<PAGE>
PRELIMINARY COPIES
SCHEDULE 14A INFORMATION
Proxy statement pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 1)
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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)
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Payment of Filing Fee (Check the appropriate box):
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<S> <C> <C>
/ / 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)
------------------------------------------------------------
(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
------------------------------------------------------------
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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
meetings of shareholders relating to the transactions set forth in the
Amended and Restated Agreement and Plan of Exchange, dated August 22, 1999
as amended and restated March 3, 2000.
<PAGE>
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<S> <C>
[CP&L ENERGY LOGO] [FLORIDA PROGRESS LOGO]
PROXY STATEMENT/PROSPECTUS PROXY STATEMENT
</TABLE>
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. Florida Progress shareholders will also be
asked to elect three Florida Progress directors. Whether or not you plan to
attend your 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 meetings. The dates, times and places of the meetings are:
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For CP&L Energy shareholders: For Florida Progress shareholders:
, 2000 at a.m. , 2000 at a.m.
</TABLE>
Information about the share exchange and the other items to be voted on at
the 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 .
<TABLE>
<S> <C>
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
</TABLE>
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 SHAREHOLDER 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:
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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
</TABLE>
<PAGE>
[FLORIDA PROGRESS LOGO]
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
FLORIDA PROGRESS CORPORATION
, 2000
To the Common Shareholders:
You are cordially invited to attend the annual 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; to elect three directors to
serve for a three year term; and to transact any other business which may
properly come before the Florida Progress annual 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 annual meeting and any adjournment thereof. A
complete list of shareholders entitled to vote at the annual 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 annual 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
ANNUAL 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 annual 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>
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 ANNUAL 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
DESCRIPTION OF THE CONTINGENT VALUE OBLIGATIONS
ELECTION OF DIRECTORS
WHERE YOU CAN FIND MORE INFORMATION
ANNEXES
<PAGE>
TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE SHARE EXCHANGE.............. 1
SUMMARY..................................................... 3
The Companies............................................. 3
The Share Exchange........................................ 4
Organizational Structure.................................. 4
What You Will Receive in the Share Exchange............... 5
How the Share Exchange will Affect Stock Dividends........ 8
The Florida Progress Annual Meeting....................... 8
The CP&L Energy Special Meeting........................... 9
Our Recommendations to Shareholders....................... 9
Opinion of the Financial Advisor to Florida Progress...... 9
Opinion of the Financial Advisor to CP&L Energy........... 10
Regulatory Approvals...................................... 10
Conditions to the Share Exchange.......................... 10
Termination of the Exchange Agreement..................... 11
Termination Fee........................................... 11
Important Federal Income Tax Consequences................. 12
Accounting Treatment...................................... 12
Conflicts of Interest..................................... 12
Comparison of Shareholder Rights.......................... 13
Where You Can Find More Information....................... 13
MARKET PRICES AND DIVIDENDS PAID............................ 14
SELECTED HISTORICAL FINANCIAL INFORMATION................... 15
CP&L Energy, Inc. and Carolina Power & Light Company...... 15
Florida Progress Corporation.............................. 16
COMPARATIVE PER SHARE INFORMATION........................... 17
UNAUDITED SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION................................................. 19
RISK FACTORS RELATING TO THE SHARE EXCHANGE................. 20
Transaction Risks......................................... 20
Operational Risks......................................... 22
Holding Company Structure................................. 23
RISK FACTORS ASSOCIATED WITH THE EARTHCO PLANTS AND
CONTINGENT VALUE OBLIGATIONS................................ 23
No Public Market for the Contingent Value Obligations..... 23
Tax Risks................................................. 23
Subordination............................................. 25
A CAUTION ABOUT FORWARD-LOOKING STATEMENTS.................. 26
THE FLORIDA PROGRESS ANNUAL MEETING......................... 28
Date and Purpose of the Annual Meeting.................... 28
Record Date for the Annual Meeting and Who is Entitled to
Vote at the Annual Meeting.............................. 28
Voting by Proxy and How to Revoke Your Proxy.............. 29
Solicitation of Proxies................................... 30
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(i)
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THE CP&L ENERGY SPECIAL MEETING............................. 30
Date and Purpose of the Special Meeting................... 30
Record Date for the Special Meeting and Who is Entitled to
Vote at the Special Meeting............................. 30
Voting by Proxy and How to Revoke Your Proxy.............. 31
Solicitation of Proxies................................... 32
THE SHARE EXCHANGE.......................................... 33
General................................................... 33
What Florida Progress Shareholders Will Receive in the
Share Exchange.......................................... 33
Cash Payments for Fractional Shares of CP&L Energy Common
Stock................................................... 34
Illustrations of Exchange Ratio Application and Value to
be Received............................................. 34
The Contingent Value Obligations.......................... 36
Florida Progress "Walk-Away" Right........................ 38
Background and Negotiation of the Share Exchange.......... 38
Reasons of Florida Progress for Agreeing to the Share
Exchange with CP&L Energy............................... 44
Recommendation of the Florida Progress Board of
Directors............................................... 45
CP&L Energy and Carolina Power & Light Reasons for the
Share Exchange.......................................... 49
Recommendation of the CP&L Energy and Carolina Power &
Light Boards of Directors............................... 51
Opinion of the Financial Advisor to Florida Progress...... 52
Opinion of the Financial Advisor to Carolina Power &
Light................................................... 64
No Dissenters' Appraisal Rights........................... 72
Accounting for the Share Exchange under the Purchase
Method.................................................. 72
Restrictions on Resales by Florida Progress Affiliates.... 72
Material Federal Income Tax Consequences.................. 73
Procedures for Shareholder Elections...................... 75
Allocation Rules.......................................... 76
Conflicts of Interest..................................... 80
Employee Benefit Matters.................................. 84
Headquarters and Other Significant Operating Locations.... 85
Effective Time............................................ 85
Regulatory Approvals Required to Complete the Share
Exchange................................................ 85
Other Significant Conditions to the Share Exchange that
Must be Fulfilled or Waived............................. 89
Representations and Warranties............................ 90
Covenants of Each of Florida Progress, Carolina Power &
Light and CP&L Energy; Conduct of Business Before the
Effective Time.......................................... 91
Florida Progress May Not Solicit Alternative Proposals.... 93
Amendment and Waiver...................................... 94
Termination of the Exchange Agreement; Termination Fee.... 95
Florida Progress Shareholder Lawsuit Regarding the Share
Exchange................................................ 97
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION................................................. 98
ACQUISITION FINANCING....................................... 105
INFORMATION ABOUT FLORIDA PROGRESS.......................... 105
INFORMATION ABOUT CP&L ENERGY AND CAROLINA POWER & LIGHT.... 106
DESCRIPTION OF CP&L ENERGY CAPITAL STOCK.................... 107
CP&L Energy's Capitalization.............................. 108
CP&L Energy Preferred Stock............................... 108
CP&L Energy Common Stock.................................. 108
Transfer Agent and Registrar.............................. 109
COMPARATIVE RIGHTS OF FLORIDA PROGRESS SHAREHOLDERS AND CP&L
ENERGY SHAREHOLDERS......................................... 109
Authorized Capital........................................ 109
Shareholder Action Without a Meeting...................... 109
Shareholder Inspection Rights............................. 110
</TABLE>
(ii)
<PAGE>
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Required Shareholder Votes for Extraordinary
Transactions............................................ 110
Anti-Takeover Laws and Provisions......................... 111
Shareholder Rights Plans.................................. 113
Loans to Directors........................................ 114
Dissenters' Rights........................................ 114
Size, Classification and Terms of Board of Directors...... 115
Director and Officer Liability; Indemnification........... 116
Election of Directors..................................... 116
Removal of Directors...................................... 117
Dividend and Distribution Rights.......................... 117
Special Shareholder Meetings.............................. 118
Shareholder Proposal and Nomination Procedures............ 118
Amendment of Articles..................................... 118
Amendment of Bylaws....................................... 119
DESCRIPTION OF THE CONTINGENT VALUE OBLIGATIONS............. 121
Summary................................................... 121
Description of the Contingent Value Obligations........... 124
LEGAL MATTERS............................................... 143
EXPERTS..................................................... 143
ELECTION OF DIRECTORS....................................... 144
Information as to Nominees................................ 144
Information as to Continuing Directors.................... 145
Changes In Control........................................ 147
Legal Proceedings......................................... 147
Certain Relationships and Related Transactions............ 147
Compliance with Section 16(a) of the Exchange Act......... 148
Meetings of the Board of Directors and Standing
Committees.............................................. 148
Compensation of Directors................................. 149
EXECUTIVE COMPENSATION
Pension Plan Table........................................ 152
Employment Contracts, Termination of Employment and
Change-in-Control Arrangements.......................... 154
Report of the Compensation Committee of the Board of
Directors............................................... 155
Company Performance....................................... 158
Relationship with Independent Accountants................. 158
OTHER MATTERS............................................... 159
Shareholder Proposals..................................... 159
WHERE YOU CAN FIND MORE INFORMATION......................... 159
WHAT INFORMATION YOU SHOULD RELY ON......................... 161
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>
(iii)
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE SHARE EXCHANGE
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 meeting. If you sign, date and mail your proxy card without
identifying how you want to vote, in the case of Florida Progress
shareholders, your proxy will be counted "FOR" the agreement and plan of
exchange and the election of the proposed Florida Progress directors, and,
in the case of CP&L Energy shareholders, your proxy will be counted "FOR"
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
appropriate 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 . Third, you can attend the
appropriate 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
1
<PAGE>
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
2
<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. On
May 3, 2000, Carolina Power & Light signed a letter of intent with Bain
Capital, Inc., a private equity fund, to form a new company. Under the
agreement, Carolina Power & Light and Bain will each invest $50 million of new
equity, in addition to an investment by Carolina Power & Light of the
Application Service Provider assets of Interpath. Upon completion of the
transaction, Carolina Power & Light will own 35% and Bain will own 65% of the
newly formed company. Closing of this transaction is expected to occur during
the second quarter of 2000. Carolina Power & Light will retain the fiber optic
network assets currently owned by Interpath as well as certain other assets of
Interpath. The fiber optic network assets will be part of a capacity sharing and
marketing agreement with Progress Telecom, a subsidiary of Florida Progress.
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
3
<PAGE>
Florida. In 1999, Florida Power accounted for 68% of Florida Progress'
consolidated revenues, 77% of its assets and 84% 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.
One aspect of Electric Fuels' energy and related services business segment
is the ownership and operation of synthetic fuel plants. Synthetic fuel is
produced by mixing coal feedstock with a complex petroleum hydrocarbon-based
binder and processing that mixture. This process significantly changes the
chemical composition of the coal and results in a solid synthetic fuel. This
fuel should qualify for alternative fuel tax credits in accordance with
section 29 of the U.S. Internal Revenue Code. In October 1999, Electric Fuels
purchased 100% interests in four synthetic fuel plants from EARTHCO, an
unrelated company. We refer to these four plants in this joint proxy
statement/prospectus as the EARTHCO plants. A 90% interest in one of the EARTHCO
plants has been sold by an Electric Fuels entity to Carolina Power & Light. See
"The Share Exchange--Background and Negotiation of the Share Exchange."
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.
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:
CURRENT HOLDING COMPANY STRUCTURE
[ORGANIZATIONAL CHART REFLECTING CORPORATE HOLDING COMPANY STRUCTURE]
POST-SHARE EXCHANGE STRUCTURE
[ORGANIZATIONAL CHART REFLECTING CORPORATE HOLDING COMPANY STRUCTURE AFTER THE
SHARE EXCHANGE]
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.
4
<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 the EARTHCO plants. In the aggregate,
holders of contingent value obligations will be entitled to payments equal to
50% of the net after-tax cash flow generated by the EARTHCO plants in excess of
$80 million per year for each of the years 2001 through 2007.
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. It is not possible to know precisely the value of the
contingent value obligations at this time, nor to predict the extent to which
any market for contingent value obligations may develop. It is possible that the
contingent value obligations may never have any significant value.
Except for payments made as a result of the sale of all or a portion of the
EARTHCO plants, payments on the contingent value obligations will not be made
until tax audit matters are resolved, which, based on our past tax audit
experience, means that we anticipate payments will not begin before 2007. In
addition, the contingent value obligations will be subordinate and junior in
right of payment to all CP&L Energy's senior indebtedness, and the contingent
value obligation agreement, under which the contingent value obligations will be
issued, does not limit the aggregate amount of senior indebtedness that CP&L
Energy may incur. 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 $ . .
5
<PAGE>
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. We have
included below a table showing examples of the exchange ratio and 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 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."
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, excluding any value
attributable to the contingent value obligations. However, because we estimate
that there will be a to month time period between the Florida
Progress annual meeting and the completion of the share
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<PAGE>
exchange, Florida Progress shareholders will not know the composition or the
actual value of the consideration they will receive or the number of shares to
be issued by CP&L Energy at the time they 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
$30.209, 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 first fiscal quarter of 2000, the period for which pro forma financial
information is included in this joint proxy statement/prospectus. THE FOLLOWING
TWO TABLES 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
SHARES OF
FLORIDA NUMBER OF CP&L
PROGRESS ENERGY SHARES
COMMON STOCK RECEIVED AS AMOUNT OF CASH
MAKING STOCK EXCHANGE STOCK CONSIDERATION
ELECTIONS RATIO CONSIDERATION RECEIVED
- --------------------- -------- -------------- --------------
<S> <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>
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
PROGRESS NUMBER OF
COMMON CP&L ENERGY
STOCK SHARES
MAKING RECEIVED AS AMOUNT OF CASH
CASH EXCHANGE STOCK CONSIDERATION
ELECTIONS RATIO CONSIDERATION RECEIVED
- --------------------- --------- ------------- ---------------
<S> <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.
7
<PAGE>
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 before 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 ANNUAL MEETING (PAGE )
At the annual 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, and to elect three Florida
Progress directors. 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. Directors are elected by a plurality of the votes cast.
You can vote at the annual meeting of Florida Progress shareholders if you
owned 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. Abstentions, broker
non-votes and failures to vote will not have any legal effect on the election of
Florida Progress directors.
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
8
<PAGE>
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,
and "FOR" the proposed Florida Progress directors.
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 exchange agreement.
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 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.
9
<PAGE>
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.
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; and
- the Florida Progress board of directors determines in good faith upon
advice of outside counsel that it is required to recommend the
10
<PAGE>
proposal to Florida Progress shareholders; and
- neither Carolina Power & Light nor CP&L Energy makes a new proposal
that the Florida Progress board of directors believes is at least as
favorable to Florida Progress shareholders.
- In evaluating such proposals the Florida Progress board of directors
must take 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
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
11
<PAGE>
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 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
12
<PAGE>
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 .
13
<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 shows 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
COMMON STOCK
-----------------------------------------------------------------------
PER SHARE
HIGH LOW DIVIDEND
---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
First Quarter..................... $ 45.750 $ 40.625 $ 0.485
Second Quarter.................... 45.500 39.500 0.485
Third Quarter..................... 46.625 39.938 0.485
Fourth Quarter.................... 49.063 45.063 0.500
YEAR ENDED DECEMBER 31, 1999
First Quarter..................... $ 47.875 $ 37.625 $ 0.500
Second Quarter.................... 45.000 36.625 0.500
Third Quarter..................... 43.250 34.125 0.500
Fourth Quarter.................... 36.813 29.250 0.515
YEAR ENDED DECEMBER 31, 2000
First Quarter..................... $ 37.000 $ 28.250 $ 0.515
Second Quarter (through May 10,
2000)........................... 38.000 31.875 0.515
<CAPTION>
FLORIDA PROGRESS
COMMON STOCK
-----------------------------------------------------------------------
PER SHARE
HIGH LOW DIVIDEND
---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
First Quarter..................... $ 42.250 $ 37.688 $ 0.535
Second Quarter.................... 42.875 39.000 0.535
Third Quarter..................... 43.938 38.063 0.535
Fourth Quarter.................... 47.125 41.000 0.535
YEAR ENDED DECEMBER 31, 1999
First Quarter..................... $ 44.750 $ 36.875 $ 0.545
Second Quarter.................... 43.250 35.875 0.545
Third Quarter..................... 48.000 39.563 0.545
Fourth Quarter.................... 46.938 41.188 0.545
YEAR ENDED DECEMBER 31, 2000
First Quarter..................... $ 46.500 $ 40.063 $ 0.555
Second Quarter (through May 10,
2000)........................... 50.563 45.313 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.
14
<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, 1995 through 1999 and from the unaudited
consolidated financial statements for the three months ended March 31, 1999 and
2000. Certain reclassifications have been made to pre-1999 operating revenues to
conform to Carolina Power & Light's post-1998 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) THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Operating revenues...................... $ 877.1 $ 762.9 $3,357.6 $3,191.6 $3,036.6 $2,999.3 $3,006.6
Net income.............................. 86.0 92.2 382.3 399.2 388.3 391.3 372.6
Earnings for common stock............... 85.3 91.5 379.3 396.3 382.3 381.7 363.0
RATIO OF EARNINGS TO FIXED CHARGES(1)..... 3.93 4.40 4.12 4.38 4.17 4.12 3.67
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS(1)...................... 3.85 4.30 4.03 4.28 3.98 3.83 3.43
PER SHARE DATA
Basic earnings per common share......... $ 0.56 $ 0.63 $ 2.56 $ 2.75 $ 2.66 $ 2.66 $ 2.48
Diluted earnings per common share....... $ 0.56 $ 0.63 $ 2.55 $ 2.75 $ 2.66 $ 2.66 $ 2.48
Dividends declared per common share..... $ 0.515 $ 0.500 $ 2.015 $ 1.955 $ 1.895 $ 1.835 $ 1.775
ASSETS (end of period).................... $9,379.7 $8,465.0 $9,494.0 $8,347.4 $8,176.7 $8,298.9 $8,159.7
CAPITALIZATION (end of period)
Common stock equity..................... $3,429.8 $2,980.8 $3,412.6 $2,949.3 $2,818.8 $2,690.5 $2,574.7
Preferred stock--redemption not required... 59.4 59.4 59.4 59.4 59.4 143.8 143.8
Long-term debt, net..................... 3,028.8 2,604.6 3,028.6 2,614.4 2,415.6 2,525.6 2,610.4
-------- -------- -------- -------- -------- -------- --------
Total capitalization.................. $6,518.0 $5,644.8 6,500.6 $5,623.1 $5,293.8 $5,359.9 $5,328.9
======== ======== ======== ======== ======== ======== ========
</TABLE>
- ------------------------
(1) Ratios for the periods ended March 31 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.
15
<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, 1995
through 1999 and from the unaudited consolidated financial statements for the
three months ended March 31, 1999 and 2000. 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) THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues............................. $ 950.1 $ 820.4 $3,845.1 $3,620.3 $3,316.4 $3,157.9 $3,007.8
Net income........................... 76.5 67.6 314.9 281.7 54.3 224.4 238.9
RATIO OF EARNINGS TO FIXED CHARGES(1)... 2.80 3.24 2.90 3.16 1.72 3.74 3.61
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS(1)......... 2.78 3.20 2.87 3.13 1.68 3.52 3.28
PER SHARE DATA
Basic and diluted earnings per average
common share....................... $ 0.78 $ 0.69 $ 3.21 $ 2.90 $ 0.56 $ 2.32 $ 2.50
Dividends declared per common share... $ 0.555 $ 0.545 $ 2.180 $ 2.14 $ 2.10 $ 2.06 $ 2.02
ASSETS (end of period)................. $6,516.5 $6,175.5 $6,528.2 $6,160.8 $5,760.0 $5,348.4 $5,550.4
CAPITALIZATION (end of period)
Common stock equity.................. $2,037.0 $1,897.3 $2,008.7 $1,862.0 $1,776.0 $1,924.2 $2,078.1
Cumulative preferred stock of Florida
Power.............................. 33.5 33.5 33.5 33.5 33.5 33.5 138.5
Company-obligated mandatorily redeemable
preferred securities............... 300.0 -- 300.0 -- -- -- --
Long-term debt....................... 2,170.7 2,300.4 2,154.1 2,250.4 2,377.8 1,776.9 1,662.3
-------- -------- -------- -------- -------- -------- --------
Total capital...................... $4,541.2 $4,231.2 $4,496.3 $4,145.9 $4,187.3 $3,734.6 $3,878.9
======== ======== ======== ======== ======== ======== ========
</TABLE>
- ------------------------
(1) Ratios for the periods ended March 31 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.
16
<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.
17
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE
CP&L Energy
Historical.............................................. $2.56 $ 0.56
Pro forma combined for the share exchange(1)............ 2.35 0.51
Florida Progress
Historical.............................................. 3.21 0.78
Pro forma equivalent for the share exchange(1).......... 3.42 0.74
DILUTED EARNINGS PER COMMON SHARE
CP&L Energy
Historical.............................................. $2.55 $ 0.56
Pro forma combined for the share exchange(1)............ 2.35 0.51
Florida Progress
Historical.............................................. 3.21 0.78
Pro forma equivalent for the share exchange(1).......... 3.42 0.74
CASH DIVIDENDS DECLARED PER COMMON SHARE
CP&L Energy
Historical.............................................. $2.015 $ 0.515
Pro forma combined for the share exchange(2)............ 2.015 0.515
Florida Progress
Historical.............................................. 2.18 0.555
Pro forma equivalent for the share exchange............. 2.93 0.75
BOOK VALUE PER COMMON SHARE(3)
CP&L Energy
Historical.............................................. $22.31 $22.38
Pro forma combined for the share exchange(1)............ 24.26 24.30
Florida Progress
Historical.............................................. 20.40 20.66
Pro forma equivalent for the share exchange(1).......... 35.28 35.35
</TABLE>
- ------------------------
(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.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
<S> <C> <C>
Exchange ratio.......................................... 1.1897 1.1897
------ ------
Combined basic and diluted earnings per share........... $ 2.46 $ 0.54
Equivalent basic and diluted earnings per share......... 2.93 0.64
Combined book value per share........................... 27.19 27.24
Equivalent book value per share......................... 32.34 32.40
</TABLE>
- ------------------------
(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.
18
<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, 1999 for income statement
purposes and on March 31, 2000 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 THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
<S> <C> <C>
INCOME STATEMENT DATA:
Operating revenues.................................... $7,207.7 $1,827.2
Net income............................................ 470.7 105.6
Earnings for common stock............................. 466.2 104.5
Per share data
Basic and diluted earnings per common share......... $ 2.35 $ 0.51
Dividends declared.................................. $ 2.015 $ 0.515
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------
<S> <C>
BALANCE SHEET DATA:
Total assets.............................................. $18,900.3
Common stock equity....................................... 4,945.1
Preferred stock--redemption not required.................. 92.9
Company-obligated mandatorily redeemable preferred
securities.............................................. 300.0
Long-term debt, net....................................... 8,660.8
</TABLE>
19
<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. We expect that Florida Progress shareholders will not
be able to make this election until to months after the Florida
Progress annual meeting. We will provide election forms to Florida Progress
shareholders at least 30 days and no more than 90 days before the anticipated
closing of the share exchange. Florida Progress shareholders may make their
elections from the time they receive their election forms up to two business
days prior to the closing date. 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 before 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.
As discussed above, there may be a significant time delay between the date
Florida Progress shareholders vote on the proposed share exchange at the Florida
Progress annual meeting and the date on which they make their election. There
may also be a delay of between three months to two business
20
<PAGE>
days between the date a Florida Progress shareholder makes this election and the
closing date. Because the average closing price of CP&L Energy common stock will
be calculated during the election period, Florida Progress shareholders will not
know the exchange ratio or the actual value of the consideration they will
receive at the time they vote and will not know the actual value of the
consideration they will receive at the time they make their election. During
these time periods, 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 before 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 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.
21
<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 35.99% common and preferred equity and approximately 64.01%
long-term debt and company 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.
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.
22
<PAGE>
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;
- 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 EARTHCO plants and the availability of federal tax credits
related to these EARTHCO plants. These synthetic fuel plants will produce and
sell to unrelated persons a 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 the 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
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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 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.
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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.
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. Because the contingent value obligations rank
behind CP&L Energy's senior indebtedness, CP&L Energy must make all payments
then due on its senior indebtedness before making any payments on the contingent
value obligations. 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. In addition, the contingent value
obligation agreement, under which the contingent value obligations will be
issued, does not limit the aggregate amount of senior indebtedness that CP&L
Energy may incur.
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;
- 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;
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- 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
- 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 March 31, 2000 and
the Annual Report on Form 10-K for the year ended December 31, 1999 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 March 31, 2000 and the Annual Report on Form 10-K for the year ended
December 31, 1999 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 ANNUAL MEETING
DATE AND PURPOSE OF THE ANNUAL MEETING
The Florida Progress annual 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, and to elect three
Florida Progress directors to serve for a three-year term.
RECORD DATE FOR THE ANNUAL MEETING AND WHO IS ENTITLED TO VOTE AT THE ANNUAL
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
annual 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 before 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 at the annual meeting.
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 each
matter that may properly come before the annual 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 annual meeting. If a quorum is
not present at the Florida Progress annual 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
annual meeting will be sufficient to approve the amended and restated agreement
and plan of exchange, including the related plan of share exchange. Florida
Progress directors will be elected by a plurality of the votes properly cast at
the annual meeting.
ABSTENTIONS, FAILURES TO VOTE, AND BROKER NON-VOTES. Florida Progress
intends to count shares of Florida Progress common stock present in person at
the annual 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 annual 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 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." Brokers who hold
Florida Progress common stock as nominees, however, will have discretionary
authority to vote those shares to elect the three proposed directors.
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 ANNUAL 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.
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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 annual
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, 1999. 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 annual meeting in person or you wish to have your shares voted by
proxy even if you do attend the annual 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 annual 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 annual 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.
All shares represented by effective proxies on the accompanying form of
Florida Progress proxy received by Florida Progress at or before the annual
meeting, and not revoked before they are exercised, will be voted at the annual
meeting in accordance with their terms. The Florida Progress annual meeting may
be adjourned or postponed, by declaration of its chairman or by vote of its
shareholders, for any proper purpose, including for the purpose of soliciting
additional proxies. If a proposal to postpone or adjourn the Florida Progress
annual meeting is submitted to a vote of the Florida Progress shareholders, no
proxy voted against the proposal to approve the share exchange will be voted on
any such adjournment or postponement proposal. 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, "FOR" election of the three proposed
directors and at the discretion of the proxy holders on any other matters that
properly come before the annual meeting, including any adjournment or
postponement of the meeting. The Florida Progress board of directors is not
aware of any other matters to be presented at the annual meeting other than
matters incidental to the conduct of the annual meeting.
Florida Progress does not expect to adjourn its annual 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.
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SOLICITATION OF PROXIES
Florida Progress will bear the entire cost of the solicitation of proxies
for its annual 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 annual
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.
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 CP&L 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
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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.
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, 1999. 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 (1) by delivering a written notice of revocation, (2) by filing with
CP&L Energy 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: 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.
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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 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
EXCHANGE AGREEMENT IS ATTACHED AS ANNEX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. WE URGE SHAREHOLDERS TO READ THE EXCHANGE AGREEMENT 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 exchange agreement 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 Florida Progress annual 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.
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
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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 the
EARTHCO plants. In the aggregate, holders of contingent value obligations will
be entitled to payments equal to 50% of the net after-tax cash flow generated by
the EARTHCO plants in excess of $80 million per year for each of the years 2001
through 2007.
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. It is not possible to know precisely the value of the
contingent value obligations at this time, nor to predict the extent to which
any market for contingent value obligations may develop. It is possible that the
contingent value obligations may never have any significant value. Except for
payments made as a result of the sale of all or a portion of the EARTHCO plants,
payments on the contingent value obligations will not be made until tax audit
matters are resolved, which, based on our past tax audit experience, means that
we anticipate payments will not begin before 2007. In addition, the contingent
value obligations will be subordinate and junior in right of payment to all CP&L
Energy's senior indebtedness, and the contingent value obligation agreement,
under which the contingent value obligations will be issued, does not limit the
aggregate amount of senior indebtedness that CP&L Energy may incur. 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.
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.
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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.
ILLUSTRATIONS OF EXCHANGE RATIO APPLICATION AND THE VALUE OF CASH
AND STOCK CONSIDERATION TO BE RECEIVED
<TABLE>
<CAPTION>
TOTAL VALUE OF
CASH AND STOCK
NUMBER OF WHOLE CASH CONSIDERATION TO
AVERAGE CP&L CP&L ENERGY $ VALUE OF PAYMENT CASH BE RECEIVED
ENERGY CLOSING EXCHANGE SHARES TO BE CP&L ENERGY FOR FRACTIONAL CONSIDERATION PER 100 FLORIDA
PRICE RATIO RECEIVED SHARES TO BE RECEIVED SHARE TO BE RECEIVED 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.
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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 the EARTHCO plants. For purposes of calculating payments to be made
with respect to the contingent value obligations, net after-tax cash flow, if
any, will include the taxable income or loss for the EARTHCO plants, adjusted
for depreciation and other non-cash items, plus income tax savings realized, and
minus income taxes incurred. The total amount of net after-tax cash flow for any
given year will depend upon the income tax savings realized and income taxes
incurred as finalized after completion of income tax audits of CP&L Energy and
its affiliates that own the EARTHCO plants.
Qualifying synthetic fuel plants entitle their owners to federal income tax
credits based on the barrel of oil equivalent of the fuel produced and sold by
the plants. Synthetic fuel is produced by mixing coal feedstock with a complex
petroleum hydrocarbon-based binder and processing that mixture. This process
significantly changes the chemical composition of the coal and results in a
solid synthetic fuel. The value of such credits will be adjusted each year for
inflation. For the last 10 years, the inflation adjustment factor has averaged
approximately 2.2% per year. In the aggregate, holders of contingent value
obligations will be entitled to payments equal to 50% of the net after-tax cash
flow generated by the EARTHCO plants in excess of $80 million per year for each
of the years 2001 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.
Under current law the tax credits are only available through 2007.
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
EARTHCO 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 stated 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 $30 million allocated to the
contingent value obligations for that particular year were distributed to the
holders of the contingent value obligations, a holder of 100 contingent value
obligations would be entitled to receive a payment in respect of such contingent
value obligations of approximately $30 for that year, assuming that 98,613,933
shares of Florida Progress common stock were outstanding at the closing of the
share exchange (which was the number of shares outstanding on March 31, 2000)
and thus 98,613,933 contingent value obligations were distributed. 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 and used by both
parties solely for purposes of structuring the contingent value obligations
relate to:
- tons of synthetic fuel produced and sold per EARTHCO plant per year
(assumed to be between 2 - 2.5 million tons);
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- tax credit per barrel of oil equivalent produced by the EARTHCO plants
(assumed to be $6.12, which was the amount determined 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 on costs and value of the credits (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 synthetic fuel.
Florida Progress management believes that the assumptions regarding
production, sales and operational matters for the EARTHCO plants reflect
reasonable projected results for these plants based on a combination of Florida
Progress' historical experience with the operation and sales results of other
already held synthetic fuel plants, and the capacity and projected level of
operation of the EARTHCO plants following their current start-up stage. In
addition, the assumptions made by Florida Progress management with respect to
CP&L Energy's tax base and combined income tax rate reflect Florida Progress
management's reasonable estimates based on their understanding of CP&L Energy's
operations and current tax base and tax rate. Florida Progress management
believes it used reasonable estimates for its general economic assumptions
regarding the tax credit amount, the effective investment earnings rate and the
rate of inflation.
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."
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. Pending payment, these funds will be held in a grantor trust by a
trustee, who will invest the funds in U.S. Treasury obligations. Payments will
include an amount equal to earnings on the portion of the contingency funds
equal to the amount payable to holders of contingent value obligations.
Allocable expenses associated with administering the contingent value
obligations will reduce the amount payable on the contingent value obligations.
Payments will be made with respect to tax years beyond 2007 only if CP&L Energy
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. The contingent value obligations will remain
outstanding until CP&L Energy resolves all tax audit matters and makes all
payments, if any, on the contingent value obligations for each of the tax years
2001 through 2007 and, if CP&L Energy does not use in 2001 through 2007 all of
the tax credits generated in those years, any tax years after 2007 in which CP&L
Energy carries over and uses some of the tax credits. Except for payments made
as a result of the sale of all or a portion of the EARTHCO plants, payments on
the contingent value obligations will not be made until tax audit matters are
resolved, which, based on our past tax audit experience, means that we
anticipate payments will not begin before 2007. It is possible that the
contingent value obligations may never have any significant value.
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<PAGE>
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 1998 through the purchase of a
majority interest in a limited liability company owning three synthetic fuel
plants, known as the Colona plants. During 1999, the Colona plants sold about
2 million tons of synthetic fuel. After beginning the year in a start-up mode,
the Colona plants sold 278,000 tons of synthetic fuel during the first quarter
of 1999; in the fourth quarter of 1999, the Colona plants 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.
In the event of a sale or other disposition of any interest in the EARTHCO
plants before December 31, 2007, a portion of the disposition proceeds may be
paid to the holders of contingent value obligations. For any disposition before
March 16, 2002, holders of the contingent value obligations will be entitled to
an amount equal to 25% of net after-tax disposition proceeds. For any
disposition after March 15, 2002, holders of the contingent value obligations
will be entitled to an amount equal to a percentage of net after-tax disposition
proceeds. That percentage will be the ratio of the net after-tax cash flow of
the EARTHCO plants potentially allocable to the contingent value obligations for
all prior years to the total net after-tax cash flow of the EARTHCO plants for
the prior years.
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."
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 before 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 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 exchange agreement by the Florida Progress
shareholders at the Florida Progress annual 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 exchange agreement 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,
38
<PAGE>
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
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 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,
economies of scale, operating efficiencies, the unique nature of the opportunity
and the potential for a successful transaction resulting in Carolina Power &
Light having access to a broader customer base in attractive geographic markets
and gaining expertise in the generation and delivery of energy in those markets.
Carolina Power & Light engaged in preliminary discussions with four other
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. Florida Progress and the four other potential
candidates with whom Carolina Power & Light engaged in preliminary discussions
ranked high when analyzed on Carolina Power & Light's assessment factors.
Carolina Power & Light management chose to pursue further discussions with
Florida Progress because Florida Progress offered critical mass in terms of
customers, generation capabilities and expansive, high growth service territory
which Carolina Power & Light management believed allowed for economies of scale,
operating efficiencies, and earnings contribution potential greater than the
other candidates.
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 &
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Light, Mr. Cavanaugh, Glenn Harder, then 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 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. In particular, the parties considered the pro
forma capital structure, including the relative
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percentages of equity and long-term debt, of the utilities and the holding
company after closing of the proposed transaction. 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 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
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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 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
EARTHCO 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, known as the EARTHCO 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 EARTHCO 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 EARTHCO plants at projected levels, the
qualification of the EARTHCO plants for tax credits, the marketability and sale
of the product, and CP&L Energy's ability to use the tax credits generated,
among others. Given these uncertainties, the parties agreed that some form of
contingent consideration
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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 EARTHCO 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 payments equal to 50% of the net after tax
cash flow, including tax benefits used by CP&L Energy, generated by the EARTHCO
plants in excess of $80 million per year for each of the years 2001 through
2007. The $80 million preference amount was agreed upon by the parties as a
result of the following negotiation process. Before execution of the agreement
and plan of exchange in August 1999, Carolina Power & Light believed that the
original exchange consideration included value for Electric Fuels' existing
synthetic fuels plants and additional synthetic fuels plants that it may
acquire. Carolina Power & Light proposed the $80 million annual preference
amount as a reasonable approximation of the annual net cash flow that the
EARTHCO plants were expected to produce if and when they were acquired by
Electric Fuels, based on its review of Florida Progress' August 1999 estimates
of the expected annual cash flows of Electric Fuels' existing synthetic fuel
plants. On this basis, CP&L Energy believed that it should be entitled to retain
the first $80 million of benefits from the EARTHCO plants and that the Florida
Progress shareholders and CP&L Energy should share equally any benefits in
excess of that amount. Florida Progress' acceptance of the structure of the
contingent value obligations 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, which
was the rate that Florida Progress and Carolina Power & Light agreed to use in
structuring the contingent value obligations). 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 have completed the sale to Carolina Power & Light of a 90% interest
in an Electric Fuels entity that owns one of the EARTHCO plants, for cash plus
future payments to Electric Fuels. The purchase agreement provides for the
repurchase of the interest by the Electric Fuels entity should the share
exchange between Florida Progress, CP&L Energy and Carolina Power & Light not
occur. The repurchase price would approximate the original consideration given
for the interest, adjusted by an amount to compensate for the economic benefit
obtained by Carolina Power & Light during the period it owned the interest. The
parties are in the process of negotiating a sale to Carolina Power & Light of a
majority interest in an Electric Fuels entity that owns another EARTHCO plant
under similar terms. Since payments under the contingent value obligations are
based on the net after-tax cash flows of the EARTHCO plants following the
closing of the share exchange, the pre-closing sale to Carolina Power & Light of
interests in one or more of the EARTHCO plants will not result in any change in
the timing or magnitude of payments under the contingent value obligations.
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 of the contingent value
obligations, Florida Progress management's estimates of the value of the
contingent value obligations to Florida Progress shareholders, including the
assumptions upon which the estimates were based and the factors which would
impact the value of the contingent value obligations, and the financial benefits
and risks of the transaction, as described below in "--Recommendation of the
Florida Progress Board of
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Directors," as well as the legal, tax and operational risks involved with the
EARTHCO plants and the contingent value obligations. 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
legal duties in connection with the transaction, including the board's
continuing duties relating to the rights and obligations of Florida Progress
under the exchange agreement, the board's fiduciary duties under Florida law to
carefully consider the revised transaction, and the board's duties under federal
securities laws with respect to the proxy statement.
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 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 exchange agreement 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
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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
- 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
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shareholders vote FOR the approval of 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 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;
- 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;
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- 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 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 by the
proposed agreement and plan of exchange, and related plan of exchange.
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."
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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 EARTHCO plants, and their potential impact
on Florida Progress' strategic position as an independent entity, and as a
subsidiary of CP&L Energy;
- 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 years 1996 through
1998) 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 impact of using different discount rates in calculating the net
present value of the contingent value obligations and the fact that if net
present value of the contingent value obligations was calculated using a
7% discount rate (which approximates Florida Progress' combined weighted
average cost of capital) rather than an 8% discount rate (which was the
rate that Florida Progress and Carolina Power & Light agreed to use in
structuring the contingent value obligations), and the other assumptions
used to structure the contingent value obligations remained the same, the
net present value of the contingent value obligations would increase by
$23 million (it should be noted that in rendering its opinion, Salomon
Smith Barney applied a range of discount rates from 15% to 20% to reflect
a higher risk for the synthetic fuels operations at the EARTHCO plants);
- 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 (which is discussed and quantified in points
two and three above) and the share exchange transaction as a whole
compared with the operation of the EARTHCO plants if Florida Progress were
to remain an independent entity (which was estimated at the board meeting,
utilizing a 7% discount rate, to have a net present value of approximately
$435 million; however, the board also considered that the value realized
would depend on a number of operating and economic variables, including
sales levels, sale prices and costs of production; the level of, and
economic benefits from, sales of interests in the subsidiaries owning the
EARTHCO plants; the rate of future inflation and value of future tax
credits; and, the growth of Florida Progress' tax base);
- the fact that, if the EARTHCO 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;
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- the fact that the contingent value obligations would represent additional
consideration in the share exchange since the previously announced amount
and structure of cash and common stock consideration to be received by
Florida Progress shareholders in the share exchange would not be changed;
- 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 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
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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 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, resulting in the improvement of 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,
resulting in lower per unit costs.
- 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.
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<PAGE>
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.
- 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.
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<PAGE>
The discussion 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 exchange agreement, 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
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 exchange agreement 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;
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<PAGE>
- 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 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
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<PAGE>
THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX B AND IS INCORPORATED INTO THIS
JOINT PROXY STATEMENT/ PROSPECTUS 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.
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 SHOWN 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.
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
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<PAGE>
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 cash consideration of $35.10 per share;
- the value of the stock consideration of approximately $14.89 per share,
based on the closing price of Carolina Power & Light common stock on
March 2, 2000 and the exchange ratio provided for in the exchange
agreement;
- the value of the contingent value obligations of approximately $1.27 per
share, 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, as more fully described
below under "Valuation of Additional Consideration;" and
- the potential value of the ongoing 23.9% interest of Florida Progress'
shareholders in the synthetic fuels business at the EARTHCO plants of
approximately $1.16 per share through their pro forma ownership of
Carolina Power & Light common stock, 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, as more fully described below under "Valuation of Additional
Consideration."
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 at
the EARTHCO plants. This calculation resulted in a per share equity value for
Florida Progress implied by the exchange consideration of approximately $51.26.
VALUATION OF ADDITIONAL CONSIDERATION. Salomon Smith Barney estimated the
potential value of the additional consideration to be received by Florida
Progress' shareholders in the share exchange in the form of the contingent value
obligations and the ongoing 23.9% interest of Florida Progress' shareholders in
the synthetic fuels business at the EARTHCO plants through their pro forma
ownership of Carolina Power & Light common stock, based on internal estimates of
the management of Florida Progress. In arriving at these estimates, Salomon
Smith Barney performed a discounted cash flow analysis of the projected
distributions to the holders of contingent value obligations for calendar years
2001 through 2007. Salomon Smith Barney also performed a discounted cash flow
analysis of Florida Progress shareholders' ongoing 23.9% interest in the cash
available after operating expenses, taxes, distributions to holders of
contingent value obligations, capital expenditures and changes in working
capital of Florida Progress' synthetic fuels business at the EARTHCO plants over
calendar years 2001 through 2007. The cash flows were discounted to present
value using discount rates ranging from 15.0% to 20.0%. The discount rate was
calculated taking into consideration the risks associated with companies in the
earlier stages of development generally and with the synthetic fuels business
specifically. Florida Progress has been in the synthetic fuels business since
1998. This analysis resulted in an estimated potential value of the additional
consideration to be received by Florida Progress' shareholders in the form of
the contingent value obligations of approximately $1.27 per share and the
ongoing interest of Florida Progress' shareholders in the synthetic fuels
business at the EARTHCO plants of approximately $1.16 per share.
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<PAGE>
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.
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 the following 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' regulated business:
<TABLE>
<CAPTION>
SELECTED
MULTIPLE RANGE
--------------
<S> <C>
Estimated 2000 earnings..................................... 8.5x-10.5x
Estimated 2001 earnings..................................... 8.0x- 9.5x
September 30, 1999 book value............................... 1.2x- 1.5x
</TABLE>
The resulting implied per share equity reference range of approximately
$23.00 to $28.50 was then added to the implied per share equity reference range
derived for Florida Progress' unregulated businesses of approximately $8.50 to
$12.00, 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 before 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
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<PAGE>
interest of Florida Progress shareholders in Florida Progress' overall 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>
$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.
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. These
calculations resulted in an implied per share equity reference range for
Florida Progress' regulated business of approximately $37.00 to $46.00.
UNREGULATED BUSINESSES. The range of estimated terminal values for
Progress Capital Holdings (excluding Progress Telecommunications and Florida
Progress' overall 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' overall 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'
overall 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' overall 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 overall 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 overall
synthetic fuels business was calculated taking into consideration the risks
associated with companies in the earlier stages of development generally and
with the synthetic fuels business specifically. Florida Progress has been in
the synthetic fuels business since 1998. These calculations
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<PAGE>
resulted in an implied per share equity reference range for Florida
Progress' unregulated businesses of approximately $8.50 to $12.00.
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 Florida Progress'
overall 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>
$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 NortheastUtilities
- - 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 the following 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' regulated business:
<TABLE>
<CAPTION>
SELECTED
MULTIPLE RANGE
--------------
<S> <C>
Estimated 2000 earnings..................................... 16.5x-19.5x
Estimated 2001 earnings..................................... 14.0x-18.0x
September 30, 1999 book value............................... 1.9x- 2.3x
</TABLE>
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
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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 Florida Progress' regulated business. The
resulting implied per share equity reference range of approximately $41.00 to
$51.00 was then added to the implied per share equity reference range derived
for Florida Progress' unregulated businesses of approximately $8.50 to $12.00,
based on the "Discounted Cash Flow Analyses--Unregulated Business" described
above. 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 Florida Progress' overall 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
POTENTIAL VALUE OF BEFORE TAKING INTO ACCOUNT
BEFORE AFTER ONGOING POTENTIAL VALUE OF ONGOING
ADJUSTMENT FOR 25% ADJUSTMENT FOR 25% INTEREST IN SYNTHETIC INTEREST IN SYNTHETIC
DECLINE IN MULTIPLES DECLINE IN MULTIPLES FUELS BUSINESS FUELS BUSINESS
- --------------------- -------------------- ------------------------- --------------------------
<S> <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 Florida Progress' overall 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>
$39.25-$52.75 $52.42 $51.26
</TABLE>
59
<PAGE>
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:
- 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 the following 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 the implied per share value of Florida Progress' overall
synthetic fuels business of approximately $3.50 to $4.00, based on a discounted
cash flow analysis, and then took into account the synthetic fuels business:
<TABLE>
<CAPTION>
SELECTED
MULTIPLE RANGE
--------------
<S> <C>
Estimated 2000 earnings..................................... 8.5x-10.5x
Estimated 2001 earnings..................................... 8.0x- 9.5x
September 30, 1999 book value............................... 1.2x- 1.5x
</TABLE>
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 before 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 Florida Progress' overall 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>
60
<PAGE>
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 the following 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 the implied per
share value of Florida Progress' overall synthetic fuels business of
approximately $3.50 to $4.00, based on a discounted cash flow analysis, and then
took into account the synthetic fuels business:
<TABLE>
<CAPTION>
SELECTED
MULTIPLE RANGE
--------------
<S> <C>
Estimated 2000 earnings..................................... 16.5x-19.0x
Estimated 2001 earnings..................................... 13.0x-18.5x
September 30, 1999 book value............................... 1.9x- 2.3x
</TABLE>
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 Florida Progress' regulated business. 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
61
<PAGE>
Florida Progress shareholders in Florida Progress' overall 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
POTENTIAL VALUE OF BEFORE TAKING INTO ACCOUNT
BEFORE AFTER ONGOING POTENTIAL VALUE OF ONGOING
ADJUSTMENT FOR 25% ADJUSTMENT FOR 25% INTEREST IN SYNTHETIC INTEREST IN SYNTHETIC
DECLINE IN MULTIPLES DECLINE IN MULTIPLES FUELS BUSINESS FUELS BUSINESS
- --------------------- -------------------- ------------------------- --------------------------
<S> <C> <C> <C>
$51.50-$60.00 $41.50-$48.25 $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 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 Florida Progress' overall 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 the following
range of selected multiples derived from the selected companies of
62
<PAGE>
estimated calendar years 2000 and 2001 EPS and September 30, 1999 book value to
corresponding financial data for Carolina Power & Light:
<TABLE>
<CAPTION>
SELECTED
MULTIPLE RANGE
--------------
<S> <C>
Estimated 2000 EPS-management estimates..................... 9.0x-12.0x
Estimated 2001 EPS-management estimates..................... 8.5x-11.0x
Estimated 2000 EPS-research analysts' estimates............. 9.0x-12.0x
Estimated 2001 EPS-research analysts' estimates............. 8.5x-11.0x
September 30, 1999 book value............................... 1.1x- 1.4x
</TABLE>
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.
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 that were informational in nature and were reviewed as points of
reference to provide additional perspectives on Florida Progress and Carolina
Power & Light, including:
- historical market prices and trading volumes for Florida Progress common
stock and Carolina Power & Light common stock;
63
<PAGE>
- 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.
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
stated 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 stated 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 to this joint proxy statement/ prospectus.
64
<PAGE>
THE MERRILL LYNCH OPINION ATTACHED AS ANNEX C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY MERRILL 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 TO THIS JOINT
PROXY STATEMENT/PROSPECTUS.
In arriving at its opinion, dated as of February 25, 2000, Merrill Lynch:
- 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;
- 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
65
<PAGE>
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 read together with the
text of each summary. The tables alone do not constitute a complete description
of the financial analyses. Considering the data described 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................................ +15%
Comparable Index.......................................... +26%
</TABLE>
66
<PAGE>
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 February 22, 2000........................... $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 estimated value of the four synthetic fuel plants acquired by
Florida Progress in 1999, known as the EARTHCO plants, was derived using a
discounted cash flow analysis as described below.
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.
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
67
<PAGE>
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:
COMPARABLE UTILITY COMPANIES
<TABLE>
<CAPTION>
FLORIDA CAROLINA 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>
COMPARABLE COAL COMPANIES
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C> <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>
COMPARABLE BARGE COMPANIES
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C> <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>
COMPARABLE RAIL COMPANIES
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C> <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:
IMPLIED EQUITY VALUE PER SHARE OF FLORIDA PROGRESS COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C> <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 described above using LTM EDITDA were calculated including an estimated
$294.5 million in aggregate value attributable on a stand-alone basis to the
EARTHCO plants. This estimated value was derived using a discounted cash flow
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
68
<PAGE>
assuming that, in order to realize value from those tax credits generated by the
EARTHCO plants that Florida Progress would not be able to use on a stand-alone
basis, Florida Progress would partially sell or otherwise partially dispose of
interests in one or more plants to a third party.
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);
- 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:
COMPARABLE ACQUISITION TRANSACTIONS
<TABLE>
<CAPTION>
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:
IMPLIED EQUITY VALUE PER SHARE OF FLORIDA PROGRESS COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C> <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 described above using LTM EDITDA were calculated including an estimated
$294.5 million in aggregate value
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<PAGE>
attributable on a stand-alone basis to the EARTHCO plants. 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.
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):
IMPLIED EQUITY VALUE PER SHARE OF FLORIDA PROGRESS COMMON STOCK
<TABLE>
<CAPTION>
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
described 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 the EARTHCO
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<PAGE>
plants owned by Florida Progress, using production projections for those plants
for years 2001 through 2007 provided by the management of Florida Progress and,
for illustrative purposes, average payout periods ranging from 5- to 10-years.
These analyses resulted in implied values per contingent value obligation
ranging from:
- $0.24 to $1.64, assuming, for illustrative purposes, an 8-year average
payout 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, for illustrative purposes, an average payout
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 described 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.
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.
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<PAGE>
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 exchange
agreement. Therefore, if the exchange agreement 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 exchange
agreement, even if they did not vote in favor of the exchange agreement or voted
against the exchange agreement. 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 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 and the contingent value obligations 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
72
<PAGE>
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 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.
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<PAGE>
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 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.
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<PAGE>
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:
- 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 annual 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 or
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<PAGE>
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 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 plan of
share 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:
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(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.
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 would be $30.209. THE TABLES
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.
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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 6:
PERCENTAGE COLUMN 3: COLUMN 4: COLUMN 5:
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>
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 6:
PERCENTAGE COLUMN 3: COLUMN 4: COLUMN 5:
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>
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.
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
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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
exchange agreement, 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.
CONFLICTS OF INTEREST
In considering the recommendation of the Florida Progress board of directors
with respect to the exchange agreement, 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
exchange agreement, including the related plan of share exchange.
CP&L ENERGY BOARD OF DIRECTORS
The exchange agreement 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
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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 exchange agreement, 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.
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 exchange agreement 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
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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;
- 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
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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);
(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 exchange is
consummated, some of these grants may become vested in the ordinary course of
business and additional annual grants may be made.
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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 before
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 exchange agreement, 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, 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.
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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 described
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 exchange
agreement, 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 exchange agreement. 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 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
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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 before the vote on the share exchange.
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 in connection with that transaction. 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
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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).
On March 14, 2000, CP&L Energy and Florida Progress filed an application
with the Securities and Exchange Commission requesting approval of the share
exchange under the Public Utility Holding Company Act. 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
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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,
- 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
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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 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 exchange agreement, 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;
- the expiration or termination of the waiting period applicable to the
share exchange under the Hart-Scott-Rodino Antitrust Improvements Act;
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- 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 stated 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, 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 exchange agreement 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.
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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;
- 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
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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 exchange agreement, 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;
- 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 exchange agreement 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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- 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.
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
before 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.
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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 annual 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;
- 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 exchange agreement 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
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- 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 exchange agreement 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;
- 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 annual 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 a financial point of view, to the
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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:
- 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;
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- 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 stated 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
March 31, 2000, 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 three months ended March 31, 2000 and the year ended
December 31, 1999, giving effect to the share exchange as if it had been
consummated on January 1, 1999, using purchase accounting adjustments calculated
as of March 31, 2000.
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UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
(IN MILLIONS)
CAROLINA POWER & LIGHT FLORIDA PROGRESS PRO FORMA PRO FORMA
(AS REPORTED)(2) (AS RECLASSIFIED)(2) ADJUSTMENTS COMBINED(1)
---------------------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
UTILITY PLANT
Utility plant, at cost..... $11,738.8 $ 6,961.7 $ -- $18,700.5
Accumulated depreciation... (5,109.4) (3,406.5) -- (8,515.9)
Nuclear fuel, net of
amortization............. 204.6 56.5 -- 261.1
--------- --------- -------- ---------
Total Utility Plant,
Net.................... 6,834.0 3,611.7 -- 10,445.7
--------- --------- -------- ---------
CURRENT ASSETS
Cash and cash
equivalents.............. 36.5 2.9 -- 39.4
Accounts receivable, net... 415.5 409.0 -- 824.5
Inventory.................. 244.3 425.2 -- 669.5
Prepayments and other
current assets........... 187.7 158.2 -- 345.9
--------- --------- -------- ---------
Total Current Assets..... 884.0 995.3 -- 1,879.3
--------- --------- -------- ---------
GOODWILL..................... 285.3 170.3 3,004.1 (3) 3,459.7
DEFERRED DEBITS AND OTHER
ASSETS..................... 1,376.4 1,739.2 -- 3,115.6
--------- --------- -------- ---------
TOTAL ASSETS................... $ 9,379.7 $ 6,516.5 $3,004.1 $18,900.3
========= ========= ======== =========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock............... $ 1,749.0 $ 1,274.0 $ 241.3 (4b) $ 3,264.3
Other stockholders'
equity................... 1,680.8 763.0 (763.0)(4b) 1,680.8
--------- --------- -------- ---------
Total common stock
equity................. 3,429.8 2,037.0 (521.7) 4,945.1
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........ 3,028.8 2,170.7 3,461.3 (5a) 8,660.8
--------- --------- -------- ---------
Total Capitalization..... 6,518.0 4,541.2 2,939.6 13,998.8
--------- --------- -------- ---------
CURRENT LIABILITIES
Accounts and notes
payable.................. 433.8 470.7 41.4 (8) 945.9
Other current
liabilities.............. 345.9 450.6 23.1 (8) 819.6
--------- --------- -------- ---------
Total Current
Liabilities............ 779.7 921.3 64.5 1,765.5
DEFERRED CREDITS AND OTHER
LIABILITIES................ 2,082.0 1,054.0 -- 3,136.0
--------- --------- -------- ---------
TOTAL CAPITALIZATION AND
LIABILITIES.................. $ 9,379.7 $ 6,516.5 $3,004.1 $18,900.3
--------- --------- -------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
(IN MILLIONS EXCEPT PER SHARE DATA)
CAROLINA POWER & LIGHT FLORIDA PROGRESS PRO FORMA PRO FORMA
(AS REPORTED)(2) (AS RECLASSIFIED)(2) ADJUSTMENTS COMBINED(1)
---------------------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric....................... $779.9 $621.9 $ -- $1,401.8
Natural gas.................... 72.1 -- -- 72.1
Diversified businesses......... 25.1 328.2 -- 353.3
------ ------ ------ --------
Total operating revenues... 877.1 950.1 -- 1,827.2
------ --------
OPERATING EXPENSES
Fuel, operation and
maintenance.................. 358.6 234.0 -- 592.6
Purchased power and other...... 112.9 170.3 -- 283.2
Gas purchased for resale....... 43.9 -- -- 43.9
Depreciation and amortization.. 132.5 85.7 18.4 (3c) 236.6
Diversified businesses......... 44.1 325.0 -- 369.1
------ ------ ------ --------
Total operating expenses... 692.0 815.0 18.4 1,525.4
------ ------ ------ --------
OPERATING INCOME................. 185.1 135.1 (18.4) 301.8
OTHER INCOME (EXPENSE)........... 7.6 1.3 -- 8.9
------ ------ ------ --------
INCOME BEFORE INTEREST CHARGES AND
INCOME TAXES................... 192.7 136.4 (18.4) 310.7
DISTRIBUTIONS ON COMPANY-OBLIGATED
MANDATORILY REDEEMABLE PREFERRED
SECURITIES..................... -- 5.3 -- 5.3
INTEREST CHARGES, NET............ 50.5 44.8 64.9 (5b) 160.2
------ ------ ------ --------
INCOME BEFORE INCOME TAXES....... 142.2 86.3 (83.3) 145.2
INCOME TAXES..................... 56.2 9.4 (26.0)(7) 39.6
------ ------ ------ --------
NET INCOME....................... 86.0 76.9 (57.3) 105.6
PREFERRED STOCK DIVIDEND
REQUIREMENTS................... 0.7 0.4 -- 1.1
------ ------ ------ --------
EARNINGS FOR COMMON STOCK........ $ 85.3 $ 76.5 $(57.3) $ 104.5
====== ====== ====== ========
AVERAGE COMMON SHARES OUTSTANDING
Basic.......................... 153.1 98.5 203.2
Diluted........................ 153.4 98.7 203.6
BASIC AND DILUTED EARNINGS PER
COMMON SHARE................... $ 0.56 $ 0.78 $ 0.51
====== ====== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
(IN MILLIONS EXCEPT PER SHARE DATA)
CAROLINA POWER & LIGHT FLORIDA PROGRESS PRO FORMA PRO FORMA
(AS REPORTED)(2) (AS RECLASSIFIED)(2) ADJUSTMENTS COMBINED(1)
---------------------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric....................... $3,138.8 $2,632.6 $ -- $5,771.4
Natural gas.................... 98.9 -- -- 98.9
Diversified businesses......... 119.9 1,212.5 -- 1,332.4
-------- -------- ------- --------
Total operating revenues... 3,357.6 3,845.1 -- 7,202.7
-------- -------- ------- --------
OPERATING EXPENSES
Fuel, operation and
maintenance.................. 1,263.7 1,062.4 -- 2,326.1
Purchased power and other...... 515.6 698.4 -- 1,214.0
Gas purchased for resale....... 67.5 -- -- 67.5
Depreciation and amortization.. 495.7 347.5 72.2 (3c) 915.4
Diversified businesses......... 174.6 1,161.9 -- 1,336.5
-------- -------- ------- --------
Total operating expenses... 2,517.1 3,270.2 72.2 5,859.5
-------- -------- ------- --------
OPERATING INCOME................. 840.5 574.9 (72.2) 1,343.2
OTHER INCOME (EXPENSE)........... (20.4) 18.7 -- (1.7)
-------- -------- ------- --------
INCOME BEFORE INTEREST CHARGES AND
INCOME TAXES................... 820.1 593.6 (72.2) 1,341.5
DISTRIBUTIONS ON COMPANY-OBLIGATED
MANDATORILY REDEEMABLE PREFERRED
SECURITIES..................... -- 15.2 -- 15.2
INTEREST CHARGES, NET............ 179.4 170.3 259.6 (5b) 609.3
-------- -------- ------- --------
INCOME BEFORE INCOME TAXES....... 640.7 408.1 (331.8) 717.0
INCOME TAXES..................... 258.4 91.7 (103.8)(7) 246.3
-------- -------- ------- --------
NET INCOME....................... 382.3 316.4 (228.0) 470.7
PREFERRED STOCK DIVIDEND
REQUIREMENTS................... 3.0 1.5 -- 4.5
-------- -------- ------- --------
EARNINGS FOR COMMON STOCK........ $ 379.3 $ 314.9 $(228.0) $ 466.2
======== ======== ======= ========
AVERAGE COMMON SHARES OUTSTANDING
Basic.......................... 148.3 98.1 198.3
Diluted........................ 148.6 98.3 198.6
BASIC EARNINGS PER COMMON SHARE... $ 2.56 $ 3.21 $ 2.35
======== ======== ========
DILUTED EARNINGS PER COMMON
SHARE.......................... $ 2.55 $ 3.21 $ 2.35
======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Information.
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<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 Florida Progress' historical results to
conform with Carolina Power & Light's presentation. Immaterial reclassifications
were made to Florida Progress' income statement 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)....................................................... $4,977.7
Plus: Estimated transaction costs (b)....................... 17.4
--------
Total estimated purchase price.............................. $4,995.1
Less: Estimated fair value of Florida Progress' identifiable
net assets on March 31, 2000.............................. 1,820.7
--------
Total estimated goodwill.................................... $3,174.4
========
</TABLE>
In addition, goodwill was decreased by Florida Progress' historical goodwill
of $170.3 million, as required under the purchase accounting method.
(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 CP&L Energy 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 $30.209. 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. It is
not expected that the contingent value obligations will have readily
available market prices. Therefore, when amounts to be paid are
determined, a liability will be established with a corresponding increase
in goodwill, and goodwill amortization will be increased prospectively.
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<PAGE>
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
(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 three months ended March 31,
2000 and the year ended December 31, 1999 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 March 24,
2000, which was $30.209, CP&L Energy would issue approximately
50.195 million shares in the transaction for 35% of Florida Progress
common stock outstanding on March 31, 2000. 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.
(b) Pro forma adjustments have been made as of March 31, 2000 to:
(1) reflect the issuance of approximately 50.195 million shares of CP&L
Energy common stock to be exchanged together with cash of approximately
$3.461 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 March 31, 2000) 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
$3.461 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 $3.461 billion of
long-term debt to fund part of the Florida Progress purchase price, as if
such issuance had occurred on January 1, 1999 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.
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(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 before 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 March 24, 2000 (which is calculated as if the share exchange
were on March 31, 2000) of $30.209, 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 50.195 million shares in this transaction based
on the number of shares of Florida Progress common stock outstanding as of
March 31, 2000. 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.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ---------------
<S> <C> <C>
Exchange ratio.............................................. 1.1897 1.1897
------ ------
Basic and diluted earnings per share........................ $ 2.46 $ 0.54
</TABLE>
(7) INCOME TAXES
A pro forma adjustment has been made for the three months ended March 31,
2000 and the year ended December 31, 1999 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
described under "The Share Exchange--Interests of Florida Progress Directors and
Officers in the Share Exchange."
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<PAGE>
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 $5.0 billion will be paid to Florida Progress shareholders,
consisting of approximately $3.5 billion in cash and the issuance of
approximately $1.5 billion in CP&L Energy common stock (based on an assumed
value of $30.209 per share, which was the applicable 20-day average closing
price calculated as of March 24, 2000 and 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, 1999 were $3.8 billion and
assets at year-end were $6.5 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 8,267 megawatts, including electricity generated
at its one nuclear plant. Florida Power provided electric service during 1999 to
an average of 1.4 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, 1999, Florida Power had 4,732 full-time employees, of which
approximately 2,059 were represented by the International Brotherhood of
Electrical Workers. In 1999, Florida Power accounted for 68% of Florida
Progress' consolidated revenues, 77% of its assets and 84% 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' non-utility
subsidiaries. Its primary subsidiary is Electric Fuels Corporation. As of
December 31, 1999, Progress Capital and its subsidiaries had 4,597 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
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<PAGE>
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 21 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, 1999 were $3.4 billion and consolidated
assets at year-end were $9.5 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 34,000 square miles, with a
population of approximately 4.2 million. As of December 31, 1999, it served
approximately 1.2 million customers. During 1999, 34% of Carolina Power &
Light's electric operating revenues were derived from residential sales, 22%
from commercial sales, 22% from industrial sales, 13% from wholesale sales, and
9% from other sources.
At December 31, 1999, Carolina Power & Light had a total system installed
generating capacity of 10,128 megawatts, of which 53% was coal-fired, 31%
nuclear, 2% hydro, and 14% other fuels. Carolina Power & Light also had
approximately 5,585 pole miles of transmission lines, 44,294 pole miles of
overhead distribution lines, and 13,842 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 110 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
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<PAGE>
services include consulting, design, implementation and support related to
internet access, intranet development, electronic commerce, hosting and
videoconferencing. On May 3, 2000, Carolina Power & Light signed a letter of
intent with Bain Capital, Inc., a private equity fund, to form a new company.
Under the agreement, Carolina Power & Light and Bain will each invest
$50 million of new equity, in addition to an investment by Carolina Power &
Light of the Application Service Provider assets of Interpath. Upon completion
of the transaction, Carolina Power & Light will own 35% and Bain will own 65% of
the newly formed company. Closing of this transaction is expected to occur
during the second quarter of 2000. Carolina Power & Light will retain the fiber
optic network assets currently owned by Interpath as well as certain other
assets of Interpath. The fiber optic network assets will be part of a capacity
sharing and marketing agreement with Progress Telecom, a subsidiary of Florida
Progress.
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. This reorganization will offer certain advantages as Carolina Power &
Light continues to confront the rapidly changing environment facing electric
utilities. The holding company structure would allow greater organizational
flexibility, including a clearer separation of regulated businesses from each
other and from unregulated business such as energy services, telecommunications
and electric generation projects for wholesale markets. The ability to conduct
financing activities at the holding company level without the need for state
regulatory approvals will enable Carolina Power & Light to satisfy financing
needs more quickly and efficiently. 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 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.
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<PAGE>
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 ANNEXES B and C to the prospectus included
in 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 and we anticipate that approximately
the same number of shares of CP&L Energy common stock will be issued and
outstanding 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.
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
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<PAGE>
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 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.
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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
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
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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.
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
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at the special meeting, such as the election or removal of directors or an
amendment to the articles or bylaws.
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,
- 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
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- 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.
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
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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.
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
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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,
- 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 exchange agreement, 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, 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.
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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;
- 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.
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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.
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
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- 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 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
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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.
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 .
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
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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.
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
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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 .
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DESCRIPTION OF THE CONTINGENT VALUE OBLIGATIONS
SUMMARY
We have summarized below the material 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 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 terms used in the
following summary are stated below under the caption "Certain Definitions
Related to the Contingent Value Obligation Certificate" beginning on page
. The form of contingent value obligation agreement is attached as ANNEX D
to this joint proxy statement/prospectus and the form of contingent value
obligation certificate is attached as Appendix A to the contingent value
obligation agreement. 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.
OVERVIEW OF CONTINGENT VALUE OBLIGATIONS
Immediately before 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 attached as ANNEX D to this joint proxy
statement/prospectus with such changes as are agreed to by CP&L Energy, Florida
Progress and the trustee. The contingent value obligations will be issued under
the contingent value obligation agreement.
Each contingent value obligation will represent the right to receive
contingent payments based on the net after-tax cash flow to CP&L Energy
generated by the EARTHCO plants. Qualifying synthetic fuel plants entitle their
owners to federal income tax credits based on the barrel of oil equivalent of
the synthetic fuel produced and sold by the plants. These plants produce
synthetic fuel by mixing coal feedstock with a complex petroleum
hydrocarbon-based binder and processing that mixture. This process significantly
changes the chemical composition of the coal and results in a solid synthetic
fuel. Florida Progress currently has interests in synthetic fuel plants other
than the EARTHCO plants.
In the aggregate, holders of contingent value obligations will be entitled
to payments equal to 50% of any net after-tax cash flow generated by the EARTHCO
plants in excess of $80 million per year for each of the years 2001 through
2007. For purposes of calculating payments, net after-tax cash flow includes the
taxable income or loss for the EARTHCO plants, adjusted for depreciation and
other non-cash items, plus income tax savings realized, and minus income taxes
incurred. The total amount of net after-tax cash flow for any year will depend
upon the final determination of the income tax savings realized and income taxes
incurred after completion of income tax audits of CP&L Energy and its affiliates
which own the EARTHCO plants. By March 15 of each year from 2002 through 2008,
CP&L Energy will estimate the total net after-tax cash flow attributable to the
EARTHCO plants for the prior year and will deposit with the trustee an amount
equal to 50% of the excess of that amount over $80 million. After CP&L Energy
files the tax returns for the prior year, CP&L Energy and the trustee will
adjust, up or down, the amount on deposit with the trustee. CP&L Energy and the
trustee will make final adjustments to the deposit with the trustee for each
year after final resolution of all tax audit matters for that year. Holders of
contingent value obligations may receive an interim payment for a year after the
Internal Revenue Service has issued a final report relating to CP&L Energy's tax
return for that year and no issues relating to the EARTHCO plants remain
outstanding, even though other issues affecting CP&L Energy's tax liability for
the year remain outstanding. Once there is a final
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resolution of CP&L Energy's tax liability for a year, holders of contingent
value obligations will be entitled to receive any additional amounts caused by
the final resolution of CP&L's tax liability.
CP&L Energy might not be able to use all synthetic fuel tax credits from the
EARTHCO plants during 2001 through 2007, and, consequently, may carry forward
unused tax credits to a later year. For each year after 2007 in which there may
be carryforward credits, CP&L Energy will estimate the amount of carryforward
credits for that year by March 15 of the following year and will deposit with
the trustee an amount equal to 50% of those carryforward credits minus any
amount by which the net after-tax cash flow for the prior year in which the
carryforward credits were earned is less than $80 million. After CP&L Energy
files its tax returns for the year the carryforward credits are used, CP&L
Energy and the trustee will adjust, up or down, the amount relating to
carryforward credits on deposit with the trustee. CP&L Energy and the trustee
will make final adjustments to the deposit with the trustee for each year after
final resolution of all tax audit matters for that year. Holders of contingent
value obligations may receive an interim payment for a year after the IRS has
issued a final report relating to CP&L Energy's tax return for that year and no
issues relating to the EARTHCO plants remain outstanding, even though other
issues affecting CP&L Energy's tax liability for the year remain outstanding.
Once there is final resolution of CP&L Energy's tax liability for a year,
holders of contingent value obligations will be entitled to receive any
additional amounts caused by the final resolution of CP&L's tax liability.
If there is a sale or other disposition of any interest in an EARTHCO plant
before 2008, an amount equal to a portion of the disposition proceeds may be
paid to the holders of contingent value obligations. For any disposition before
March 16, 2002, holders of the contingent value obligations will be entitled to
an amount equal to 25% of net after-tax disposition proceeds. For any
disposition after March 15, 2002, holders of the contingent value obligations
will be entitled to an amount equal to a percentage of net after-tax disposition
proceeds. That percentage will be the ratio of the net after-tax cash flow of
the EARTHCO plants potentially allocable to the contingent value obligations for
all prior years to the total net after-tax cash flow of the EARTHCO plants for
the prior years. After CP&L Energy receives proceeds from a disposition, CP&L
Energy will deposit with the trustee an amount equal to any portion of the
disposition proceeds potentially allocable to the contingent value obligations.
The trustee is to make an interim payment to the holders of the contingent value
obligations as soon as practicable after the trustee receives the deposit. The
trustee will exclude from any interim payment an amount necessary to satisfy an
allocable portion of CP&L Energy's indemnity obligations relating to the
disposition. After CP&L Energy has satisfied all indemnity obligations or those
indemnity obligations terminate, CP&L Energy and the trustee will adjust, up or
down, the amount on deposit with the trustee. Holders of contingent value
obligations are to receive any amount of the deposit remaining after final
adjustment.
At the time holders of contingent value obligations receive the payments
described above, they also will receive accumulated earnings on the amounts on
deposit with the trustee. Allocable expenses associated with administering the
contingent value obligations will reduce the amount payable on the contingent
value obligations.
The contingent value obligations will be general, unsecured, contingent
payment obligations of CP&L Energy and will be subordinate in right of payment
to all senior indebtedness of CP&L Energy. Because the contingent value
obligations rank behind CP&L Energy's senior indebtedness, CP&L Energy must make
all payments then due on its senior indebtedness before making any payments on
the contingent value obligations. In addition, the contingent value obligation
agreement does not limit the aggregate amount of senior indebtedness that CP&L
Energy may incur.
The holders of the contingent value obligations will be responsible for
taxes relating to payments on the contingent value obligations, and the paying
agent will withhold all amounts required under applicable law to be withheld
from the payments.
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Quarterly reports will be sent to holders of contingent value obligations
describing the results of operations for the EARTHCO plants for the prior
quarter and updating material developments, including adjustments for previous
periods and relevant tax proceedings and positions.
The contingent value obligations will generally be freely tradeable by their
holders. However, 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 include them in any inter-dealer quotation system.
Therefore, we cannot assure you that there will be an active secondary trading
market for the contingent value obligations, that you will be able to sell your
contingent value obligations or of the price at which you may be able to sell
your contingent value obligations.
The contingent value obligations are not subject to redemption, in whole or
in part. However, CP&L Energy may acquire contingent value obligations in the
open market, in privately negotiated purchases or otherwise.
There will be an event of default with respect to the contingent value
obligations upon the failure to pay amounts payable when due on the contingent
value obligations. In that event, 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. There will also be an event of
default upon the breach of or failure to perform any other covenant or warranty
in the contingent value obligation agreement for either 30 days or 60 days,
depending on the covenant or warranty, after notice from the trustee. Upon such
an event of default, the trustee may take action to remedy the breach.
CP&L Energy has agreed 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. Subject to this duty, CP&L Energy may own and
operate the EARTHCO plants in its sole discretion, subject to certain
restrictions on their transfer, and will have complete and full control and sole
discretion with respect to reporting items on its tax returns and conducting tax
audits and proceedings. CP&L Energy has also agreed not to allow the entities
owning the EARTHCO plants to incur any debt, guarantee or assume any such
obligations, or allow liens on their assets.
CP&L Energy and the trustee may amend the contingent value obligation
agreement without consent of the holders of the contingent value obligations for
certain purposes. With consent of a majority of the holders of the contingent
value obligations, CP&L Energy and the trustee may add, change or eliminate
provisions of the contingent value obligation agreement. However, even with the
consent of a majority of the holders, CP&L Energy and the trustee may not amend
the contingent value obligation agreement to reduce the amounts payable on the
contingent value obligations, to adversely modify the method of payment of
amounts payable on the contingent value obligations, or to impair the right of
holders of the contingent value obligations to receive payments after the due
date.
Except for payments made as a result of the sale of all or a portion of the
EARTHCO plants, payments on the contingent value obligations will not be made
until tax audit matters are resolved, which, based on our past tax audit
experience, means that we anticipate payments will not begin before 2007. It is
possible that the contingent value obligations may never have any significant
value. See "Risks Associated With The EARTHCO Plants And Contingent Value
Obligations" beginning on page for a description of other risks relating to
the EARTHCO plants and the contingent value obligations.
For a more detailed description of the terms of the contingent value
obligations, see "--Description of the Contingent Value Obligations" on page .
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
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instructions, 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
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.
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, plus earnings on amounts held by the trustee and less any
Allocable Expenses.
PAYMENT OF CONTINGENT PAYMENT
CP&L Energy shall, on or before 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. Except for payments made as a result of the sale of all or a portion
of the EARTHCO plants, payments on the contingent value obligations will not be
made until tax audit matters are resolved, which, based on our past tax audit
experience, means that we anticipate payments will not begin before 2007.
Holders of contingent value obligations will not be entitled to final payments
for disposition proceeds until all indemnity obligations relating to the
disposition have expired or been paid. It is possible that the contingent value
obligations may never have any significant value.
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 currency of the United States of America. CP&L Energy may pay such
amounts by wire transfer or check.
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TIMING OF DEPOSITS WITH THE TRUSTEE
CP&L Energy will from time to time deposit Contingency Funds with the
trustee 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. To the extent practicable, the
trustee will select investments with maturities ending on or before the
estimated dates indentified CP&L Energy 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 amount equal to the Excess Cash Flow Estimate.
- ESTIMATE ADJUSTMENT. The Excess Cash Flow Estimate will be adjusted after
the Tax Filing Date for an Operation Year.
- If the Excess Cash Flow Estimate Adjustment is positive, CP&L Energy
shall deliver to the trustee an amount equal to the Excess Cash Flow
Estimate Adjustment, 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.
- If the Excess Cash Flow Estimate Adjustment is negative, an amount
equal to the Excess Cash Flow Adjustment, 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. A final adjustment will be made to the amount
deposited as Contingency Funds with respect to Excess Cash Flow after the
Final Determination Date for an Operation Year.
- If the Final Excess Cash Flow Deposit Adjustment is positive, CP&L
Energy shall deliver to the trustee an amount equal to the Final Excess
Cash Flow Deposit Adjustment, 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.
- If the Final Excess Cash Flow Deposit Adjustment is negative, an amount
equal to the Final Excess Cash Flow Deposit Adjustment, 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 to CP&L Energy from the Contingency Funds allocable to
the earliest tax year or years for which Contingency Funds remain.
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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 amount equal to the Excess Carryforward Credits
Estimate.
- ESTIMATE ADJUSTMENT. The Excess Carryforward Credits Estimate will be
adjusted after the Tax Filing Date for the appropriate tax year after
2007.
- If the Excess Carryforward Credits Estimate Adjustment is positive,
CP&L Energy shall deliver to the trustee an amount equal to the Excess
Carryforward Credits Estimate Adjustment, 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.
- If the Excess Carryforward Credits Estimate Adjustment is negative an
amount equal to the Excess Carryforward Credits Adjustment, 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. A final adjustment will be made after the Final
Determination Date for each applicable tax year after 2007.
- If the adjustment is positive CP&L Energy shall deliver to the trustee
an amount equal to the Final Excess Carryforward Credits Deposit
Adjustment, 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.
- If the Final Excess Carryforward Credits Deposit Adjustment is
negative, an amount equal to the Final Excess Carryforward Credits
Deposit Adjustment, 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. With respect to each Disposition, 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 amount equal to any Excess Disposition Proceeds
attributable to such Disposition.
- FINAL DEPOSIT ADJUSTMENT. After the termination (by payment or expiration)
of all indemnity obligations with respect to a particular Disposition, 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
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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 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 before the applicable Payment Date, the following payments:
EXCESS CASH FLOW PAYMENTS
- OPERATION YEARS WITH INTERIM PAYMENTS. With respect to each Operation Year
for which an Interim Determination Date occurs before the Final
Determination Date, each contingent value obligation holder will receive,
within 30 business days after the Interim Determination Date for such
Operation Year, a pro rata portion of the Interim Excess Cash Flow Payment
with respect to that 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 that Operation
Year. Within 30 business days after the Final Determination Date for that
Operation Year, each contingent value obligation holder will receive a pro
rata portion of the Excess Cash Flow Payment Adjustment (if positive) with
respect to that 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 that Operation Year and not
previously taken into account.
- OPERATION YEARS WITHOUT INTERIM PAYMENTS. If no Interim Determination Date
occurs before the Final Determination Date, within 30 business days after
the Final Determination Date for that Operation Year, each contingent
value obligation holder will receive a pro rata portion of the actual
Excess Cash Flow for that 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 that Operation Year.
EXCESS CARRYFORWARD CREDITS PAYMENTS
- TAX YEARS WITH INTERIM PAYMENTS. With respect to each tax year after 2007,
if an Interim Determination Date occurs before the Final Determination
Date, within 30 business days after the Interim Determination Date for
that tax year, each contingent value obligation holder will receive a pro
rata portion of the Interim Excess Carryforward Credits Payment for that
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 that tax year. Within 30
business days after the Final Determination Date for that tax year, each
contingent value obligation holder will receive 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 that tax year and not previously
taken into account.
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- TAX YEARS WITHOUT INTERIM PAYMENTS. If no Interim Determination Date
occurs before the Final Determination Date, within 30 business days after
the Final Determination Date for the applicable tax year, each contingent
value obligation holder will receive a pro rata portion of the actual
Excess Carryforward Credits for the applicable 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 that
tax year;
EXCESS DISPOSITION PROCEEDS
- INTERIM PAYMENT. With respect to each Disposition, as soon as practicable
after the receipt of Excess Disposition Proceeds by the trustee, each
contingent value obligation holder will receive a pro rata portion of the
Interim Excess Disposition Proceeds Payment with respect to such
Disposition.
- ADJUSTMENT TO INTERIM PAYMENT. With respect to each Disposition:
- within 30 Business Days after the termination of all indemnity
obligations with respect to that Disposition, each contingent value
obligation holder will receive a pro rata portion of the Excess
Disposition Proceeds Payment Adjustment (if positive), 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
in which CP&L Energy receives any Disposition Proceeds with respect to
that Disposition, as soon as practicable following the receipt by the
trustee of any Excess Disposition Proceeds attributable to those
Disposition Proceeds, each contingent value obligation holder will
receive a pro rata portion of the 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 as part of 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 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.
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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 equal 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:
- 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.
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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.
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 Energy 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 Energy will have complete and full control and sole discretion with
respect to reporting items on its tax returns and conducting tax audits
and proceedings.
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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:
- 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
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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.
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 or 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).
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
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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 the approval from holders of the contingent value
obligations for 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 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. For more information, see Section 610 of the contingent
value obligation agreement.
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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.
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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, known as 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, known as 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
- 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 made 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
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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.
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, resulting in the elimination of 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.
DEFINITIONS RELATED TO THE CONTINGENT VALUE OBLIGATION CERTIFICATE
"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).
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"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
- 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.
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"EXCESS CARRYFORWARD CREDITS" means the amount equal to:
<TABLE>
<S> <C> <C>
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.
-------------------------------------------------------------------------------
</TABLE>
"EXCESS CARRYFORWARD CREDITS ESTIMATE" means for each tax year after 2007,
the Excess Carryforward Credits originally estimated by CP&L Energy on
March 15(th) 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:
<TABLE>
<S> <C> <C>
the revised Excess Carryforward the original Excess Carryforward
Credits Estimate for a particular Credits Estimate for such tax
tax year, determined as of the Tax -- year, determined as of March
Filing Date for such tax year 15(th) following such tax year.
</TABLE>
"EXCESS CARRYFORWARD CREDITS PAYMENT ADJUSTMENT" means the amount equal to:
<TABLE>
<S> <C> <C>
the actual Excess Carryforward the Interim Excess Carryforward
Credits for a particular tax year, Credits Payment for such tax year.
determined as of the Final --
Determination Date
</TABLE>
"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 15(th) 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:
<TABLE>
<S> <C> <C>
the revised Excess Cash Flow the original Excess Cash Flow
Estimate for a particular Estimate for such Operation Year,
Operation Year, determined as of -- determined as of March 15(th)
the Tax Filing Date for such following such tax year.
Operation Year
</TABLE>
"EXCESS CASH FLOW PAYMENT ADJUSTMENT" means the amount equal to
<TABLE>
<S> <C> <C>
the actual Excess Cash Flow for a the Interim Excess Cash Flow
particular Operation Year, Payment for such Operation Year.
determined as of the Final --
Determination Date
</TABLE>
"EXCESS DISPOSITION PROCEEDS" means the amount equal to either,
- in the event of a Disposition before 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:
<TABLE>
<S> <C> <C>
the remaining Contingency Funds the total Final Excess Disposition
allocable to a particular Proceeds Deposit Adjustment paid
Disposition -- to CP&L Energy for such
Disposition.
</TABLE>
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<PAGE>
"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:
<TABLE>
<S> <C> <C>
the actual Excess Carryforward the Excess Carryforward Credits
Credits for a particular tax year, Estimate for such tax year.
determined as of the Final --
Determination Date
</TABLE>
"FINAL EXCESS CASH FLOW DEPOSIT ADJUSTMENT" means the amount equal to:
<TABLE>
<S> <C> <C>
the actual Excess Cash Flow for a the Excess Cash Flow Estimate for
particular Operation Year, such Operation Year.
determined as of the Final --
Determination Date
</TABLE>
"FINAL EXCESS DISPOSITION PROCEEDS DEPOSIT ADJUSTMENT" means the amount
equal to either:
<TABLE>
<S> <C> <C>
in the event of a Disposition in the event of a Disposition after
before March 16, 2002, 25% of the March 15, 2002, the Ratio
Indemnity Obligation Amount for or multiplied by the Indemnity
such Disposition Obligation Amount for such
Disposition.
</TABLE>
"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
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- 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
- 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 before March 16, 2002
<TABLE>
<S> <C> <C>
the amount deposited by CP&L 25% of the Maximum Indemnity
Energy with the trustee with -- Obligation Amount
respect to a Disposition
</TABLE>
or
- in the event of a Disposition after March 15, 2002
<TABLE>
<S> <C> <C>
the amount deposited by CP&L the Ratio multiplied by the
Energy with the trustee with -- Maximum Indemnity Obligation
respect to a Disposition Amount
</TABLE>
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.
"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 stated in the
agreement providing for indemnity with respect to such Disposition, or
- if no such maximum is stated 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
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<PAGE>
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.
"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 OWNED BY DOLLAR AMOUNT
- ------------------------------------------------- -------------
<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%,
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<PAGE>
- 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 CP&L Energy's annual
United States federal income tax return for the applicable tax year.
"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, 1999 and 1998, and for each of
the years in the three-year period ended December 31, 1999, 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 annual 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, 1999 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.
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<PAGE>
ELECTION OF DIRECTORS
The board of directors of the Florida Progress currently consists of nine
members, divided into three classes. The terms of the three classes expire in
2000 (Class I directors), 2001 (Class II directors) and 2002 (Class III
directors). Directors are generally elected for three-year terms.
Three Class I directors with terms expiring in 2003 are to be elected at the
annual meeting. The board of directors has nominated three persons, all of whom
are currently directors, to stand for election at the annual meeting. The
directors shall be elected by a plurality of the votes cast, so that the three
persons nominated for election as Class I directors receiving the three highest
totals of votes cast in favor of his or her election will be elected as Class I
directors. Each share of common stock entitles its holder to cast one vote in
respect of each director to be elected. Votes may not be cumulated.
It is the intention of the persons named in the accompanying proxy, unless
otherwise directed, to vote all proxies FOR the election of the three nominees
of the board of directors as directors of the Florida Progress. Directors
elected at the annual meeting, after being duly qualified, will serve until
their successors are elected and qualified.
The board of directors has been informed that all nominees are willing to
serve as directors, but if any of them should decline or be unable to serve as a
director, the persons named in the accompanying proxy will vote for the election
of another person or persons as they, in their discretion, may choose. The board
of directors has no reason to believe that any nominee will be unable or
unwilling to serve.
INFORMATION AS TO NOMINEES
The names and ages of the nominees for election as directors, their
principal occupations and employment during the past five years, including a
brief biography, and the first year elected as a director, are as follows:
NOMINEES FOR TERMS EXPIRING IN 2003
(CLASS I DIRECTORS)
MICHAEL P. GRANEY, age 56, Partner, Simpson Thacher & Bartlett, Columbus,
Ohio. He has practiced law with this New York based law firm since 1980 and is
now resident partner in its Ohio office. His specialties are utilities,
antitrust and litigation. He is a member of the American, District of Columbia,
Ohio and Columbus Bar Associations and the Energy Bar Association. He is a
director of Florida Power Corporation, the principal subsidiary of Florida
Progress ("Florida Power"). Committees: Executive; Audit; Nominating and Board
Governance, Chairman. Director since 1991.
JOAN D. RUFFIER, age 60, Chairman of Human Services Technologies, Inc., a
computer software products company which develops, markets and sells software
used to link client information in not-for-profit businesses. She also serves as
President of the University of Florida Foundation and Chair of the Finance
Committee of Shands Healthcare, Inc. She was a General Partner of Sunshine
Cafes, Ltd., Orlando, Florida, a food and beverage concession business at major
Florida airports, for more than five years previously. She practiced public
accounting with the firm of Colley, Trumbower & Howell from 1982-1986. She is a
director of Florida Power and also serves on the boards of directors of Cyprus
Equity Fund and INVEST, INC. Committees: Audit, Chairman; Compliance; Finance
and Budget. Director since 1990.
ROBERT T. STUART, JR., age 67, rancher and investor, Dallas, Texas, for more
than five years. He held numerous executive positions with Mid-Continent Life
Insurance Company ("Mid-Continent") since 1949, including Vice President,
President, Chairman of the Board and Chief Executive Officer until 1986 when
Mid-Continent was acquired by Florida Progress. He is a director of Florida
Power. Committee: Audit. Director since 1986.
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<PAGE>
INFORMATION AS TO CONTINUING DIRECTORS
The names and ages of directors who continue in terms expiring in 2001 and
2002, their principal occupations and employment during the past five years,
including a brief biography, and the first year elected as a director, are as
follows:
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2001
(CLASS II DIRECTORS)
W. D. ("BILL") FREDERICK, JR., age 65, Citrus grower and investor, Orlando,
Florida. From 1980 to 1992, Mr. Frederick served as Mayor of the City of
Orlando. He practiced law as a public defender for the Ninth Judicial Circuit of
Florida and in 1966 founded the Orlando law firm of Frederick, Wooten &
Honeywell P.A. He returned to the practice of law in 1992 as a partner in the
Orlando office of the firm of Holland & Knight from which he retired in 1995. He
is a member of the board of directors of Florida Power, Blue Cross/Blue Shield
of Florida, and SunTrust Bank, Central Florida, N.A. Committees: Compensation;
Nominating and Board Governance; Compliance, Chairman. Director since 1995.
RICHARD KORPAN, age 58, Chairman of the Board, President and Chief Executive
Officer of Florida Progress. He was appointed Chairman of the Board, effective
July 1, 1998. He has held the position of President since 1991, and became Chief
Executive Officer of Florida Progress in June 1997. Since April 1996, he has
also served as Chairman of the Board of Florida Power, and until June 1, 1997,
as Chief Executive Officer of Florida Power. He joined Florida Progress in 1989
as Executive Vice President and Chief Financial Officer. He is a director of
SunTrust Bank of Tampa Bay and a Member of the Business Roundtable. Committee:
Executive, Chairman. Director since 1989.
VINCENT J. NAIMOLI, age 62, Chairman, President and Chief Executive Officer
of Anchor Industries International, Inc., an operating and holding company,
Tampa, Florida, a position he has held for more than five years. He is also
Managing General Partner and Chief Executive Officer of the Tampa Bay Devil
Rays, Ltd. Major League Baseball Club, St. Petersburg, Florida. He is a director
of Florida Power, and in conjunction with the business activities of Anchor
Industries, Mr. Naimoli serves as a director of Russell Stanley Corp. and JLM
Industries. Committees: Executive; Finance and Budget, Chairman; Nominating and
Board Governance. Director since 1992.
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2002
(CLASS III DIRECTORS)
CLARENCE V. MCKEE, ESQ., age 57, Chairman and Chief Executive Officer of
McKee Communications, Inc., Tampa, Florida, a firm involved in the acquisition
and management of television and radio stations. He served as Counsel to
Pepper & Corazinni, a Washington, D.C. communications law firm, from 1980 until
1987 when he became a co-owner of WTVT Holdings, Inc., where he held the
position of Chairman and Chief Executive Officer until 1992. He is a director of
Florida Power, and Checkers Drive-In Restaurants, Inc. Committees: Compensation;
Audit; Nominating and Board Governance. Director since 1989.
RICHARD A. NUNIS, age 67, Former Chairman of Walt Disney Attractions,
Orlando, Florida, from which he retired in December 1998. He held various
positions with the Disney organization since 1955, including Vice President,
Operations in 1968, Executive Vice President of DISNEYLAND and Walt Disney World
in 1972, President of Walt Disney Attractions in 1980, and Chairman in 1991. He
is a director of Florida Power and SunTrust Bank, Central Florida N.A. and
Director Emeritus of The Walt Disney Company. Committees: Executive; Finance and
Budget; Compensation, Chairman. Director since 1989.
JEAN GILES WITTNER, age 65, President of Wittner & Co. as well as its
subsidiaries, St. Petersburg, Florida, firms involved in real estate management
and insurance brokerage, consulting, and third party
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<PAGE>
administration of COBRA and related products, positions she has held for more
than five years. She previously served as President and Chief Executive Officer
of a savings association until it was sold in 1986. She serves on the boards of
Florida Power, and Raymond James Bank, F.S.B. Committees: Executive;
Compensation; Compliance. Director since 1982.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information concerning shares of common stock
that are held by persons known to Florida Progress to be the beneficial owners
of more than 5% of said stock as of December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS
- ---------------- ------------------ --------
<S> <C> <C>
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071..................................... 8,895,000(1) 9.0%
</TABLE>
- ------------------------
(1) Sole dispositive power.
SECURITY OWNERSHIP OF MANAGEMENT
As of March 31, 2000, the directors and nominees and all other named
executive officers individually, and the directors, nominees, named executive
officers and executive officers of Florida Progress as a group, beneficially
owned common stock as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED(1) CLASS (2)
- ---- --------------------- ----------
<S> <C> <C>
W. D. ("Bill") Frederick, Jr................................ 6,093(3)
Michael P. Graney........................................... 5,317
Richard Korpan.............................................. 78,924(4)
Clarence V. McKee........................................... 3,221
Vincent J. Naimoli.......................................... 15,571(5)
Richard A. Nunis............................................ 27,487
Joan D. Ruffier............................................. 7,766
Robert T. Stuart, Jr........................................ 1,505,015(6) 1.53%
Jean Giles Wittner.......................................... 12,092(7)
Richard D. Keller........................................... 48,496(8)
Joseph H. Richardson........................................ 38,740(9)
Kenneth E. Armstrong........................................ 17,403(10)
Jeffrey R. Heinicka......................................... 17,231(11)
Edward W. Moneypenny........................................ 1,847
All 15 directors, nominees, named executive officers and
executive officers as a group, including those named
above..................................................... 1,789,847 1.82%
</TABLE>
- ------------------------
(1) Unless otherwise noted, the directors, nominees and named executive
officers, and the directors, nominees and executive officers as a group,
have sole voting and investment power with respect to the shares listed. An
indication of shared voting or investment power for purposes of this proxy
statement does not constitute an admission of ownership for any other
purpose.
(2) Unless otherwise noted, each director, nominee and named executive officer,
and all directors, nominees and executive officers as a group, own less than
one percent of the outstanding shares of Florida Progress' common stock.
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<PAGE>
(3) Voting and investment power with respect to 2,500 shares is shared.
(4) Voting power with respect to 3,115 shares is shared.
(5) Voting and investment power with respect to 2,200 shares is shared.
(6) Voting and investment power with respect to 150,473 shares is shared.
(7) Voting and investment power with respect to 75 shares is shared.
(8) Voting power with respect to 8,718 shares is shared.
(9) Voting power with respect to 18,368 shares is shared. Investment power with
respect to 13,813 shares is shared.
(10) Voting power with respect to 4,003 shares is shared.
(11) Voting and investment power with respect to 139 shares is shared. Voting
power with respect to 2,695 shares is shared.
CHANGES IN CONTROL
On August 22, 1999 Florida Progress entered into a share exchange agreement
with Carolina Power & Light and CP&L Energy. The agreement was amended on
March 3, 2000. The consummation of share exchange will result in Florida
Progress becomming a wholly owned subsidiary of CP&L Energy and the exchange of
all of Florida Progress' common stock for cash and/or stock of CP&L Energy. See
the earlier sections of this proxy statement relating to the share exchange.
LEGAL PROCEEDINGS
In September 1999, Florida Progress and its directors were served with a
purported class action complaint in connection with the proposed share exchange.
See "The Share Exchange--Florida Progress Shareholder Lawsuit Regarding the
Share Exchange".
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Florida Progress has invested $5 million for a limited partnership interest
in the Tampa Bay Devil Rays, Ltd. ("Devil Rays"), a Florida limited partnership
that acquired in 1995 a Major League Baseball franchise to play scheduled home
baseball games at Tropicana Field in St. Petersburg, Florida. The managing
general partner and a limited partner of the Devil Rays is a corporation
controlled by Vincent J. Naimoli, a director of Florida Progress.
Florida Power has entered into a new and comprehensive Sponsorship,
Promotion and Advertising Agreement (the "Agreement") with the Devil Rays which
replaces all previous agreements between the two entities. The term of the
Agreement is from August 1999 through December 31, 2007 and provides for
advertising, signage, sponsorships and naming rights. Annual fees total
$770,000, with individual components having zero or 3 1/2% annual escalation.
The Agreement includes a lump sum payment of $5 million in 1999 for other
promotions and advertising to be determined based on Florida Power's annual
marketing plans. Activities have fixed pricing for the term of the Agreement.
Florida Progress has the option to convert any unused funds into equity in the
partnership during the term of the Agreement.
In March 1998, Florida Progress entered into a Private Suite License
Agreement ("License") for the use of a private suite in Tropicana Field for a
ten-year term. The $125,000 annual License fee is subject to annual increases
equal to the percentage increase in the Consumer Price Index or 2 1/2%,
whichever is less. The terms and conditions of the License are substantially
similar to those entered into with other licensees.
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<PAGE>
Mr. Michael P. Graney is a partner in the law firm of Simpson Thacher &
Bartlett. That firm provided legal services to Electric Fuels and its
subsidiary, Progress Rail Services Corporation, in 1999, and has been providing
similar legal services in 2000.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 requires Florida
Progress' officers and directors, and persons who own more than ten percent of a
registered class of Florida Progress' equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange. Officers, directors and greater than
ten-percent shareholders are required by SEC regulations to furnish Florida
Progress with copies of all Section 16(a) forms they file.
Based upon a review of the copies of such forms furnished to Florida
Progress during 1999 and written representations concerning the number of
transactions that were not reported on a timely basis, Florida Progress believes
that all of the required persons filed their applicable Section 16(a) reports on
a timely basis during 1999 with the following exception: a Form 4 report of the
sale of a fractional share of common stock was filed late by William G. Kelley,
an executive officer of Florida Progress.
MEETINGS OF THE BOARD OF DIRECTORS AND STANDING COMMITTEES
Florida Progress' board of directors has six standing committees, the
functions of which are briefly described as follows:
THE AUDIT COMMITTEE examines accounting processes and reporting systems,
assesses the adequacy of internal controls, monitors the Company's financial
disclosures, and evaluates the performance and recommends the appointment of
independent auditors.
THE NOMINATING AND BOARD GOVERNANCE COMMITTEE reviews the role, composition,
qualifications and structure of the board and its committees. It reviews and
evaluates Board members in determining the annual directors' slate and
identifies new director nominees. The Committee accepts nominees submitted by
shareholders in accordance with the requirements of the Company's Bylaws. This
Committee, along with the board, is responsible for reviewing and updating the
Florida Progress Statement on Corporate Governance.
THE COMPENSATION COMMITTEE reviews matters related to directors' and
executive officers' compensation, as well as the general employees' compensation
and benefit policies and practices of Florida Progress. This Committee also
approves goals for annual and long-term incentive plans, evaluates performance
against these goals, administers Florida Progress' stock-based long-term
incentive plan and issues the Compensation Committee Report on executive
compensation to shareholders.
THE COMPLIANCE COMMITTEE ensures that the Company has established the
procedures necessary to prevent and detect criminal conduct by its employees and
other agents. It is responsible for oversight of the high standards of ethical
conduct of the Company's businesses implemented through Florida Progress'
Compliance Program and the Code of Conduct.
THE FINANCE AND BUDGET COMMITTEE approves the annual profit plans, capital
budgets and capital allocations of Florida Progress. The Committee also makes
recommendations to the Board regarding dividend policy and reviews financings,
acquisitions or divestitures by Florida Progress or its subsidiaries involving
at least $20 million of total capital.
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THE EXECUTIVE COMMITTEE exercises the authority of the board during the
intervals between meetings of the board.
Members of all committees are identified in the sections titled "Information
as to Nominees" and "Information as to Continuing Directors."
During 1999, each director attended at least 75% of the total number of
board and pertinent committee meetings. During 1999, the board of directors held
seven meetings; the Audit Committee held three meetings; the Compensation
Committee held four meetings; and the Nominating and Board Governance Committee
held two meetings.
The Nominating and Board Governance Committee will consider recommendations
for nominees for election to the board of directors submitted by shareholders.
In addition to other requirements, for a nomination to be made by a shareholder,
Florida Progress' bylaws provide that such shareholder must give timely notice
thereof in proper written form to the Secretary of the Corporation. To be
timely, a shareholder's notice to the Secretary must be delivered to or mailed
and received at the principal executive offices of Florida Progress (a) in the
case of an annual meeting, not less than 90 days nor more than 120 days prior to
the date of the annual meeting; PROVIDED, HOWEVER, that in the event that less
than 100 days' notice or prior 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 so received not later than the close of business on the 10th
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever occurs first; and (b) in the case of a special meeting of shareholders
called for the purpose of electing directors, not later than the close of
business on the 10th day following the day on which the notice of the date of
the special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever occurs first.
COMPENSATION OF DIRECTORS
Under the terms of the Stock Plan for Non-Employee Directors of Florida
Progress Corporation and Subsidiaries (the "Director Plan"), 75% of each
non-employee director's $30,000 retainer fee for 1999 was paid quarterly in
arrears in common stock. In addition, non-employee directors were paid $1,500
for attendance at each meeting of Florida Progress' board of directors, and a
per meeting fee of $1,000 for attendance at each subsidiary board or board
committee meeting. A $750 meeting fee was also paid to each Committee Chairman
for each meeting chaired. Directors were also paid a $500 attendance fee for
participation in strategic update conferences, $1,000 for attendance at
strategic planning seminars and subsidiary briefing tours and were reimbursed
for expenses incurred for Florida Progress business purposes, or may use Florida
Progress transportation or facilities, if available. The cash portion of
directors' compensation is allowed to be deferred.
To further align the interest of the board of directors to those of the
shareholders, the board of directors has implemented a Phantom Stock Plan for
the Benefit of Non-Employee Directors of the Florida Progress (the "Plan"). The
Plan generally provides for the awarding of phantom stock, or the right to
receive in cash the value of a share of stock in the future, subject to certain
conditions. Under the Plan, an initial award, effective January 1, 1999, of
2,000 shares of phantom stock with a six year vesting schedule was made to each
non-employee director. One sixth of the shares is vested for each year of
service by the non-employee director. It is expected that new directors will be
granted similar awards. At the Annual Meeting of Shareholders held April 16,
1999, non-employee directors elected to a three-year term received an award of
600 shares of phantom stock, which vest over a period of three years;
non-employee directors continuing in office for a two-year term received an
award of 400 shares of phantom stock, which vest over a period of two years; and
non-employee directors continuing in office for a one-year term received an
award of 200 shares of phantom stock, which vest over a period of one year. At
the annual meeting of Shareholders to be held in 2000 and continuing thereafter,
each non-employee director elected to a
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three-year term will receive an award of 600 shares of phantom stock to vest
over a period of three years. Directors elected to a lesser term would be given
a prorated award. Dividend equivalents are added to the phantom stock accounts
upon the declaration of each quarterly dividend. The balance of each account
will be paid in a lump sum cash payment or series of annual cash installments
valued on the date of termination of service of the director. In the event of a
change-in-control, all unvested phantom stock awards become immediately vested
and directors receive lump sum cash payments equal to the value of all of their
phantom stock units plus dividend equivalents. See "Changes in Control" on page
{xx}.
The Compensation Committee meets each year to review all elements of
director compensation in comparison to peer and industry data. In
December 1999, the Compensation Committee recommended and the board of directors
approved an increase effective January 1, 2000 in the annual retainer fee to
$35,000 and in the Committee Chair fees to $1,000 per meeting chaired.
EXECUTIVE COMPENSATION
The following table contains information with respect to compensation
awarded, earned or paid during the years 1997-1999 to (i) the Chief Executive
Officer ("CEO") of Florida Progress; (ii) the four most highly compensated
executive officers other than the CEO of Florida Progress who were serving as
executive officers at the end of the last completed fiscal year; and (iii) one
individual for whom disclosures would have been provided pursuant to this item
but for the fact that the individual was not serving as an executive officer of
Florida Progress at the end of the last completed fiscal year (the individuals
referred to in (i), (ii) and (iii) are referred to collectively as the "Named
Executive Officers") whose total remuneration paid in 1999 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ---------- ----------
------------------------------------------------ RESTRICTED ALL OTHER
OTHER ANNUAL STOCK LTIP COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) PAYOUTS(3) SATION(4)
- --------------------------- -------- -------- -------- --------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
RICHARD KORPAN........................... 1999 $766,115 $975,000 $18,033 $519,093 $2,076,331 $29,700
Chairman, President and Chief Executive 1998 650,766 594,000 16,891 N/A 792,754 28,650
Officer 1997 592,304 41,500 11,850 N/A 324,028 26,490
JOSEPH H. RICHARDSON..................... 1999 449,135 490,000 3,685 227,558 910,148 19,125
Group Vice President and President and 1998 421,158 382,500 2,625 N/A 437,994 18,900
Chief Executive Officer, Florida Power 1997 384,619 -0- 1,685 N/A 162,091 13,890
RICHARD D. KELLER........................ 1999 419,135 475,000 10,147 260,241 1,040,921 17,775
Group Vice President and President and 1998 391,926 250,000 4,978 N/A 363,399 17,681
Chief Executive Officer, Electric Fuels 1997 366,733 173,500 413 N/A 205,910 16,227
EDWARD W. MONEYPENNY..................... 1999 261,538 320,000 4,203 -0- 110,120 1,800
Senior Vice President and Chief 1998 N/A N/A N/A N/A N/A N/A
Financial Officer 1997 N/A N/A N/A N/A N/A N/A
KENNETH E. ARMSTRONG..................... 1999 238,852 200,000 205 66,585 266,340 10,575
Vice President and General Counsel 1998 231,933 127,500 -0- N/A 170,849 9,882
1997 215,009 10,000 -0- N/A 88,944 9,963
JEFFREY R. HEINICKA...................... 1999 280,992 199,036 426 77,689 310,800 12,645
former Senior Vice President and Chief 1998 278,530 190,000 1,772 N/A 208,288 12,318
Financial Officer 1997 264,992 15,500 -0- N/A 110,393 12,315
</TABLE>
- ------------------------------
(1) Amounts represent the reimbursement of taxes on certain perquisites and
other personal benefits.
(2) The Named Executive Officers of Florida Progress who met certain stock
ownership guidelines and elected to take their LTIP payouts in common stock,
received an additional 25% of their 1997-1999 Long Term Incentive Plan
("LTIP") award in restricted common stock which vests over a 10-year period
with no shares vesting in years one through five and 20% vesting in each of
the years six through ten. Dividends are payable on the restricted common
stock to the extent and on the same date as dividends are
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paid on all other shares of common stock. All unvested shares of restricted
common stock vest immediately upon the consummation of a change in control.
Information for fiscal year 1999, represents the dollar value as of
February 23, 2000, the date of award, of the total number of shares of
restricted common stock awarded to the Named Executive Officers as follows:
Richard Korpan 12,341 shares; Joseph H. Richardson 5,410 shares; Richard D.
Keller 6,187 shares; Edward W. Moneypenny -0- shares; Kenneth E. Armstrong
1,583 shares; and Jeffrey R. Heinicka 1,847 shares.
(3) Information for fiscal year 1999, represents the dollar value as of
February 23, 2000, the date of award, of shares of common stock earned under
the 1997-1999 performance cycle of Florida Progress' LTIP, none of which are
restricted. The total number of shares earned, including dividend equivalent
shares, is as follows: Richard Korpan 49,363 shares; Joseph H. Richardson
21,638 shares; Richard D. Keller 24,747 shares; Edward W. Moneypenny 2,618
shares; Kenneth E. Armstrong 6,332 shares; and Jeffrey R. Heinicka 7,389
shares.
For a discussion of the method of calculating payouts, see "Long-Term
Incentive Compensation" in the "Report of the Compensation Committee of the
Board of Directors" on pages .
(4) Company contributions to the Florida Progress Savings Plan and Executive
Optional Deferred Compensation Plan on behalf of the Named Executive
Officers.
The following table contains information with respect to performance shares
granted in 1999 to the Named Executive Officers of Florida Progress under the
LTIP:
LONG-TERM INCENTIVE PLAN(1)
AWARDS IN 1999
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE ESTIMATED PAYOUT AT END OF PERIOD (3)
PERFORMANCE PERIOD --------------------------------------------
NAME SHARES (2) COVERED THRESHOLD TARGET MAXIMUM
- ---- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Richard Korpan.............. 23,109 1999-2001 5,777 shares 23,109 shares 46,218 shares
Joseph H. Richardson........ 9,904 1999-2001 2,476 shares 9,904 shares 19,808 shares
Richard D. Keller........... 9,243 1999-2001 0 shares 9,243 shares 25,418 shares
Jeffrey R. Heinicka......... 2,474 1999-2001 619 shares 2,474 shares 4,948 shares
Kenneth E. Armstrong........ 2,069 1999-2001 517 shares 2,069 shares 4,138 shares
Edward W. Moneypenny........ 1,406 1997-1999 352 shares 1,406 shares 2,812 shares
Edward W. Moneypenny........ 3,093 1998-2000 773 shares 3,093 shares 6,186 shares
Edward W. Moneypenny........ 4,779 1999-2001 1,195 shares 4,779 shares 9,558 shares
</TABLE>
- ------------------------
(1) The LTIP is a common stock and cash-based incentive plan to reward
participants for long-term performance of Florida Progress. It was approved
by the shareholders in 1990. See "Long-Term Incentive Compensation" in the
"Report of the Compensation Committee of the Board of Directors" on
pages for additional information.
(2) The number of performance shares granted is based on a percentage of base
salary in effect at the time of each award and is subject to automatic
increase or decrease on a prorated basis in accordance with changes to a
participant's base salary or LTIP percentages throughout the performance
cycle. In the event of a change in control of Florida Progress, 150% of all
performance shares granted to the Named Executive Officers under the LTIP
and then outstanding would automatically be considered earned and would be
paid 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.
(3) Payouts for the 1999-2001 performance cycle are based on a comparison of
Florida Progress' three-year average annual total shareholder return against
an industry peer group, and for Mr. Keller, based also on Electric Fuels'
compound annual earnings growth and return on average invested capital.
Under certain circumstances, including the achievement of stock ownership
guidelines upon normal conclusion of applicable cycles, beginning in 2000, the
Named Executive Officers are entitled to a 25%
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restricted stock incentive bonus based on the number of shares of common stock
earned under each performance cycle of the LTIP. The restricted stock vests over
a 10-year period, but all shares would vest immediately upon consummation of a
change in control.
PENSION PLAN TABLE
The table below illustrates the estimated annual benefits (computed as a
straight life annuity beginning at retirement at age 65) payable under Florida
Progress' Retirement Plan for Exempt and Nonexempt Employees ("Retirement
Plan"), Nondiscrimination Plan and Supplemental Executive Retirement Plan
("SERP") for specified final average compensation and years of service levels.
ESTIMATED AGGREGATE ANNUAL RETIREMENT BENEFITS PAYABLE UNDER
THE RETIREMENT PLAN FOR EXEMPT AND NONEXEMPT EMPLOYEES,
THE NONDISCRIMINATION PLAN AND THE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
"TABLE A"
<TABLE>
<CAPTION>
SERVICE YEARS
AVERAGE ANNUAL ------------------------------------------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30 35 OR MORE
- --------------------- -------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 37,500 $ 75,000 $ 112,500 $ 120,000 $ 120,000 $ 120,000 $ 126,000
300,000 56,250 112,500 168,750 180,000 180,000 180,000 189,000
400,000 75,000 150,000 225,000 240,000 240,000 240,000 252,000
500,000 93,750 187,500 281,250 300,000 300,000 300,000 315,000
600,000 112,500 225,000 337,500 360,000 360,000 360,000 378,000
700,000 131,250 262,500 393,750 420,000 420,000 420,000 441,000
800,000 150,000 300,000 450,000 480,000 480,000 480,000 504,000
900,000 168,750 337,500 506,250 540,000 540,000 540,000 567,000
1,000,000 187,500 375,000 562,500 600,000 600,000 600,000 630,000
1,100,000 206,250 412,500 618,750 660,000 660,000 660,000 693,000
1,200,000 225,000 450,000 675,000 720,000 720,000 720,000 756,000
1,300,000 243,750 487,500 731,250 780,000 780,000 780,000 819,000
1,400,000 262,500 525,000 787,500 840,000 840,000 840,000 882,000
1,500,000 281,250 562,500 843,750 900,000 900,000 900,000 945,000
1,600,000 300,000 600,000 900,000 960,000 960,000 960,000 1,008,000
1,700,000 318,750 637,500 956,250 1,020,000 1,020,000 1,020,000 1,071,000
1,800,000 337,500 675,000 1,012,500 1,080,000 1,080,000 1,080,000 1,134,000
1,900,000 356,250 712,500 1,068,750 1,140,000 1,140,000 1,140,000 1,197,000
2,000,000 375,000 750,000 1,125,000 1,200,000 1,200,000 1,200,000 1,260,000
2,100,000 393,750 787,500 1,181,250 1,260,000 1,260,000 1,260,000 1,323,000
</TABLE>
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ESTIMATED AGGREGATE ANNUAL RETIREMENT BENEFITS PAYABLE UNDER
THE RETIREMENT PLAN FOR EXEMPT AND NONEXEMPT EMPLOYEES,
THE NONDISCRIMINATION PLAN AND THE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
"TABLE B"
<TABLE>
<CAPTION>
SERVICE YEARS
AVERAGE ANNUAL ------------------------------------------------------------------------------------------------------
COMPENSATION 5 10 15 20 25 30 35 OR MORE
- --------------------- -------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 30,000 $ 60,000 $ 90,000 $ 120,000 $ 120,000 $ 120,000 $ 126,000
300,000 45,000 90,000 135,000 180,000 180,000 180,000 189,000
400,000 60,000 120,000 180,000 240,000 240,000 240,000 252,000
500,000 75,000 150,000 225,000 300,000 300,000 300,000 315,000
600,000 90,000 180,000 270,000 360,000 360,000 360,000 378,000
700,000 105,000 210,000 315,000 420,000 420,000 420,000 441,000
800,000 120,000 240,000 360,000 480,000 480,000 480,000 504,000
900,000 135,000 270,000 405,000 540,000 540,000 540,000 567,000
1,000,000 150,000 300,000 450,000 600,000 600,000 600,000 630,000
1,100,000 165,000 330,000 495,000 660,000 660,000 660,000 693,000
1,200,000 180,000 360,000 540,000 720,000 720,000 720,000 756,000
1,300,000 195,000 390,000 585,000 780,000 780,000 780,000 819,000
1,400,000 210,000 420,000 630,000 840,000 840,000 840,000 882,000
1,500,000 225,000 450,000 675,000 900,000 900,000 900,000 945,000
1,600,000 240,000 480,000 720,000 960,000 960,000 960,000 1,008,000
1,700,000 255,000 510,000 765,000 1,020,000 1,020,000 1,020,000 1,071,000
1,800,000 270,000 540,000 810,000 1,080,000 1,080,000 1,080,000 1,134,000
1,900,000 285,000 570,000 855,000 1,140,000 1,140,000 1,140,000 1,197,000
2,000,000 300,000 600,000 900,000 1,200,000 1,200,000 1,200,000 1,260,000
2,100,000 315,000 630,000 945,000 1,260,000 1,260,000 1,260,000 1,323,000
</TABLE>
The Named Executive Officers are entitled to benefits under the SERP. These
benefits are offset by the benefits payable under the Retirement Plan and the
Nondiscrimination Plan, as well as 50% of the executive's primary Social
Security benefit. The estimated annual SERP benefit for the Named Executive
Officers (except for Mr. Moneypenny) (each a "Grandfathered Participant"), prior
to any offsets, may be determined using the Pension Plan Table "A" (the
"Grandfathered Participant table") set forth above. The estimated annual SERP
benefit for Mr. Moneypenny (the "non-grandfathered participant"), prior to any
offsets and subject to a vesting schedule, may be determined using Pension Plan
Table "B" (the "non-grandfathered participant table") also set forth above. For
these purposes, the current compensation for each executive that would be used
in calculating benefits under the SERP is substantially the same as the three
year average of the salary and bonus reported in the summary compensation table,
and the number of years of deemed credited service that would be used in
calculating benefits under the SERP for each such executive is as follows:
Mr. Korpan, 35 years of service; Mr. Richardson, 24 years of service;
Mr. Keller, 21 years of service; Mr. Moneypenny, 1 year of service;
Mr. Armstrong, 16 years of service; and Mr. Heinicka, 22 years of service. Under
the formula used for calculating benefits under the SERP, the maximum benefit
payable to each Grandfathered Participant who is a Named Executive Officer would
be reached at 16 years of deemed credited service unless the Named Executive
Officer would have 35 years of deemed credited service. The maximum benefit
payable to a Named Executive Officer who is a non-grandfathered participant
would be reached at 20 years of service unless the Named Executive Officer would
have 35 years of deemed credited service.
Accrued benefits may also be paid under each of the Retirement Plan,
Nondiscrimination Plan and SERP if a participant terminates employment before
age 65 and meets the requirements for early retirement, disability, death or
other termination-of-employment benefits after becoming vested under the rules
of the particular plan.
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Under the Retirement Plan and the Nondiscrimination Plan, the compensation
taken into account in calculating benefits is salary only. The years of credited
service that would be used in calculating benefits under the formula applicable
to the Retirement Plan and the Nondiscrimination Plan (1.8% of final average
earnings for each year of service) for the Named Executive Officers in the
summary compensation table are as follows: Mr. Korpan, 11 years of service;
Mr. Richardson, 24 years of service; Mr. Keller, 21 years of service;
Mr. Moneypenny, 1 year of service, Mr. Armstrong, 13 years of service; and
Mr. Heinicka, 22 years of service. The benefits under the Retirement Plan and
the Nondiscrimination Plan are subject to offset by an amount equal to 1 1/7% of
a participant's primary Social Security benefit for each year of service (with a
maximum offset of 40%).
In the event of a change in control, each Grandfathered Participant
currently employed by Florida Progress would receive credit under the SERP for
five additional years of service, but in no event would such additional years of
credited service cause the maximum benefit to be increased. Each
non-grandfathered participant would receive a credit under the SERP for three
additional years of service, but in no event would such additional years of
credited service cause the maximum benefit to be increased. If a participant's
employment were terminated following a change in control, the benefit payable
from the SERP would be as follows: (1) an annuity at age 55 through 59, subject
to early payment reductions in the amount of 3% (for Grandfathered Participants)
or 5% (for non-grandfathered participants) for each year prior to age 60, or at
age 60 without reduction; (2) the amount of any federal excise taxes (and income
taxes on any reimbursement under this provision) imposed on the executive under
Section 4999 of the Internal Revenue Code; and (3) a 50% surviving spouse
benefit payable upon death.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Florida Progress has had an employment agreement with Mr. Korpan since 1995.
The term of the current agreement is from March 1, 1998 through February 28,
2002. On each March 1, beginning with March 1, 2000, the agreement will
automatically be extended for one additional year, unless either party gives
90 days' written notice to the contrary. 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
LTIP, 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 be terminated as
a result of a change in control prior to age 62, his total retirement benefit
would be comparable to his retirement benefit based on a minimum average annual
compensation of approximately $1.2 million. To the extent that benefits are
payable under both Mr. Korpan's employment agreement and the agreement referred
to in the next paragraph, they are payable to the maximum extent under either,
but not both, of those agreements.
Change-in-control benefits were previously included in the SERP which was
originally adopted August 1, 1989, and which has been amended from time to time.
In 1998, Florida Progress entered into individual agreements dealing with a
change in control as defined in each agreement with each of the Named Executive
Officers, except Mr. Moneypenny's agreement which was entered into upon his
employment in March, 1999. Mr. Korpan's and Mr. Richardson's agreements were
amended in August, 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 original agreements implemented changes to the change-in-control
benefits previously included in the SERP and reduced the cost to Florida
Progress in the event a change in control occurs. The exact terms of the change
in control agreements vary, but generally fit within three categories.
Generally, the agreements entitle the executives to compensation and benefits at
least equal to the compensation and benefits they were receiving prior to the
change in control. Severance benefits would be provided under the agreements if
the individual's employment were to be actively or constructively terminated
within 36 months after a change in control occurred. Finally, severance benefits
will be provided following a termination of employment for any reason during the
13th month after the
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consummation of a change in control transaction. Severance benefits to which the
Named Executive Officer would be entitled include the following:
(1) a cash payment equal to two, two and one half, or three times the
individual's annual base salary and annual bonus;
(2) payout in cash at 150%, 200%, or 275% of the number of shares granted under
the LTIP after a change in control less any amounts paid upon consummation
of the change in control as provided under the LTIP;
(3) credit for three or five additional years of service, not to exceed the
maximum, under the SERP;
(4) continuation of welfare benefits comparable to those in place prior to the
change in control for 24, 30 or 36 months following termination, with
lifetime access to medical insurance at the individual's expense thereafter;
(5) 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
(6) 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 individual's whole for any excise tax imposed by Section 4999 of the
Internal Revenue Code.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
EXECUTIVE COMPENSATION DESIGN
Florida Progress' executive compensation system is intended to attract,
retain and motivate high quality executives with individually tailored market-
and performance-based compensation packages that reward protection of Florida
Progress assets and enhancement of shareholder value. The Compensation Committee
of the board of directors of Florida Progress (the "Committee"), comprised
solely of non-employee directors, approves total compensation opportunities and
awards for executive officers of Florida Progress and Florida Power. The target
compensation for each executive officer is established annually by the Committee
and is made up of three principal components: base salary; annual incentive cash
compensation; and long-term incentive compensation payable in cash or common
stock. A significant portion of each executive officer's total target
compensation is variable, at risk and dependent upon Florida Progress' annual
and long-term performance.
In determining target compensation, the Committee reviews market values
compiled by human resource professionals from several independent surveys based
upon an equal blend of compensation levels of both electric power and general
industry median rates, where possible. This philosophy is intended to reflect
the changing nature of the electric utility industry and to recognize the fact
that pay practices in the future must be adequate to attract talented employees
from other industries. In establishing 1999 target compensation opportunities,
the Committee received an updated competitive compensation analysis for total
direct compensation presented by a representative of Towers Perrin, a benefits
consulting firm, for each executive officer. On an overall basis, Florida
Progress' executive compensation levels were generally aligned with their
respective target markets; however, they were below competitive levels, on a
total direct compensation basis due to Florida Progress' long-term incentive
levels which had fallen behind competitive levels because of significant
increases in long-term incentive market practices.
The Committee believes its "pay-for-performance" program, which compensates
an executive officer at his or her target level of compensation only if specific
goals are achieved, is a fair way to structure an executive compensation
program. The program rewards executives for meeting performance targets, thus
producing benefits for Florida Progress and its shareholders.
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A discussion of the three compensation components and the actions taken by
the Committee with respect to compensation reported for 1999 for the Named
Executive Officers follows:
BASE SALARY
The base salary component is based, in most instances, on an equal weighting
of market data from both utility and general industry sources. An executive
officer's base salary will vary within this competitive framework based on
experience, responsibilities, leadership and performance. As a result, updated
market data indicated that increases were appropriate in 1999 for the Named
Executive Officers (except for Mr. Moneypenny who began employment in
March 1999) as is reflected in the Summary Compensation Table. For Florida
Progress' Chairman and CEO, the Committee took into consideration the market
value range which included responsibilities as both Chairman of the Board and
Chief Executive Officer. In addition, the Chairman and CEO's base salary was
increased from $750,000 to $800,000 in August 1999 based on updated market data
provided by two compensation consultants, Hewitt Associates and Towers Perrin.
ANNUAL INCENTIVE CASH COMPENSATION
Florida Progress' Management Incentive Compensation Plan ("MICP") provides
annual incentive cash compensation opportunities to officers and key employees
of Florida Progress and Florida Power (including the Named Executive Officers)
by creating performance award opportunities associated with the achievement of
corporate and business unit goals. For 1999, the goals associated with the
threshold (50%), target (100%) and maximum (200%) payout levels of the MICP for
Florida Power business units were based on five components: earnings per share
(EPS), price, reliability, service and employee safety. Electric Fuel's 1999
MICP corporate goals were again based on net income growth and return on
invested capital, the same measurements as the previous year with payout levels
of threshold (50%), target (100%) and maximum (150%). Florida Power
participants' goals are based 100% on its results; the Energy and Transportation
Group Vice President's goals are based 100% on Electric Fuel's goals and Florida
Progress participants' goals are based 80% on Florida Power's earnings per share
goal, 15% on Electric Fuel's goals and 5% on a goal based on the budgeted net
income for "corporate and other."
The 1999 annual incentive compensation opportunities at target payout level
for the Named Executive Officers ranged from 40% to 65% of base salary. None of
the target opportunities were increased from 1998, except the target opportunity
established for Florida Progress' CEO was increased from 60% to 65%.
The amounts contained in the bonus column of the Summary Compensation Table
for the Named Executive Officers (other than Florida Progress' CEO) for 1999 are
the result of the Committee's determination that 1999 results were slightly
below the maximum goals established for Florida Power, at the maximum goals
established for Electric Fuels corporate and slightly below the maximum goals
established for Florida Progress. The amount contained in the bonus column of
the Summary Compensation Table for Florida Progress' CEO for 1999 is based on
achievement at 188% of the target goal. The amounts contained in the bonus
column for all the Named Executive Officers were the result of the application
of a mathematical formula that converts the goal levels achieved into dollar
amounts and adjustments made by Florida Progress' CEO up to 25% with respect to
three of the Named Executive Officers which were approved by the Committee.
LONG-TERM INCENTIVE COMPENSATION
To facilitate executive stock ownership and align the interest of key
executives with that of Florida Progress' other shareholders in the long-term
performance of Florida Progress, the Committee awarded in 1999 the Named
Executive Officers the opportunity to earn common stock or cash through the
grant of performance shares under Florida Progress' LTIP, as indicated in the
table appearing on page . To date, under the LTIP, the Committee has granted
performance shares for ten consecutive three-year performance cycles beginning
with the 1991-1993 performance cycle.
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To the extent earned, performance shares are converted into shares of
unrestricted common stock; however, if certain stock ownership guidelines have
been met, a participant may elect to convert such performance shares into either
unrestricted common stock or cash. To further align the interests of its
officers with those of the shareholder, in June, 1999 the Compensation Committee
adopted increased stock ownership guidelines. As an incentive to achieve the
increased stock ownership guidelines, the Compensation Committee granted
officers the opportunity to earn an additional 25% of the amount of the
officer's LTIP award in restricted common stock, provided the officer meets the
stock ownership guidelines and elects to take his or her LTIP award in stock,
rather than cash. The restricted common stock has a 10-year vesting schedule
with no shares vesting in years one through five and 20% vesting in each of
years 6 through 10. All of the unvested restricted common stock will vest
immediately upon consummation of a change in control.
The financial goals for the 1997-1999 performance cycle of the LTIP were
established by the Committee to be a comparison of Florida Progress' total
shareholder return against an industry peer group. The goal for the Group Vice
President, Energy and Transportation Group, also included a three-year earnings
growth and return on invested capital goal weighted 75%, with Florida Progress'
total shareholder return goal weighted 25%.
The payouts listed in the Long-Term Compensation column of the Summary
Compensation Table for the Named Executive Officers on page for the 1997-1999
performance cycle are the result of the Committee's determination of slightly
below maximum achievement of Florida Progress' total shareholder return goal and
77% of maximum payout based on the achievement of Electric Fuel's earnings
growth and return on invested capital goal. A mathematical formula was used to
convert the goal level achieved into the number of performance shares earned;
then, dividend equivalents on shares earned for the period of the performance
cycle were added. All payouts to currently employed Named Executive Officers
were made in shares of common stock and all of the Named Executive Officers,
except the recently employed Chief Financial Officer, met their stock ownership
guidelines, resulting in the award of an additional 25% in restricted common
stock as reflected in the table.
During 1999, the Committee approved the number of performance shares granted
to each Named Executive Officer (other than Florida Progress' CEO) for the
1999-2001 performance cycle that had a value on the date of grant equal to 40%
to 100% of 1999 base salary, depending on the total compensation opportunity
established by the Committee for each executive. Increases were made to the
target percentages for several of the Named Executive Officers from the
percentages used in the previous performance cycle due to the Towers Perrin
presentation previously discussed. The grants are subject to automatic increase
or decrease on a prorated basis in accordance with changes to a participant's
base salary or LTIP percentage during the performance cycle. For Florida
Progress' CEO the number of performance shares granted for the 1999-2001
performance cycle had a value on the date of grant equal to 140% of his 1999
base salary which was initially increased from the previous year based upon a
review of updated market data for the targeted range for Florida Progress'
Chairman and CEO. In addition, the Chairman and CEO's LTIP percentage was
increased in August 1999 to 180% of his base salary in accordance with updated
market value data provided by two compensation consulting firms, Hewitt
Associates and Towers Perrin.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code would deny Florida Progress a
deduction for compensation paid to each Named Executive Officer in a taxable
year to the extent it exceeds $1 million per officer, unless the compensation
qualifies as "performance-based compensation." In 1997, the Committee rescinded
an amendment to Florida Progress' MICP that provided for the mandatory deferral
of annual cash incentive compensation that would not qualify for a Florida
Progress tax deduction due to Section 162(m) of the Internal Revenue Code until
such time as it becomes deductible. The MICP deferral
157
<PAGE>
was no longer effective in preserving the full deduction and the Committee has
determined that the amount of the foregone deduction for 1999 was not material.
Respectfully submitted,
Richard A. Nunis, Chairman
W. D. ("Bill") Frederick, Jr.
Clarence V. McKee
Jean Giles Wittner
COMPANY PERFORMANCE
The following graph compares Florida Progress' performance, as measured by
the change in price of its common stock, plus reinvested dividends, with the
Standard & Poor's ("S & P") Electric Companies stock index and the S & P 500
stock index for the five years ended December 31, 1999:
[CHART]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Florida Progress................................. 100 126 122 158 190 189
S & P Electric Companies......................... 100 131 130 165 191 154
S & P 500........................................ 100 138 169 226 290 351
</TABLE>
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The firm of KPMG LLP, which has been Florida Progress' independent certified
public accountants since February 2, 1990, was recommended by the Audit
Committee and approved by the board of directors as Florida Progress' auditor
for the year ended December 31, 1999.
On February 23, 2000, Florida Progress again selected KPMG LLP as its
independent auditors for the current year. Representatives of KPMG LLP are
expected to be present at the annual meeting, 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.
158
<PAGE>
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 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 meeting or any adjournment of
either company's 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.
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 November [13],
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 1, 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 2001 annual
meeting schedule and the meeting date is changed by more than 30 calendar days
from May 10, 2001, shareholder proposals for the 2001 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.
159
<PAGE>
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 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 explained 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 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.
<TABLE>
<CAPTION>
CAROLINA POWER & LIGHT SECURITIES AND
EXCHANGE COMMISSION FILINGS (FILE NO. 1-3382) PERIOD/AS OF DATE
- ---------------------------------------------- -----------------------------------------
<S> <C>
Definitive Proxy Statement................. March 31, 2000
Annual Report on Form 10-K................. Fiscal year ended December 31, 1999
Quarterly Report on Form 10-Q.............. Quarter ended March 31, 2000
Current Report on Form 8-K................. April 1, 2000
</TABLE>
160
<PAGE>
<TABLE>
<CAPTION>
CP&L ENERGY SECURITIES AND EXCHANGE COMMISSION
FILINGS (FILE NO. 333-86243) PERIOD/AS OF DATE
- ---------------------------------------------- -----------------------------------------
<S> <C>
Registration Statement on Form S-4
(Registration No. 333-86243)............... Filed August 31, 1999
Annual Report on Form 10-K................. Fiscal year ended December 31, 1999
</TABLE>
<TABLE>
<CAPTION>
FLORIDA PROGRESS SECURITIES AND EXCHANGE COMMISSION
FILINGS (FILE NO. 1-3274) PERIOD/AS OF DATE
- --------------------------------------------------- -----------------------------------------
<S> <C>
Annual Report on Form 10-K.................... Fiscal year ended December 31, 1999
Quarterly Report on Form 10-Q................. Quarter ended March 31, 2000
Current Report on Form 8-K.................... April 27, 2000
Current Report on Form 8-K.................... February 24, 2000
Current Report on Form 8-K.................... January 27, 2000
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
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.
161
<PAGE>
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
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
ARTICLE I DEFINITIONS............................................................. A-1
Section 1.1. AGREEMENT................................................ A-1
Section 1.2. ALTERNATIVE PROPOSAL..................................... A-1
Section 1.3. ATOMIC ENERGY ACT........................................ A-1
Section 1.4. CERTIFICATES............................................. A-1
Section 1.5. CLOSING; CLOSING DATE.................................... A-1
Section 1.6. COBRA.................................................... A-2
Section 1.7. CODE..................................................... A-2
Section 1.8. CONFIDENTIALITY AGREEMENT................................ A-2
Section 1.9. CONTRACTS................................................ A-2
Section 1.10. CP&L COMMON STOCK........................................ A-2
Section 1.11. CP&L COMPANIES........................................... A-2
Section 1.12. CP&L DISCLOSURE SCHEDULE................................. A-2
Section 1.13. CP&L EXCHANGE............................................ A-2
Section 1.14. CP&L EXCHANGE AGREEMENT.................................. A-2
Section 1.15. CP&L EXCHANGE REGISTRATION STATEMENT..................... A-2
Section 1.16. CP&L EXCHANGE SPECIAL MEETING............................ A-2
Section 1.17. CP&L SEC REPORTS......................................... A-2
Section 1.18. EFFECTIVE TIME........................................... A-3
Section 1.19. ENCUMBRANCES............................................. A-3
Section 1.20. ENVIRONMENTAL CLAIM AND ENVIRONMENTAL LAWS............... A-3
Section 1.21. ENVIRONMENTAL PERMITS.................................... A-3
Section 1.22. ERISA.................................................... A-3
Section 1.23. EXCHANGE................................................. A-3
Section 1.24. EXCHANGE ACT............................................. A-3
Section 1.25. EXCHANGE AGENT........................................... A-3
Section 1.26. EXCHANGE CONSIDERATION................................... A-3
Section 1.27. FBCA..................................................... A-3
Section 1.28. FCC...................................................... A-3
Section 1.29. FERC..................................................... A-3
Section 1.30. FINAL STOCK PRICE........................................ A-3
Section 1.31. FPC ARTICLES OF EXCHANGE................................. A-4
Section 1.32. FPC BENEFIT PLANS........................................ A-4
Section 1.33. FPC COMMON STOCK......................................... A-4
Section 1.34. FPC COMPANIES............................................ A-4
Section 1.35. FPC DISCLOSURE SCHEDULE.................................. A-4
Section 1.36. FPC LTIP................................................. A-4
Section 1.37. FPC PENSION PLAN......................................... A-4
Section 1.38. FPC PLAN OF EXCHANGE..................................... A-4
Section 1.39. FPC QUALIFIED PLAN....................................... A-4
Section 1.40. FPC RIGHTS............................................... A-4
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
Section 1.41. FPC RIGHTS AGREEMENT..................................... A-4
Section 1.42. FPC SEC REPORTS.......................................... A-4
Section 1.43. FPC SHARE................................................ A-5
Section 1.44. FPC SPECIAL MEETING...................................... A-5
Section 1.45. FPC UTILITY SUBSIDIARY................................... A-5
Section 1.46. FPSC..................................................... A-5
Section 1.47. FUND..................................................... A-5
Section 1.48. GAAP..................................................... A-5
Section 1.49. GOVERNMENTAL AUTHORITY................................... A-5
Section 1.50. HAZARDOUS MATERIAL....................................... A-5
Section 1.51. HOLDCO................................................... A-5
Section 1.52. HOLDCO COMMON STOCK...................................... A-5
Section 1.53. HOLDCO SPECIAL MEETING................................... A-5
Section 1.54. HSR ACT.................................................. A-5
Section 1.55. IRS...................................................... A-5
Section 1.56. KNOWLEDGE OF CP&L........................................ A-6
Section 1.57. KNOWLEDGE OF FPC......................................... A-6
Section 1.58. LAW...................................................... A-6
Section 1.59. MATERIAL ADVERSE EFFECT.................................. A-6
Section 1.60. MERRILL LYNCH............................................ A-6
Section 1.61. NCBCA.................................................... A-6
Section 1.62. NCUC..................................................... A-6
Section 1.63. NRC...................................................... A-6
Section 1.64. NYSE..................................................... A-6
Section 1.65. PARTNERSHIP; PARTNERSHIPS................................ A-6
Section 1.66. PERMITS.................................................. A-6
Section 1.67. POWER ACT................................................ A-7
Section 1.68. PROXY STATEMENT/PROSPECTUS............................... A-7
Section 1.69. PUHCA.................................................... A-7
Section 1.70. REGISTRATION STATEMENT................................... A-7
Section 1.71. RELEASE.................................................. A-7
Section 1.72. SALOMON SMITH BARNEY..................................... A-7
Section 1.73. SCPSC.................................................... A-7
Section 1.74. SEC...................................................... A-7
Section 1.75. SECURITIES ACT........................................... A-7
Section 1.76. SIGNIFICANT SUBSIDIARY................................... A-7
Section 1.77. SUBSIDIARY; SUBSIDIARIES................................. A-7
Section 1.78. SUPERIOR PROPOSAL........................................ A-7
Section 1.79. TAX OR TAXES............................................. A-7
Section 1.80. TAX RETURN............................................... A-8
Section 1.81. CVO...................................................... A-8
Section 1.82. CVO AGREEMENT............................................ A-8
Section 1.83. TRUSTEE.................................................. A-8
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
ARTICLE II THE EXCHANGE............................................................ A-8
Section 2.1. THE EXCHANGE............................................. A-8
Section 2.2. CLOSING; FILING OF ARTICLES OF EXCHANGE.................. A-9
Section 2.3. EXCHANGE OF CERTIFICATES................................. A-9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CP&L AND HOLDCO....................... A-9
Section 3.1. ORGANIZATION AND AUTHORITY OF THE CP&L COMPANIES......... A-9
Section 3.2. CAPITALIZATION........................................... A-9
Section 3.3. AUTHORITY RELATIVE TO THIS AGREEMENT..................... A-10
Section 3.4. CONSENTS AND APPROVALS; NO VIOLATIONS.................... A-10
Section 3.5. REPORTS.................................................. A-11
Section 3.6. ABSENCE OF CERTAIN EVENTS................................ A-12
Section 3.7. PROXY STATEMENT/PROSPECTUS............................... A-12
Section 3.8. LITIGATION............................................... A-12
Section 3.9. CONTRACTS; NO DEFAULT.................................... A-12
Section 3.10. EMPLOYEE BENEFIT PLANS................................... A-13
Section 3.11. TAX MATTERS.............................................. A-14
Section 3.12. COMPLIANCE WITH LAW...................................... A-14
Section 3.13. ENVIRONMENTAL MATTERS.................................... A-15
Section 3.14. CP&L ACTION.............................................. A-16
Section 3.15. VOTES REQUIRED........................................... A-16
Section 3.16. MATERIAL INTERESTS OF CERTAIN PERSONS.................... A-16
Section 3.17. REGULATION AS A UTILITY.................................. A-16
Section 3.18. ABSENCE OF UNDISCLOSED LIABILITIES....................... A-16
Section 3.19. YEAR 2000 MATTERS........................................ A-17
Section 3.20. NUCLEAR OPERATIONS....................................... A-17
Section 3.21. NRC ACTIONS.............................................. A-17
Section 3.22. FEES AND EXPENSES OF BROKERS AND OTHERS.................. A-17
Section 3.23. OPINION OF FINANCIAL ADVISOR............................. A-18
Section 3.24. OWNERSHIP OF FPC COMMON STOCK............................ A-18
Section 3.25. CP&L PARTNERSHIPS........................................ A-18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF FPC................................... A-18
Section 4.1. ORGANIZATION AND AUTHORITY OF THE FPC COMPANIES.......... A-18
Section 4.2. CAPITALIZATION........................................... A-18
Section 4.3. AUTHORITY RELATIVE TO THIS AGREEMENT..................... A-19
Section 4.4. CONSENTS AND APPROVALS; NO VIOLATIONS.................... A-19
Section 4.5. REPORTS.................................................. A-20
Section 4.6. ABSENCE OF CERTAIN EVENTS................................ A-20
Section 4.7. PROXY STATEMENT/PROSPECTUS............................... A-21
Section 4.8. LITIGATION............................................... A-21
Section 4.9. REAL AND PERSONAL PROPERTY............................... A-21
Section 4.10. CONTRACTS; NO DEFAULT.................................... A-22
Section 4.11. LABOR MATTERS............................................ A-22
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
Section 4.12. EMPLOYEE BENEFIT PLANS................................... A-23
Section 4.13. TAX MATTERS.............................................. A-25
Section 4.14. COMPLIANCE WITH LAW...................................... A-26
Section 4.15. ENVIRONMENTAL MATTERS.................................... A-27
Section 4.16. FPC ACTION............................................... A-28
Section 4.17. VOTE REQUIRED............................................ A-28
Section 4.18. MATERIAL INTERESTS OF CERTAIN PERSONS.................... A-28
Section 4.19. INSURANCE................................................ A-29
Section 4.20. FEES AND EXPENSES OF BROKERS AND OTHERS.................. A-29
Section 4.21. OPINION OF FINANCIAL ADVISOR............................. A-29
Section 4.22. REGULATION AS UTILITY OR AS PART OF UTILITY HOLDING
COMPANY SYSTEM......................................... A-29
Section 4.23. ABSENCE OF UNDISCLOSED LIABILITIES....................... A-29
Section 4.24. INTELLECTUAL PROPERTY.................................... A-30
Section 4.25. YEAR 2000 MATTERS........................................ A-30
Section 4.26. NUCLEAR OPERATIONS....................................... A-30
Section 4.27. NRC ACTIONS.............................................. A-31
Section 4.28. OWNERSHIP OF CP&L COMMON STOCK........................... A-31
Section 4.29. FPC PARTNERSHIPS......................................... A-31
ARTICLE V COVENANTS............................................................... A-31
Section 5.1. CONDUCT OF THE BUSINESS OF FPC........................... A-31
Section 5.2. CONDUCT OF THE BUSINESS OF CP&L.......................... A-34
Section 5.3. NO SOLICITATION.......................................... A-34
Section 5.4. THE REGISTRATION STATEMENT; LISTING...................... A-35
Section 5.5. SPECIAL MEETINGS......................................... A-36
Section 5.6. ACCESS TO INFORMATION; CONFIDENTIALITY AGREEMENT......... A-36
Section 5.7. APPROVALS................................................ A-37
Section 5.8. PUBLIC ANNOUNCEMENTS..................................... A-37
Section 5.9. LETTER OF FPC'S ACCOUNTANTS.............................. A-38
Section 5.10. LETTER OF CP&L'S ACCOUNTANTS............................. A-38
Section 5.11. INDEMNIFICATION; INSURANCE............................... A-38
Section 5.12. AFFILIATE AGREEMENTS..................................... A-38
Section 5.13. FORMATION OF HOLDCO...................................... A-39
Section 5.14. DIRECTORS................................................ A-39
Section 5.15. REGIONAL HEADQUARTERS.................................... A-40
Section 5.16. DIVIDENDS................................................ A-40
Section 5.17. EMPLOYEE BENEFIT MATTERS................................. A-40
Section 5.18. CERTAIN STOCK PLANS...................................... A-40
Section 5.19. SALE OF CERTAIN SYNTHETIC FUEL OPERATIONS................ A-40
Section 5.20. EXECUTION OF CVO AGREEMENT............................... A-40
Section 5.21. REVISIONS TO CVO AGREEMENT............................... A-40
</TABLE>
A-iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
ARTICLE VI CONDITIONS PRECEDENT TO CONSUMMATION OF THE EXCHANGE....................
A-41
Section 6.1. CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATION TO EFFECT
THE EXCHANGE........................................... A-41
Section 6.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF FPC............... A-42
Section 6.3. CONDITIONS PRECEDENT TO OBLIGATIONS OF CP&L AND HOLDCO... A-42
ARTICLE VII TERMINATION; AMENDMENT; WAIVER.......................................... A-43
Section 7.1. TERMINATION.............................................. A-43
Section 7.2. EFFECT OF TERMINATION.................................... A-44
Section 7.3. TERMINATION FEE.......................................... A-44
Section 7.4. AMENDMENT................................................ A-45
Section 7.5. EXTENSION; WAIVER........................................ A-45
ARTICLE VIII MISCELLANEOUS........................................................... A-45
Section 8.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.... A-45
Section 8.2. DISCLOSURE SCHEDULES..................................... A-45
Section 8.3. ENTIRE AGREEMENT; ASSIGNMENT............................. A-45
Section 8.4. NOTICES.................................................. A-46
Section 8.5. GOVERNING LAW............................................ A-47
Section 8.6. DESCRIPTIVE HEADINGS..................................... A-47
Section 8.7. PARTIES IN INTEREST...................................... A-47
Section 8.8. COUNTERPARTS............................................. A-47
Section 8.9. SPECIFIC PERFORMANCE..................................... A-47
Section 8.10. FEES AND EXPENSES........................................ A-47
Section 8.11. SEVERABILITY............................................. A-48
</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
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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.
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.
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.
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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.
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.
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
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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.
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.
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.
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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.
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.
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.
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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.
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.
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.
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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 (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.
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.
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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 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.
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.
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
(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
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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
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 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
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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 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 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 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
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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 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 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.
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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.
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 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
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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
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 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;
(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 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
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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 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.
(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.
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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 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.
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 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.
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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.
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 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.
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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.
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 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.
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(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.
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 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 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,
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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 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 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
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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 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 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 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 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
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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, 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
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
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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 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, 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 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;
(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
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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;
(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
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 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.
(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,
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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 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 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
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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
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.
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, 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.
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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 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.
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.
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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 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 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 FPC Company, and (iii) regular
quarterly dividends on FPC Common Stock with usual record and payment dates
and
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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;
(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) 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
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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;
(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;
(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
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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 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.
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 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
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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 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;
(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
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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 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 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.
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(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
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 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.
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.
(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.
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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 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
(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.
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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.
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.
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,
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(iii) to revise the definition 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:
(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 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.
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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 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;
(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, 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, 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
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<PAGE>
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.
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.
(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
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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.
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.
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 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.
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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
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 55(th) 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.
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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 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.
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
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Statement/Prospectus and the Registration Statement and the HSR 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.
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.
<TABLE>
<S> <C> <C>
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
</TABLE>
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<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.
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.
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(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.
(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
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(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") 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
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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:
(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
A-1-4
<PAGE>
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 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
A-1-5
<PAGE>
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
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.
(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
A-1-6
<PAGE>
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:
(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 (ii)
changes the Exchange Consideration, (iii) 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
A-1-7
<PAGE>
election period to after the Effective Time would not materially and
adversely affect FPC or the holders of FPC Shares), or (iv) changes any
provision of the articles of incorporation of FPC.
<TABLE>
<S> <C> <C> <C>
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
</TABLE>
A-1-8
<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 Exchange 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
B-1
<PAGE>
Board of Directors
Florida Progress Corporation
March 3, 2000
Page 2
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 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
B-2
<PAGE>
Board of Directors
Florida Progress Corporation
March 3, 2000
Page 3
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.
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.
B-3
<PAGE>
ANNEX C
OPINION OF MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
[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.
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.
C-1
<PAGE>
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 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
C-2
<PAGE>
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
C-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........................................................................ D-1
RECITAL OF THE COMPANY......................................................... D-1
ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION............. D-1
Section 101. DEFINITIONS................................................. D-1
Section 102. COMPLIANCE CERTIFICATES AND OPINIONS........................ D-5
Section 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE...................... D-6
Section 104. ACTS OF HOLDERS............................................. D-6
Section 105. NOTICES, ETC. TO TRUSTEE AND COMPANY........................ D-8
Section 106. NOTICE TO HOLDERS OF SECURITIES; WAIVER..................... D-8
Section 107. CONFLICT WITH TRUST INDENTURE ACT........................... D-9
Section 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.................... D-9
Section 109. SUCCESSORS AND ASSIGNS...................................... D-9
Section 110. SEPARABILITY CLAUSE......................................... D-9
Section 111. BENEFITS OF AGREEMENT....................................... D-9
Section 112. GOVERNING LAW............................................... D-9
Section 113. LEGAL HOLIDAYS.............................................. D-9
ARTICLE II SECURITY FORMS..................................................... D-10
Section 201. FORMS GENERALLY............................................. D-10
Section 202. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION............. D-10
Section 203. SECURITIES ISSUABLE IN THE FORM OF A GLOBAL SECURITY........ D-10
ARTICLE III THE SECURITIES.................................................... D-11
Section 301. TITLE AND TERMS............................................. D-11
Section 302. NUMBER...................................................... D-11
Section 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.............. D-12
Section 304. TEMPORARY SECURITIES........................................ D-12
Section 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE......... D-13
Section 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES............ D-14
Section 307. PAYMENTS IN U.S. CURRENCY................................... D-15
Section 308. PERSONS DEEMED OWNERS....................................... D-15
Section 309. CANCELLATION BY SECURITY REGISTRAR.......................... D-15
ARTICLE IV COVENANTS.......................................................... D-15
Section 401. PAYMENT OF AMOUNTS, IF ANY, TO HOLDERS...................... D-15
Section 402. MAINTENANCE OF OFFICE OR AGENCY............................. D-16
Section 403. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST........... D-16
Section 404. CORPORATE EXISTENCE......................................... D-17
Section 405. ANNUAL OFFICER'S CERTIFICATE AS TO COMPLIANCE............... D-17
Section 406. GOOD FAITH AND FAIR DEALING................................. D-17
Section 407. BOOKS AND RECORDS........................................... D-17
Section 408. INSURANCE................................................... D-17
Section 409. INDEBTEDNESS................................................ D-17
Section 410. PROHIBITED TRANSACTIONS..................................... D-17
Section 411. INCOME TAX TREATMENT........................................ D-17
</TABLE>
- ------------------------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Agreement.
D-i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE V EVENTS OF DEFAULT; REMEDIES......................................... D-18
Section 501. EVENTS OF DEFAULT........................................... D-18
Section 502. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE..................................................... D-18
Section 503. TRUSTEE MAY FILE PROOFS OF CLAIM............................ D-19
Section 504. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.................................................. D-19
Section 505. APPLICATION OF MONEY COLLECTED.............................. D-19
Section 506. LIMITATION ON SUITS......................................... D-20
Section 507. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PAYMENTS.......... D-20
Section 508. RESTORATION OF RIGHTS AND REMEDIES.......................... D-20
Section 509. RIGHTS AND REMEDIES CUMULATIVE.............................. D-21
Section 510. DELAY OR OMISSION NOT WAIVER................................ D-21
Section 511. CONTROL BY HOLDERS OF SECURITIES............................ D-21
Section 512. WAIVER OF PAST DEFAULTS..................................... D-21
Section 513. UNDERTAKING FOR COSTS....................................... D-22
Section 514. OPERATING AND OWNERSHIP DECISIONS........................... D-22
Section 515. TAX DECISIONS AND PROCEDURES................................ D-22
Section 516. LIMITATION OF LIABILITY..................................... D-22
Section 517. NO RIGHTS OF ACCELERATION; UNSECURED OBLIGATIONS............ D-22
Section 518. NON INTEREST-BEARING OBLIGATIONS............................ D-23
Section 519. NO REDEMPTION............................................... D-23
ARTICLE VI THE TRUSTEE........................................................ D-23
Section 601. CERTAIN DUTIES AND RESPONSIBILITIES......................... D-23
Section 602. NOTICE OF DEFAULTS.......................................... D-24
Section 603. CERTAIN RIGHTS OF TRUSTEE................................... D-24
Section 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES...... D-25
Section 605. MAY HOLD SECURITIES......................................... D-25
Section 606. MONEY HELD IN TRUST......................................... D-26
Section 607. COMPENSATION AND REIMBURSEMENT.............................. D-26
Section 608. DISQUALIFICATION; CONFLICTING INTERESTS..................... D-27
Section 609. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY..................... D-27
Section 610. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR........... D-27
Section 611. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR...................... D-29
Section 612. MERGER, CONVERSATION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.................................................... D-29
Section 613. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY........... D-29
Section 614. CO-TRUSTEES AND SEPARATE TRUSTEES........................... D-30
Section 615. APPOINTMENT OF AUTHENTICATING AGENT......................... D-30
Section 616. PAYING AGENTS AFFORDED PROTECTION........................... D-32
ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY................. D-32
Section 701. LISTS OF HOLDERS............................................ D-32
Section 702. REPORTS BY TRUSTEE AND COMPANY.............................. D-32
ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE OR OTHER TRANSFER.............. D-33
Section 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS........ D-33
Section 802. SUCCESSOR CORPORATION SUBSTITUTED........................... D-33
ARTICLE IX AMENDMENTS......................................................... D-34
Section 901. AMENDMENTS WITHOUT CONSENT OF HOLDERS....................... D-34
Section 902. AMENDMENTS WITH CONSENT OF HOLDERS.......................... D-35
Section 903. EXECUTION OF AMENDMENTS..................................... D-35
Section 904. EFFECT OF AMENDMENTS........................................ D-36
</TABLE>
D-ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 905. CONFORMITY WITH TRUST INDENTURE ACT......................... D-36
Section 906. REFERENCE IN SECURITIES TO AMENDMENTS....................... D-36
ARTICLE X MEETINGS OF HOLDERS; ACTION WITHOUT MEETING......................... D-36
Section 1001. PURPOSES FOR WHICH MEETINGS MAY BE CALLED................... D-36
Section 1002. CALL, NOTICE AND PLACE OF MEETINGS.......................... D-36
Section 1003. PERSONS ENTITLED TO VOTE AT MEETINGS........................ D-37
Section 1004. QUORUM; ACTION.............................................. D-37
Section 1005. ATTENDANCE AT MEETINGS; DETERMINATION OF VOTING RIGHTS;
CONDUCT AND ADJOURNMENT OF MEETINGS......................... D-38
Section 1006. COUNTING VOTES AND RECORDING ACTION OF MEETINGS............. D-38
Section 1007. ACTION WITHOUT MEETING...................................... D-39
ARTICLE XI IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS....
D-39
Section 1101. LIABILITY SOLELY CORPORATE.................................. D-39
ARTICLE XII SUBORDINATION OF SECURITIES....................................... D-39
Section 1201. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS............... D-39
Section 1202. PAYMENT OVER OF PROCEEDS OF SECURITIES...................... D-39
Section 1203. DISPUTES WITH HOLDERS OF CERTAIN SENIOR INDEBTEDNESS........ D-41
Section 1204. SUBROGATION................................................. D-41
Section 1205. OBLIGATION OF THE COMPANY UNCONDITIONAL..................... D-41
Section 1206. PRIORITY OF SENIOR INDEBTEDNESS UPON MATURITY............... D-42
Section 1207. TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS.................... D-42
Section 1208. NOTICE TO TRUSTEE TO EFFECTUATE SUBORDINATION............... D-42
Section 1209. MODIFICATION, EXTENSION, ETC. OF SENIOR INDEBTEDNESS........ D-42
Section 1210. TRUSTEE HAS NO FIDUCIARY DUTY TO HOLDERS OF SENIOR
INDEBTEDNESS................................................ D-42
Section 1211. PAYING AGENTS OTHER THAN THE TRUSTEE........................ D-43
Section 1212. RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS NOT IMPAIRED....... D-43
Section 1213. THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT............... D-43
Section 1214. EFFECT OF SUBORDINATION PROVISIONS; TERMINATION............. D-43
ARTICLE XIII MAINTENANCE OF CONTINGENCY FUNDS................................. D-43
Section 1301. PAYMENTS TO TRUSTEE......................................... D-43
Section 1302. MAINTENANCE OF ACCOUNTS..................................... D-43
Section 1303. INVESTMENT AND APPLICATION OF CONTINGENCY FUNDS............. D-44
Section 1304. OFFICER'S CERTIFICATES RELATING TO CONTINGENCY FUNDS; TAX
REPORTING................................................... D-44
Section 1305. OFFICER'S CERTIFICATE RELATING TO SATISFACTION OF PAYMENT
OBLIGATIONS................................................. D-45
Testimonium.................................................................... D-45
Signature and Seals............................................................ D-46
</TABLE>
Appendix A--Certificate Representing the Securities
Appendix B--Company Order, Officer's Certificate, and Opinion of Counsel
Appendix C--Accountants' Certificate
D-iii
<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> <C> <C> <C>
Section310 (a) (1) ............................................................ 609
(a) (2) ............................................................ 609
(a) (3) ............................................................ 614
(a) (4) ............................................................ Not Applicable
(b) ............................................................ 608
610
Section311 (a) ............................................................ 613
(b) ............................................................ 613
(c) ............................................................ 613
Section312 (a) ............................................................ 701
(b) ............................................................ 701
(c) ............................................................ 701
Section313 (a) ............................................................ 702
(b) ............................................................ 702
(c) ............................................................ 702
(d) ............................................................ 702
Section314 (a) ............................................................ 702
(a) (4) ............................................................ 405
(b) ............................................................ Not Applicable
(c) (1) ............................................................ 102
(c) (2) ............................................................ 102
(c) (3) ............................................................ Not Applicable
(d) ............................................................ Not Applicable
(e) ............................................................ 102
Section315 (a) ............................................................ 601
603
(b) ............................................................ 602
(c) ............................................................ 601
(d) ............................................................ 601
(e) ............................................................ 513
Section316 (a) ............................................................ 511
............................................................ 512
(a) (1) (A) ............................................................ Not Applicable
511
(a) (1) (B) ............................................................ 512
(a) (2) ............................................................ Not Applicable
(b) ............................................................ 507
Section317 (a) (1) ............................................................ 502
(a) (2) ............................................................ 503
(b) ............................................................ 403
Section318 (a) ............................................................ 107
</TABLE>
D-iv
<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;
(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.
D-1
<PAGE>
"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.
"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.
D-2
<PAGE>
"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 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
(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.
D-3
<PAGE>
"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.
"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.
D-4
<PAGE>
"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 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-5
<PAGE>
(d) a statement as to whether, in the opinion of each such Person, such
condition or covenant has been complied with.
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.
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
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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 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.
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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:
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 filed with the Trustee, but such
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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 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.
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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 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
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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 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
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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.
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.
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
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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.
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.
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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.
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.
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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.
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.
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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 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 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.
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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.
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.
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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, 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
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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
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.
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
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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, 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
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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 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.
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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.
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. ELIMINATION 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.
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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 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 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.
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(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.
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;
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(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 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
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rights it would have if it were not the Trustee, Authenticating Agent, Paying
Agent, Security Registrar or such other agent.
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.
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
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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, 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.
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(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 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 (e) 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.
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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 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 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.
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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 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,
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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 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
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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.
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 15(th), 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, 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)
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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 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
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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
(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.
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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.
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.
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
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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.
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
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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 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.
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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.
(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.
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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.
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 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
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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 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
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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 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
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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 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 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
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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.
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
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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.
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 15(th) 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 15(th) 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.
D-44
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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.
------------------------
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.
D-45
<PAGE>
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:______________________________
D-46
<PAGE>
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; 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.
D-1-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
<TABLE>
<S> <C>
(SEAL) CP&L ENERGY, INC.
By
-------------------------------------
Attest:
---------------------------------------------
Name:
Title:
Dated: ---------------------------------------------
</TABLE>
[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.
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<PAGE>
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) 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 15(th) 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 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'
D-1-3
<PAGE>
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 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
D-1-4
<PAGE>
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;
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
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<PAGE>
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.
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 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
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<PAGE>
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.
"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.
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<PAGE>
"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 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
15(th) 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
D-1-8
<PAGE>
for such Tax Year, and (B) the original Excess Carryforward Credits Estimate for
such Tax Year, determined as of March 15(th) following such Tax Year.
"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 15(th) 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 15(th) 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 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.
D-1-9
<PAGE>
"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.
"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.
D-1-10
<PAGE>
"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 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>
<S> <C>
EARTHCO BUSINESS ENTITY OR DOLLAR AMOUNT
EARTHCO PLANT OWNED BY
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.
D-1-11
<PAGE>
"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.
"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.
D-1-12
<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
D-1-13
