for borrowed money, or for the payment of money
relating to any lease which is capitalized on the consolidated balance sheet of
the Company and its subsidiaries in accordance with generally accepted
accounting principles as in effect from time to time, or evidenced by bonds,
debentures, notes or other similar instruments, and in each case, amendments,
renewals, extensions, modifications and refundings of any such indebtedness or
obligations, whether existing as of the date of this Agreement or subsequently
incurred by the Company. Notwithstanding the foregoing, "Senior Indebtedness"
will not include (A) the obligations evidenced by the Securities, (B)
obligations of the Company that by their terms are expressly PARI PASSU in right
of payment to the Securities, (C) obligations of the Company to any subsidiary
of the Company or any other affiliate of the Company and (D) obligations which
when incurred and without regard to any election under Section 1111(b) of the
Federal Bankruptcy Code are without recourse to the Company.
"TRUST INDENTURE ACT" means, the Trust Indenture Act of 1939
as in force and effect as of the date of execution of this Agreement; provided,
however, that in the event the Trust Indenture Act of 1939 is succeeded by
another statute or is amended after such date, "Trust Indenture Act" shall mean
such successor statute or the Trust Indenture Act of 1939, as so
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amended, to the extent such successor statute is applicable to this Agreement or
to the actions of the Company or the Trustee under or pursuant to this
Agreement.
"TRUSTEE" means the Person named as the "Trustee" in the first
paragraph of this Agreement until a successor Trustee shall have become such
with respect to the Securities pursuant to the applicable provisions of this
Agreement, and thereafter "Trustee" shall mean or include each Person who is
then a Trustee hereunder, and if at any time there is more than one such Person,
"Trustee" as used with respect to the Securities shall mean the Trustee with
respect to the Securities.
"UNITED STATES" means the United States of America, its
territories, its possessions and other areas subject to its political
jurisdiction.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Except as otherwise expressly provided in this Agreement, upon
any application or request by the Company to the Trustee to take any action
under any provision of this Agreement, the Company shall furnish to the Trustee
an Officer's Certificate stating that all conditions precedent, if any, provided
for in this Agreement relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Agreement relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Agreement shall include:
(a) a statement that each Person signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such Person,
such Person has made such examination or investigation as is necessary
to enable such Person to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each
such Person, such condition or covenant has been complied with.
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SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such officer's certificate or opinion are
based are erroneous. Any such certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Agreement, they may, but need not, be consolidated
and form one instrument.
Whenever, subsequent to the receipt by the Trustee of any
Board Resolution, Officer's Certificate, Opinion of Counsel or other document or
instrument, a clerical, typographical or other inadvertent or unintentional
error or omission shall be discovered therein, a new document or instrument may
be substituted therefor in corrected form with the same force and effect as if
originally filed in the corrected form and, irrespective of the date or dates of
the actual execution and/or delivery thereof, such substitute document or
instrument shall be deemed to have been executed and/or delivered as of the date
or dates required with respect to the document or instrument for which it is
substituted. Anything in this Agreement to the contrary notwithstanding, if any
such corrective document or instrument indicates that action has been taken by
or at the request of the Company which could not have been taken had the
original document or instrument not contained such error or omission, the action
so taken shall not be invalidated or otherwise rendered ineffective but shall be
and remain in full force and effect, (except to the extent that such action was
a result of willful misconduct or bad faith or had or could be expected to have
an adverse effect on the Holders of the Securities). Without limiting the
generality of the foregoing, any Securities issued under the authority of such
defective document or instrument shall nevertheless be the valid obligations of
the Company entitled to the benefits of this Agreement equally and ratably with
all other Outstanding Securities, except as aforesaid.
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SECTION 104. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction,
notice, consent, election, waiver or other action provided by this
Agreement to be made, given or taken by Holders may be embodied in and
evidenced by one or more instruments of substantially similar tenor
signed by such Holders in person or by an agent duly appointed in
writing or, alternatively, may be embodied in and evidenced by the
record of Holders voting in favor thereof, either in person or by
proxies duly appointed in writing, at any meeting of Holders duly
called and held in accordance with the provisions of Article Ten, or a
combination of such instruments and any such record. Except as herein
otherwise expressly provided, such action shall become effective when
such instrument or instruments or record or both are delivered to the
Trustee and, where it is hereby expressly required, to the Company.
Such instrument or instruments and any such record (and the action
embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders signing such instrument or instruments
and so voting at any such meeting. Proof of execution of any such
instrument or of a writing appointing any such agent, or of the holding
by any Person of a Security, shall be sufficient for any purpose of
this Agreement and (subject to Section 601) conclusive in favor of the
Trustee and the Company, if made in the manner provided in this
Section. The record of any meeting of Holders shall be proved in the
manner provided in Section 1006.
(b) The fact and date of the execution by any Person of
any such instrument or writing may be proved by the affidavit of a
witness of such execution or by a certificate of a notary public or
other officer authorized by law to take acknowledgments of deeds,
certifying that the individual signing such instrument or writing
acknowledged to him the execution thereof or may be proved in any other
manner which the Trustee and the Company deem sufficient. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority.
(c) The aggregate number (except as otherwise
contemplated in the proviso to the definition of Outstanding) and
serial numbers of Securities held by any Person, and the date of
holding the same, shall be proved by the Security Register.
(d) Any request, demand, authorization, direction,
notice, consent, election, waiver or other Act of a Holder shall bind
every future Holder of the same Security and the Holder of every
Security issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon
such Security.
(e) Until such time as written instruments shall have
been delivered to the Trustee with respect to the requisite percentage
of the aggregate number of Securities for the action contemplated by
such instruments, any such instrument executed and delivered by or on
behalf of a Holder may be revoked with respect to any or all of such
Securities
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by written notice by such Holder or any subsequent Holder, proven in
the manner in which such instrument was proven.
(f) Securities authenticated and delivered after any Act
of Holders may, and shall if required by the Trustee, bear a notation
in form approved by the Trustee as to any action taken by such Act of
Holders. If the Company shall so determine, new Securities so modified
as to conform, in the opinion of the Trustee and the Company, to such
action may be prepared and executed by the Company and authenticated
and delivered by the Trustee in exchange for Outstanding Securities.
(g) If the Company shall solicit from Holders any
request, demand, authorization, direction, notice, consent, waiver or
other Act, the Company may, at its option, fix in advance a record date
for the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the
Company shall have no obligation to do so. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but
only the Holders of record at the close of business on the record date
shall be deemed to be Holders for the purposes of determining whether
Holders of the requisite proportion of the Outstanding Securities have
authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be determined as of the
record date.
SECTION 105. NOTICES, ETC. TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice,
consent, election, waiver or Act of Holders or other document provided or
permitted by this Agreement to be made upon, given or furnished to, or filed
with, the Trustee by any Holder or by the Company, or the Company by the Trustee
or by any Holder, shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and delivered personally to
an officer or other responsible employee of the addressee, or transmitted by
facsimile transmission or other direct written electronic means to such
telephone number or other electronic communications address as the parties
hereto shall from time to time designate, or transmitted by certified or
registered mail, charges prepaid, to the applicable address set opposite such
party's name below or to such other address as either party hereto may from time
to time designate:
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If to the Trustee, to:
The Chase Manhattan Bank
c/o Chase National Corporate Services, Inc.
3800 Colonnade Parkway
Suite 490
Birmingham, Alabama 35243
Telephone: (205) 968-0500
Telecopy: (205) 968-9109
If to the Company, to:
CP&L Energy, Inc.
411 Fayetteville Street
Raleigh, North Carolina 27601-1768
Attention: Mark F. Mulhern, Treasurer
Telephone: (919) 546-6373
Telecopy: (919) 546-7826
Any communication contemplated herein shall be deemed to have
been made, given, furnished and filed if personally delivered, on the date of
delivery, if transmitted by facsimile transmission or other direct written
electronic means, upon the date of receipt of the transmission, and if
transmitted by certified or registered mail, on the date of receipt.
SECTION 106. NOTICE TO HOLDERS OF SECURITIES; WAIVER.
Except as otherwise expressly provided herein, where this
Agreement provides for notice to Holders of any event, such notice shall be
sufficiently given, and shall be deemed given, to Holders if in writing and
mailed, first-class postage prepaid, to each Holder affected by such event, at
the address of such Holder as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice to
Holders by mail, then such notification as shall be made with the approval of
the Trustee shall constitute a sufficient notification for every purpose
hereunder. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders.
Any notice required by this Agreement may be waived in writing
by the Person entitled to receive such notice, either before or after the event
otherwise to be specified therein, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be
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filed with the Trustee, but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such waiver.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision of this Agreement limits, qualifies or
conflicts with another provision hereof which is required or deemed to be
included in this Agreement by, or is otherwise governed by, any of the
provisions of the Trust Indenture Act, such other provision shall control; and
if any provision hereof otherwise conflicts with the Trust Indenture Act, the
Trust Indenture Act shall control.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings in this Agreement and the
Table of Contents are for convenience only and shall not affect the construction
hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Agreement by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Agreement or the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 111. BENEFITS OF AGREEMENT.
Nothing in this Agreement or the Securities, express or
implied, shall give to any Person, other than the parties hereto, their
successors hereunder, the Holders, and so long as the notice described in
Section 1214 hereof has not been given, the holders of Senior Indebtedness, any
benefit or any legal or equitable right, remedy or claim under this Agreement.
SECTION 112. GOVERNING LAW.
This Agreement and the Securities shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflicts of law principles, except to the extent that the law of any other
jurisdiction shall be mandatorily applicable.
SECTION 113. LEGAL HOLIDAYS.
In any case where any date for an amount payable under the
Securities shall not be a Business Day at any Place of Payment, then payment
need not be made at such Place of Payment on such date, but may be made on the
next succeeding Business Day at such Place of Payment with the same force and
effect as if made on the date originally payable, and, if such payment is made
or duly provided for on such Business Day, then interest, if interest otherwise
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would accrue and be payable under the terms of the Securities, shall not accrue
on the amount so payable for the period from and after the date originally
payable to such Business Day.
ARTICLE II
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The definitive Securities shall be in the form set forth in
Appendix A, the terms of which are hereby incorporated by reference and made a
part of this Agreement for all purposes, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Agreement, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities.
The Securities shall be issuable in registered form without
coupons. The definitive Securities shall be produced in such manner as shall be
determined by the officers executing such Securities, as evidenced by their
execution thereof.
SECTION 202. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificate of authentication shall be in
substantially the form set forth below:
This is one of the Securities referred to in
the within-mentioned Agreement.
Dated:____________
The Chase Manhattan Bank
as Trustee
By: _____________________________
Authorized Representative
SECTION 203. SECURITIES ISSUABLE IN THE FORM OF A GLOBAL SECURITY.
(a) Unless otherwise agreed by the Company, the Trustee
and the Security Registrar, the Securities are to be issued in whole in
the form of one or more Global Securities which shall represent the
aggregate number of authorized and issued CVOs outstanding under this
Agreement. The Company shall execute and the Trustee shall, in
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accordance with Section 303 and the Company Order delivered to the
Trustee thereunder, authenticate and deliver such Global Security or
Securities, which (i) shall represent, and shall be denominated in an
amount equal to the aggregate number of the Outstanding Securities to
be represented by such Global Security or Securities, (ii) may provide
that the aggregate amount of Outstanding Securities represented thereby
may from time to time be increased or reduced to reflect exchanges,
(iii) shall be registered in the name of the Depository for such Global
Security or Securities or its nominee, (iv) shall be delivered by the
Trustee to the Depository or pursuant to the Depository's instruction
and (v) shall bear a legend in accordance with the requirements of the
Depository.
(b) Notwithstanding any other provision of this Section
203 or of Section 305, subject to the provisions of paragraph (c)
below, unless the terms of a Global Security expressly permit such
Global Security to be exchanged in whole or in part for individual
Securities, a Global Security may be transferred, in whole but not in
part and in the manner provided in Section 305, only to a nominee of
the Depository for such Global Security, or to the Depository, or to a
successor Depository for such Global Security selected or approved by
the Company, or to a nominee of such successor Depository.
(c) (1) If at any time the Depository for a Global
Security notifies the Company that it is unwilling or unable to
continue as a Depository for such Global Security or if at any time the
Depository for the Securities shall no longer be eligible or in good
standing under the Exchange Act, or other applicable statute or
regulation, the Company shall appoint a successor Depository with
respect to such Global Security. If a successor Depository for such
Global Security is not appointed by the Company within 90 days after
the Company receives such notice or becomes aware of such
ineligibility, the Company will execute, and the Trustee, upon receipt
of a Company Order for the authentication and delivery of individual
Securities in exchange for such Global Security, will authenticate and
deliver individual Securities of like tenor and terms in definitive
form in a number equal to the number of Securities represented by the
Global Security in exchange for such Global Security. Such Securities
will be issued in registered form to such Persons as are specified by
the Depository.
(2) The Company may at any time and in its sole discretion
determine that the Securities issued or issuable in the form of one or more
Global Securities shall no longer be represented by such Global Security or
Securities. In such event the Company will execute, and the Trustee, upon
receipt of a Company Request for the authentication and delivery of individual
Securities in exchange in whole or in part for such Global Security, will
authenticate and deliver without service charge to each Person specified by the
Depository individual Securities of like tenor and terms in definitive form in
an aggregate number equal to the number of Securities represented by the Global
Security or Securities in exchange for such Global Security or Securities.
(3) In any exchange provided for in any of the preceding two
paragraphs, the Company will execute and the Trustee will authenticate and
deliver individual Securities in definitive form in authorized denominations.
Upon the exchange of the entire Global Security
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for individual Securities, such Global Security shall be cancelled by the
Trustee. Securities issued in exchange for a Global Security pursuant to this
Section shall be registered in such names and in such authorized denominations
as the Depository for such Global Security, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the Trustee.
Provided that the Company and the Trustee have so agreed, the Trustee shall
deliver such Securities to the Persons in whose names the Securities are
registered.
(4) Any endorsement of a Global Security to reflect the
amount, or any increase or decrease in the amount, or changes in the rights of
Holders, of Outstanding Securities represented thereby shall be made in such
manner and by such Person or Persons as shall be specified therein or in the
Company Order to be delivered pursuant to Section 303 with respect thereto.
Subject to the provisions of Section 303, the Trustee shall deliver and
redeliver any such Global Security in the manner and upon instructions given by
the Person or Persons specified therein or in the applicable Company Order. If a
Company Order pursuant to Section 303 has been, or simultaneously is, delivered,
any instructions by the Company with respect to such Global Security shall be in
writing but need not be accompanied by or contained in an Officer's Certificate
and need not be accompanied by an Opinion of Counsel.
ARTICLE III
THE SECURITIES
SECTION 301. TITLE AND TERMS.
The Securities shall be known and designated as the
"Contingent Value Obligations" of the Company. The terms of the Security shall
be described in the form of Security attached as Appendix A, as may be modified
pursuant to Section 906.
SECTION 302. NUMBER
The only condition precedent to the issuance of the CVOs under
this Agreement is the occurrence of the Effective Time under the Exchange
Agreement. When and if issued under this Agreement, one CVO shall be issued
under this Agreement in exchange for each share of common stock of Florida
Progress Corporation outstanding at the Effective Time (as defined in the
Exchange Agreement) as reflected in the Company Order delivered to the Trustee
pursuant to Section 303 of this Agreement. The aggregate number of CVOs that may
be issued pursuant to this Agreement shall equal the total number of shares of
common stock of Florida Progress Corporation outstanding at the Effective Time
(as defined in the Exchange Agreement) as reflected in the Company Order
delivered to the Trustee pursuant to Section 303 of this Agreement. As specified
in Section 203 of this Agreement, unless otherwise agreed in writing by the
Company, the Trustee and the Security Registrar, the Securities shall be issued
in the form of one or more Global Securities which shall represent the aggregate
number of authorized and issued CVOs outstanding under this Agreement.
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SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Securities shall be executed on behalf of the Company by
an Authorized Officer but need not be attested. The signature of any or all of
these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at the time of execution Authorized Officers of the Company
shall bind the Company, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the authentication and delivery of
such Securities or did not hold such offices at the date of such Securities.
The Trustee shall authenticate and deliver the Securities, for
original issue, in accordance with the Company Order referred to below, upon
receipt by the Trustee of:
(a) A Company Order, Officer's Certificate and Opinion of
Counsel in the form attached hereto as Appendix B; and
(b) The Securities executed on behalf of the Company by
an Authorized Officer.
At any time and from time to time after execution of this
Agreement, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities; and the Trustee, in accordance with such
Company Order, shall authenticate and deliver such Securities as provided in
this Agreement and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Agreement or be valid or obligatory for any purpose unless there appears on such
Security a certificate of authentication substantially in the form provided for
herein executed by the Trustee or its agent by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Agreement.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued, with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities may determine, as evidenced by their
execution of such Securities.
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If temporary Securities are issued, the Company will cause
definitive Securities to be issued without unreasonable delay. After the
preparation of definitive Securities the temporary Securities shall be
exchangeable, without charge to the Holder thereof, for definitive Securities
upon surrender of such temporary Securities at the office or agency of the
Company maintained pursuant to Section 402 in a Place of Payment for such
Securities. Upon such surrender of temporary Securities, the Company shall,
except as aforesaid, execute and the Trustee shall authenticate and deliver in
exchange therefor definitive Securities of like tenor.
Until exchanged in full as hereinabove provided, temporary
Securities shall in all respects be entitled to the same benefits under this
Agreement as definitive Securities of like tenor authenticated and delivered
hereunder.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept in each office designated
pursuant to Section 402, with respect to the Securities, a register (all
registers kept in accordance with this Section being collectively referred to as
the "Security Register") in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of Securities and
the registration of transfer thereof. The Company shall designate one Person to
maintain the Security Register for the Securities on a consolidated basis, and
such Person is referred to herein, with respect to the Securities, as the
"Security Registrar." Anything herein to the contrary notwithstanding, the
Company may designate one or more of its offices as an office in which a
register with respect to the Securities shall be maintained, and the Company may
designate itself the Security Registrar. The Security Register shall be open for
inspection by the Trustee and the Company at all reasonable times.
The Company shall require the Security Registrar to be an
Agent Member through whom Persons may maintain beneficial interests in the
Securities.
The Company, any other obligor upon the Securities or the
Trustee shall treat as the Act of a Holder any instrument or writing of any
Person that is identified by the Depository as the owner of a beneficial
interest in the Global Security, provided that the fact and date of the
execution of such instrument or writing is proved in accordance with Section
104(b).
Upon surrender for registration of transfer of any Security at
the office or agency of the Company maintained pursuant to Section 402 in a
Place of Payment for the Securities, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of like tenor.
Any Security may be exchanged at the option of the Holder, for
one or more new Securities that represent in the aggregate the same number of
CVOs as the Security surrendered, upon surrender of the Securities to be
exchanged at any such office or agency. Whenever any Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.
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All Securities delivered upon any registration of transfer or
exchange of Securities shall be valid obligations of the Company, evidencing the
same rights and entitled to the same benefits under this Agreement, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company, the Trustee or
the Security Registrar) be duly endorsed or shall be accompanied by a written
instrument of transfer in form satisfactory to the Company, the Trustee or the
Security Registrar, as the case may be, duly executed by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304 or 906 not involving any transfer.
None of the Company, the Trustee or any Paying Agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of a Global Security
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests; provided, however, that the foregoing limitation
will not apply to the Security Registrar to the extent that Persons maintain
beneficial interests through such Security Registrar.
Notwithstanding the foregoing, the Company, any other obligor
upon the Securities, the Trustee and any agent of any of them shall give effect
to any written certification, proxy or other authorization furnished by the
Depository, and shall not impair, as between the Depository and its Agent
Members, the operation of customary practices governing the exercise of the
rights of a beneficial owner of any Security. The registered holder of a Global
Security may grant proxies and otherwise authorize any Person, including Agent
Members and Persons that may hold interests through Agent Members, to take any
action that a Holder is entitled to take under this Agreement or the Securities.
All notices and reports required to be delivered by the
Company or the Trustee to Holders under this Agreement shall be delivered by the
Company or the Trustee, as applicable, to the each Agent Member maintaining a
position in the Securities in sufficient quantities (as requested by such Agent
Member in writing) to allow such Agent Member to forward such notices and
reports to the Persons who hold beneficial interests in the Securities through
such Agent Member.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and amount and bearing a number not
contemporaneously outstanding.
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If there shall be delivered to the Company and the Trustee (a)
evidence to their satisfaction of the ownership of and the destruction, loss or
theft of any Security and (b) such security or indemnity as may be reasonably
required by them to save each of them and any agent of either of them harmless,
then, in the absence of notice to the Company or the Trustee that such Security
is held by a Person purporting to be the owner of such Security, the Company
shall execute and the Trustee shall authenticate and deliver, in lieu of any
such destroyed, lost or stolen Security, a new Security of like tenor and
bearing a number not contemporaneously outstanding.
Notwithstanding the foregoing, in case any such mutilated,
destroyed, lost or stolen Security has become or is about to become due and
payable, the Company in its discretion may, instead of issuing a new Security,
pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the fees and expenses of the Trustee) connected
therewith.
Every new Security issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone other than the Holder
of such new Security, and any such new Security shall be entitled to all the
benefits of this Agreement equally and proportionately with any and all other
Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENTS IN U.S. CURRENCY.
Payment of any amounts pursuant to the Securities shall be
made in such coin or currency of the United States of America as at the time is
legal tender for the payment of public and private debts. However, the Company
may, at its option, pay such amounts by wire transfer or check payable in such
money.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the absolute
owner of such Security for the purpose of receiving payments on such Security
and for all other purposes whatsoever, whether or not such Security be overdue,
and neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
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SECTION 309. CANCELLATION BY SECURITY REGISTRAR.
All Securities surrendered for payment, redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Security Registrar, be delivered to the Security Registrar and, if not
theretofore canceled, shall be promptly canceled by the Security Registrar. The
Company may at any time deliver to the Security Registrar for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever or which the Company shall not have
issued and sold, and all Securities so delivered shall be promptly canceled by
the Security Registrar. No Securities shall be authenticated in lieu of or in
exchange for any Securities canceled as provided in this Section, except as
expressly permitted by this Agreement. All canceled Securities held by the
Security Registrar shall be disposed of in accordance with the customary
practices of the Security Registrar at the time in effect, and the Security
Registrar shall not be required to destroy any such certificates and the
Security Registrar shall promptly deliver a certificate of disposition to the
Trustee and the Company unless, by a Company Order, similarly delivered, the
Company shall direct that canceled Securities be returned to it. The Security
Registrar shall promptly deliver evidence of any cancellation of a Security in
accordance with this Section 309 to the Trustee and the Company.
ARTICLE IV
COVENANTS
SECTION 401. PAYMENT OF AMOUNTS, IF ANY, TO HOLDERS.
The Company will duly and punctually pay the amounts, if any,
on the Securities in accordance with the terms of the Securities and this
Agreement. Such amounts shall be considered paid on the date due if on such date
the Trustee or the Paying Agent holds in accordance with this Agreement money
sufficient to pay all such amounts then due and the Company has directed the
Trustee or Paying Agent to make payment to the Holders in accordance with the
terms of this Agreement and the Certificate. Notwithstanding any other
provisions of this Agreement, the Paying Agent shall comply with all United
States federal withholding and any other withholding requirements with respect
to payments to Holders that the Company, the Trustee or the Paying Agent
reasonably believes are applicable under the Internal Revenue Code of 1986, as
amended, and the Treasury regulations thereunder. Amounts withheld in compliance
with such withholding requirements shall, for purposes of this Agreement, be
treated as paid to the Holder such withholding was made with respect to. The
consent of Holder shall not be required for any such withholding.
SECTION 402. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in each Place of Payment for the
Securities an office or agency where payment of such Securities shall be made,
where the registration of transfer or exchange of such Securities may be
effected and where notices and demands to or upon the Company in respect of such
Securities and this Agreement may be served. The Company shall
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give prompt written notice to the Trustee of the location, and any change in the
location, of each such office or agency and prompt notice to the Holders of any
such change in the manner specified in Section 106.
The Company may also from time to time designate one or more
other offices or agencies with respect to the Securities for any or all of the
foregoing purposes and may from time to time rescind such designations;
provided, however, that, no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency for such
purposes in each Place of Payment for such Securities in accordance with the
requirements set forth above. The Company shall give prompt written notice to
the Trustee, and prompt notice to the Holders in the manner specified in Section
106, of any such designation or rescission and of any change in the location of
any such other office or agency.
Anything herein to the contrary notwithstanding, any office or
agency required by this Section may be maintained at an office of the Company,
in which event the Company shall perform all functions to be performed at such
office or agency.
SECTION 403. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
Whenever the Company shall have one or more Paying Agents for
the Securities, it shall, on or before each payment due date on such Securities,
deposit with such Paying Agents sums sufficient (without duplication) to pay the
amounts, if any, so becoming due, such sum to be held in trust for the benefit
of the Persons entitled to such payments, and (unless such Paying Agent is the
Trustee) the Company shall promptly notify the Trustee of any failure by it so
to act.
The Company shall cause each Paying Agent for the Securities,
other than the Company or the Trustee, to execute and deliver to the Trustee an
instrument in which such Paying Agent shall agree with the Trustee, subject to
the provisions of this Section, that such Paying Agent shall:
(a) hold all sums held by it for the payment of any
amount payable on such Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as herein provided;
(b) give the Trustee notice of any failure by the Company
(or any other obligor upon such Securities) to make any payment of any
amount payable on such Securities.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of any amount payable on any
Security and remaining unclaimed for two years after such payment has become due
and payable shall be paid to the Company on Company Request, or, if then held by
the Company, shall be discharged from such trust; and, upon such payment or
discharge, the Holder of such Security shall, as an unsecured general creditor
and not as a Holder of an Outstanding Security, look only to the Company for
payment of the amount so due and payable and remaining unpaid, and all liability
of the Trustee or such Paying Agent with respect to such trust money, and all
liability of the Company as
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trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such payment to the
Company, may at the expense of the Company cause to be mailed, on one occasion
only, notice to such Holders that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
mailing, any unclaimed balance of such money then remaining will be paid to the
Company.
SECTION 404. CORPORATE EXISTENCE.
Subject to the rights of the Company under Article Eight, the
Company shall do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence.
SECTION 405. ANNUAL OFFICER'S CERTIFICATE AS TO COMPLIANCE.
Not later than June 1 in each year, commencing June 1, 2001,
the Company shall deliver to the Trustee an Officer's Certificate which need not
comply with Section 102, executed by the principal executive officer, the
principal financial officer or the principal accounting officer of the Company,
stating whether, to such officer's knowledge, the Company is in compliance with
all conditions and covenants under this Agreement, such compliance to be
determined without regard to any period of grace or requirement of notice under
this Agreement, and making any other statements as may be required by the
provisions of Section 314(a)(4) of the Trust Indenture Act.
SECTION 406. GOOD FAITH AND FAIR DEALING.
Notwithstanding the provisions of Sections 514 and 515, in all
matters concerning the Securities, including the operation of the EARTHCO Plants
and calculation of amounts payable with respect to the Securities, the Company
shall exercise good faith and fair dealing with respect to the Holders of
Securities.
SECTION 407. BOOKS AND RECORDS.
The Company shall cause each EARTHCO Business Entity to
maintain separate books and records and to maintain financial statements in
accordance with generally accepted accounting principles.
SECTION 408. INSURANCE.
The Company shall cause the EARTHCO Business Entities to
maintain casualty insurance on the EARTHCO Plants in accordance with customary
industry practice.
SECTION 409. INDEBTEDNESS.
The Company shall not permit any of the EARTHCO Business
Entities to incur obligations for borrowed money, or to guarantee or assume any
such obligations or to allow mortgages or other encumbrances to exist on any
assets of the EARTHCO Business Entities.
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SECTION 410. PROHIBITED TRANSACTIONS.
(a) Except for Dispositions to Persons who are Affiliates of
the Company, the Company will not sell, transfer or otherwise dispose of any
interest (in whole or in part) in any entity which directly or indirectly owns
an interest in any of the EARTHCO Business Entities.
(b) The Company will not engage in and will cause its
Affiliates to refrain from engaging in, Dispositions for consideration other
than (i) cash or (ii) promissory notes, or other deferred payment obligations,
payable only in cash.
SECTION 411. INCOME TAX TREATMENT.
Absent a contrary determination by the United States Internal
Revenue Service or a change in applicable law, for United States federal income
tax purposes:
(a) the Company will treat the Contingency Funds [and the
trust created hereunder] as a "grantor trust" of which the Company is
the sole owner;
(b) the Company will not treat the Securities as "debt
instruments" on which original issue discount accrues before payments
are made to the Holders of the Securities; and
(c) the Company will treat each payment made to the
Holders pursuant to the Securities as including "unstated interest"
pursuant to Section 483 of the United States Internal Revenue Code.
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein with respect to the
Securities means any one of the following events:
(a) the failure to pay all or any part of the amounts
payable with respect to the Securities as and when the same shall
become due and payable;
(b) the failure to perform or the breach of any covenant
or warranty of the Company in this Agreement for a period of 60 days
(or, with respect to covenants contained in Sections 404 through 411,
30 days) after there has been given, by registered or certified mail,
to the Company by the Trustee, or to the Company and the Trustee by the
Holders of at least 33% of the Outstanding Securities, a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder, unless the
Trustee, or the Trustee and the Holders of an amount of Securities not
less than the amount of Securities the Holders of which gave such
notice,
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as the case may be, shall agree in writing to an extension of such
period prior to its expiration; or
(c) the entry by a court having jurisdiction in the
premises of (1) a decree or order for relief in respect of the Company
in an involuntary case or proceeding under any applicable United States
federal or state bankruptcy, insolvency, reorganization or other
similar law or (2) a decree or order adjudging the Company a bankrupt
or insolvent, or approving as properly filed a petition by one or more
Persons other than the Company seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under any
applicable United States federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official for the Company or for any substantial part of
its property, or ordering the winding up or liquidation of its affairs,
and any such decree or order for relief or any such other decree or
order shall have remained unstayed and in effect for a period of 90
consecutive days; or
(d) the commencement by the Company of a voluntary case
or proceeding under any applicable United States federal or state
bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by it to the entry of a decree or order for relief in
respect of the Company in case or proceeding under any applicable
United States federal or state bankruptcy, insolvency, reorganization
or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under
any applicable United States federal or state law, or the consent by it
to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or of any substantial
part of its property, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due, or the
authorization of such action by the Board of Directors.
SECTION 502. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
If an Event of Default described in clause (a) of Section 501
shall have occurred and be continuing, the Company shall, upon demand of the
Trustee, pay to it, for the benefit of the Holders of the Securities, the whole
amount then due and payable on such Securities together with such further amount
as shall be sufficient to cover any amounts due to the Trustee under Section
607.
If the Company shall fail to pay such amounts forthwith upon
such demand, the Trustee, in its own name and as trustee of an express trust,
may institute a judicial proceeding for the collection of the sums so due and
unpaid, which amounts shall bear interest at the Default Interest Rate, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys
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adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon such Securities, wherever
situated.
If an Event of Default with respect to the Securities shall
have occurred and be continuing, the Trustee may in its discretion proceed to
protect and enforce its rights and the rights of the Holders of the Securities
by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Agreement or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 503. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(a) to file and prove a claim for any amount owing and
unpaid in respect of the Securities and to file such other papers or
documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for amounts due to the Trustee
under Section 607) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same,
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amounts due it under Section 607.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 504. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Agreement or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders in respect of which such judgment has been
recovered.
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SECTION 505. APPLICATION OF MONEY COLLECTED.
Subject to the provisions of Article Twelve, any money
collected by the Trustee pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee upon presentation of
the Securities in respect of which or for the benefit of which such money shall
have been collected and the notation thereon of the payment if only partially
paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607;
SECOND: To the payment of all interest accrued but unpaid
pursuant to Section 502;
THIRD: To the payment of the amounts then due and unpaid upon
the Securities, PRO RATA, and without preference or priority of any
Security over any other Security; and
FOURTH: To the payment of the remainder, if any, to the
Company, or to whomsoever may be lawfully entitled to receive the same
or as a court of competent jurisdiction may direct.
SECTION 506. LIMITATION ON SUITS.
No Holder shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Agreement, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(a) such Holder shall have previously given written
notice to the Trustee of a continuing Event of Default with respect to
the Securities;
(b) if an Event of Default shall have occurred and be
continuous, the Holders of not less than 33% of the Outstanding
Securities considered as one class, shall have made written request to
the Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee hereunder;
(c) such Holder or Holders shall have offered to the
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity shall have failed to institute
any such proceeding; and
(e) no direction inconsistent with such written request
shall have been given to the Trustee during such 60-day period by the
Holders of a majority of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Agreement to affect,
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disturb or prejudice the rights of any other of such Holders or to obtain or to
seek to obtain priority or preference over any other of such Holders or to
enforce any right under this Agreement, except in the manner herein provided and
for the equal and ratable benefit of all of such Holders.
SECTION 507. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PAYMENTS.
Notwithstanding any other provision in this Agreement, the
right of any Holder of any Security to receive payment of the amounts payable in
respect of such Security on or after the respective due dates expressed in such
Security, or to institute suit for the enforcement of any such payment or after
such respective dates, shall not be impaired without the consent of such Holder.
SECTION 508. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Agreement and such proceeding shall have
been discontinued or abandoned for any reason, or shall have been determined
adversely to the Trustee or to such Holder, then and in every such case, subject
to any determination in such proceeding, the Company, and Trustee and such
Holder shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and such Holder
shall continue as though no such proceeding had been instituted.
SECTION 509. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided in the last paragraph of Section
306 and in Section 506, no right or remedy herein conferred upon or reserved to
the Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 510. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 511. CONTROL BY HOLDERS OF SECURITIES.
If an Event of Default shall have occurred and be continuing
in respect of the Securities, the Holders of a majority of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
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Trustee, or exercising any trust or power conferred on the Trustee with respect
to the Securities; provided, however, that
(a) such direction shall not be in conflict with any rule
of law or with this Agreement, and could not involve the Trustee in
personal liability in circumstances where indemnity would not in the
Trustee's reasonable discretion be adequate, and
(b) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction.
Before proceeding to exercise any right or power hereunder at
the direction of such Holders, the Trustee shall be entitled to receive from
such Holders security or indemnity satisfactory to the Trustee in its reasonable
judgment against the costs, expenses and liabilities which might be incurred by
it in compliance with any such direction.
SECTION 512. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority of the Outstanding
Securities may on behalf of the Holders of all the Securities waive any past
default hereunder with respect to the Securities and its consequences, except a
default
(a) in the payment of any amounts payable on the
Securities, or
(b) in respect of a covenant or provision hereof which
under Section 902 cannot be modified or amended without the consent of
the Holder of each Outstanding Security.
Upon any such waiver, such default shall cease to exist, and
any and all Events of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Agreement; but no such waiver shall extend to
any subsequent or other default or impair any right consequent thereon.
SECTION 513. UNDERTAKING FOR COSTS.
The Company and the Trustee agree, and each Holder by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Agreement, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply, to any suit instituted by the
Trustee or to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than [10%] of the Outstanding Securities for the enforcement
of the payments on the Securities on or after the respective due date expressed
in the Securities.
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SECTION 514. OPERATING AND OWNERSHIP DECISIONS.
Except as provided in Section 410, and subject to the
provisions of Section 406, the EARTHCO Plants will be held and operated in
accordance with the Company's determination, in its sole discretion, of the
appropriate extent and manner of ownership and operation of the EARTHCO Plants,
including any reduction or termination of operations at one or more EARTHCO
Plants and the Disposition of either any or all interests in any EARTHCO Plant
or any or all interests in any EARTHCO Business Entity.
SECTION 515. TAX DECISIONS AND PROCEDURES.
Subject to the provisions of Section 406, the Company shall
have complete and full control and sole discretion with respect to (i) the
reporting of any item on its United States tax return or the United States tax
return of any partnership or other entity that owns (or is treated for United
States federal income tax purposes as owning) an EARTHCO Plant or any interest
therein, and (ii) the conduct or contest of any tax audit or proceeding with
respect thereto. Neither the Trustee, any Holder or any other party shall have
any right to participate in any such proceeding. The Trustee will be granted
access, upon reasonable request, to such United States federal or state tax
returns and related documentation except for attorney-client or
accountant-client privileged material (if the Trustee has received an Opinion of
Counsel to that effect), but the Trustee shall have no obligation to request any
such information unless directed to do so by the Holders of in excess of 33% of
the Securities.
SECTION 516. LIMITATION OF LIABILITY.
The Company will have no liability to any Holder arising from
any action taken with respect to the EARTHCO Plants, the EARTHCO Business
Entities, the availability of the Section 29 Credits, or the matters described
in Section 515 except to the extent arising from the Company's failure to
perform or breach of any express covenant or warranty of the Company in this
Agreement or in the Certificate.
SECTION 517. NO RIGHTS OF ACCELERATION; UNSECURED OBLIGATIONS.
No provisions of this Agreement or the Securities shall be
deemed to give rise to any right on the part of the Trustee or the Holders of
the Securities to "accelerate" the amounts payable on the Securities or to
otherwise require the payment of the Contingency Funds except on the dates and
in the amounts specified in the Securities. The Securities and the obligations
of the Company under the Securities and this Agreement are general, unsecured
obligations of the Company and are not secured by any express or implied
mortgage, lien, charge, assignment or other encumbrance of or against any assets
of the Company or any EARTHCO Business Entities, including without limitation
any of the EARTHCO Plants.
SECTION 518. NON INTEREST-BEARING OBLIGATIONS.
No provisions of this Agreement or the Securities shall be
interpreted to provide that the Securities shall bear interest, except for
amounts bearing interest at the Default Interest
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Rate pursuant to Section 502. Earnings on Contingency Funds, although not to be
construed as "interest", will be included in amounts paid to Holders as provided
in the Securities.
SECTION. 519 NO REDEMPTION.
No provisions of this Agreement or the Securities shall be
interpreted to provide for any option on behalf of either the Company or the
Holders of a Security to cause any Security to be redeemed prior to the final
payment to be made on the Securities.
ARTICLE VI
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The Trustee shall have and be subject to all the
duties and responsibilities specified with respect to an indenture
trustee in the Trust Indenture Act and no implied covenants or
obligations shall be read into this Agreement against the Trustee. For
purposes of Sections 315(a) and 315(c) of the Trust Indenture Act, the
term "default" is hereby defined as an Event of Default which has
occurred and is continuing.
(b) The Trustee, prior to the occurrence of an Event of
Default and after the curing or waiving of all Events of Default which
may have occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement and the Trust
Indenture Act. In case an Event of Default of which a Responsible
Officer of the Trustee has actual knowledge has occurred (which has not
been cured or waived) the Trustee shall exercise such of the rights and
powers vested in it by this Agreement, and use the same degree of care
and skill in their exercise, as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
(c) No provision of this Agreement shall be construed to
relieve the Trustee from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct, except that
prior to the occurrence of an Event of Default and after the curing or
waiving of all Events of Default which may have occurred
(1) the duties and obligations of the Trustee
shall be determined solely by the express provisions of this
Agreement, and the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically
set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the
Trustee; and
(2) In the absence of bad faith on the part of
the Trustee, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished
to the Trustee and conforming to the requirements of this
Agreement; but, in the case of
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any such certificates or opinions that by any provision hereof
are specifically required to be furnished to the Trustee, the
Trustee shall not be under a duty to examine the same to
determine whether or not they conform to the requirements of
this Agreement.
(d) The Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or Officers of the
Trustee, unless it shall be proven that the Trustee was negligent in
ascertaining the pertinent facts.
(e) The Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith, in accordance
with the direction of the Holders of Securities pursuant to Section
511, relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Agreement.
(f) No provision of this Agreement shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
indemnity satisfactory to the Trustee in its reasonable judgment
against such risk or liability is not reasonably assured to it.
(g) Notwithstanding anything contained in this Agreement
to the contrary, the duties and responsibilities of the Trustee under
this Agreement shall be subject to the protections, exculpations and
limitations on liability afforded to the Trustee under the provisions
of the Trust Indenture Act, including those provisions of such Act
deemed by such Act to be included herein.
(h) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to
the provisions of this Section.
SECTION 602. NOTICE OF DEFAULTS.
The Trustee shall give the Holders notice of any default
hereunder with respect to the Securities to the Holders of Securities of which
it has knowledge (within the meaning of Section 603(h) hereof) in the manner and
to the extent required to do so by the Trust Indenture Act, unless such default
shall have been cured or waived; provided that, except in the case of default in
the payment of amounts payable on any of the Securities, the Trustee shall be
fully protected in withholding such notice if and so long as the board of
directors, executive committee, or a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the best interests of the Holders of the
Securities.. For the purpose of this Section, the term "default" means any event
which is, or after notice or lapse of time, or both, would become, an Event of
Default.
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SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601 and to the applicable
provisions of the Trust Indenture Act:
(a) the Trustee may rely conclusively and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company
Order, or as otherwise expressly provided herein, and any resolution of
the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Agreement the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officer's
Certificate,
(d) the Trustee may consult with counsel of its selection
and the advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(e) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement at the
request or direction of any Holder pursuant to this Agreement, unless
such Holder shall have offered to the Trustee security or indemnity
satisfactory to the Trustee in its reasonable judgment against the
costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine
to make such further inquiry or investigation, it shall (subject to
applicable legal requirements) be entitled to examine, during normal
business hours, the books, records and premises of the Company,
personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through any number of agents (including, without limitation,
authenticating agents and paying agents), servicers, custodians,
nominees or attorneys (any or all of which agents, servicers,
custodians, nominees or
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attorneys, in Trustee's discretion, may be Affiliates of the Trustee)
and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent, servicer, custodian, nominee or
attorney appointed with due care by it hereunder; and
(h) the Trustee shall not be charged with knowledge of
any default or Event of Default with respect to the Securities unless
either (1) a Responsible Officer of the Trustee shall have actual
knowledge of the default or Event of Default or (2) written notice of
such default or Event of Default (which shall state that such notice is
a "Notice of Default" or a "Notice of an Event of Default" hereunder,
as the case may be) shall have been given to the Trustee by the
Company, any other obligor on such Securities or by any Holder of such
Securities.
(i) the Trustee shall not be bound to ascertain or
inquire as to the performance or observance of any covenants,
conditions or agreements on the part of the Company, except as
otherwise set forth herein, but the Trustee may require of the Company,
full information and advice as to the performance of the covenants,
conditions and agreements contained herein and (except for
attorney-client and accountant-client privileged material excluded
under Section 515) shall be entitled in connection herewith to examine
the books, records and premises of the Company; and
(j) in the event that the Trustee is also acting as
authenticating agent, paying agent, security registrar, exchange agent
or transfer agent hereunder, the rights, indemnities (including without
limitation Section 607) and protections afforded to the Trustee
pursuant to this Article Six shall also be afforded to such paying
agent, security registrar, exchange agent or transfer agent.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities (except
the Trustee's certificates of authentication) shall be taken as the statements
of the Company, and neither the Trustee nor any Authenticating Agent assumes
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Agreement or of the Securities. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 605. MAY HOLD SECURITIES.
Each of the Trustee, any Authenticating Agent, any Paying
Agent, any Security Registrar or any other agent of the Company, in its
individual or any other capacity, may become the owner or pledgee of Securities
and, subject to Sections 608 and 613, may otherwise deal with the Company with
the same rights it would have if it were not the Trustee, Authenticating Agent,
Paying Agent, Security Registrar or such other agent.
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SECTION 606. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be
segregated from other funds, except to the extent required by law. The Trustee
shall be under no liability for interest on investment of any money received by
it hereunder except as expressly provided herein or otherwise agreed with, and
for the sole benefit of, the Company.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company shall
(a) pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein,
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Agreement, including the costs of
collection and including the reasonable compensation and the expenses
and disbursements of its agents and counsel, except to the extent that
any such expense, disbursement or advance may be attributable to its
gross negligence, willful misconduct or bad faith; and
(c) indemnify, defend and hold harmless the Trustee and
its directors, officers, agents and employees (collectively, the
"Indemnitees") harmless from and against any and all claims,
liabilities, losses, damages, fines, penalties, taxes (other than taxes
on the income of the Trustee) and expenses, including out-of-pocket and
incidental expenses and legal fees (including the allocated costs and
expenses of in-house counsel and legal staff) ("Losses") that may be
imposed on, incurred by, or asserted against, the Indemnitees or any of
them for following any instructions or other directions upon which the
Trustee is authorized to rely pursuant to the terms of this Agreement;
and
(d) in addition to and not in limitation of clause (c)
above of this Paragraph, indemnify, defend and hold harmless the
Indemnitees and each of them from and against any and all Losses that
may be imposed on, incurred by or asserted against the Indemnities or
any of them in connection with or arising out of the exercise of
performance by the Trustee of any of its powers or duties under this
Agreement, provided that the Indemnitees have not acted with gross
negligence or engaged in willful misconduct; and
(e) In connection with any actual or alleged Losses under
either (c) or (d) above, the Company shall assume the defense of the
Indemnitees with counsel acceptable to the Trustee; provided that the
Trustee may employ separate counsel and participate in the defense but
the fees and expenses of such separate counsel, if any, shall be at the
Trustee's own expense.
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As security for the performance of the obligations of the
Company under this Section, the Trustee shall have a lien prior to the
Securities upon all property and funds held or collected by the Trustee as such
other than property and funds held in trust under Section 403 (except as
otherwise provided in Section 403). "Trustee" for purposes of this Section shall
include any predecessor Trustee; provided; however, that the negligence, willful
misconduct or bad faith of any Trustee hereunder shall not affect the rights of
any other Trustee hereunder.
When a Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(c) or Section
501(d), the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable United States federal or state
bankruptcy, insolvency or other similar law.
The provisions of this Section 607 shall survive termination
of this Agreement.
SECTION 608. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee shall have or acquire any conflicting interest
within the meaning of the Trust Indenture Act, it shall either eliminate such
conflicting interest or resign to the extent, in the manner and with the effect,
and subject to the conditions, provided in the Trust Indenture Act and this
Agreement. For purposes of Section 310(b)(1) of the Trust Indenture Act and to
the extent permitted thereby, the Trustee shall not be deemed to have a
conflicting interest by virtue of being a Trustee under (i) this Agreement with
respect to Securities, or (ii) the Indenture, dated as of October 28, 1999, of
Carolina Power & Light Company.
SECTION 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the
laws of the United States, any State or Territory thereof or the
District of Columbia, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least
$100,000,000 and subject to supervision or examination by United States
federal or state authority, and maintaining an office in the Borough of
Manhattan, New York City, or
(b) if and to the extent permitted by the Commission by
rule, regulation or order upon application, a corporation or other
Person organized and doing business under the laws of a foreign
government, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $100,000,000
or the Dollar equivalent of the applicable foreign currency and subject
to supervision or examination by authority of such foreign government
or a political subdivision thereof substantially equivalent to
supervision or examination applicable to United States institutional
trustees,
and, in either case, qualified and eligible under this Article and the Trust
Indenture Act. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of such supervising or
examining authority, then for the purposes of this Section,
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the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor
Trustee in accordance with the applicable requirements of Section 611.
(b) The Trustee may resign at any time with respect to
the Securities by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611
shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a
successor Trustee with respect to the Securities.
(c) The Trustee may be removed at any time with respect
to the Securities by Act of the Holders of a majority of the
Outstanding Securities delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with
Section 608 after written request therefor by the Company or
by any Holder who has been a bona fide Holder for at least six
months, or
(2) the Trustee shall cease to be eligible under
Section 609 and shall fail to resign after written request
therefor by the Company or by any such Holder, or
(3) the Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent or a receiver of
the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (x) the Company by a Board Resolution may remove the
Trustee with respect to all Securities or (y) subject to Section 513, any Holder
who has been a bona fide Holder for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee with respect to all Securities and
the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
Trustee for any cause (other than as contemplated in
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clause (y) in subsection (d) of this Section), with respect to the
Securities, the Company, by a Board Resolution, shall promptly appoint
a successor Trustee or Trustees with respect to the Securities and
shall comply with the applicable requirements of Section 611. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee with respect to the
Securities shall be appointed by Act of the Holders of a majority of
the Outstanding Securities delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment in accordance with the applicable
requirements of Section 611, become the successor Trustee with respect
to the Securities and to that extent supersede the successor Trustee
appointed by the Company. If no successor Trustee with respect to the
Securities shall have been so appointed by the Company or the Holders
and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security for at least six
months may, on behalf of itself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a
successor Trustee with respect to the Securities.
(f) So long as no event which is, or after notice or
lapse of time, or both, would become, an Event of Default shall have
occurred and be continuing, and except with respect to a Trustee
appointed by Act of the Holders of a majority of the Outstanding
Securities pursuant to subsection (c) of this Section, if the Company
shall have delivered to the Trustee (i) a Board Resolution appointing a
successor Trustee, effective as of a date specified therein, and (ii)
an instrument of acceptance of such appointment, effective as of such
date, by such successor Trustee in accordance with Section 611, the
Trustee shall be deemed to have resigned as contemplated in subsection
(b) of this Section, the successor Trustee shall be deemed to have been
appointed by the Company pursuant to subsection (e) of this Section and
such appointment shall be deemed to have been accepted as contemplated
in Section 611, all as of such date, and all other provisions of this
Section and Section 611 shall be applicable to such resignation,
appointment and acceptance except to the extent inconsistent with this
subsection (f).
(g) The Company or, should the Company fail so to act
promptly, the successor Trustee, at the expense of the Company, shall
give notice of each resignation and each removal of the Trustee with
respect to the Securities and each appointment of a successor Trustee
with respect to the Securities by mailing written notice of such event
by first-class mail, postage prepaid, to all Holders of Securities as
their names and addresses appear in the Security Register. Each notice
shall include the name of the successor Trustee with respect to the
Securities and the address of its corporate trust office.
SECTION 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor
Trustee with respect to the Securities, every such successor Trustee so
appointed shall execute, acknowledge and deliver to the Company and to
the retiring Trustee an instrument accepting such appointment, and
thereupon the resignation or removal of the retiring Trustee shall
become effective and such successor Trustee, without any further act,
deed or
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conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on the request of the Company or
the successor Trustee, such retiring Trustee shall, upon payment of all
sums owed to it, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring
Trustee and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder.
(b) Upon request of any such successor Trustee, the
Company shall execute any instruments which fully vest in and confirm
to such successor Trustee all such rights, powers and trusts referred
to in subsection (a) of this Section.
(c) No successor Trustee shall accept its appointment
unless at the time of such acceptance such successor Trustee shall be
qualified and eligible under this Article.
SECTION 612. MERGER, CONVERSATION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If the Trustee shall be or become a creditor of the Company or
any other obligor upon the Securities (other than by reason of a relationship
described in Section 311(b) of the Trust Indenture Act), the Trustee shall be
subject to any and all applicable provisions of the Trust Indenture Act
regarding the collection of claims against the Company or such other obligor.
For purposes of Section 311(b) of the Trust Indenture Act:
(a) the term "cash transaction" means any transaction in
which full payment for goods or securities sold is made within seven
days after delivery of the goods or securities in currency or in checks
or other orders drawn upon banks or bankers and payable upon demand;
(b) the term "self-liquidating paper" means any draft,
bill of exchange, acceptance or obligation which is made, drawn,
negotiated or incurred by the Company for the purpose of financing the
purchase, processing, manufacturing, shipment, storage or sale of
goods, wares or merchandise and which is secured by documents
evidencing title to, possession of, or a lien upon, the goods, wares or
merchandise or the receivables or proceeds arising from the sale of the
goods, wares or merchandise previously
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constituting the security, provided the security is received by the
Trustee simultaneously with the creation of the creditor relationship
with the Company arising from the making, drawing, negotiating or
incurring of the draft, bill of exchange, acceptance or obligation.
SECTION 614. CO-TRUSTEES AND SEPARATE TRUSTEES.
At any time or times, for the purpose of meeting the legal
requirements of any applicable jurisdiction, the Company and the Trustee shall
have power to appoint, and, upon the written request of the Trustee or of the
Holders of at least thirty-three percent (33%) of the Securities then
Outstanding, the Company shall for such purpose join with the Trustee in the
execution and delivery of all instruments and agreements necessary or proper to
appoint, one or more Persons approved by the Trustee either to act as
co-trustee, jointly with the Trustee, or to act as separate trustee, in either
case with such powers as may be provided in the instrument of appointment, and
to vest in such Person or Persons, in the capacity aforesaid, any property,
title, right or power deemed necessary or desirable, subject to the other
provisions of this Section. If the Company does not join in such appointment
within 15 days after the receipt by it of a request so to do, or if an Event of
Default shall have occurred and be continuing, the Trustee alone shall have
power to make such appointment.
Should any written instrument or instruments from the Company
be required by any co-trustee or separate trustee so appointed to more fully
confirm to such co-trustee or separate trustee such property, title, right or
power, any and all such instruments shall, on request, be executed, acknowledged
and delivered by the Company.
Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the following
conditions:
(a) the Securities shall be authenticated and delivered,
and all rights, powers, duties and obligations hereunder in respect of
the custody of securities, cash and other personal property held by, or
required to be deposited or pledged with, the Trustee hereunder, shall
be exercised solely, by the Trustee;
(b) the rights, powers, duties and obligations hereby
conferred or imposed upon the Trustee in respect of any property
covered by such appointment shall be conferred or imposed upon and
exercised or performed either by the Trustee or by the Trustee and such
co-trustee or separate trustee jointly, as shall be provided in the
instrument appointing such co-trustee or separate trustee, except to
the extent that under any law of any jurisdiction in which any
particular act is to be performed, the Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers,
duties and obligations shall be exercised and performed by such
co-trustee or separate trustee;
(c) the Trustee at any time, by an instrument in writing
executed by it, with the concurrence of the Company, may accept the
resignation of or remove any co-trustee or separate trustee appointed
under this Section, and, if an Event of Default shall have occurred and
be continuing, the Trustee shall have power to accept the resignation
of, or
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remove, any such co-trustee or separate trustee without the concurrence
of the Company. Upon the written request of the Trustee, the Company
shall join with the Trustee in the execution and delivery of all
instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or separate
trustee so resigned or removed may be appointed in the manner provided
in this Section;
(d) no co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Trustee, or
any other such trustee hereunder; and
(e) any Act of Holders delivered to the Trustee shall be
deemed to have been delivered to each such co-trustee and separate
trustee.
SECTION 615. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents with
respect to the Securities, which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon original issuance, exchange,
registration of transfer or partial redemption thereof or pursuant to Section
306, and Securities so authenticated shall be entitled to the benefits of this
Agreement and shall be valid and obligatory for all purposes as if authenticated
by the Trustee hereunder. Wherever reference is made in this Agreement to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States, any State or territory thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by United States federal or state authority. If
such Authenticating Agent publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Authenticating Agent shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published. If
at any time an Authenticating Agent shall cease to be eligible in accordance
with the provisions of this Section, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any corporation succeeding to the
corporate agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving 45
days written notice thereof to the Trustee and to the Company. The Trustee may
at any time terminate the agency of
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an Authenticating Agent by giving written notice thereof to such Authenticating
Agent and to the Company. Upon receiving such a notice of resignation or upon
such a termination, or in case at any time such Authenticating Agent shall cease
to be eligible in accordance with the provisions of this Section, the Trustee
may appoint a successor Authenticating Agent which shall be acceptable to the
Company. Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this Section.
The provisions of Sections 308, 604 and 605 shall be
applicable to each Authenticating Agent.
If an appointment with respect to the Securities shall be made
pursuant to this Section, the Securities may have endorsed thereon, in lieu of
the Trustee's certificate of authentication, an alternate certificate of
authentication substantially in the following form:
This is one of the Securities therein referred to in the
within-mentioned Agreement.
Dated:______________
-----------------------------
As Trustee
By
---------------------------
As Authenticating Agent
By
---------------------------
Authorized Signatory
SECTION 616. PAYING AGENTS AFFORDED PROTECTION.
In case at any time any Paying Agent other than the Trustee or
the Company shall have been appointed by the Company and be then acting
hereunder, such Paying Agent shall be afforded the rights, indemnities and
protections afforded to the Trustee under Sections 601, 603, 604, 606, and 607.
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ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. LISTS OF HOLDERS.
Semiannually, between March 15 and April 1 and between
September 15 and October 1 in each year, commencing with the year 2001, and at
such other times as the Trustee may request in writing, the Company shall
furnish or cause to be furnished to the Trustee information as to the names and
addresses of the Holders, and the Trustee shall preserve such information and
similar information received by it in any other capacity and afford to the
Holders access to information so preserved by it, all to such extent, if any,
and in such manner as shall be required by the Trust Indenture Act; provided,
however, that no such list need be furnished so long as the Trustee shall be the
Security Registrar. Every Holder of Securities by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any agent of either of them shall be held accountable by reason of
the disclosure of any such information as to the names and addresses of the
Holders of Securities in accordance with Section 312 of the Trust Indenture Act,
or any successor section of such Act, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Section 312(b)
of the Trust Indenture Act, or any successor section of such Act.
SECTION 702. REPORTS BY TRUSTEE AND COMPANY.
Not later than sixty (60) days after May 15 in each year,
commencing May 15, 2001, the Trustee shall transmit to the Holders and the
Commission a report, dated as of the next preceding May 15th, with respect to
any events and other matters described in Section 313(a) of the Trust Indenture
Act, in such manner and to the extent required by the Trust Indenture Act. The
Trustee shall transmit to the Holders and the Commission, and the Company shall
file with the Trustee (within thirty (30) days after filing with the Commission
in the case of reports which pursuant to the Trust Indenture Act must be filed
with the Commission and furnished to the Trustee) and transmit to the Holders,
such other information, reports and other documents, if any, at such times and
in such manner, as shall be required by the Trust Indenture Act. Without
limitation to the generality of the foregoing, the Company, pursuant to Section
314(a) of the Trust Indenture Act, shall:
(1) file with the Trustee, within 15 days after the
Company is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may
from time to time by rules and regulations prescribe) that the Company
may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act.
(2) file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by
the Commission, such additional information,
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documents and reports with respect to compliance by the Company with
the conditions and covenants of this Agreement as may be required from
time to time by such rules and regulations; and
(3) transmit, within 30 days after the filing thereof
with the Trustee, to the Holders, in the manner and to the extent
provided in Section 313(c) of the Trust Indenture Act, such summaries
of any information, documents and reports required to be filed by the
Company pursuant to paragraphs (1) and (2) above of this Section 702 as
may be required by rules and regulations prescribed from time to time
by the Commission.
The Company shall notify the Trustee of the listing of any
Securities on any securities exchange, in which event any subsequent reports of
the Trustee and the Company provided for above shall be provided to such
securities exchange to the extent required under the Trust Indenture Act..
Delivery of such reports, information and documents (and the reports described
in the next paragraph) by the Company to the Trustee is for informational
purposes only, and the Trustee's receipt of such shall not constitute
constructive notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with any of
its covenants hereunder (as to which the Trustee is entitled to rely exclusively
on Officer's Certificates).
The Company will also deliver to the Agent Members holding
interests in a Global Security through the Depository for delivery to holders of
beneficial interests in the Securities or will deliver directly to holders of
beneficial interests in the Securities with a copy to the Trustee, not later
than 60 days after the end of each of the first three calendar quarters and 120
days after the end of each year, a report describing the results of operations
for each EARTHCO Plant for that quarter, and updating material developments,
including any adjustments for previous periods and relevant tax proceedings and
positions.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE OR OTHER TRANSFER
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
Notwithstanding the provisions of Section 404, the Company
shall not consolidate with or merge into any other Person, or convey or
otherwise transfer or lease its properties and assets substantially as an
entirety to any Person, unless
(a) the Person formed by such consolidation or into which
the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a Person organized and existing
under the laws of the United States, any State thereof or the District
of Columbia, and shall expressly assume, by an agreement or other
instrument supplemental hereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, the due and punctual payment of
the Outstanding Securities and the performance
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of every covenant of this Agreement on the part of the Company to be
performed or observed;
(b) immediately after giving effect to such transaction
and treating any indebtedness for borrowed money which becomes an
obligation of the Company as a result of such transaction as having
been incurred by the Company at the time of such transaction, no Event
of Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have occurred and be
continuing; and
(c) the Company shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, or other transfer or lease and such
supplemental indenture or other instrument comply with this Article and
that all conditions precedent herein provided for relating to such
transactions have been complied with.
SECTION 802. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation by the Company with or merger by the
Company into any other Person or any conveyance, or other transfer or lease of
the properties and assets of the Company substantially as an entirety in
accordance with Section 801, the successor Person formed by such consolidation
or into which the Company is merged or the Person to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Agreement with the
same effect as if such successor Person had been named as the Company herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Agreement and the
Securities Outstanding hereunder.
ARTICLE IX
AMENDMENTS
SECTION 901. AMENDMENTS WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company and the
Trustee, at any time and from time to time, may enter into one or more
amendments hereto, in form satisfactory to the Trustee, for any of the following
purposes:
(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company herein and in the Securities, all as provided in Article
Eight; or
(b) to add one or more covenants of the Company or other
provisions that the Company and the Trustee consider to be for the
benefit of the Holders or to surrender any right or power herein
conferred upon the Company; or
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(c) to add any additional Events of Default with respect
to the Securities Outstanding hereunder; or
(d) to change or eliminate any provision of this
Agreement or to add any new provision to this Agreement; provided,
however, that no such change, elimination or addition shall adversely
affect the interests of the Holders of Securities Outstanding on the
date of such amendment; or
(e) to provide collateral security for the Securities; or
(f) to change any place or places where (1) the amounts
due and payable on all Securities shall be payable, (2) all Securities
may be surrendered for registration of transfer, (3) all Securities may
be surrendered for exchange and (4) notices and demands to or upon the
Company in respect of all the Securities and this Agreement may be
served, provided that no such changes shall adversely affect the
interests of the Holders of the Securities;
(g) to provide for the issuance and authentication under
this Agreement of Securities other than Global Securities and to
specify the authorized denominations of such Securities and establish
conditions and procedures relating to the transfer and exchange of such
Securities that do not adversely affect the interests of the Holders of
Securities; or
(h) to cure any ambiguity or to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein; provided that no such changes or additions shall
adversely affect the interests of the Holders of the Securities.
Without limiting the generality of the foregoing, if the Trust
Indenture Act as in effect at the date of the execution and delivery of this
Agreement or at any time thereafter shall be amended and if any such amendment
shall require one or more changes to any provisions hereof or the inclusion
herein of any additional provisions, or shall by operation of law be deemed to
effect such changes or incorporate such provisions by reference or otherwise,
this Agreement shall be deemed to have been amended so as to conform to such
amendment to the Trust Indenture Act, and the Company and the Trustee may,
without the consent of any Holders, enter into an amendment hereto to effect or
evidence such changes or additional provisions.
The Trustee is hereby authorized to join with the Company in
the execution of any amendment pursuant to this Section 901 to effect any such
amendment described above, to make any further agreements and stipulations which
may be contained therein and to accept the conveyance, transfer and assignment
of any property thereunder, but the Trustee shall not be obligated to, but may
in its discretion, enter into any such amendment which affects the Trustee's own
rights, duties or immunities under this Agreement or otherwise.
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SECTION 902. AMENDMENTS WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority of
the Securities then Outstanding by Act of said Holders delivered to the Company
and the Trustee, the Company, when authorized by a Board Resolution, and the
Trustee may enter into an amendment hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any provisions of this
Agreement; provided that no such amendment shall:
(a) reduce the amounts payable in respect of the
Securities, or otherwise modify the method of payment of amounts
payable in respect of the Securities (other than modifications that
would not adversely affect the interests of Holders in any material
respect);
(b) impair the right of any Holder to receive the amounts
payable in respect of the Securities on or after the due dates
therefore or to institute suit for the enforcement of any payment on or
with respect to such Holder's Securities;
(c) reduce the percentage of the Outstanding Securities
the consent of the Holders of which is required for any such amendment,
or the consent of the Holders of which is required for any waiver of
compliance with any provision of this Agreement or of any default
hereunder and its consequences, or reduce the requirements of Section
1004 for quorum or voting, without, in any such case, the consent of
the Holders of each Outstanding Security, or
(d) modify any of the provisions of this Section 902 or
Section 512 with respect to the Securities (except to increase the
percentages referred to in this Section or such other Sections or to
provide that other provisions of this Agreement cannot be modified or
waived without the consent of the Holder of each Outstanding Security
affected thereby); provided, however, that this clause shall not be
deemed to require the consent of any Holder with respect to changes in
the references to "the Trustee" and concomitant changes in this
Section, or the deletion of this proviso, in accordance with the
requirements of Section 614.
Upon the request of the Company, accompanied by a copy of the
Board Resolution authorizing the execution of any such amendment or supplement
to this Agreement, compliance by the Company with Section 903 hereof, and the
filing with the Trustee of evidence of the consent of the Holders of the
Securities required hereunder with respect to the proposed amendment or
supplement, the Trustee shall join with the Company in the execution of such
amendment or supplement unless the amendment or supplement affects the Trustee's
own rights, duties or immunities under this Agreement, or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such amendment or supplement.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such Act shall approve the substance thereof. A waiver by a
Holder of such Holder's right to consent under this Section shall be deemed to
be a consent of such Holder.
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SECTION 903. EXECUTION OF AMENDMENTS.
In executing, or accepting the additional trusts created by,
any amendment permitted by this Article or the modifications thereby of the
trusts created by this Agreement, the Trustee shall be entitled to receive, and,
in the absence of bad faith, shall be fully protected in relying upon, an
Officer's Certificate and an Opinion of Counsel stating that the execution of
such amendment is authorized or permitted by this Agreement. The Trustee may,
but shall not be obligated to, enter into any such amendment which affects the
Trustee's own rights, duties, immunities or liabilities under this Agreement or
otherwise.
SECTION 904. EFFECT OF AMENDMENTS.
Upon the execution of any amendment under this Article, this
Agreement shall be modified in accordance therewith, and such amendment shall
form a part of this Agreement for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby. Any amendment permitted by this Article may restate this Agreement in
its entirety, and, upon the execution and delivery thereof, any such restatement
shall supersede this Agreement as theretofore in effect for all purposes.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every amendment executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. REFERENCE IN SECURITIES TO AMENDMENTS.
Securities authenticated and delivered after the execution of
any amendment pursuant to this Article may, and shall if required by the
Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such amendment. If the Company shall so determine, new
Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE X
MEETINGS OF HOLDERS; ACTION WITHOUT MEETING
SECTION 1001. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Holders of Securities may be called at any time
and from time to time pursuant to this Article to make, give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Agreement to be made, given or taken by Holders of
Securities.
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SECTION 1002. CALL, NOTICE AND PLACE OF MEETINGS.
(a) The Trustee may at any time call a meeting of Holders
of the Securities, for any purpose specified in Section 1001, to be
held at such time and at such place in the Borough of Manhattan, The
City of New York, as the Trustee shall determine, or, with the approval
of the Company, at any other place. Notice of every such meeting,
setting forth the time and the place of such meeting and in general
terms the action proposed to be taken at such meeting, shall be given,
in the manner provided in Section 106, not less than 21 nor more than
180 days prior to the date fixed for the meeting.
(b) If the Trustee shall have been requested to call a
meeting of the Holders of the Securities by the Company or by the
Holders of 33% of the Outstanding Securities, for any purpose specified
in Section 1001, by written request setting forth in reasonable detail
the action proposed to be taken at the meeting, and the Trustee shall
not have given the notice of such meeting within 21 days after receipt
of such request or shall not thereafter proceed to cause the meeting to
be held as provided herein, then the Company or the Holders of
Outstanding Securities in the amount above specified may determine the
time and the place in the Borough of Manhattan, The City of New York,
or in such other place as shall be determined or approved by the
Company, for such meeting and may call such meeting for such purposes
by giving notice thereof as provided in subsection (a) of this Section.
(c) Any meeting of Holders of Securities shall be valid
without notice if the Holders of all Outstanding Securities are present
in person or by proxy and if representatives of the Company and the
Trustee are present, or if notice is waived in writing before or after
the meeting by the Holders of all Outstanding Securities, or by such of
them as are not present at the meeting in person or by proxy, and by
the Company and the Trustee.
SECTION 1003. PERSONS ENTITLED TO VOTE AT MEETINGS.
To be entitled to vote at any meeting of Holders of the
Securities a Person shall be (a) a Holder of one or more Outstanding Securities,
or (b) a Person appointed by an instrument in writing as proxy for a Holder or
Holders of one or more Outstanding Securities by such Holder or Holders. The
only Persons who shall be entitled to attend any meeting of Holders of
Securities shall be the Persons entitled to vote at such meeting and their
counsel, any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
SECTION 1004. QUORUM; ACTION.
The Persons entitled to vote a majority of the Outstanding
Securities shall constitute a quorum for a meeting of Holders of the Securities;
provided, however, that if any action is to be taken at such meeting which this
Agreement expressly provides may be taken by the Holders of a specified
percentage, which is less than a majority, of the Outstanding Securities, the
Persons entitled to vote such specified percentage of the Outstanding Securities
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shall constitute a quorum. In the absence of a quorum within one hour of the
time appointed for any such meeting, the meeting shall, if convened at the
request of Holders of Securities, be dissolved. In any other case the meeting
may be adjourned for such period as may be determined by the chairman of the
meeting prior to the adjournment of such meeting. In the absence of a quorum at
any such adjourned meeting, such adjourned meeting may be further adjourned for
such period as may be determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting. Except as provided by Section 1005(e),
notice of the reconvening of any meeting adjourned for more than 30 days shall
be given as provided in Section 1002(a) not less than ten days prior to the date
on which the meeting is scheduled to be reconvened. Notice of the reconvening of
an adjourned meeting shall state expressly the percentage, as provided above, of
the number of the Outstanding Securities which shall constitute a quorum.
Except as limited by Section 902, any resolution presented to
a meeting or adjourned meeting duly reconvened at which a quorum is present as
aforesaid may be adopted only by the affirmative vote of the Holders of a
majority of the Outstanding Securities; provided, however, that, except as so
limited, any resolution with respect to any action which this Agreement
expressly provides may be taken by the Holders of a specified percentage, which
is less than a majority, of the Outstanding Securities may be adopted at a
meeting or an adjourned meeting duly reconvened and at which a quorum is present
as aforesaid by the affirmative vote of the Holders of such specified percentage
of the Outstanding Securities.
Any resolution passed or decision taken at any meeting of
Holders of the Securities duly held in accordance with this Section shall be
binding on all the Holders of the Securities, whether or not present or
represented at the meeting.
SECTION 1005. ATTENDANCE AT MEETINGS; DETERMINATION OF VOTING RIGHTS;
CONDUCT AND ADJOURNMENT OF MEETINGS.
(a) Attendance at meetings of Holders of Securities may
be in person or by proxy; and, to the extent permitted by law, any such
proxy shall remain in effect and be binding upon any future Holder of
the Securities with respect to which it was given unless and until
specifically revoked by the Holder or future Holder of such Securities
before being voted.
(b) Notwithstanding any other provisions of this
Agreement, the Trustee may make such reasonable regulations as it may
deem advisable for any meeting of Holders of Securities in regard to
proof of the holding of such Securities and of the appointment of
proxies and in regard to the appointment and duties of inspectors of
votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning
the conduct of the meeting as it shall deem appropriate. Except as
otherwise permitted or required by any such regulations, the holding of
Securities shall be proved in the manner specified in Section 104 and
the appointment of any proxy shall be proved in the manner specified in
Section 104. Such regulations may provide that written instruments
appointing proxies, regular on their face, may be presumed valid and
genuine without the proof specified in Section 104 or other proof.
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(c) The Trustee shall, by an instrument in writing,
appoint a temporary chairman of the meeting, unless the meeting shall
have been called by the Company or by Holders as provided in Section
1002(b), in which case the Company or the Holders of Securities calling
the meeting, as the case may be, shall in like manner appoint a
temporary chairman. A permanent chairman and a permanent secretary of
the meeting shall be elected by vote of the Persons entitled to vote a
majority in aggregate number of the Outstanding Securities represented
at the meeting, considered as one class.
(d) At any meeting each Holder or proxy shall be entitled
to one vote for each Security held or represented by him; provided,
however, that no vote shall be cast or counted at any meeting in
respect of any Security challenged as not Outstanding and ruled by the
chairman of the meeting to be not Outstanding. The chairman of the
meeting shall have no right to vote, except as a Holder of a Security
or proxy.
(e) Any meeting duly called pursuant to Section 1002 at
which a quorum is present may be adjourned from time to time by Persons
entitled to vote a majority of the Outstanding Securities represented
at the meeting, considered as one class; and the meeting may be held as
so adjourned without further notice.
SECTION 1006. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of
Holders shall be by written ballots on which shall be subscribed the signatures
of the Holders or of their representatives by proxy and the aggregate number and
serial numbers of the Outstanding Securities with respect to which the meeting
shall have been called, held or represented by them. The permanent chairman of
the meeting shall appoint two inspectors of votes who shall count all votes cast
at the meeting for or against any resolution and who shall make and file with
the secretary of the meeting their verified written reports of all votes cast at
the meeting. A record of the proceedings of each meeting of Holders shall be
prepared by the secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more persons having knowledge of the
facts setting forth a copy of the notice of the meeting and showing that said
notice was given as provided in Section 1002 and, if applicable, Section 1004.
Each copy shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one such copy shall be delivered to
the Company, and another to the Trustee to be preserved by the Trustee, the
latter to have attached thereto the ballots voted at the meeting. Any record so
signed and verified shall be conclusive evidence of the matters therein stated.
SECTION 1007. ACTION WITHOUT MEETING.
In lieu of a vote of Holders at a meeting as hereinbefore
contemplated in this Article, any request, demand, authorization, direction,
notice, consent, waiver or other action may be made, given or taken by Holders
by written instruments as provided in Section 104.
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ARTICLE XI
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 1101. LIABILITY SOLELY CORPORATE.
No recourse shall be had for the payment of any amount payable
on any Securities, or any part thereof, or for any claim based thereon or
otherwise in respect thereof, or of the indebtedness represented thereby, or
upon any obligation, covenant or agreement under this Agreement, against any
incorporator, stockholder, officer or director, as such, past, present or future
of the Company or of any predecessor or successor Person (either directly or
through the Company or a predecessor or successor Person), whether by virtue of
any constitutional provision, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise; it being expressly agreed and understood
that this Agreement and all the Securities are solely corporate obligations, and
that no personal liability whatsoever shall attach to, or be incurred by, any
incorporator, stockholder, officer or director, past, present or future, of the
Company or of any predecessor or successor Person, either directly or indirectly
through the Company or any predecessor or successor Person, because of the
obligations hereby authorized or under or by reason of any of the obligations,
covenants or agreements contained in this Agreement or in any of the Securities
or to be implied herefrom or therefrom, and that any such personal liability is
hereby expressly waived and released as a condition of, and as part of the
consideration for, the execution of this Agreement and the issuance of the
Securities.
ARTICLE XII
SUBORDINATION OF SECURITIES
SECTION 1201. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS.
The Company, for itself, its successors and assigns, covenants
and agrees, and each Holder of the Securities by its acceptance thereof,
likewise covenants and agrees, that the payment of all amounts payable on the
Securities is hereby expressly subordinated, to the extent and in the manner set
forth in this Article, in right of payment to the prior payment in full of all
Senior Indebtedness.
Each Holder of the Securities, by its acceptance thereof,
authorizes and directs the Trustee on its behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article, and appoints the Trustee its attorney-in-fact for any and all such
purposes.
Without limiting the generality of the foregoing, nothing
contained in this Article shall restrict the right of the Trustee or the Holders
of Securities to take any action to pursue any rights or remedies hereunder;
provided, however, that all Senior Indebtedness then due and payable shall first
be paid in full before the Holders of the Securities or the Trustee are entitled
to
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receive any direct or indirect payment from the Company of any amounts payable
on the Securities.
SECTION 1202. PAYMENT OVER OF PROCEEDS OF SECURITIES.
In the event (a) of any insolvency or bankruptcy proceedings
or any receivership, liquidation, reorganization or other similar proceedings in
respect of the Company or a substantial part of its property, or of any
proceedings for liquidation, dissolution or other winding up of the Company,
whether or not involving insolvency or bankruptcy, whether voluntary or
involuntary or (b) subject to the provisions of Section 1203, that (i) a default
shall have occurred with respect to the payment of principal of or interest on
or other monetary amounts due and payable on any Senior Indebtedness, or (ii)
there shall have occurred a default (other than a default in the payment of
principal or interest or other monetary amounts due and payable) in respect of
any Senior Indebtedness, as defined therein or in the instrument under which the
same is outstanding, permitting the holder or holders thereof to accelerate the
maturity thereof (with notice or lapse of time, or both), and such default shall
have continued beyond the period of grace, if any, in respect thereof, and, in
the cases of subclauses (i) and (ii) of this clause (b), such default shall not
have been cured or waived or shall not have ceased to exist, then:
(1) the holders of all Senior Indebtedness shall
first be entitled to receive payment of the full amount due
thereon, or provision shall be made for such payment in money
or money's worth, before the Holders of any of the Securities
are entitled to receive a payment on account of the
Securities;
(2) any payment by, or distribution of assets
of, the Company of any kind or character, whether in cash,
property or securities, to which any Holder or the Trustee
would be entitled except for the provisions of this Article,
shall be paid or delivered by the person making such payment
or distribution, whether a trustee in bankruptcy, a receiver
or liquidating trustee or otherwise, directly to the holders
of such Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably according to
the aggregate amounts remaining unpaid on account of such
Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full of all Senior Indebtedness
remaining unpaid after giving effect to any concurrent payment
or distribution (or provision therefor) to the holders of such
Senior Indebtedness, before any payment or distribution is
made to the Holder of the Securities or to the Trustee under
this Agreement; and
(3) in the event that, notwithstanding the
foregoing, following receipt by the Trustee of notice pursuant
to Section 1208 of any fact that would prohibit the making of
any payment to or by the Trustee pursuant to the provisions of
this Article, any payment by, or distribution of assets of,
the Company of any kind or character, whether in cash,
property or securities, in respect of any amount payable on
the Securities or in connection with any repurchase by the
Company of
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the Securities, shall be received by the Trustee or any Holder
before all Senior Indebtedness is paid in full, or provision
is made for such payment in money or money's worth, such
payment or distribution in respect of any amount payable on
the Securities or in connection with any repurchase by the
Company of the Securities shall be paid over to the holders of
such Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any such
Senior Indebtedness may have been issued, ratably as
aforesaid, for application to the payment of all Senior
Indebtedness remaining unpaid until all such Senior
Indebtedness shall have been paid in full, after giving effect
to any concurrent payment or distribution (or provision
therefor) to the holders of such Senior Indebtedness. Without
limitation, the Contingency Funds will be considered payment
received by the Trustee for purposes of this paragraph.
For purposes of this Article only, the words "cash, property
or securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan or reorganization or readjustment which are subordinate
in right of payment to all Senior Indebtedness which may at the time be
outstanding to the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article. The consolidation of the
Company with, or the merger of the Company into, another Person or the
liquidation or dissolution of the Company following the conveyance or transfer
of its property as an entirety, or substantially as an entirety, to another
Person upon the terms and conditions provided for in Article Eight hereof shall
not be deemed a dissolution, winding-up, liquidation or reorganization for the
purposes of this Section 1202 if such other Person shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions stated
in Article Eight hereof. Nothing in Section 1201 or in this Section 1202 shall
apply to claims of, or payments to, the Trustee under or pursuant to Section
607.
SECTION 1203. DISPUTES WITH HOLDERS OF CERTAIN SENIOR INDEBTEDNESS.
Any failure by the Company to make any payment on or perform
any other obligation in respect of Senior Indebtedness, other than any
indebtedness incurred by the Company or assumed or guaranteed, directly or
indirectly, by the Company for money borrowed (or any deferral, renewal,
extension or refunding thereof) or any other obligation as to which the
provisions of this Section shall have been waived by the Company in the
instrument or instruments by which the Company incurred, assumed, guaranteed or
otherwise created such indebtedness or obligation, shall not be deemed a default
under clause (b) of Section 1202 if (i) the Company shall be disputing its
obligation to make such payment or perform such obligation and (ii) either (A)
no final judgment relating to such dispute shall have been issued against the
Company which is in full force and effect and is not subject to further review,
including a judgment that has become final by reason of the expiration of the
time within which a party may seek further appeal or review, or (B) in the event
that a judgment that is subject to further review or appeal has been issued, the
Company shall in good faith be prosecuting an appeal or other
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proceeding for review and a stay or execution shall have been obtained pending
such appeal or review.
SECTION 1204. SUBROGATION.
Senior Indebtedness shall not be deemed to have been paid in
full unless the holders thereof shall have received cash (or securities or other
property satisfactory to such holders) in full payment of such Senior
Indebtedness then outstanding. Upon the payment in full of all Senior
Indebtedness, the Holders of the Securities shall be subrogated to the rights of
the holders of Senior Indebtedness to receive any further payments or
distributions of cash, property or securities of the Company applicable to the
holders of the Senior Indebtedness until all amounts payable on the Securities
shall be paid in full; and such payments or distributions of cash, property or
securities received by the Holders of the Securities, by reason of such
subrogation, which otherwise would be paid or distributed to the holders of such
Senior Indebtedness shall, as between the Company, its creditors other than the
holders of Senior Indebtedness, and the Holders, be deemed to be a payment by
the Company to or on account of Senior Indebtedness, it being understood that
the provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Holders, on the one hand, and the holders of
the Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders of the
Securities would otherwise have been entitled but for the provisions of this
Article shall have been applied, pursuant to the provisions of this Article, to
the payment of all amounts payable under Senior Indebtedness, then and in such
case, the Holders of the Securities shall be entitled to receive from the
holders of such Senior Indebtedness any payments or distributions received by
such holders of Senior Indebtedness in excess of the amount required to make
payment in full, or provision for payment, of such Senior Indebtedness.
SECTION 1205. OBLIGATION OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Article or elsewhere in this
Agreement or in the Securities is intended to or shall impair, as among the
Company, its creditors other than the holders of Senior Indebtedness and the
Holders, the obligation of the Company, which is absolute and unconditional, to
pay to the Holders amounts payable on the Securities as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the Holders and creditors of the Company
other than the holders of Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Agreement, subject to the
rights, if any, under this Article of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
Upon any payment or distribution of assets or securities of
the Company referred to in this Article, the Trustee and the Holders shall be
entitled to rely upon any order or decree of a court of competent jurisdiction
in which such bankruptcy, dissolution, winding up, liquidation or reorganization
proceedings are pending or upon a certificate of the receiver, trustee in
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bankruptcy, liquidating trustee agent or other person making such payment or
distribution delivered to the Trustee or to the Holders for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other indebtedness of the Company, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon, and all other facts pertinent thereto or to this Article.
SECTION 1206. PRIORITY OF SENIOR INDEBTEDNESS UPON MATURITY.
Upon the maturity of the principal of any Senior Indebtedness
by lapse of time, acceleration or otherwise, all matured principal of Senior
Indebtedness and interest and premium, if any, thereon shall first be paid in
full before any payment is made upon the Securities or before any Securities can
be acquired by the Company.
SECTION 1207. TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS.
The Trustee shall be entitled to all rights set forth in this
Article with respect to any Senior Indebtedness at any time held by it, to the
same extent as any other holder of Senior Indebtedness. Nothing in this Article
shall deprive the Trustee of any of its rights as such holder.
SECTION 1208. NOTICE TO TRUSTEE TO EFFECTUATE SUBORDINATION.
The Company shall give prompt written notice to the Trustee of
any fact known to the Company that would prohibit the making of any payment to
or by the Trustee in respect of the Securities pursuant to the provisions of
this Article. Notwithstanding the provisions of this Article or any other
provision of the Agreement, the Trustee shall not be charged with knowledge of
the existence of any facts which would prohibit the making of any payment of
moneys to or by the Trustee unless and until the Trustee shall have received
written notice thereof from the Company, from a Holder or from a holder of any
Senior Indebtedness or from any representative or representatives of such holder
and, prior to the receipt of any such written notice, the Trustee shall be
entitled, subject to Section 601, in all respects to assume that no such facts
exist.
SECTION 1209. MODIFICATION, EXTENSION, ETC. OF SENIOR INDEBTEDNESS.
The holders of Senior Indebtedness may, without affecting in
any manner the subordination of the payment of the amounts payable on the
Securities, at any time or from time to time and in their absolute discretion,
agree with the Company to change the manner, place or terms of payment, change
or extend the time of payment of, or renew or alter, any Senior Indebtedness, or
amend or supplement any instrument pursuant to which any Senior Indebtedness is
issued, or exercise or refrain from exercising any other of their rights under
the Senior Indebtedness including, without limitation, the waiver of default
thereunder, all without notice to or assent from the Holders or the Trustee.
SECTION 1210. TRUSTEE HAS NO FIDUCIARY DUTY TO HOLDERS OF SENIOR
INDEBTEDNESS.
With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
objectives as are specifically set forth in this
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Article, and no implied covenants or obligations with respect to the holders of
Senior Indebtedness shall be read into this Agreement against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness, and shall not be liable to any such holders if it shall mistakenly
pay over or deliver to the Holders or the Company or any other Person, cash,
property or securities to which any holders of Senior Indebtedness shall be
entitled by virtue of this Article or otherwise.
SECTION 1211. PAYING AGENTS OTHER THAN THE TRUSTEE.
In case at any time any Paying Agent other than the Trustee or
the Company shall have been appointed by the Company and be then acting
hereunder, the term "Trustee" as used in this Article shall in such case (unless
the context shall otherwise require) be construed as extending to and including
such Paying Agent within its meaning as fully for all intents and purposes as if
such Paying Agent were named in this Article in addition to or in place of the
Trustee; provided, however, that Sections 1207, 1208 and 1210 shall not apply to
the Company if it acts as Paying Agent.
SECTION 1212. RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS NOT IMPAIRED.
No right of any present or future holder of Senior
Indebtedness to enforce the subordination herein shall at any time or in any way
be prejudiced or impaired by any act or failure to act on the part of the
Company or by any noncompliance by the Company with the terms, provisions and
covenants of this Agreement, regardless of any knowledge thereof any such holder
may have or be otherwise charged with.
SECTION 1213. THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on the Securities by reason of
any provision of this Article shall not be construed as preventing the
occurrence of an Event of Default specified in paragraph (a) of Section 501.
SECTION 1214. EFFECT OF SUBORDINATION PROVISIONS; TERMINATION.
Notwithstanding anything contained herein to the contrary,
other than as provided in the immediately succeeding sentence, all the
provisions of this Agreement shall be subject to the provisions of this Article,
so far as the same may be applicable thereto.
Notwithstanding anything contained herein to the contrary, the
provisions of this Article Twelve shall be of no further effect, and the
Securities shall no longer be subordinated in right of payment to the prior
payment of Senior Indebtedness, if the Company shall have delivered to the
Trustee a notice to such effect. Any such notice delivered by the Company shall
not be deemed to be an amendment for purposes of Article Nine.
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ARTICLE XIII
MAINTENANCE OF CONTINGENCY FUNDS
SECTION 1301. PAYMENTS TO TRUSTEE.
The Company will make periodic payments to the Trustee to be
held as Contingency Funds at the times and in the amounts specified in the
Securities. Contingency Funds will be held by the Trustee to support the
obligations of the Company to make payments to the Holders as specified in the
Securities, except as provided in Section 1303.
SECTION 1302. MAINTENANCE OF ACCOUNTS.
The Trustee will maintain separate records and accounting with
respect to the contingency funds for each Operation Year and for each Tax Year
after 2007. The account for each Operation Year will include payments made to
the Trustee related to such Operation Year pursuant to Section 1301, plus
earnings on amounts held with respect to such Operation Year, less all Allocable
Expenses, and, if applicable, plus or minus, as appropriate, all Excess Cash
Flow Estimate Adjustments, Excess Carryforward Credit Estimate Adjustments,
Final Excess Cash Flow Deposit Adjustments, Final Excess Carryforward Credit
Deposit Adjustments, and Final Excess Disposition Proceeds Deposit Adjustments.
Allocable Expenses directly related to an Operation Year or Tax Year shall be
deducted from the account for such year, and other Allocable Expenses shall be
deducted PRO RATA from the accounts maintained for all years.
SECTION 1303. INVESTMENT AND APPLICATION OF CONTINGENCY FUNDS.
All Contingency Funds held by the Trustee will be invested in
Government Obligations selected by the Trustee. The Company will advise the
Trustee as to the anticipated dates for the payments to be made on the
Securities and the Trustee will, to the extent practicable, cause the
Contingency Funds to be invested in Government Obligations maturing or
redeemable at the option of the holder on or prior to the anticipated dates for
payments identified by the Company. In investing the Contingency Funds, the
Trustee may make any and all investments through its own bond or securities
department or any affiliate providing investment services. The Contingency Funds
will be applied by the Trustee, as directed by the Company, either (a) to the
Holders in satisfaction of the Company's obligations to make payments to the
Holders of the Securities, (b) to the payment of Allocable Expenses or
reimbursement of the Company therefor, (c) to the Company in satisfaction of
amounts owed to the Company under the terms of the Securities because of Excess
Cash Flow Estimate Adjustments, Excess Carryforward Credit Estimate Adjustments,
Final Excess Cash Flow Deposit Adjustments, Final Excess Carryforward Credit
Deposit Adjustments, and Final Excess Disposition Proceeds Deposit Adjustments,
or (d) to the Company as reimbursement for amounts paid by the Company directly
to the Holders in satisfaction of the Company's obligations to make payments to
the Holders of the Securities, if there were corresponding deposits made by the
Company with the Trustee with respect to such obligations.
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SECTION 1304. OFFICER'S CERTIFICATES RELATING TO CONTINGENCY FUNDS; TAX
REPORTING.
The Company shall deliver Officer's Certificates and
Accountants' Certificates to the Trustee at such times and in such forms as are
called for in the Securities, including without limitation by March 15th
following each Operation Year, within 20 Business Days after the Tax Filing Date
for each Operation Year, within 30 Business Days after the Interim Determination
Date for each Operation Year, within 20 Business Days after the Final
Determination Date for each Operation Year, by March 15th following each Tax
Year after 2007, within 20 Business Days after the Tax Filing Date for a Tax
Year after 2007, within 30 Business Days after the Interim Determination Date
for a Tax Year after 2007, within 20 Business Days after the Final Determination
Date for a Tax Year after 2007, as soon as practicable after the receipt of any
Disposition Proceeds in cash by the Company and within 20 Business Days after
the termination of all indemnity obligations with respect to a particular
Disposition. In addition, the Company shall deliver to the Trustee an Officer's
Certificate and an Accountants' Certificate not less than 5 Business Days prior
to any Payment Date specified in the Officer's Certificate, which Officer's
Certificate shall certify as to each component of the amount or amounts to be
paid to the Company or to the Holders of the Securities on the corresponding
Payment Date (other than any information which is exclusively within the
possession of the Trustee).
Notwithstanding any other provision of this Agreement or the
Securities to the contrary, the Trustee is not required to take notice of the
occurrence or existence of any condition or event which, under the terms of this
Agreement or the Securities, gives rise to any required deposit of Contingency
Funds by the Company or submission of information by the Company or to the
establishment of a Payment Date, unless and until the submission of an Officer's
Certificate by the Company identifying such condition or event and certifying to
all relevant aspects thereof.
The Company shall be fully responsible for ensuring compliance
with any requirements for the calculation, withholding or reporting of foreign,
federal, state or local taxes relative to this Agreement and the Securities. The
Trustee shall not be responsible for the calculation, withholding or reporting
of any foreign, federal, state or local taxes attributable to this Agreement and
the Securities or attributable to any payments to Holders of Securities or any
actual or imputed income or earnings for purposes of any foreign, federal, state
or local taxes.
SECTION 1305. OFFICER'S CERTIFICATE RELATING TO SATISFACTION OF PAYMENT
OBLIGATIONS.
Within 30 Business Days after the satisfaction of all of the
Company's payment obligations to the Holders under the Securities, the Company
shall deliver to the Trustee an Officer's Certificate certifying (i) that the
Company has satisfied its payment obligations to the Holders under the
Securities and this Agreement, and (ii) that the Company is in compliance with
all covenants and conditions under the Securities and this Agreement.
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This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
CP&L ENERGY, INC.
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
THE CHASE MANHATTAN BANK, Trustee
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
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APPENDIX A - FORM OF CERTIFICATE
[depository legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (55 WATER STREET, NEW YORK, NEW
YORK) ("DTC"), TO CP&L ENERGY, INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
[FORM OF FACE OF CVO CERTIFICATE]
REGISTERED REGISTERED
CP&L ENERGY, INC.
No. __________ Certificate for _________ Contingent Value Obligations
This certifies that __________________, or registered assigns
(the "Holder"), is the registered holder of the number of Contingent Value
Obligations ("CVOs") set forth above. Each CVO entitles the Holder, subject to
the provisions contained herein and in the Agreement referred to on the reverse
hereof, to payments from CP&L Energy, Inc., a North Carolina corporation (the
"Company"), in an amount and in the form determined pursuant to the provisions
set forth on the reverse hereof and as more fully described in the Agreement
referred to on the reverse hereof. Such payment shall be made on each Payment
Date as defined on the reverse hereof.
Payment of any amounts pursuant to this CVO Certificate shall
be made only to the registered Holder (as defined in the Agreement) of this CVO
Certificate. Payment of any amount on this CVO Certificate shall be made at one
or more offices or agencies maintained by the Company for such purpose from time
to time, in such currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts;
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PROVIDED, HOWEVER, that at the option of the Company, payment may be made by
check or wire transfer payable in such money. ______________________________ has
been initially appointed as Paying Agent at its office or agency in
__________________, _________________.
Reference is hereby made to the further provisions of this CVO
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this CVO Certificate shall not be entitled to any benefit under the Agreement,
or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
(SEAL) CP&L ENERGY, INC.
By
-------------------------------------------
Attest:
- -------------------------------
Name:
Title:
Dated:
-------------------------
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[FORM OF REVERSE OF CVO CERTIFICATE]
This CVO Certificate is one of a duly authorized issue of
securities of the Company (herein called the "CVOs") issued under and in
accordance with the Contingent Value Obligation Agreement, dated as of
_________, 2000 (herein called the "Agreement," which shall have the meaning
assigned to it in such instrument), between the Company and The Chase Manhattan
Bank, a banking corporation organized under the laws of the State of New York,
as trustee (the "Trustee," which term includes any successor trustee under the
Agreement), and is subject to the terms and provisions contained in the
Agreement, to all of which terms and provisions the Holder of this CVO
Certificate consents by acceptance hereof. The Agreement is hereby incorporated
herein by reference and made a part hereof. Reference is hereby made to the
Agreement for a full statement of the respective rights, limitations of rights,
duties, obligations and immunities thereunder of the Company, the Trustee and
the holders of the CVOs. All capitalized terms used in this CVO Certificate
without definition shall have the respective meanings ascribed to them in the
Agreement. Copies of the Agreement can be obtained by contacting the Trustee.
The payment obligations evidenced by this CVO Certificate are, to the
extent provided in the Agreement, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness, and this CVO Certificate
is issued subject to the provisions of the Agreement with respect thereto. Each
Holder of this CVO Certificate, by accepting the same, (a) agrees to and shall
be bound by such provisions, (b) authorizes and directs the Trustee on its
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination so provided and (c) appoints the Trustee its
attorney-in-fact for any and all such purposes. Each Holder hereof, by its
acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Agreement by each holder of
Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such Holder upon said provisions.
I. DEPOSITS WITH THE TRUSTEE
A. EXCESS CASH FLOW DEPOSITS.
1. ESTIMATE. On March 15th following each Operation Year
(each, an "Excess Cash Flow Estimate Deposit Date"), the Company shall deliver
to the Trustee (i) an Officer's Certificate identifying the Excess Cash Flow
Estimate for such Operation Year, (ii) an Accountants' Certificate, and (iii) an
amount equal to the Excess Cash Flow Estimate for such Operation Year.
2. ESTIMATE ADJUSTMENT. Within 20 Business Days after
the Tax Filing Date for an Operation Year, the Company shall deliver to the
Trustee (i) an Officer's Certificate identifying the revised Excess Cash Flow
Estimate for the applicable Operation Year and the amount of any Excess Cash
Flow Estimate Adjustment to be made for such Operation Year, (ii)
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an Accountants' Certificate, and (iii) an amount equal to the Excess Cash Flow
Estimate Adjustment (if positive), together with any earnings with respect
thereto (calculated at the average yield on the portion of the Contingency Funds
allocable to such Operation Year)from the Excess Cash Flow Estimate Deposit Date
to the date of such delivery. Within 20 Business Days after receipt of such
Officer's Certificate, the Excess Cash Flow Estimate Adjustment (if negative),
together with any earnings with respect thereto from the Excess Cash Flow
Estimate Deposit Date to the applicable Payment Date, shall be paid by the
Trustee to the Company from the Contingency Funds, if any, held by the Trustee
allocable to such Operation Year.
3. FINAL DEPOSIT ADJUSTMENT. Within 20 Business Days
after the Final Determination Date for an Operation Year, the Company shall
deliver to the Trustee (i) an Officer's Certificate identifying the Final Excess
Cash Flow Deposit Adjustment for the applicable Operation Year, (ii) an
Accountants' Certificate, and (iii) an amount equal to the Final Excess Cash
Flow Deposit Adjustment (if positive), together with any earnings with respect
thereto (calculated at the average yield on the portion of the Contingency Funds
allocable to such Operation Year) from the Excess Cash Flow Estimate Deposit
Date to the date of such delivery. Within 20 Business Days after receipt of such
Officer's Certificate, the Final Excess Cash Flow Deposit Adjustment (if
negative), together with any earnings with respect thereto from the Excess Cash
Flow Estimate Deposit Date to the applicable Payment Date, shall be paid by the
Trustee to the Company from the Contingency Funds, if any, held by the Trustee
allocable to such Operation Year; provided, however, that if such Final Excess
Cash Flow Deposit Adjustment (plus earnings) is more than the remaining
Contingency Funds allocable to such Operation Year, the deficiency shall be paid
to the Company from remaining Contingency Funds, if any, allocable to one or
more other Tax Years, and the amounts potentially payable to CVO Holders with
respect to such other Tax Year or Years shall be reduced by the amount of such
deficiency. For purposes of the preceding sentence, the deficiency shall be paid
to the Company from the Contingency Funds allocable to the earliest Tax Year or
Years for which Contingency Funds remain.
B. EXCESS CARRYFORWARD CREDITS DEPOSITS.
1. ESTIMATE. On March 15th following each Tax Year after
2007 (each, an "Excess Carryforward Credits Estimate Deposit Date"), the Company
shall deliver to the Trustee (i) an Officer's Certificate identifying the Excess
Carryforward Credits Estimate for such Tax Year, (ii) an Accountants'
Certificate, and (iii) an amount equal to the Excess Carryforward Credits
Estimate for such Tax Year.
2. ESTIMATE ADJUSTMENT. Within 20 Business Days after
the Tax Filing Date for a Tax Year after 2007, the Company shall deliver to the
Trustee (i) an Officer's Certificate identifying the revised Excess Carryforward
Credits Estimate for the applicable Tax Year and the amount of any Excess
Carryforward Credits Estimate Adjustment to be made for such Tax Year, (ii) an
Accountants' Certificate, and (iii) an amount equal to the Excess Carryforward
Credits Estimate Adjustment (if positive), together with any earnings with
respect thereto (calculated at the average yield on the portion of the
Contingency Funds allocable to such Tax Year) from the Excess Carryforward
Credits Estimate Deposit Date to the date of such delivery. Within 20
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Business Days after receipt of such Officer's Certificate, the Excess
Carryforward Credits Estimate Adjustment (if negative), together with any
earnings with respect thereto from the Excess Carryforward Credits Estimate
Deposit Date to the applicable Payment Date, shall be paid by the Trustee to the
Company from the Contingency Funds, if any, held by the Trustee allocable to
such Tax Year.
3. FINAL DEPOSIT ADJUSTMENT. Within 20 Business Days
after the Final Determination Date for a Tax Year after 2007, the Company shall
deliver to the Trustee (i) an Officer's Certificate identifying the Final Excess
Carryforward Credits Deposit Adjustment for the applicable Tax Year, (ii) an
Accountants' Certificate, and (iii) an amount equal to the Final Excess
Carryforward Credits Deposit Adjustment (if positive), together with any
earnings with respect thereto (calculated at the average yield on the portion of
the Contingency Funds allocable to such Tax Year) from the Excess Carryforward
Credits Estimate Deposit Date to the date of such delivery. Within 20 Business
Days after receipt of such Officer's Certificate, the Final Excess Carryforward
Credits Deposit Adjustment (if negative), together with any earnings with
respect thereto from the Excess Carryforward Credits Estimate Deposit Date to
the applicable Payment Date, shall be paid by the Trustee to the Company from
the Contingency Funds, if any, held by the Trustee allocable to such Tax Year;
provided, however, that if such Final Excess Carryforward Credits Deposit
Adjustment (plus earnings) is more than the remaining Contingency Funds
allocable to such Tax Year, the deficiency shall be paid to the Company from
remaining Contingency Funds, if any, allocable to one or more other Tax Years,
and the amounts potentially payable to CVO Holders with respect to such other
Tax Year or Years shall be reduced by the amount of such deficiency. For
purposes of the preceding sentence, the deficiency shall be paid to the Company
from the Contingency Funds allocable to the earliest Tax Year or Years for which
Contingency Funds remain.
C. EXCESS DISPOSITION PROCEEDS.
1. ESTIMATE DEPOSIT. As soon as practicable after the
receipt of Disposition Proceeds in cash by the Company (each, an "Excess
Disposition Proceeds Deposit Date"), the Company shall deliver to the Trustee
(i) an Officer's Certificate identifying (a) the Excess Disposition Proceeds
attributable to such cash Disposition Proceeds, (b) the Maximum Indemnity
Obligation Amount with respect to such Disposition, and (c) the Company's good
faith estimate of the time frame during which any indemnity obligation with
respect to such Disposition is expected to remain outstanding, (ii) an
Accountants' Certificate, and (iii) an amount equal to any Excess Disposition
Proceeds attributable to such cash Disposition Proceeds.
2. FINAL DEPOSIT ADJUSTMENT. Within 20 Business Days
after the termination (by payment or expiration) of all indemnity obligations
with respect to a particular Disposition, the Company shall deliver to the
Trustee (i) an Officer's Certificate identifying the amount of any Final Excess
Disposition Proceeds Deposit Adjustment with respect to such Disposition (if
applicable), and (ii) an Accountants' Certificate. Within 20 Business Days after
receipt of such Officer's Certificate, the Final Excess Disposition Proceeds
Deposit Adjustment (if applicable), together with any earnings with respect
thereto from the Excess Disposition Proceeds Deposit Date to the applicable
Payment Date, shall be paid by the Trustee to the Company from the
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Contingency Funds, if any, held by the Trustee allocable to such Disposition;
provided, however, that if such Final Excess Disposition Proceeds Deposit
Adjustment (plus earnings) is more than the remaining Contingency Funds, if any,
allocable to such Disposition, the deficiency shall be paid to the Company from
remaining Contingency Funds allocable to one or more Tax Years or other
Dispositions, and the amounts potentially payable to CVO Holders with respect to
such Tax Year or Years or other Dispositions shall be reduced by the amount of
such deficiency. For purposes of the preceding sentence, the deficiency shall be
paid to the Company from the Contingency Funds allocable to the earliest Tax
Year or Years or other Dispositions for which Contingency Funds remain.
II. PAYMENTS TO HOLDERS
The Company shall pay, or by Officer's Certificate (delivered
with an Accountants' Certificate) direct the Trustee to pay from Contingency
Funds, to the Holder hereof of record on the date that is 15 Business Days prior
to the applicable Payment Date, the following:
A. EXCESS CASH FLOW PAYMENTS.
1. INTERIM PAYMENT. With respect to each Operation Year
for which an Interim Determination Date occurs prior to the Final Determination
Date, within 30 Business Days after the Interim Determination Date for such
Operation Year, for each CVO represented hereby, a pro rata portion of the
Interim Excess Cash Flow Payment with respect to such Operation Year, together
with any earnings with respect thereto from the Excess Cash Flow Estimate
Deposit Date to the applicable Payment Date, and less any Allocable Expenses
allocable to such Operation Year;
2. ADJUSTMENT TO INTERIM PAYMENT . With respect to each
Operation Year for which an Interim Determination Date occurs prior to the Final
Determination Date, within 30 Business Days after the Final Determination Date
for such Operation Year, for each CVO represented hereby, a pro rata portion of
the Excess Cash Flow Payment Adjustment (if positive) with respect to such
Operation Year, together with any earnings with respect thereto from the Excess
Cash Flow Estimate Deposit Date to the applicable Payment Date, less any
Allocable Expenses allocable to such Operation Year and not taken into account
pursuant to the preceding paragraph (II)(A)(1);
3. FINAL PAYMENT. With respect to each Operation Year
for which no Interim Determination Date occurs prior to the Final Determination
Date, within 30 Business Days after the Final Determination Date for such
Operation Year, for each CVO represented hereby, a pro rata portion of the
actual Excess Cash Flow for such Operation Year, determined as of the Final
Determination Date, together with any earnings with respect thereto from the
Excess Cash Flow Estimate Deposit Date to the applicable Payment Date, and less
any Allocable Expenses allocable to such Operation Year;
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B. EXCESS CARRYFORWARD CREDITS PAYMENTS.
1. INTERIM PAYMENT. With respect to each Tax Year after
2007 for which an Interim Determination Date occurs prior to the Final
Determination Date, within 30 Business Days after the Interim Determination Date
for such Tax Year, for each CVO represented hereby, a pro rata portion of the
Interim Excess Carryforward Credits Payment for such Tax Year, together with any
earnings with respect thereto from the Excess Carryforward Credits Estimate
Deposit Date to the applicable Payment Date, and less any Allocable Expenses
allocable to such Tax Year;
2. ADJUSTMENT TO INTERIM PAYMENT . With respect to each
Tax Year after 2007 for which an Interim Determination Date occurs prior to the
Final Determination Date, within 30 Business Days after the Final Determination
Date for such Tax Year, for each CVO represented hereby, a pro rata portion of
the Excess Carryforward Credits Payment Adjustment (if positive) for such Tax
Year, together with any earnings with respect thereto from the Excess
Carryforward Credits Estimate Deposit Date to the applicable Payment Date, less
any Allocable Expenses allocable to such Tax Year and not taken into account
pursuant to the preceding paragraph (II)(B)(1);
3. FINAL PAYMENT. With respect to each Tax Year after
2007 for which no Interim Determination Date occurs prior to the Final
Determination Date, within 30 Business Days after the Final Determination Date
for such Tax Year, for each CVO represented hereby, a pro rata portion of the
actual Excess Carryforward Credits for such Tax Year, determined as of the Final
Determination Date, together with any earnings with respect thereto from the
Excess Carryforward Credits Estimate Deposit Date to the applicable Payment
Date, and less any Allocable Expenses allocable to such Tax Year;
C. EXCESS DISPOSITION PROCEEDS.
1. INTERIM PAYMENT. With respect to each Disposition, as
soon as practicable after the receipt of Excess Disposition Proceeds by the
Trustee, for each CVO represented hereby, a pro rata portion of the Interim
Excess Disposition Proceeds Payment with respect to such Disposition; and
2. ADJUSTMENT TO INTERIM PAYMENT. With respect to each
Disposition, (A) within 30 Business Days after the termination of all indemnity
obligations with respect to such Disposition, for each CVO represented hereby, a
pro rata portion of the Excess Disposition Proceeds Payment Adjustment (if
positive) with respect to such Disposition, together with any earnings with
respect thereto from the Excess Disposition Proceeds Estimate Deposit Date to
the applicable Payment Date, and (B) for any Tax Year following the termination
of the indemnity obligations and in which the Company receives any Disposition
Proceeds with respect to such Disposition, as soon as practicable following the
receipt by the Trustee of any Excess Disposition Proceeds attributable to such
Disposition Proceeds, for each CVO represented hereby, a pro rata portion of
such Excess Disposition Proceeds.
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D. OTHER PAYMENT PROVISIONS
The Company may deduct (or by Officer's Certificate direct the
Trustee to deduct) from the payments to be made to Holders under this
Certificate a PRO RATA share of Allocable Expenses to be reimbursed to the
Company.
Notwithstanding the foregoing, the amounts of payments to the
Holders under this CVO Certificate with respect to a Tax Year or a Disposition
may be reduced in the event of a deficiency with respect to another Tax Year or
another Disposition, as described above in Article I ("Deposits with the
Trustee").
If the payment date for a payment by the Company falls on a
day that is not a Business Day, the related payment will be made on the next
succeeding Business Day as if it were made on the date such payment was due, and
no interest will accrue on the amounts so payable for the period from and after
such date to the next succeeding Business Day.
Notwithstanding the provisions of Article II ("Payments to
Holders"), if any payment otherwise due to be made to the Holders by the Company
(including amounts previously deferred pursuant to this provision) is, in the
aggregate, less than one million dollars, then the amount of such payment will
be retained as Contingency Funds and combined (together with earnings on such
amount) with the next payment made to the Holders; provided, however, that this
provision shall not be applicable to payments for any Tax Year or any
Disposition which the Company reasonably believes will be the final Tax Year or
Disposition with respect to which payments will be made to the Holders. If a
payment is deferred pursuant to the preceding sentence and the Company
subsequently concludes that no further payments are reasonably likely to be made
to the Holders, then the Company shall pay (or direct the Trustee to pay from
Contingency Funds) the amount of the deferred payment (together with earnings
thereon from the date which the payment would have been made to the applicable
Payment Date) to the Holders as soon as practicable thereafter.
III. OTHER PROVISIONS
No reference herein to the Agreement and no provision of this
CVO Certificate or of the Agreement shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay any amounts determined
pursuant to the terms hereof and of the Agreement at the times, place and
amount, and in the manner, herein prescribed. The Holder of this CVO
Certificate, by acceptance hereof, agrees that, except as otherwise expressly
provided in the Agreement, the EARTHCO Plants will be held and operated in
accordance with the Company's determination, in its sole discretion of the
appropriate extent and manner of ownership and operation of the EARTHCO Plants,
including any reduction or termination of operations at one or more EARTHCO
Plants and the Disposition of either any or all interests in the EARTHCO Plants
or any or all interests in any EARTHCO Business Entity. The Holder of this CVO
Certificate also agrees that, except as otherwise expressly provided in the
Agreement, the Company shall have complete and full control and sole discretion
with respect to (i) the reporting
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of any item on its United States federal and state income tax returns or the
United States federal and state income tax returns of any partnership or other
entity that owns (or is treated for United States federal income tax purposes as
owning) an EARTHCO Plant or any interest therein, and (ii) the conduct or
contest of any tax audit or proceeding with respect thereto. Neither the
Trustee, the Holder of this CVO Certificate or any other party shall have any
right to participate in any such proceeding.
The Holder of this CVO Certificate, by acceptance hereof,
agrees that, except as otherwise expressly provided in the Agreement, neither
the Holder nor the Trustee has the right to "accelerate" the amounts payable on
the CVOs or to otherwise require payment of the Contingency Funds except on the
dates and in the amounts specified in this CVO Certificate. The Holder of this
CVO Certificate also agrees that the CVOs and the obligations of the Company
under the CVOs and the Agreement are general, unsecured obligations of the
Company and are not secured by any express or implied mortgage, lien, charge,
assignment or other encumbrance of or against the assets of the Company or any
EARTHCO Business Entities, including without limitation any of the EARTHCO
Plants.
The Company and, by its acceptance of this CVO Certificate,
the Holder of this CVO Certificate agree that this CVO Certificate is intended
to constitute a deferred payment obligation to which Section 483 of the Internal
Revenue Code (relating to unstated interest) applies and is not intended to
constitute an equity interest of any kind for United States federal, state, and
local tax purposes.
The Company and, by its acceptance of this CVO Certificate,
the Holder of this CVO Certificate also agree that the CVOs shall not bear
interest, except for amounts bearing interest at the Default Interest Rate.
The Company and, by its acceptance of this CVO Certificate,
the Holder of this CVO Certificate also agree that neither the Company nor the
Holder has the option to cause any CVO to be redeemed prior to the final payment
to be made on the CVOs.
The headings in this CVO Certificate are for convenience only
and shall not affect the construction hereof.
Any reference to any provision of law or tax form in this CVO
Certificate shall be deemed to include any corresponding successor provision
thereto or version thereof.
Neither the Company nor the Trustee has any duty or obligation
to the Holder of this CVO Certificate, except as expressly set forth herein or
in the Agreement.
IV. CERTAIN DEFINITIONS
"Accountants" means the Company's independent public
accountants.
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"Accountants' Certificate" means a certificate of the
Accountants in the form attached as Appendix C to the Agreement.
"Allocable Expenses" means all fees and expenses of the
Trustee, expenses of maintaining, investing and administering the Contingency
Funds, costs reasonably incurred by the Company in establishing and
administering the Securities, costs of transferring interests in the Securities
and other typical transfer agent functions, and that portion of any of the
Company's tax administration, audit or controversy expenses reasonably allocable
to the CVOs (including, within limitation, expenses relating to the
determination of any tax item associated with EARTHCO Plants).
"Carryforward Credits" means any Section 29 Credits earned
during an Operation Year and carried forward (after taking into account the
assumptions with respect to the priority of use of tax credits in the definition
of Net Cash Flow) as part of the Company's minimum tax credit (within the
meaning of Section 53 of the Internal Revenue Code) and utilized in one or more
Tax Years after 2007.
"Contingency Funds" means all payments made by the Company to
the Trustee and held by the Trustee, plus earnings on amounts held, and less
Allocable Expenses.
"Default Interest Rate" means the three month London Interbank
Offered Rate, as published in the Wall Street Journal, as such rate may change
from time to time, plus 300 basis points.
"Disposition" means any sale or other transfer during an
Operation Year to a Person outside the Company's consolidated United States
federal income tax group of an interest in an EARTHCO Business Entity or EARTHCO
Plant that would result in a loss or reduction of any Section 29 Credits
available to the Company.
"Disposition Proceeds" means proceeds received by the Company
with respect to a Disposition less (A) the Company's unrecovered Initial
Investment (or a PRO RATA portion in the event of a partial Disposition), (B)
expenses incurred in connection with such Disposition, and (C) taxes on such
Disposition, assuming for this purpose that the taxable gain shall be as
reported on the Company's IRS Form 1120 and taxed at a combined federal and
state income tax rate of 40%. For purposes of clause (A), the Company shall be
deemed to have recovered its Initial Investment with respect to the interest
that is the subject of such Disposition (i) to the extent it shall have been
recovered from previous Disposition Proceeds with respect to such Disposition,
and (ii) to the extent there shall have been cumulative Excess Cash Flow
attributable to the relevant EARTHCO Business Entity for previous Operation
Years (other than that in which such Disposition occurs). For purposes of the
previous sentence, the Excess Cash Flow that shall be attributable, for each
previous Operation Year, to the relevant EARTHCO Business Entity or EARTHCO
Plant that is the subject of the Disposition shall be determined by multiplying
the Excess Cash Flow for that Operation Year by a fraction, whose numerator
shall be the weighted average annual Company ownership interest (whether direct
or indirect) in the EARTHCO Plant and whose denominator shall be the sum of the
weighted average annual Company ownership interest (whether direct or indirect)
in all EARTHCO Plants. If such Disposition relates to less
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than a 100% interest in the relevant EARTHCO Plant, the recovery of the Initial
Investment will only be the cumulative Excess Cash Flow during all previous
Operation Years attributable to the fractional interest that is the subject of
the Disposition. For example, for each Operation Year before any Disposition has
occurred, 100/400, or 25%, of Excess Cash Flow will be allocated to each EARTHCO
Plant; for each Operation Year after there has been no Disposition except a
Disposition of a 50% interest in one EARTHCO Plant, 100/350 of Excess Cash Flow
will be allocated to each 100%-owned EARTHCO Plant and 50/350 of Excess Cash
Flow will be allocated to the one 50%-owned EARTHCO Plant; and so forth.
"EARTHCO Business Entity" means any corporation, partnership,
limited liability company, or other entity owning (for United States federal
income tax purposes) an interest in an EARTHCO Plant, including, on the date
hereof, Ceredo Synfuel, LLC, Sandy River Synfuel, LLC, Solid Energy, LLC, and
Solid Fuel, LLC.
"EARTHCO Plants" means the following:
(i) the secondary coal recovery system facility owned by
Solid Energy LLC and currently located at Kentucky May Coal
Company, Inc.'s Arnolds Fork Preparation Plant near Kite,
Kentucky;
(ii) the secondary coal recovery system facility owned by
Solid Fuel LLC and currently located at Powell Mountain Coal
Company, Inc.'s Preparation Plant near St. Charles, Virginia;
(iii) the secondary coal recovery system facility owned by
Ceredo Synfuel LLC and currently located at Kanawha River
Terminal, Inc.'s Ceredo Dock in Ceredo, West Virginia; and
(iv) the secondary coal recovery system facility owned by
Sandy River Synfuel LLC and currently located at Kanawha River
Terminal, Inc.'s Ceredo Dock in Ceredo, West Virginia.
"Excess Carryforward Credits" means the amount equal to 50% of
the excess of (A) the Carryforward Credits, for a particular Operation Year,
over (B) any amount by which the Preference exceeded Net Cash Flow for the
Operation Year in which they were earned.
"Excess Carryforward Credits Estimate" means for each Tax Year
after 2007, the Excess Carryforward Credits originally estimated by the Company
on March 15th following such Tax Year and revised within 20 Business Days after
the Tax Filing Date for such Tax Year.
"Excess Carryforward Credits Estimate Adjustment" means the
difference between (A) the revised Excess Carryforward Credits Estimate for a
particular Tax Year, determined as of the Tax Filing Date for such Tax Year, and
(B) the original Excess Carryforward Credits Estimate for such Tax Year,
determined as of March 15th following such Tax Year.
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"Excess Carryforward Credits Payment Adjustment" means the
difference between (A) the actual Excess Carryforward Credits for a particular
Tax Year, determined as of the Final Determination Date, and (B) the Interim
Excess Carryforward Credits Payment for such Tax Year.
"Excess Cash Flow" means, for each Operation Year, 50% of the
Net Cash Flow in excess of the Preference.
"Excess Cash Flow Estimate" means for each Operation Year the
Excess Cash Flow originally estimated by the Company on March 15th following
such Operation Year and revised within 20 Business Days after the Tax Filing
Date for such Operation Year.
"Excess Cash Flow Estimate Adjustment" means the difference
between (A) the revised Excess Cash Flow Estimate for a particular Operation
Year, determined as of the Tax Filing Date for such Operation Year, and (B) the
original Excess Cash Flow Estimate for such Operation Year, determined as of
March 15th following such Tax Year.
"Excess Cash Flow Payment Adjustment" means the difference
between (A) the actual Excess Cash Flow for a particular Operation Year,
determined as of the Final Determination Date, and (B) the Interim Excess Cash
Flow Payment for such Operation Year.
"Excess Disposition Proceeds" means the amount equal to
either, (A) in the event of a Disposition prior to March 16, 2002, 25% of the
Disposition Proceeds for such Disposition or (B) in the event of a Disposition
after March 15, 2002, the Ratio multiplied by the Disposition Proceeds for such
Disposition.
"Excess Disposition Proceeds Payment Adjustment" means the
difference between (A the remaining Contingency Funds allocable to a particular
Disposition, and (B) the total Final Excess Disposition Proceeds Deposit
Adjustment paid to the Company for such Disposition.
"Final Determination Date" means for each Tax Year, the later
of (A) the date when the statute of limitations for a Tax Year under both
sections 6501 and, if applicable, 6229 of the Internal Revenue Code and in the
case of an examination by any state taxing authority, the statute of limitations
under the applicable state law, has expired or (B) in the event any taxing
authority has proposed any adjustment for a Tax Year, the date when there has
occurred with respect to all such proposed adjustments by all such taxing
authorities for such Tax Year, (i) a decision, judgment, decree, or other order
of a court of competent jurisdiction that has become final and not subject to
further appeal (through the passage of time or otherwise); (ii) a nonappealable
written agreement with the applicable taxing authority; or (iii) the completion
of administrative proceedings with the applicable taxing authority, if a
judicial contest is not, or ceases to be, available or, in the taxpayer's sole
discretion, is not to be commenced or continued.
"Final Excess Carryforward Credits Deposit Adjustment" means
the difference between (A) the actual Excess Carryforward Credits for a
particular Tax Year, determined as of
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the Final Determination Date, and (B) the Excess Carryforward Credits Estimate
for such Tax Year.
"Final Excess Cash Flow Deposit Adjustment" means the
difference between (A) the actual Excess Cash Flow for a particular Operation
Year, determined as of the Final Determination Date, and (B) the Excess Cash
Flow Estimate for such Operation Year.
"Final Excess Disposition Proceeds Deposit Adjustment" means
either (A) in the event of a Disposition prior to March 16, 2002, 25% of the
Indemnity Obligation Amount for such Disposition or (B) in the event of a
Disposition after March 15, 2002, the Ratio multiplied by the Indemnity
Obligation Amount for such Disposition.
"Indemnity Obligation Amount" means the total actual indemnity
obligation incurred by the Company or any subsidiary with respect to any
Disposition plus all out-of-pocket expenses incurred in connection with any
indemnity claim relating to such Disposition.
"Initial Investment" means the cost to acquire an EARTHCO
Plant or EARTHCO Business Entity plus any costs to move and reassemble an
EARTHCO Plant at a new location, all as reflected on the books of the Company or
its subsidiaries (including the applicable EARTHCO Business Entity), without any
deduction for depreciation or amortization.
"Interim Determination Date" means, with respect to a Tax
Year, the date when all the following facts are true: (1) the Examination
Division of the IRS has completed its examination of, and issued its final
written report relating to, the Company's consolidated United States federal
income tax return for that Tax Year; (2) no adjustment is then proposed and
remains unresolved with respect to any item relating to an EARTHCO Plant for
that Tax Year; (3) there then exists no examination or other proceeding with
respect to the United States federal income tax return for such Tax Year or any
prior Tax Year of any EARTHCO Business Entity; and (4) there are remaining
Contingency Funds deposited with respect to one or more subsequent Tax Years for
which neither an Interim Determination Date nor a Final Determination Date has
occurred.
"Interim Excess Carryforward Credits Payment " means for each
Tax Year after 2007, the lesser of (A) the Excess Carryforward Credits Estimate
for such Tax Year previously deposited into the Contingency Funds, or (B) the
Excess Carryforward Credits for such Tax Year, determined as of the Interim
Determination Date, and based upon the proposed redetermination of the Company's
consolidated tax liability and taxable income as shown on the IRS examination
report for such Tax Year.
"Interim Excess Cash Flow Payment " means for each Operation
Year, the lesser of (A) the Excess Cash Flow Estimate for such Operation Year
previously deposited into the Contingency Funds, or (B) the Excess Cash Flow for
such Operation Year, determined as of the Interim Determination Date, and based
upon the proposed redetermination of the Company's consolidated tax liability
and taxable income as shown on the IRS examination report for such Operation
Year.
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"Interim Excess Disposition Proceeds Payment" means the amount
equal to the excess of (A) the amount deposited by the Company pursuant to
paragraph (I)(C)(1) hereof with respect to a Disposition, over (B) 25% of the
Maximum Indemnity Obligation Amount, in the case of a Disposition prior to March
16, 2002, or the Ratio multiplied by the Maximum Indemnity Obligation Amount, in
the case of a Disposition after March 15, 2002. For any Disposition for which
the Company is to receive one or more additional payments of Disposition
Proceeds, the preceding sentence shall be applied by replacing "Maximum
Indemnity Obligation Amount" with a PRO RATA portion thereof based upon the
ratio of the amount so deposited to the total Excess Disposition Proceeds
received and to be received for such Disposition.
"Internal Revenue Code" means the United States Internal
Revenue Code of 1986, as amended.
"IRS" means the United States Internal Revenue Service.
"Maximum Indemnity Obligation Amount" means either (A) the
total maximum indemnity obligation that could be incurred by the Company or any
subsidiary with respect to any Disposition, as set forth in the agreement
providing for indemnity with respect to such Disposition, or (B) if no such
maximum is set forth in any agreement, the Company's good faith estimate of the
total maximum indemnity obligation that could be incurred by the Company or any
subsidiary with respect to such Disposition; provided that, in the case of an
indemnity obligation concerning an environmental matter, the Company shall take
into consideration (in forming its good faith estimate) the written evaluation
of an independent third party.
"Net Cash Flow" means the Company's share of each EARTHCO
Business Entity's income or loss adjusted for depreciation and other non-cash
items, plus (A) income tax benefits, less income taxes incurred and (B) income
tax credits realized. The Company's share of each EARTHCO Business Entity's
partnership income or loss shall be determined from IRS Schedule K-1, of Form
1065, received in connection with each partnership's tax filing. Such amount
shall be adjusted to a cash basis by adjusting for depreciation and other
non-cash items creating such income or loss. Income tax benefits will be
determined for the Operation Year under consideration by multiplying (i) the
Company's statutory United States federal income tax rate by any partnership
losses relating to an EARTHCO Plant reported on such Forms K-1 that the Company
realizes on its IRS Form 1120 and (ii) the Company's effective state income tax
rate (after taking into account the deduction of state income taxes for United
States federal income tax purposes) by any such partnership losses that the
Company or a subsidiary realizes on the applicable state income tax returns.
Income taxes incurred shall be determined for the Operation Year under
consideration by multiplying (i) the Company's statutory United States federal
income tax rate by any partnership income reported on such Forms K-1 that the
Company realizes on its IRS Form 1120 and (ii) the Company's effective state
income tax rate (after taking into account the deduction of state income taxes
for United States federal income tax purposes) by any such partnership income
that the Company or a subsidiary realizes on the applicable state income tax
returns. The income tax credits realized will be determined by the Company's
share of Section 29 Credits on such Forms K-1 and any unused Section 29 Credits,
related to the Earthco Plants, carried forward (as part of the Company's minimum
tax credit) from
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<PAGE>
previous Operation Years, that reduce total tax on the Company's Form 1120 for
the current Operation Year. For purposes of the calculation of Net Cash Flow, in
any Operation Year for which the Company generates carryforwards of tax credits
of equal priority with the Section 29 Credits under the Internal Revenue Code or
Treasury Regulation ordering rules because of limitations on their use, the
Section 29 Credits will be deemed to be the first such credits used in such
Operation Year. Additionally, Section 29 Credits will be deemed utilized in the
order in which they were earned.
"Operation Year" means each Tax Year from 2001 through and
including 2007.
"Payment Date" means the date specified in the applicable
Officer's Certificate as a date on which the Trustee or the Company is to make a
payment to the Holders or the Trustee is to make a payment to the Company.
"Preference" means $80 million for each Operation Year,
subject to the following adjustments:
(a) In the event of a Disposition of 100% of an EARTHCO
Plant or EARTHCO Business Entity, the Preference will be reduced by the
following amounts (and for the year of the Disposition, by a PRO RATA
portion based on the portion of the year remaining after the
Disposition):
<TABLE>
<CAPTION>
EARTHCO Business Entity or Dollar Amount
EARTHCO Plant Owned By -------------
- ---------------------------
<S> <C>
Solid Energy, LLC $15.8 million
Solid Fuel, LLC $15.8 million
Ceredo Synfuel, LLC $27.6 million
Sandy River Synfuel, LLC $20.8 million
</TABLE>
; and
(b) In the event of a Disposition of less than 100% of an
EARTHCO Plant or EARTHCO Business Entity, the Preference will be
reduced by PRO RATA portions of the above amounts, based on the
percentage sold and, for the year of the Disposition, the portion of
the year remaining after the Disposition.
"Ratio" means the ratio of Excess Cash Flow to Net Cash Flow
for prior Operation Years, determined on a cumulative basis, assuming for this
purpose that in each prior Operation Year the Company's share of (i) the
aggregate net income (as computed for United States federal income tax purposes)
of the EARTHCO Business Entities is taxed at a combined federal and state income
tax rate of 40%, (ii) the aggregate net loss (as computed for United States
federal income tax purposes) of the EARTHCO Business Entities produces a
combined federal and state income tax benefit equal to 40% of such loss, and
(iii) Section 29 Credits are utilized in full in the Tax Year earned.
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<PAGE>
"Section 29 Credits" means any credit against the United
States federal income tax liability of the Company resulting from the production
and sale of "qualified fuels" from the EARTHCO Plants to an unrelated person as
provided for in Section 29 of the Internal Revenue Code.
"Tax Filing Date" means the date of the filing of the
Company's annual United States federal income tax return for the applicable Tax
Year.
"Tax Year" means a calendar year or any fiscal year that the
Company may adopt as its taxable year for United States federal income tax
purposes.
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<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the CVO Certificates referred to in the
within-mentioned Agreement.
Dated:
-----------------
, as Trustee
--------------------------
By
-------------------------------------
Name:
Title: Authorized Representative
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