<Page>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<Table>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
PROGRESS ENERGY INC.
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</Table>
Payment of Filing Fee (Check the appropriate box):
<Table>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(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):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / 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:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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</Table>
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[LOGO]
Progress Energy, Inc.
PO Box 1551
Raleigh, NC 27602
April 1, 2002
Dear Shareholder:
I am pleased to invite you to attend the 2002 Annual Meeting of the
Shareholders of Progress Energy, Inc. The meeting will be held at 10:00
o'clock a.m. on May 8, 2002, at the Mahaffey Theater at the Bayfront Center, 400
First Street South, St. Petersburg, Florida.
As described in the accompanying Notice of Annual Meeting of Shareholders
and Proxy Statement, the matters scheduled to be acted upon at the meeting are
the election of directors and the approval of the 2002 Equity Incentive Plan.
Regardless of the size of your holdings, it is important that your shares be
represented at the meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING
ENVELOPE OR VOTE BY TELEPHONE OR THE INTERNET IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE. Voting by any of
these methods will ensure that your vote is counted at the Annual Meeting if you
do not attend in person.
I am delighted that you have chosen to invest in Progress Energy, Inc. and
look forward to seeing you at the meeting. On behalf of the management and
directors of Progress Energy, Inc., thank you for your continued support and
confidence in 2002.
Sincerely,
/s/ William Cavanaugh III
William Cavanaugh III
Chairman of the Board, President and Chief Executive Officer
<Page>
VOTING YOUR PROXY IS IMPORTANT
Your vote is important. Please promptly SIGN, DATE and RETURN the enclosed
proxy card or VOTE BY TELEPHONE OR THE INTERNET in accordance with the
instructions on the enclosed proxy card so that as many shares as possible will
be represented at the Annual Meeting.
A self-addressed envelope, which requires no postage if mailed in the United
States, is enclosed for your convenience.
<Page>
PROGRESS ENERGY, INC.
410 S. WILMINGTON STREET
RALEIGH, NORTH CAROLINA 27601-1849
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 8, 2002
The Annual Meeting of the Shareholders of Progress Energy, Inc. will be held
at 10:00 o'clock a.m. on May 8, 2002, at the Mahaffey Theater at the Bayfront
Center, 400 First Street South, St. Petersburg, Florida. The meeting will be
held in order to:
(1) Elect five (5) Class I directors of the Company to serve three-year
terms.
(2) Act upon a proposal to approve the 2002 Equity Incentive Plan.
(3) Transact any other business as may properly be brought before the
meeting.
All shareholders of Common Stock of record at the close of business on
March 1, 2002, will be entitled to vote. The stock transfer books will remain
open.
By order of the Board of Directors.
WILLIAM D. JOHNSON
Executive Vice President,
General Counsel and Secretary
Raleigh, North Carolina
April 1, 2002
<Page>
PROGRESS ENERGY, INC.
410 S. WILMINGTON STREET
RALEIGH, NORTH CAROLINA 27601-1849
------------------------
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the Board of Directors'
of Progress Energy, Inc. (Company) solicitation of proxies to be used at the
Annual Meeting of Shareholders. That meeting will be held at 10:00 o'clock a.m.
on May 8, 2002, at the Mahaffey Theater at the Bayfront Center, 400 First Street
South, St. Petersburg, Florida. (For directions to the meeting location, please
see map included at the end of the Proxy Statement.) The Proxy Statement and
form of proxy were first sent to shareholders on or about April 1, 2002.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR 2001,
INCLUDING FINANCIAL STATEMENTS AND SCHEDULES, ARE AVAILABLE UPON WRITTEN
REQUEST, WITHOUT CHARGE, TO THE PERSONS WHOSE PROXIES ARE SOLICITED. ANY EXHIBIT
TO FORM 10-K IS ALSO AVAILABLE UPON WRITTEN REQUEST AT A REASONABLE CHARGE FOR
COPYING AND MAILING. WRITTEN REQUESTS SHOULD BE MADE TO MR. THOMAS R. SULLIVAN,
TREASURER, P. O. BOX 1551, RALEIGH, NORTH CAROLINA 27602.
THE SECURITIES AND EXCHANGE COMMISSION DELIVERY RULES CAN BE SATISFIED BY
DELIVERING A SINGLE PROXY STATEMENT AND ANNUAL REPORT TO SHAREHOLDERS TO AN
ADDRESS SHARED BY TWO OR MORE OF OUR SHAREHOLDERS. THIS DELIVERY METHOD IS
REFERRED TO AS HOUSEHOLDING. FOR SHAREHOLDERS WHOSE SHARES OF PROGRESS ENERGY
COMMON STOCK ARE HELD IN BROKERAGE ACCOUNTS, A SINGLE COPY OF THE ANNUAL REPORT
AND OF THE PROXY STATEMENT WILL BE SENT TO MULTIPLE SHAREHOLDERS WHO SHARE THE
SAME ADDRESS IF THEY HAVE PROVIDED THEIR WRITTEN OR IMPLIED CONSENT TO SUCH
DELIVERY.
IF YOU PREFER TO RECEIVE A SEPARATE COPY OF THE PROXY STATEMENT OR THE
ANNUAL REPORT, PLEASE WRITE TO SHAREHOLDER RELATIONS, P. O. BOX 1551, RALEIGH,
NORTH CAROLINA 27602 OR TELEPHONE US AT 800-662-7232, AND WE WILL PROMPTLY SEND
YOU SEPARATE COPIES.
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PROXIES
The accompanying proxy is solicited by the Board of Directors of the Company
and the entire cost of solicitation will be borne by the Company. The Company
expects to solicit proxies primarily by mail. Proxies may also be solicited by
telephone, telegraph or personally by officers and employees of the Company and
its subsidiaries, who will not be specially compensated for such services.
Additionally, solicitation of proxies may be made by Morrow & Co., Inc. at a
cost to the Company of approximately $7,500 plus out-of-pocket expenses.
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. Please be aware
that if you vote over the Internet, you may incur costs such as
telecommunication and Internet access charges for which you will be responsible.
The Internet and telephone voting facilities for shareholders of record will
close at 12:01 a.m. E.D.T. on the morning of the meeting. Any shareholder who
has executed a proxy and attends the meeting may elect to vote in person rather
than by proxy. You may revoke any proxy given by you in response to this
solicitation at any time before the proxy is exercised by delivering a written
notice of revocation, by filing with the Secretary of the Company a subsequently
dated, properly executed proxy or by attending the Annual Meeting and electing
to vote in person. Your attendance at the Annual Meeting, by itself, will not
constitute a revocation of a proxy. If you voted by telephone or through the
Internet, you may also revoke your vote by any of the three methods noted above,
or you may change your vote by voting again by telephone or through the
Internet. 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. You should address any written notices of proxy
revocation to: Progress Energy, Inc., P.O. Box 1551, Raleigh, North Carolina
27602, Attention: Secretary.
All shares represented by effective proxies received by the Company at or
before the Annual Meeting, and not revoked before they are exercised, will be
voted in the manner specified therein. Proxies that do not contain
specifications will be voted "FOR" the election of Directors as set forth in
this Proxy Statement, "FOR" the proposal to adopt the 2002 Equity Incentive Plan
set forth in this Proxy Statement and, in the discretion of the named proxies,
upon any other business properly brought before the meeting.
If you are a Participant in the Company's 401(k) Savings & Stock Ownership
Plan or the Savings Plan for Employees of Florida Progress Corporation, shares
allocated to your Plan account will be voted by the Trustee only if you execute
and return your proxy, or vote by telephone or the Internet. Company stock
remaining in the ESOP Stock Suspense Account that has not been allocated to
employee accounts shall be voted by the Trustee in the same proportion as shares
voted by Participants.
VOTING SECURITIES
The Directors of the Company have fixed March 1, 2002, as the record date
for shareholders entitled to vote at the Annual Meeting. Only holders of the
Company's Common Stock of record at the close of business on that date will be
entitled to notice of and to vote at the Annual Meeting. Each share is entitled
to one vote. As of March 1, 2002, there were outstanding 218,727,139 shares of
Common Stock.
Pursuant to the provisions of the North Carolina Business Corporation Act,
Directors will be elected by a plurality of the votes cast by the shares
entitled to vote. Withheld votes or shares held in street name that are not
voted in the election of Directors will not be included in determining the
number of votes cast. Approval of the proposal relating to the 2002 Equity
Incentive Plan will require the affirmative vote of a
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<Page>
majority of the votes cast on the proposal provided that the total votes cast on
the proposal represents over 50% of the shares entitled to vote on the proposal.
Abstentions will not have the effect of "negative" votes with respect to the
proposal. Broker shares that are not voted with respect to approval of the 2002
Equity Incentive Plan will not be included in determining the number of shares
cast. Approval of other matters to be presented at the Annual Meeting, if any,
generally will require the affirmative vote of a majority of the shares voted on
such matters. Abstentions from voting and broker non-votes will not have the
effect of a "negative" vote with respect to any such matters.
ELECTION OF DIRECTORS
Based on the report of the Corporate Governance Committee (see page 10), the
Board of Directors nominates the five nominees listed below. The nominees to
serve as Directors in Class I for terms expiring in 2005 and until their
respective successors are elected and qualified are; W. D. Frederick, Jr.,
William O. McCoy, John H. Mullin, III, Carlos A. Saladrigas and J. Tylee Wilson.
There are no family relationships among any of the nominees for Director or
among any nominee and any Director or officer of the Company or its
subsidiaries, and except as described above, there is no arrangement or
understanding between any nominee and any other person pursuant to which the
nominee was selected.
Valid proxies received pursuant to this solicitation will be voted in the
manner specified. Where specifications are not made, the shares represented by
the accompanying proxy will be voted for the election of the five nominees.
Votes (other than votes withheld) will be cast pursuant to the accompanying
proxy for the election of the nominees listed above unless, by reason of death
or other unexpected occurrence, one or more of such nominees shall not be
available for election, in which event it is intended that such votes will be
cast for such substitute nominee or nominees as may be determined by the persons
named in such proxy. The Board of Directors has no reason to believe that any of
the nominees listed above will not be available for election as a Director.
The names of the five nominees for election to the Board of Directors and of
the other Directors, along with their ages, principal occupations or employment
for the past five years, and current directorships are set forth below.
Information concerning the number of shares of the Company's Common Stock
beneficially owned, directly or indirectly, by all current Directors appears on
page 7 of this Proxy Statement.
NOMINEES FOR ELECTION--CLASS I
(Terms Expiring in 2005)
W. D. FREDERICK, JR., age 67, is a citrus grower and rancher. He is a
retired partner in the law firm of Holland & Knight. He has served as a Director
of the Company since November 30, 2000 and also serves as a director of Carolina
Power & Light Company, Florida Progress Corporation, Blue Cross/Blue Shield of
Florida and United Heritage Bank.
WILLIAM O. MCCOY, age 68, is a partner in Franklin Street Partners, an
investment management firm (since 1998). He previously served as Interim
Chancellor of the University of North Carolina at Chapel Hill from April 1999 to
August 2000 and as Vice President-Finance of the University of North Carolina at
Chapel Hill from 1995 to 1998. He has served as a Director of the Company and
its predecessors since 1996 and also serves as a director of Carolina Power &
Light Company, Florida Progress Corporation, Duke Realty Corporation, Acterna
Corp., The Liberty Corporation and North Carolina Capital Management Trust, and
as a Trustee of Fidelity Investments.
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JOHN H. MULLIN, III, age 60, is Chairman of Ridgeway Farm, LLC, a limited
liability company engaged in timber and agricultural activities. He has served
as a Director of the Company and its predecessors since 1999 and also serves as
a director of Carolina Power & Light Company, Florida Progress Corporation, The
Liberty Corporation and Alex Brown Realty, Inc., and as a Trustee of The Putnam
Funds.
CARLOS A. SALADRIGAS, age 53, is Chief Executive Officer of ADP TotalSource
(previously The Vincam Group, Inc.), a Miami-based human resources outsourcing
company that provides human resource functions to small and mid-sized
businesses. He is also Chairman of Premier American Bank in Miami, Florida. He
has served as a Director of the Company since September 1, 2001 and also serves
as a director of Carolina Power & Light Company and Florida Progress
Corporation.
J. TYLEE WILSON, age 70, is retired Chairman and Chief Executive Officer of
RJR Nabisco, Inc. He has served as a Director of the Company and its
predecessors since 1987 and also serves as a director of Carolina Power & Light
Company and Florida Progress Corporation.
DIRECTORS CONTINUING IN OFFICE--CLASS II
(Terms Expiring in 2003)
EDWIN B. BORDEN, age 68, is President of The Borden Manufacturing Company, a
textile management services company. He has served as a Director of the Company
and its predecessors since 1985 and also serves as a director of Carolina
Power & Light Company, Florida Progress Corporation, Jefferson-Pilot
Corporation, Ruddick Corporation and Winston Hotels, Inc.
DAVID L. BURNER, age 62, is Chairman and Chief Executive Officer of the
Goodrich Corporation, a provider of aerospace components, systems and services
(since July 1997). He previously served as President and Chief Executive Officer
(from December 1996 to July 1997) and President (from December 1995 to
December 1996) of the Goodrich Corporation and as President, Goodrich Aerospace
and Executive Vice President of the Goodrich Corporation (from January 1995 to
December 1995). He has served as a Director of the Company and its predecessors
since 1999 and also serves as a director of Carolina Power & Light Company,
Florida Progress Corporation, Milacron, Inc., Lance, Inc. and Briggs & Stratton
Corporation.
RICHARD L. DAUGHERTY, age 66, is retired Executive Director of NCSU Research
Corporation, a development corporation of the Centennial Campus of North
Carolina State University. He has served as a Director of the Company and its
predecessors since 1992 and also serves as a director of Carolina Power & Light
Company and Florida Progress Corporation.
RICHARD A. NUNIS, age 69, is President of New Business Solutions, Inc. He
previously served as Chairman, Walt Disney Parks & Resorts. He has served as a
Director of the Company since November 30, 2000 and also serves as a director of
Carolina Power & Light Company and Florida Progress Corporation.
DIRECTORS CONTINUING IN OFFICE--CLASS III
(Terms Expiring in 2004)
WILLIAM CAVANAUGH III, age 63, is Chairman, President and Chief Executive
Officer of the Company (since August 1999). He also serves (July 2000 to
present) as Chairman, Progress Energy Service Company, LLC, Chairman, Florida
Power Corporation (November 30, 2000 to present), Chairman, Progress
Ventures, Inc. (March 2000 to present), and Chairman, President and Chief
Executive Officer,
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Carolina Power & Light Company (May 1999 to present). He previously served in
various executive positions at Carolina Power & Light Company. He has served as
a Director of the Company and its predecessors since 1993 and also serves as a
director of Florida Progress Corporation and Duke Realty Corporation.
CHARLES W. COKER, age 68, is Chairman of Sonoco Products Company, a
manufacturer of paperboard and paper and plastics packaging products (since
April 1998). He previously served as Chairman and Chief Executive Officer of
Sonoco Products Company (from 1976 to April 1998). He has served as a Director
of the Company and its predecessors since 1975 and also serves as a director of
Carolina Power & Light Company, Florida Progress Corporation, BankAmerica
Corporation, Sara Lee Corporation and Springs Industries, Inc.
E. MARIE MCKEE, age 51, is Senior Vice President of Corning Incorporated, a
developer of technologies for glass, ceramics, fiber optics and photonics. She
has served as a Director of the Company and its predecessors since 1999 and also
serves as a director of Carolina Power & Light Company and Florida Progress
Corporation.
JEAN GILES WITTNER, age 67, is President and Secretary of Wittner &
Co., Inc., a Florida holding company for companies that provide life insurance
products, employee benefit insurance programs, and commercial office leasing and
property management services. She has served as a Director of the Company since
November 30, 2000 and also serves as a director of Carolina Power & Light
Company, Florida Progress Corporation and Raymond James Bank, FSB.
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PRINCIPAL SHAREHOLDERS
The following table sets forth the only shareholders known to the Company to
beneficially own more than 5% of the outstanding shares of the Common Stock of
the Company as of December 31, 2001. The Company has no other class of voting
securities.
<Table>
<Caption>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- -------------- --------------------------------------- ------------------- -------------------
Common Stock State Street Bank and Trust Company 23,912,557(1) 10.9%
P.O. Box 1839
Boston, MA 02104
Capital Research and Management Company 11,799,340(2) 5.4%
333 Hope Street
Los Angeles, CA 90071
Putnam Investments, LLC 11,417,416(3) 5.2%
One Post Office Square
Boston, MA 02109
</Table>
(1)Consists of shares of Common Stock held by State Street Bank and Trust
Company, acting in various fiduciary capacities. State Street Bank has sole
power to vote with respect to 3,984,228 shares, shared power to vote with
respect to 19,373,538 shares, sole power to dispose of 23,897,109 shares and
shared power to dispose of 15,448 shares. State Street Bank has disclaimed
beneficial ownership of all shares of Common Stock.
(2)Consists of shares of Common Stock held by Capital Research and
Management Company as an investment adviser that manages The American Funds
Group of mutual funds. Capital Research and Management Company has sole power to
dispose of 11,799,340 shares of Common Stock, and has disclaimed beneficial
ownership of all shares of Common Stock.
(3)Consists of shares of Common Stock held by subsidiaries of Putnam
Investments, LLC as investment advisors. Those subsidiaries have shared power to
vote with respect to 591,885 shares and shared power to dispose of 11,417,416
shares. The subsidiaries have disclaimed beneficial ownership of all shares of
Common Stock.
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MANAGEMENT OWNERSHIP OF COMMON STOCK
The following table describes the beneficial ownership of the Common Stock
of the Company and ownership of Common Stock units as of December 31, 2001, of
(i) all current Directors and nominees for Director, (ii) each executive officer
of the Company named in the Summary Compensation Table presented later in this
document and (iii) all Directors and executive officers as a group. A unit of
Common Stock does not represent an equity interest in the Company and possesses
no voting rights, but is equal in value at all times to a share of Common Stock.
As of December 31, 2001, none of the individuals or group in the above
categories owned one percent (1%) or more of the Company's voting securities.
<Table>
<Caption>
- -----------------------------------------------------------------------------
NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OWNED(1) AND UNITS
REPRESENTING
NAME SHARES OF COMMON STOCK(2,3,4,5,6,7)
- -----------------------------------------------------------------------------
Edwin B. Borden 5,297 Common Stock
25,837(2) Units
David L. Burner 0 Common Stock
4,801(2) Units
William Cavanaugh III 212,190(8) Common Stock
185,500(4,5,6,7) Units
Charles W. Coker 7,498(9) Common Stock
30,565(2) Units
Richard L. Daugherty 995 Common Stock
17,987(2) Units
W. D. Frederick, Jr. 1,000 Common Stock
1,720(2) Units
William D. Johnson 36,550(11) Common Stock
19,473(5,6,7) Units
William O. McCoy 1,000 Common Stock
10,194(2) Units
Robert B. McGehee 45,083(12) Common Stock
26,032(5,6,7) Units
E. Marie McKee 600 Common Stock
4,994(2) Units
John H. Mullin, III 1,500(10) Common Stock
6,037(2) Units
Richard A. Nunis 5,000 Common Stock
731(2) Units
William S. Orser 62,364(13) Common Stock
43,644(4,5,6) Units
Carlos A. Saladrigas 0 Common Stock
118(3) Units
Peter M. Scott III 36,291(14) Common Stock
16,442(5,6) Units
J. Tylee Wilson 5,000 Common Stock
8,073(2) Units
Jean Giles Wittner 2,000 Common Stock
1,679(2) Units
Shares of Common Stock beneficially
owned by all directors and executive
officers of the Company as a group
(26 persons) 653,917 Common Stock
</Table>
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- ------------------------------
(1)Unless otherwise noted, all shares of Common Stock set forth in the table
are beneficially owned, directly or indirectly, with sole voting and investment
power, by such shareholder.
(2)Consists of units representing Common Stock of the Company under the
Directors' Deferred Compensation Plan and the Non-Employee Director Stock Unit
Plan (see "Directors' Compensation" on page 11).
(3)Consists of units representing Common Stock of the Company under the
Directors' Deferred Compensation Plan.
(4)Consists of performance units under the Long-Term Compensation Program.
(5)Consists of performance shares awarded under the Performance Share
Sub-Plan of the 1997 Equity Incentive Plan (see "Long-Term Incentive Plan Awards
Table" on page 16 and footnote 1 thereunder for performance shares awarded in
2001).
(6)Consists of replacement units to replace the value of Company
contributions to the 401(k) Savings & Stock Ownership Plan that would have been
made but for the deferral of salary under the Management Deferred Compensation
Plan and contribution limitations under Section 415 of the Internal Revenue Code
of 1986, as amended (see "Summary Compensation Table" on page 13 and footnote 5
thereunder).
(7)Consists of performance units recorded to reflect awards deferred under
the Management Incentive Compensation Plan.
(8)Includes 175,000 shares of Restricted Stock and 7,764 shares with shared
voting and investment power owned by members of immediate family to which
beneficial ownership has not been disclaimed.
(9)Includes 7,298 shares with shared voting and investment power owned by
members of immediate family to which beneficial ownership has not been
disclaimed.
(10)Includes 500 shares with shared voting and investment power owned by
members of immediate family to which beneficial ownership has not been
disclaimed.
(11)Includes 32,500 shares of Restricted Stock.
(12)Includes 41,500 shares of Restricted Stock.
(13)Includes 46,667 shares of Restricted Stock.
(14)Includes 35,900 shares of Restricted Stock.
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INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
On September 27, 1999, Florida Progress Corporation 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 Corporation board of
directors; (2) enjoining Florida Progress Corporation 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 Corporation;
(5) directing the Florida Progress Corporation 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. The parties have
reached agreement on terms of a settlement, which are subject to court approval.
If the settlement is not approved, Florida Progress Corporation and the nine
individual defendants intend to vigorously defend against this action. The share
exchange was consummated on November 30, 2000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers to file reports of their holdings and
transactions in the Company's securities with the Securities and Exchange
Commission and the New York Stock Exchange. Based on Company records and other
information, the Company believes that all Section 16(a) filing requirements
applicable to its Directors and executive officers with respect to the Company's
2001 fiscal year were met.
BOARD OF DIRECTORS
The Board of Directors is currently comprised of thirteen (13) members. The
Board of Directors met seven times in 2001. Average attendance of the Directors
at the meetings of the Board and its Committees held during 2001 was 98%.
The Board of Directors appoints from its members an Executive Committee, a
Committee on Audit and Corporate Performance, a Committee on Finance, a
Committee on Operations, Environmental, Health and Safety Issues, a Committee on
Organization and Compensation, and a Corporate Governance Committee. The
membership and functions of the standing Board Committees, as of December 31,
2001, are discussed below.
EXECUTIVE COMMITTEE
The Executive Committee is presently composed of one Officer/Director and
five Directors--Messrs. William Cavanaugh III, Chairman, Edwin B. Borden,
Charles W. Coker, Richard L. Daugherty, William O. McCoy and J. Tylee Wilson.
The authority and responsibility of the Executive Committee are provided in the
Company's Charter and By-Laws. The Committee held no meetings in 2001.
AUDIT AND CORPORATE
PERFORMANCE COMMITTEE
The Audit and Corporate Performance Committee is presently composed of six
non-employee Directors--Messrs. Richard L. Daugherty, Chairman, David L. Burner,
W. D. Frederick, Jr., Carlos A. Saladrigas and John H. Mullin, III and Ms. Jean
Giles Wittner. The work of this Committee includes reviewing
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the annual financial results of the Company and monitoring the activities of the
independent auditors and the internal audit department. The Committee also
reviews corporate goals established by the Company and the Company's progress in
achieving these goals. The Committee held three meetings in 2001.
CORPORATE GOVERNANCE COMMITTEE
The Corporate Governance Committee is presently composed of four
non-employee Directors--Messrs. J. Tylee Wilson, Chairman, Edwin B. Borden,
Charles W. Coker and John H. Mullin, III. This Committee is responsible for
making recommendations to the Board with respect to the governance of the
Company and the Board. Its responsibilities include recommending amendments to
the Company's Charter and By-Laws, making recommendations regarding the
structure, charter, practices and policies of the Board, ensuring that processes
are in place for annual CEO performance appraisal and review of succession
planning and management development, recommending a process for the annual
assessment of Board performance, recommending criteria for Board membership,
reviewing the qualifications of and recommending to the Board nominees for
election. The Committee will consider qualified candidates for director
nominated by shareholders at an annual meeting of shareholders; provided,
however, that written notice of any shareholder nominations must be received by
the Secretary of the Company no later than the close of business on the 60th day
prior to the first anniversary of the immediately preceding year's annual
meeting. The Committee held four meetings in 2001.
FINANCE COMMITTEE
The Finance Committee is presently composed of six non-employee
Directors--Messrs. William O. McCoy, Chairman, David L. Burner, Charles W.
Coker, John H. Mullin, III, Richard A. Nunis and J. Tylee Wilson. The Committee
reviews and oversees the Company's financial policies and planning, strategic
planning and investments and pension funds. The Committee also monitors the
Company's risk management activities and reviews the Company's dividend policy
and proposed budget. The Committee held six meetings in 2001.
COMMITTEE ON OPERATIONS, ENVIRONMENTAL,
HEALTH AND SAFETY ISSUES
The Committee on Operations, Environmental, Health and Safety Issues is
presently composed of six non-employee Directors--Messrs. Edwin B. Borden,
Chairman, Richard L. Daugherty, W. D. Frederick, Jr., and Carlos A. Saladrigas,
and Ms. E. Marie McKee and Ms. Jean Giles Wittner. The Committee reviews the
Company's load forecasts and plans to carry out its development program and
reviews and assesses Company policies, procedures, and practices relative to the
protection of the environment and the safety of employees, customers,
contractors, and the public. The Committee advises the Board and makes
recommendations for the Board's consideration regarding operational,
environmental, and safety-related issues. The Committee held three meetings in
2001.
COMMITTEE ON ORGANIZATION AND COMPENSATION
The Committee on Organization and Compensation is presently composed of six
non-employee Directors--Messrs. Charles W. Coker, Chairman, Edwin B. Borden,
William O. McCoy, Richard A. Nunis and J. Tylee Wilson and Ms. E. Marie McKee.
The Committee ascertains that personnel policies and procedures are in keeping
with all governmental rules and regulations and are designed to attract and
retain competent, talented employees and develop the potential of these
employees. The Committee reviews all executive development plans, makes
executive compensation decisions and oversees plans for management succession.
The Committee held six meetings in 2001.
10
<Page>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SPONSORSHIP OF THE VARIOUS BENEFIT PLANS DISCUSSED IN THIS SECTION WAS
TRANSFERRED FROM CAROLINA POWER & LIGHT COMPANY TO PROGRESS ENERGY, INC.,
EFFECTIVE AUGUST 1, 2000.
DIRECTORS' COMPENSATION
Directors who are not employees of the Company receive an annual retainer of
$35,000, of which $15,000 is automatically deferred under the Directors'
Deferred Compensation Plan (see below), and an attendance fee of $1,500 per
meeting for regularly scheduled Board meetings. Directors who are not employees
of the Company also receive an attendance fee for committee meetings of $1,000.
The Chairman of each Committee receives an additional retainer of $3,000 per
year. Directors who are not employees of the Company receive an attendance fee
of $1,000 for each day of a visit to a plant or office of the Company or its
subsidiaries, or for attendance at any other business meeting to which the
director is invited by the Company. Directors who are officers do not receive an
annual retainer or attendance fees. All Directors are reimbursed for expenses
incident to their service as Directors.
In addition to the $15,000 annual retainer and any matching contributions
under the incentive compensation program that are automatically deferred,
outside Directors may elect to defer any portion of the remainder of their
annual retainer and Board attendance fees until after the termination of their
service on the Board under the Directors' Deferred Compensation Plan. Any
deferred fees are deemed to be invested in a number of Units of Common Stock of
the Company, but participating Directors receive no equity interest or voting
rights in the Common Stock. The number of Units credited to the account of a
participating Director is equal to the dollar amount of the deferred fees
divided by the average of the high and low selling prices (i.e., market value)
of the Common Stock on the day the deferred fees would otherwise be payable to
the participating Director. The number of Units in each account is adjusted from
time to time to reflect the payment of dividends on the number of shares of
Common Stock represented by the Units. Unless otherwise agreed to by the
participant and the Board, when the participant ceases to be a member of the
Board of Directors, he or she will receive cash equal to the market value of a
share of the Company's Common Stock on the date of payment multiplied by the
number of Units credited to the participant's account.
Directors are also eligible for matching contributions of up to $15,000
under an incentive compensation program. Awards under this program are based
upon the achievement of the corporate incentive goals established each year by
the Board and used as the basis for a matching contribution of shares of Common
Stock for participating employees in the Company's 401(k) Savings & Stock
Ownership Plan. In the event that five of the corporate incentive goals are met,
the $15,000 portion of the annual retainer that is automatically deferred
pursuant to the Directors' Deferred Compensation Plan will be increased by
50 percent, with an additional 10 percent increase for each corporate incentive
goal met in excess of five (up to a maximum matching contribution of
100 percent). Such matching contribution is automatically deferred until the
Director's retirement.
Effective January 1, 1998, the Board of Directors Retirement Plan was
replaced by the Non-Employee Director Stock Unit Plan. Directors had the option
of rolling the value of their benefits under the Retirement Plan into the Stock
Unit Plan. Effective January 1, 2001, the Stock Unit Plan provides for an annual
grant of 350 "stock units" to each non-employee Director who has served on the
Board for at least one year and for matching grants of up to 350 additional
units to be awarded to those Directors for each year in which certain incentive
goals established by the Board are met. Each unit is equal in value to one
11
<Page>
share of the Company's Common Stock. The number of Units is adjusted from time
to time to reflect the payment of dividends with respect to the Common Stock of
the Company. Benefits under the Non-Employee Director Stock Unit Plan vest after
a participant has been a member of the Board for five years, and are payable
solely in cash.
All of the Directors who were existing Directors or retired Directors on or
prior to September 16, 1998 participate in a Directors' Educational Contribution
Plan (Educational Plan). The Educational Plan is funded by policies of
corporate-owned life insurance on the lives of pairs of Directors, with proceeds
payable to the Company at the death of the second to die in each pair. All costs
of the Educational Plan are expected to be covered from the life insurance
proceeds to be received by the Company. Pursuant to this Educational Plan, the
Company will make a contribution in the name of each Director to an educational
institution or approved educational foundation or fund in North Carolina or
South Carolina selected by the Director and approved by the Executive Committee
of the Board of Directors. The contribution will be made at the later to occur
of the retirement of the Director from the Board of Directors or ten years from
the date of adoption of the Educational Plan. If a Director has served as a
Director for at least five but less than ten years at the time the contribution
is to be made, the Company will contribute $250,000 in the name of the Director.
If the Director has served for ten or more years, the amount of the
contribution will be $500,000. The Educational Plan was discontinued
September 16, 1998 and will not be offered as a benefit for any Director who
joins the Board subsequent to that date. The Educational Plan may be terminated
at any time in the discretion of the Executive Committee without recourse or
obligation to the Company.
STOCK OWNERSHIP GUIDELINES
In an effort to more closely link the interests of the Company's Directors
with those of its shareholders, in December 2000, the Board of Directors adopted
stock ownership guidelines which are designed to ensure that the Company's
outside Directors have a significant financial equity investment in the Company.
Those guidelines require the outside Directors to own Company Common Stock or
Units whose value is equivalent to the value of that stock with a total value
equal to five times the annual retainer paid to outside Directors. The stock
and/or Units may be acquired over a five-year period and may include Units
acquired under the Directors' Deferred Compensation Plan and the Non-Employee
Director Stock Unit Plan.
SERVICE ON BOARDS OF SUBSIDIARIES
All compensation paid to outside Directors is for services rendered on
behalf of the Company's Board of Directors and the boards of Carolina Power &
Light Company and Florida Progress Corporation.
12
<Page>
SUMMARY COMPENSATION TABLE
<Table>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------------------------------------------------
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
NAME AND SALARY(1) BONUS(2) COMPENSATION(3) AWARD(S)(4,5) PAYOUTS(6) COMPENSATION(7)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------
William Cavanaugh III, 2001 $1,043,380 $1,300,000 $110,038(8) $ 46,824(9) $296,949(10) $329,140(11)
Chairman, President 2000 871,483 1,657,640(12) 126,616 3,871,402 N/A 258,389
and Chief Executive 1999 778,849 610,000(13) 76,991 34,046 N/A 497,305
Officer
William S. Orser, 2001 $ 548,225 $ 350,000 $ 5,943 $ 624,194(14) $113,124 $128,367(15)
Group President-- 2000 469,789 416,963(16) 7,144 178,624 N/A 105,758
CP&L 1999 436,759 220,000 1,735 15,683 N/A 203,193
Robert B. McGehee, 2001 $ 487,110 $ 328,000 $ 15,484 $ 598,246(17) $ 73,530 $ 93,785(18)
Executive Vice 2000 337,513 444,281(19) 15,901 280,030 N/A 74,807
President 1999 282,056 150,000 54,734 258,518 N/A 151,357
Peter M. Scott III, 2001 $ 422,283 $ 275,000 $ 7,635 $ 138,990(20) N/A $ 80,707(21)
Executive Vice 2000 206,613 304,000 50,350 1,126,195 N/A 50,485
President and 1999 N/A N/A N/A N/A N/A N/A
Chief Financial
Officer (employed
as of May 8, 2000)
William D. Johnson, 2001 $ 378,776 $ 255,000 $ 78,698(22) $ 394,701(23) $ 21,352 $ 56,923(24)
Executive Vice 2000 247,009 265,803(25) 26,734 405,131 N/A 38,012
President, General 1999 192,052 100,000 56 288,450 N/A 43,190(26)
Counsel and
Secretary
</Table>
(1)Consists of base salary prior to (i) employee contributions to the
Progress Energy 401(k) Savings & Stock Ownership Plan and (ii) voluntary
deferrals, if any, under the Management Deferred Compensation Plan. See "Other
Benefit Opportunities" on page 27.
(2)Except as otherwise noted, consists of amounts awarded with respect to
performance in the stated year under the Management Incentive Compensation Plan.
See "Other Annual Compensation Opportunities" on page 23.
(3)Consists of gross-up payments for certain federal and state income tax
obligations, and where indicated by footnote disclosure, certain perquisites.
(4)Includes the value of restricted stock awards as of the grant date
(calculated by multiplying the closing market price of the Company's
unrestricted stock on the date of grant by the number of shares awarded) granted
pursuant to the Company's 1997 Equity Incentive Plan. None of the restricted
stock awards will vest, in whole or in part, in under three years from the date
of grant except in the event of a change in control of the Company or in the
event of the recipient's death or disability more than one year from the grant
date. During the period for which the shares are restricted, the grantee will
receive all voting rights and cash dividends associated with the restricted
stock.
(5)Includes the value of matchable deferrals credited to the account of a
participant to replace the value of Company contributions to the Progress Energy
401(k) Savings & Stock Ownership Plan that would have been made on
13
<Page>
behalf of the participant but for the deferral of salary under the Management
Deferred Compensation Plan (MDCP) compensation limitations under Section 415 of
the Internal Revenue Code of 1986, as amended ("Phantom Stock Units"). Phantom
Stock Units do not represent an equity interest in the Company and the crediting
of such Units to a participant's account does not convey any voting rights.
However, a Phantom Stock Unit is equal in value at all times to a share of the
Company's Common Stock. Additional Phantom Stock Units are credited from time to
time to reflect the payment of dividends on the underlying Common Stock. For
participants with less than five years of service with the Company, these
Phantom Stock Units vest two years from the end of the calendar year in which
they are granted. Participants with five or more years of service with the
Company are 100% vested in all Phantom Stock Units credited to their accounts.
Phantom Stock Units are not deemed "Matured" and therefore available for
reallocation to other deemed investment funds chosen by the participant until
two years after the end of the MDCP Year for which they were allocated. Payment
of the value of the Phantom Stock Units will be made in cash and will generally
be made on one of the following dates in accordance with the participant's
deferral election: (i) the April 1 following the date that is five or more years
from the last day of the MDCP Year for which the participant's salary deferral
is made: (ii) the April 1 following the participant's retirement: or (iii) the
April 1 following the first anniversary of the participant's retirement. The
amount of the payment will equal the fair market value of notational deemed
investment funds on the valuation date multiplied by the number of units
credited to the account of the participant for each fund. See "Other Benefit
Opportunities" on page 27.
(6)Consists of the value of payouts of awards granted under the Company's
Performance Share Sub-Plan.
(7)Amounts reported in this column include dividends earned in 2001 on
awards granted under the Long-Term Compensation Program and dividends allocated
in 2001 on awards granted under the Performance Share Sub-Plan.
(8)Consists of (i) $48,114 in gross-up payments for certain federal and
state income tax obligations and (ii) certain perquisites, including company
airplane expenses of $20,942 and a company automobile allowance of $18,600, both
of which exceed thresholds for footnote disclosure.
(9)Consists of 1,104 Phantom Stock Units based on the market value of a
share of Common Stock on the date such units were credited to the account of the
participant. Mr. Cavanaugh owns a total of 175,000 shares of Restricted Stock
which were valued at $7,880,250 as of December 31, 2001.
(10)Mr. Cavanaugh has elected to defer receipt of this award until after his
date of retirement.
(11)Consists of (i) $56,966, which represents dividends earned in 2001 on
performance units awarded under the Long-Term Compensation Program;
(ii) $166,325, which represents dividends allocated in 2001 on performance
shares awarded under the Performance Share Sub-Plan; (iii) $10,200, which
represents Company contributions under the Progress Energy 401(k) Savings &
Stock Ownership Plan; and (iv) $95,649, which represents the dollar value of the
premium relating to the term portion and the present value of the premium
relating to the whole life portion of the benefit to be received pursuant to the
Executive Permanent Life Insurance Program.
(12)Adjusted to include additional bonus amount of $372,640 that was not
determinable at the time the proxy statement for the Company's 2001 Annual
Meeting of Shareholders was prepared.
(13)Mr. Cavanaugh has elected to defer receipt of this award until after his
date of retirement.
(14)Consists of (i) 15,000 shares of Restricted Stock valued at $603,867 as
of March 22, 2001 and (ii) 479 Phantom Stock Units based on the market value of
a share of Common Stock on the date such units were credited to the account of
the participant. Mr. Orser owns a total of 46,667 shares of Restricted Stock
which were valued at $2,101,415 as of December 31, 2001.
(15)Consists of (i) $23,146, which represents dividends earned in 2001 on
performance units awarded under the Long-Term Compensation Program;
(ii) $55,471, which represents dividends allocated in 2001 on performance shares
awarded under the Performance Share Sub-Plan; (iii) $10,200, which represents
Company contributions under the Progress Energy 401(k) Savings & Stock Ownership
Plan; and (iv) $39,550, which represents the dollar value of the
14
<Page>
premium relating to the term portion and the present value of the premium
relating to the whole life portion of the benefit to be received pursuant to the
Executive Permanent Life Insurance Program.
(16)Adjusted to include additional bonus amount of $141,963 that was not
determinable at the time the proxy statement for the Company's 2001 Annual
Meeting of Shareholders was prepared.
(17)Consists of (i) 14,500 shares of Restricted Stock valued at $583,738 as
of March 22, 2001 and (ii) 342 Phantom Stock Units based on the market value of
a share of Common Stock on the date such units were credited to the account of
the participant. Mr. McGehee owns a total of 41,500 shares of Restricted Stock,
which were valued at $1,868,745 as of December 31, 2001.
(18)Consists of (i) $42,703, which represents dividends allocated in 2001 on
performance shares awarded under the Performance Share Sub-Plan; (ii) $10,200,
which represents Company contributions under the Progress Energy 401(k)
Savings & Stock Ownership Plan; and (iii) $40,882, which represents the dollar
value of the premium relating to the term portion and the present value of the
premium relating to the whole life portion of the benefit to be received
pursuant to the Executive Permanent Life Insurance Program.
(19)Adjusted to include additional bonus amount of $92,281 that was not
determinable at the time the proxy statement for the Company's 2001 Annual
Meeting of Shareholders was prepared.
(20)Consists of (i) 3,200 shares of Restricted Stock valued at $128,825 as
of March 22, 2001 and (ii) 239 Phantom Stock Units based on the market value of
a share of Common Stock on the date such units were credited to the account of
the participant. Mr. Scott owns a total of 35,900 shares of Restricted Stock,
which were valued at $1,252,326 as of December 31, 2001.
(21)Consists of (i) $27,773, which represents dividends allocated in 2001 on
performance shares awarded under the Performance Share Sub-Plan; (ii) $10,200,
which represents Company contributions under the Progress Energy 401(k)
Savings & Stock Ownership Plan; and (iii) $42,734, which represents the dollar
value of the premium relating to the term portion and the present value of the
premium relating to the whole life portion of the benefit to be received
pursuant to the Executive Permanent Life Insurance Program.
(22)Consists of (i) $24,939 in gross-up payments for certain federal and
state income tax obligations and (ii) certain perquisites, including club dues
of $33,020 and a company automobile allowance of $16,200, both of which exceed
thresholds for footnote disclosure.
(23)Consists of (i) 9,600 shares of Restricted Stock valued at $386,475 as
of March 22, 2001 and (ii) 194 Phantom Stock Units based on the market value of
a share of Common Stock on the date such units were credited to the account of
the participant. Mr. Johnson owns a total of 32,500 shares of Restricted Stock,
which were valued at $1,463,475 as of December 31, 2001.
(24)Consists of (i) $31,244, which represents dividends allocated in 2001 on
performance shares awarded under the Performance Share Sub-Plan; (ii) $10,200,
which represents Company contributions under the Progress Energy 401(k)
Savings & Stock Ownership Plan; and (iii) $15,479, which represents the dollar
value of the premium relating to the term portion and the present value of the
premium relating to the whole life portion of the benefit to be received
pursuant to the Executive Permanent Life Insurance Program.
(25)Adjusted to include additional bonus amount of $26,803 that was not
determinable at the time the proxy statement for the Company's 2001 Annual
Meeting of Shareholders was prepared.
(26)Adjusted to include one-time incentive payment of $20,984 awarded to
Mr. Johnson in 1999 that was inadvertently omitted from the proxy statement for
the Company's 2001 Annual Meeting of Shareholders.
15
<Page>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
- ----------------------------------------------------------------------------------------------------- ------------------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL
OPTIONS/ OPTIONS/SARS
SARS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---------------------------------------------- ---------- ------------- ----------- ---------- ---------- -----------
William Cavanaugh III......................... 202,100 8.59% $43.49 9/30/2011 $5,527,562 $14,007,927
William S. Orser.............................. 50,000 2.12% 43.49 9/30/2011 1,367,531 3,465,593
Robert B. McGehee............................. 55,100 2.34% 43.49 9/30/2011 1,507,020 3,819,083
Peter M. Scott III............................ 42,500 1.81% 43.49 9/30/2011 1,162,402 2,945,754
William D. Johnson............................ 42,500 1.81% 43.49 9/30/2011 1,162,402 2,945,754
</Table>
LONG-TERM INCENTIVE PLAN
AWARDS IN LAST FISCAL YEAR
<Table>
<Caption>
NUMBER OF PERFORMANCE
NAME UNITS(1) PERIOD ENDS
- ---- --------- -----------
William Cavanaugh III,
Chairman, President and
Chief Executive Officer................................... 38,686 2003
William S. Orser,
Group President--CP&L..................................... 13,260 2003
Robert B. McGehee,
Executive Vice President.................................. 11,800 2003
Peter M. Scott III,
Executive Vice President and
Chief Financial Officer................................... 10,219 2003
William D. Johnson,
Executive Vice President,
General Counsel and Secretary............................. 9,246 2003
</Table>
- ------------------------
(1)Consists of the number of performance shares awarded in 2001 under the
Performance Share Sub-Plan of the 1997 Equity Incentive Plan, based on the
closing price of a share of the Company's Common Stock on March 20, 2001, as
published in THE WALL STREET JOURNAL. Performance Share awards may range from up
to 40% to up to 150% of a participant's base salary depending on the
participant's position and job value. The number of performance shares awarded
is recorded in a separate account for each participant, and is adjusted to
reflect dividends, stock splits or other adjustments in the Company's Common
Stock. The performance period for an award under the Sub-Plan is the three-
consecutive-year period beginning in the year in which the award is granted.
There are two equally weighted
16
<Page>
performance measures under the Sub-Plan. One performance measure is Total
Shareholder Return ("TSR"), which is defined in the Sub-Plan as the appreciation
or depreciation in the value of stock (which is equal to the closing value of
the stock on the last trading day of the relevant period minus the closing value
of the stock on the last trading day of the preceding year) plus dividends
declared during the relevant period divided by the closing value of the stock on
the last trading day of the preceding year. The other performance measure is
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) growth.
Awards under the Sub-Plan vest on January 1 following the end of the three-year
performance period, provided, however, that to determine each award vested under
the Sub-Plan, the TSR and EBITDA growth of the Company are compared to the TSR
and EBITDA growth of a Peer Group comprised of the twenty-seven electric utility
companies currently comprising the Standard & Poor's Electric Index. The
differences between the Company TSR and EBITDA growth, and the Peer Group TSR
and EBITDA growth, respectively, are used to determine the multipliers that will
be used to calculate the number of vested performance shares in each
participant's account. (Differences in TSR can range from a low of (2.0%) or
less to a high of 5% or more, and correspond to multipliers of 0% to 200%.
Differences in EBITDA growth can range from a low of less than 0% to a high of
5% or more and correspond to multipliers of 0% to 200%.) The multiplier is
applied to the number of performance shares in the participant's performance
share account to determine the actual number of vested performance shares in
that account. The aggregate value of vested performance shares is equal to the
number of vested performance shares in the participant's account multiplied by
the closing price of the Company's Common Stock, as published in THE WALL STREET
JOURNAL on the last trading day before payment of the award.
Awards are paid in cash after expiration of the performance period. Payment
can be made in either (i) lump sum on or about April 1 of the year immediately
following the performance period or (ii) in accordance with an election to defer
in 25% increments, made during the first year of the performance period. In the
event of death, disability, retirement or a change-in-control of the Company,
any award granted under the Sub-Plan immediately becomes vested. The aggregate
value of the vested award is determined using multipliers that are based on the
difference between the Company TSR and EBITDA growth and the Peer Group TSR and
EBITDA growth, respectively, over the portion of the performance period that was
completed before the terminating event occurred. See "Long-Term Compensation
Opportunities" on page 24.
17
<Page>
PENSION PLAN TABLE
<Table>
- -----------------------------------------------------------------------
ESTIMATED ANNUAL PENSION AT NORMAL RETIREMENT
(YEARS OF CREDITED SERVICE)
AVERAGE COMPENSATION
- -----------------------------------------------------------------------
15 1/2 OR MORE
10 YEARS 15 YEARS YEARS
- -----------------------------------------------------------------------
$ 190,000 $ 76,000 $114,000 $117,800
255,000 102,000 153,000 158,100
320,000 128,000 192,000 198,400
385,000 154,000 231,000 238,700
450,000 180,000 270,000 279,000
515,000 206,000 309,000 319,300
555,000 222,000 333,000 344,100
595,000 238,000 357,000 368,900
635,000 254,000 381,000 393,700
675,000 270,000 405,000 418,500
715,000 286,000 429,000 443,300
760,000 304,000 456,000 471,200
795,000 318,000 477,000 492,900
840,000 336,000 504,000 520,800
900,000 360,000 540,000 558,000
960,000 384,000 576,000 595,200
1,020,000 408,000 612,000 632,400
1,080,000 432,000 648,000 669,600
1,140,000 456,000 684,000 706,800
1,200,000 480,000 720,000 744,000
1,260,000 504,000 756,000 781,200
- -----------------------------------------------------------------------
</Table>
The above table demonstrates senior executive pension benefits payable upon
normal retirement under the Progress Energy Pension Plan and Supplemental Senior
Executive Retirement Plan at age 65 as a function of average annual income and
years of service. Covered compensation under these plans consists only of the
amounts in the Salary and Bonus columns of the Summary Compensation Table.
Pursuant to the Progress Energy Pension Plan, a defined benefit plan, benefits
are partially offset by Social Security payments and the monthly pension benefit
payable upon retirement is based on base pay earnings, age, and years of
credited service. Benefits under the Supplemental Senior Executive Retirement
Plan are fully offset by Social Security benefits and by benefits paid under the
Progress Energy Pension Plan. The monthly benefit payable upon retirement under
this plan is equal to 4% of the average of a participant's highest three years
of eligible earnings for each year of credited service with the Company up to a
maximum of 62%. Benefits listed in the table above do not reflect the Social
Security or other offset. For purposes of benefits under these plans,
Messrs. Cavanaugh and Johnson each have more than 15 1/2 years of credited
service as well as three or more years of service or deemed service on the
Senior Management Committee, and are thereby entitled to the maximum percentage
allowable in the benefit formula under these plans. Mr. Orser has eight years of
credited service, Mr. McGehee has 14 years of credited service, Mr. Scott has
ten years of credited service.
18
<Page>
EMPLOYMENT AGREEMENTS
Messrs. Cavanaugh, Orser, McGehee, Scott and Johnson have entered into
employment agreements, each of which has an effective date of August 1, 2000,
with the Company or one of its subsidiaries referred to collectively in this
section as the "Company". These agreements provide for base salary, bonuses,
perquisites and participation in the various executive compensation plans
offered to senior executives of the Company. The agreements all provide that
they will remain in effect for three years from the effective date. Each
agreement also includes an "Evergrow provision" which provides that each year,
the agreement will be extended such that the prospective term will always be
three years forward on the anniversary date of the effective date. The Company
may elect not to extend an executive officer's agreement and must notify the
officer of such an election at least sixty days prior to the annual anniversary
date of his agreement's effective date. Executive benefit plan targets,
termination and other key provisions of the agreements are discussed below.
AGREEMENT WITH MR. CAVANAUGH
Mr. Cavanaugh's agreement provides that his target compensation under the
Company's Management Incentive Compensation Plan (MICP) increased to 65% of base
salary earnings, effective January 1, 2001. Mr. Cavanaugh's target compensation
under the Performance Share Sub-Plan (PSSP) of the Company's 1997 Equity
Incentive Plan is 147% of his base salary. Mr. Cavanaugh's agreement notes that
he received a recruitment bonus under the now suspended Deferred Compensation
Plan for Key Management Employees that included a payment of $150,000 deferred
for calendar year 1992. That amount will be used to provide retirement income to
him of $121,368 per year for 15 years commencing January 1 following his
attainment of age 65. The agreement with Mr. Cavanaugh also provides that, as of
September 2, 1992, Mr. Cavanaugh was granted 14 years of deemed service for
purposes of the Supplemental Senior Executive Retirement Plan (SERP).
The agreement with Mr. Cavanaugh provides that upon termination of
employment without cause or constructive termination of employment, he will be
provided with his base salary at the current rate for the remainder of the term
of the agreement and will be eligible to retain all benefits in which he has
vested under existing benefit plans. Additionally, the Company will reimburse
him for certain health benefits for up to 18 months after the termination of his
employment. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of the Company
and (ii) Mr. Cavanaugh is offered a new position with a material change in
authority, duty, wages or benefits, or Mr. Cavanaugh is asked to relocate more
than 50 miles. If Mr. Cavanaugh's employment is constructively terminated, he
will be entitled to the greater of the benefits described above or the benefits,
if any, to which he is entitled under the Company's Management Change-in-Control
Plan. If the Company terminates Mr. Cavanaugh's employment for cause, he will be
eligible to retain all benefits in which he has vested under existing benefit
plans, but he shall not be entitled to any form of salary continuance or any
form of severance benefits. He will also be entitled to any earned but unpaid
salary. The agreement with Mr. Cavanaugh provides that if he terminates his
employment voluntarily at any time, he shall retain all vested benefits but
shall not be entitled to any form of salary continuance or any form of severance
benefit.
AGREEMENT WITH MR. ORSER
Mr. Orser's agreement provides that his target compensation under the
Company's MICP increased to 45% of base salary earnings, effective January 1,
2001. Mr. Orser's target compensation under the PSSP is 78% of his base salary.
Mr. Orser's agreement notes that pursuant to a 1993 employment agreement with
CP&L, he received a recruitment bonus under the now suspended Deferred
Compensation Plan for Key
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Management Employees, and that he is credited with nine years of service solely
for purposes of determining benefits in connection with that bonus. The
agreement also notes that Mr. Orser is automatically deemed vested for his
benefits under the SERP, and will be deemed eligible for early retirement
benefits under the SERP at age 60, assuming his continued employment at the
Company until age 60.
The agreement with Mr. Orser provides that upon termination of employment
without cause or constructive termination of employment, he will be provided
with his base salary at the current rate for the remainder of the term of the
agreement, and will be eligible to retain all benefits in which he has vested
under existing benefit plans. Additionally, he will be entitled to certain
health benefits. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of the Company
and (ii) Mr. Orser is offered a new position with a material change in
authority, duty, wages or benefits, or is asked to relocate more than 50 miles.
If Mr. Orser's employment is constructively terminated, he will be entitled to
the greater of the benefits described above or the benefits, if any, to which he
is entitled under the Company's Management Change-in-Control Plan. If the
Company terminates Mr. Orser's employment for cause, he will be eligible to
retain all benefits in which he has vested under existing benefit plans, but he
shall not be entitled to any form of salary continuance or any form of severance
benefits. He will also be entitled to any earned but unpaid salary. The
agreement with Mr. Orser provides that if he terminates his employment
voluntarily at any time, he shall retain all vested benefits but shall not be
entitled to any form of salary continuance or any form of severance benefit. The
agreement also provides that if, while Mr. Orser is between the ages of 55 and
60, his employment is terminated without cause, or constructively terminated or
if he voluntarily terminates his employment, he will receive $153,912 (less
applicable taxes) a year for life, less benefits payable under the Progress
Energy Pension Plan and in lieu of any SERP benefit. Additionally, Mr. Orser
will be eligible to retain all benefits in which he has vested under existing
benefit plans.
AGREEMENT WITH MR. MCGEHEE
Mr. McGehee's agreement provides that his target compensation under the
Company's MICP, increased to 45% of base salary earnings, effective January 1,
2001. Mr. McGehee's target compensation under the PSSP is 78% of his base
salary. Mr. McGehee's agreement notes that he received a retention agreement
bonus under the now suspended Deferred Compensation Plan for Key Management
Employees which vests based on his continued employment beyond age 60. The
agreement also notes that upon hire, Mr. McGehee was awarded 10 years of service
toward the benefits and vesting requirements of the SERP, three years of which
were deemed to have been in service on the Senior Management Committee, solely
for purposes of the SERP.
The agreement with Mr. McGehee provides that upon termination of employment
without cause or constructive termination of employment, he will be provided
with his base salary at the current rate for the remainder of the term of the
agreement, and will be eligible to retain all benefits in which he has vested
under existing benefit programs. Additionally, the Company will reimburse him
for certain health benefits for up to 18 months after the termination of his
employment. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of the Company
and (ii) Mr. McGehee is offered a new position with a material change in
authority, duty, wages or benefits, or is asked to relocate more than 50 miles.
If Mr. McGehee's employment is constructively terminated, he will be entitled to
the greater of the benefits described above or the benefits, if any, to which he
is entitled under the Company's Management Change-in-Control Plan. If the
Company terminates Mr. McGehee's employment for cause, he will be eligible to
retain all benefits in which he has vested under existing benefit
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plans, but he shall not be entitled to any form of salary continuance or any
form of severance benefits. He will also be entitled to any earned but unpaid
salary. The agreement with Mr. McGehee provides that if he terminates his
employment voluntarily at any time, he shall retain all vested benefits but
shall not be entitled to any form of salary continuance or any form of severance
benefit.
AGREEMENT WITH MR. SCOTT
Mr. Scott's agreement provides that his target compensation under the MICP
increased to 45% of base salary earnings, effective January 1, 2001.
Mr. Scott's target compensation under the PSSP of the Company's 1997 Equity
Incentive Plan is 78% of his base salary. Pursuant to the terms of his
agreement, Mr. Scott received transition compensation of $100,000, and has been
awarded seven years of deemed service toward the benefits and vesting
requirements of the SERP.
The agreement with Mr. Scott provides that upon termination of employment
without cause or constructive termination of employment, he will be provided
with his base salary at the current rate for the remainder of the term of the
agreement and will be eligible to retain all benefits in which he has vested
under existing benefit plans. Additionally, the Company will reimburse him for
certain health benefits for up to 18 months after the termination of his
employment. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of the Company
and (ii) Mr. Scott is offered a new position with a material change in
authority, duty, wages or benefits, or Mr. Scott is asked to relocate more than
50 miles. If Mr. Scott's employment is constructively terminated, he will be
entitled to the greater of the benefits described above or the benefits, if any,
to which he is entitled under the Company's Management Change-in-Control Plan.
If the Company terminates Mr. Scott's employment for cause, he will be eligible
to retain all benefits in which he has vested under existing benefit plans, but
he shall not be entitled to any form of salary continuance or any form of
severance benefits. He will also be entitled to any earned but unpaid salary.
The agreement with Mr. Scott provides that if he terminates his employment
voluntarily at any time, he shall retain all vested benefits but shall not be
entitled to any form of salary continuance or any form of severance benefit.
AGREEMENT WITH MR. JOHNSON
Mr. Johnson's agreement provides that his target compensation under the MICP
increased to 45% of base salary earnings, effective January 1, 2001.
Mr. Johnson's target compensation under the PSSP of the Company's 1997 Equity
Incentive Plan is 78% of his base salary. The agreement with Mr. Johnson also
notes that he was awarded seven years of deemed service toward the benefits and
vesting requirements of the SERP. Three of those years will also be deemed
service on the Senior Management Committee.
The agreement with Mr. Johnson provides that upon termination of employment
without cause or constructive termination of employment, he will be provided
with his base salary at the current rate for the remainder of the term of the
agreement and will be eligible to retain all benefits in which he has vested
under existing benefit plans. Additionally, the Company will reimburse him for
certain health benefits for up to 18 months after the termination of his
employment. The agreement provides that a constructive termination will be
deemed to occur if (i) there is a change in the form of ownership of the Company
and (ii) Mr. Johnson is offered a new position with a material change in
authority, duty, wages or benefits, or Mr. Johnson is asked to relocate more
than 50 miles. If Mr. Johnson's employment is constructively terminated, he will
be entitled to the greater of the benefits described above or the benefits, if
any, to which he is entitled under the Company's Management Change-in-Control
Plan. If the Company terminates Mr. Johnson's employment for cause, he will be
eligible to retain all benefits in which he has vested under existing benefit
plans, but he shall not be entitled to any form of salary continuance or any
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form of severance benefits. He will also be entitled to any earned but unpaid
salary. The agreement with Mr. Johnson provides that if he terminates his
employment voluntarily at any time, he shall retain all vested benefits but
shall not be entitled to any form of salary continuance or any form of severance
benefit.
REPORT OF BOARD COMMITTEE ON ORGANIZATION
AND COMPENSATION
The Company's executive compensation program is administered by the
Committee on Organization and Compensation of the Board of Directors (the
"Committee"). The six-member Committee is composed entirely of independent
outside Directors who are not eligible to participate in any compensation
program in which Company executives participate other than the 1997 Equity
Incentive Plan.
COMPENSATION PRINCIPLES
COMPARISON GROUPS
The Company uses an independent executive benefits consulting firm to assist
the Company in meeting its compensation objectives. Each year this consulting
firm provides the Committee with an analysis comparing overall compensation paid
to the Company's executives with overall compensation paid to executives of two
comparison groups of electric utility companies. One comparison group consists
of fourteen of the electric utility companies with fossil fuel and nuclear
operations in the eastern portion of the United States. The other comparison
group consists of a broad group of electric utilities across the United States.
While these comparison groups are different from the group of companies
comprising the Standard & Poor's Electric Index, which is a published industry
index shown in the performance graph on page 32, the Committee believes these
electric utility companies are appropriate for overall compensation comparisons
because they reflect the most appropriate labor markets for the Company's
executives.
The Company's executive compensation program consists of four major
elements: base salary; other annual compensation opportunities; long-term
compensation opportunities; and other benefit opportunities. The Committee's
objective in administering this program is to structure, through a combination
of these elements, an overall compensation package for executives which
approximates in value the 75th percentile of overall compensation paid to
executives of the comparison group. Overall compensation paid to the Company's
executives in 2001 met this objective.
STOCK OWNERSHIP GUIDELINES
In an effort to more closely link the interests of the Company's management
with those of its shareholders, in 1996 the Board of Directors adopted stock
ownership guidelines which are designed to ensure that the Company's management
has a significant financial equity investment in the Company. Those guidelines
require the Company's officers to own from 1 to 4 times their base salary in the
form of Company Common Stock within five years. (The specific multiplier applied
to base salary depends upon the individual's position.) In addition to shares
owned outright, the following are considered stock owned by executives and
department heads for purposes of the guidelines: (1) stock held in any defined
benefit, defined contribution, ESOP or other stock-based plan; (2) performance
units or phantom stock ("derivative securities") deferred under an annual
incentive or deferral plan; (3) performance units or phantom stock earned and
deferred in any long-term incentive plan account; (4) restricted stock awards;
and (5) stock held in a family trust or immediate family holdings.
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SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended (Code)
imposes a limit, with certain exceptions, on the amount a publicly held
corporation may deduct for compensation over $1 million paid or accrued with
respect to the Company's Chief Executive Officer and any of the other four most
highly compensated officers. Certain performance-based compensation is, however,
specifically exempt from the deduction limit. To qualify as exempt, compensation
must be made pursuant to a plan that is (1) administered by a committee of
outside directors, (2) based on achieving objective performance goals and
(3) disclosed to and approved by the shareholders. The 2001 compensation
disclosed in this proxy statement does not exceed the limit, except in the cases
of Messrs. Cavanaugh, Orser and McGehee, who had nondeductible compensation of
approximately $3,211,526; $702,058; and $386,770, respectively. Mr. Cavanaugh's
nondeductible compensation was attributable to restricted stock income,
miscellaneous income, non-deferred bonuses and base salary. The nondeductible
compensation of Messrs. Orser and McGehee was attributable to restricted stock
income, miscellaneous income and nondeferred bonuses.
The Committee believes the current design of the Company's compensation
program is sound in linking pay to performance and to the interests of
shareholders, and allowing appropriate flexibility in determining amounts to be
awarded. Therefore, the Company does not have a policy that requires the
Committee to qualify compensation awarded to executive officers for
deductibility under Section 162(m) of the Code. The Committee does, however,
consider the impact of Section 162(m) when determining executive compensation,
and the 1997 Equity Incentive Plan is intended to minimize the effect of this
provision. Although the Committee is not required to qualify executive
compensation paid to Company executives for exemption from Section 162(m), it
will continue to consider the effects of Section 162(m) when making compensation
decisions.
ELEMENTS OF EXECUTIVE COMPENSATION PROGRAM
Set forth below is a description of the major elements of the Company's
executive compensation program and their relationship to corporate performance,
as well as a summary of the actions taken by the Committee with respect to the
compensation of the Chief Executive Officer.
BASE SALARY
Executives within the Company receive a base salary determined by the
Committee based upon the value of their position compared to competitively
established salary ranges, their individual performance and overall corporate
performance. The Committee does not utilize a specific mathematical formula in
determining base salaries. The Committee in its discretion approved the base
salaries of the Chief Executive Officer and the named executives, as set forth
in the Summary Compensation Table. These salaries were based on each executive's
level of responsibility in the Company, the competitive level of compensation
for executives in the comparison group of utilities, the achievement of
corporate goals and individual merit performance as qualitatively determined by
the Committee.
OTHER ANNUAL COMPENSATION OPPORTUNITIES
MANAGEMENT INCENTIVE COMPENSATION PLAN
The Company sponsors the Management Incentive Compensation Plan (MICP) for
its senior executives, department heads and selected key employees. In order for
awards to be made under the MICP, two conditions must be satisfied. First, a
contribution must be earned by one or more groups of
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employees under the corporate incentive feature of the Company's 401(k)
Savings & Stock Ownership Plan, a tax qualified 401(k) plan. Incentive matching
contributions are earned by participating employees if at least five out of ten
annual corporate and business unit goals are met. (See the description of the
Company's 401(k) Savings & Stock Ownership Plan, under "Other Benefit
Opportunities" below.) Second, the Company's return on common equity and EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization) growth for the
most recent three-year period must be above the median of those companies in a
comparison group that is comprised of the twenty-seven electric utility
companies currently comprising the Standard & Poor's Electric Index shown in the
performance graph on page 32.
If participants at or above the department head level of the Company are
eligible for awards, then the Committee in its discretion determines whether
awards are to be made and, if so, in what amounts. If participants below the
department head level of the Company are eligible for awards, then the Chief
Executive Officer has sole and complete authority to approve such awards.
Awards consist of both a corporate component and a noncorporate component.
Award opportunities, expressed as a percentage of annual base salary earnings,
are applicable to both components of an award. The corporate component of an
award is based upon the overall performance of the Company. The noncorporate
component of an award is based upon the level of attainment of business
unit/subsidiary, departmental and individual performance measures. Those
measures are evaluated in terms of three levels of performance--outstanding,
target and threshold--each of which is related to a particular payout
percentage. If earned, awards are either paid in cash in the succeeding year or
deferred to a later date, as elected by each individual participant. Deferred
awards are recorded in the form of performance units. Each performance unit is
generally equivalent to a share of the Company's Common Stock.
The threshold requirements for award eligibility, as discussed above, were
met and exceeded in 2001. At a meeting of the Committee on March 20, 2002, based
on highly commendable performance, awards were made at the discretion of the
Committee to the named executives, including the Chief Executive Officer, as set
forth in the Summary Compensation Table under the Bonus column.
LONG-TERM COMPENSATION OPPORTUNITIES
1997 EQUITY INCENTIVE PLAN
The 1997 Equity Incentive Plan (the "Plan"), which was approved by the
Company's shareholders in 1997, allows the Committee to make various types of
awards to officers, other key employees, and also Directors of the Company, its
affiliates and subsidiaries. Selection of non-Director participants is within
the sole discretion of the Committee. Thus, the number of persons eligible to
participate in the Plan and the number of grantees may vary from year to year.
The Plan was effective as of January 1, 1997, and will expire on January 1,
2007; provided, however, that the Plan will be frozen effective May 8, 2002 if
the Company's shareholders approve the proposed 2002 Equity Incentive Plan. All
Plan awards made prior to and outstanding on that date shall remain valid in
accordance with their terms and conditions.
The Plan is a broad umbrella plan that allows the Company to enter into
Award Agreements with participants and adopt various individual Sub-Plans that
will permit the grant of the following types of awards: nonqualified stock
options, incentive stock options, stock appreciation rights, restricted stock,
performance units, performance shares and other stock unit awards or stock-based
forms of awards. The Plan sets forth certain minimum requirements for each type
of award, with detailed provisions regarding awards to be set out either in
Award Agreements or in the Sub-Plans adopted under the Plan. Subject to
adjustment as provided in the Plan, the maximum aggregate number of shares that
may be issued over the
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years pursuant to awards made under the Plan cannot exceed 5,000,000 shares of
Common Stock, which may be in any combination of options, restricted stock, or
any other right or option.
Under the terms of the Plan, the Committee may grant awards in a manner that
qualifies them for the performance-based exception to Section 162(m) of the
Internal Revenue Code of 1986, as amended, or it may grant awards that do not
qualify for the exemption.
PERFORMANCE SHARE SUB-PLAN
Pursuant to the provisions of the Plan, the Committee adopted the
Performance Share Sub-Plan, which governs the issuance of performance share
awards to Company officers and key employees, as selected by the Committee in
its sole discretion. A "performance share" is a unit granted to a participant,
the value of which is equal to the value of a share of the Company's Common
Stock. The Committee may grant performance share awards subject to a limit that
ranges from up to 40% to up to 150% of a participant's base salary, depending
upon the participant's position and job value. (For purposes of the Sub-Plan,
base salary is not reduced to reflect salary deferrals and does not include
incentive compensation.) The number of performance shares awarded are recorded
in a separate account for each participant, and are adjusted to reflect
dividends, stock splits or other adjustments in the Company's Common Stock.
The performance period for an award under the Sub-Plan is the three
consecutive year period beginning in the year in which the award is granted.
There are two equally weighted performance measures under the Sub-Plan. One
performance measure is Total Shareholder Return ("TSR"), which is defined in the
Sub-Plan as the appreciation or depreciation in the value of stock (which is
equal to the closing value of the stock on the last trading day of the relevant
period minus the closing value of the stock on the last trading day of the
preceding year) plus dividends declared during the relevant period, divided by
the closing value of the stock on the last trading day of the preceding year.
The other performance measure is EBITDA growth. Awards under the Sub-Plan vest
on January 1 following the end of a three-year performance period; provided,
however, that the following methodology is used to determine each award vested
under the Sub-Plan: 1) the TSR and EBITDA growth for the Company for each year
during the performance period is determined; 2) those annual figures are
averaged to determine the Company TSR and EBITDA growth, respectively; 3) the
average TSR and EBITDA growth for all Peer Group utilities for each year during
the performance period is determined (the Peer Group is currently comprised of
the twenty-seven major electric utility companies within the Standard & Poor's
Electric Index); 4) those figures are averaged, respectively, to determine the
Peer Group TSR and EBITDA growth; 5) the Peer Group TSR and EBITDA growth for
the performance period is subtracted from the Company TSR and EBITDA growth,
respectively, for the performance period; 6) the differences between the Company
TSR and EBITDA growth and the Peer Group TSR and EBITDA growth, respectively,
are used to determine the multipliers that will be used to calculate the number
of vested performance shares in each participant's account. (Differences in TSR
can range from a low of (2.0%) or less to a high of 5% or more, and correspond
to multipliers of 0 to 200%. Differences in EBITDA growth can range from a low
of less than 0% to a high of 5% or more and correspond to multipliers of 0 to
200%.); and 7) the multipliers are each applied independently to one-half of the
number of performance shares in the participant's performance share account to
determine the actual number of vested performance shares in that account. The
aggregate value of vested performance shares is equal to the number of vested
performance shares in the participant's account multiplied by the closing price
of the Company's Common Stock, as published in THE WALL STREET JOURNAL on the
last trading day before payment of the award.
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Awards are paid in cash after expiration of the performance period. Payment
can be made in either (i) lump sum on or about April 1 of the year immediately
following the performance period or (ii) in accordance with an election to defer
in 25% increments, made during the first year of the performance period. In the
event of death, disability, retirement or a change-in-control of the Company,
any award granted under the Sub-Plan immediately becomes vested. The aggregate
value of the vested award is determined using multipliers that are based on the
difference between the Company TSR and EBITDA growth and the Peer Group TSR and
EBITDA growth, respectively, over the portion of the performance period that was
completed before the terminating event occurred.
RESTRICTED STOCK AWARDS
Section 9 of the Plan provides for the granting of shares of restricted
stock by the Committee to "key employees" within the Company in such amounts and
for such duration and/or consideration as it shall determine. The Plan defines
"key employee" as an officer or other employee within the Company, who, in the
opinion of the Committee, can contribute significantly to the growth and
profitability of, or perform services of major importance to, the Company. Each
restricted stock grant must be evidenced by an agreement specifying the period
of restriction, the conditions that must be satisfied prior to removal of the
restriction, the number of shares granted, and such other provisions as the
Committee shall determine.
Restricted stock covered by each award made under the Plan will be provided
to and become freely transferable by the recipient after the last day of the
period of restriction and/or upon the satisfaction of other conditions as
determined by the Committee. If the grant of restricted stock is performance
based, the total period of restriction for any or all shares or units of
restricted stock granted shall be no less than one (1) year except in the event
of a change in control of the Company. Any other shares of restricted stock
issued pursuant to the Plan must provide that the minimum period of restrictions
shall be three (3) years, which period of restriction may permit the removal of
restrictions on no more than one-third (1/3) of the shares of restricted stock
at the end of the first year following the grant date, and the removal of the
restrictions on an additional one-third (1/3) of the shares at the end of each
subsequent year. The Plan provides that in no event shall any restrictions be
removed from shares of restricted stock during the first year following the
grant date, except in the event of a change-in-control.
During the period of restriction, recipients of shares of restricted stock
granted under the Plan may exercise full voting rights with respect to those
shares, and shall be entitled to receive all dividends and other distributions
paid with respect to those shares. If any such dividends or distributions are
paid in shares, those shares shall be subject to the same restrictions on
transferability as the restricted stock with respect to which they were
distributed.
STOCK OPTIONS
Pursuant to Section 7 of the Plan, the Committee is authorized to grant
stock options to "key employees." Grants of stock options to directors of the
Company must be approved by the full Board, and must consist only of
"Nonqualified Stock Options" (options that are not intended to be "Incentive
Stock Options" within the meaning of Section 422A of the Internal Revenue Code
of 1986, as amended). Subject to the terms and provisions of the Plan, the
Committee has sole and complete discretion to determine the type of option
granted, the option price, the duration of the option, the number of shares to
which an option pertains, any conditions on the exercisability of the option and
the conditions under which the option may be terminated. The specific terms and
conditions applicable to each option will be detailed in an Award Agreement.
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The exercise price per share of stock covered by an option will be
determined by the Committee at the time of grant; provided, however, that the
option price shall not be less than 100% of the fair market value of the
Company's common stock on the grant date.
Options granted under the Plan are exercisable at such times and subject to
such restrictions and conditions as the Committee determines at the time of
grant; provided, however, that no option may be exercisable more than ten years
from the grant date.
Options must be exercised by the delivery of a notice from the grantee to
the Company or its designee in the form prescribed by the Committee. The notice
must set forth the number of shares with respect to which the option is to be
exercised. The option price is payable to the Company in cash and/or by the
delivery of shares of Company common stock valued at fair market value at the
time of exercise. In addition, at the request of the grantee, and subject to
applicable laws and regulation, the Company may cooperate in a cashless exercise
of the option.
The maximum number of shares of Company common stock subject to options,
stock appreciation rights and/or restricted stock granted to any covered
participant for any performance period cannot exceed 250,000 shares.
OTHER BENEFIT OPPORTUNITIES
The following additional benefit opportunities are also available to the
Company's senior executives:
- The Company sponsors the Management Deferred Compensation Plan (MDCP), an
unfunded, deferred compensation arrangement established for the benefit of
a select group of management and highly compensated employees of the
Company and its participating subsidiaries. Under the MDCP, an eligible
employee may elect to defer a portion of his or her salary until the
April 1 following the date that is five or more years from the last day of
the MDCP Year for which the deferral is made, the April 1 following his or
her date of retirement, or the April 1 following the first anniversary of
his or her date of retirement. Deferrals will be made to deferral accounts
administered pursuant to the MDCP in the form of deemed investments in
certain deemed investment funds individually chosen by each participating
employee from a list of investment options provided pursuant to the MDCP.
Additionally, qualifying participants will receive matching allocations
from the Company (generally reflecting foregone Company allocations to
participants' 401(k) accounts due to such salary deferrals, and/or
foregone Company allocations to the participants' 401(k) accounts due to
certain Internal Revenue Code limits), which will be allocated to a
Company account that will be deemed initially to be invested in
hypothetical shares of the Company's Common Stock. These allocations do
not represent an equity interest in the Company and convey no voting
rights to their owners. However, additional allocations are credited from
time to time to reflect the payment of dividends on the Company's Common
Stock. When a participant's Company account has matured, pursuant to the
terms of the MDCP, the participant may reallocate any part of such account
among the deemed investment funds chosen by the participant.
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- The Company sponsors an executive split dollar life insurance program
which consists of two separate plans. The first plan provides life
insurance coverage approximately equal to three times salary for senior
executives. The second plan provides additional life insurance coverage
approximately equal to three times salary for those officers of the
Company who are also members of the Board of Directors.
- The Company also sponsors broad-based employee benefit plans for senior
executives of participating subsidiaries. Under the Progress Energy 401(k)
Savings & Stock Ownership Plan, a salary reduction plan under
Section 401(k) of the Code, eligible, highly compensated employees of
participating companies may invest up to 12% of eligible base salary
earnings (up to a maximum of $10,500 in 2001) on a before-tax basis in the
Company's Common Stock and other investment options. The Company makes a
matching allocation of 50% of such investment (up to 3% of eligible base
salary earnings) which is invested in Company Common Stock. Under an
incentive feature, the Company's allocation may be increased by up to an
additional 50% if certain strategic corporate and business unit financial,
operating, safety, customer satisfaction, and other performance goals are
met. The Company also sponsors the Progress Energy Pension Plan, a defined
benefit plan (cash balance formula), which covers eligible employees of
participating subsidiaries who have been employed within the Company for
at least one year. The right to receive pension benefits under this plan
is vested after five years.
- The Company sponsors the Restoration Retirement Plan (the "Restoration
Plan"), an unfunded retirement plan for a select group of management or
highly compensated employees of participating subsidiaries. The
Restoration Plan "restores" the full benefit that would be provided under
the Pension Plan but for certain Code limits imposed on the benefit levels
of highly compensated employees. Generally, the benefit for participants
is a monthly benefit payment equal to the difference between (i) a
participant's accrued benefit under the Pension Plan without regard to the
Internal Revenue Service compensation and benefit limits and (ii) a
participant's accrued benefit as calculated under the Pension Plan. The
Restoration Plan also applies to any employee who defers more than 10% of
his base salary under the MDCP. The eligibility and vesting requirement
for the Restoration Plan are the same as those for the Pension Plan.
Participants eligible to receive benefits under the Supplemental Senior
Executive Retirement Plan forego participation in and rights under the
Restoration Plan.
- The Company sponsors the Supplemental Senior Executive Retirement Plan
which provides a retirement benefit for eligible senior executives equal
to 4% of the average of their highest three years of base salary earnings
and annual bonus for each year of credited service with the Company up to
a maximum of 62%. Benefits under the Supplemental Senior Executive
Retirement Plan are fully offset by Social Security benefits and by
benefits paid under the Company's Pension Plan.
- The Company's senior executives also receive certain perquisites and other
personal benefits. In addition, executives received gross-up payments in
2001 for related federal and state income tax obligations, as disclosed in
the Summary Compensation Table on page 13.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Compensation in 2001 for the Chief Executive Officer was consistent with the
compensation principles described above and reflected performance of the Company
and the individual in 2001, as well as services in 2001. The determination of
his compensation by the Committee was qualitative in nature and
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based on a variety of factors, including comparison group compensation data,
attainment of various corporate goals, total shareholder return, earnings per
share and other financial and operating performance, individual performance and
other factors. Specific mathematical weights were not assigned to these factors.
Overall compensation in 2001 fell within the targeted level (75th percentile) of
overall compensation paid to chief executive officers in the comparison groups.
The Committee considered the successful completion of the acquisition of
Florida Progress Corporation, noting that the transaction represented the
attainment of one of the Company's key strategic objectives--gaining the scope
and scale to be a formidable competitor among energy providers for the
Southeast. The Committee also considered the significant progress made in the
process of integrating the two companies, and specifically noted the
reorganization of the Company's business along strategic lines and the formation
of new business units, including one which was created to manage and grow the
Company's non-regulated generation assets and wholesale energy marketing and
trading. The Committee took into account the progress of the Company's
development of its non-regulated enterprises. The Committee considered the
success of the Company in obtaining all regulatory approvals required for the
creation of a registered holding company and for the acquisition of Florida
Progress Corporation, with no significant conditions or restrictions. The
Committee also noted the Company's success in developing and effectively
communicating its position on industry restructuring and in addressing other
important regulatory issues at the state and federal levels.
The Committee considered the fact that the leadership provided by
Mr. Cavanaugh contributed significantly to the Company's success in achieving
corporate goals, implementing strategic initiatives, achieving national
leadership in the fields of nuclear power and electric utility operations,
focusing on leadership development and succession planning, implementing
programs designed to enhance the diversity of the Company's work force,
improving customer and community relations and supporting the economic growth
and quality of life in the Company's service area.
Committee on Organization and
Compensation:
Charles W. Coker, Chairman
Edwin B. Borden
William O. McCoy
E. Marie McKee
Richard A. Nunis
J. Tylee Wilson
29
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REPORT OF THE AUDIT AND CORPORATE
PERFORMANCE COMMITTEE
UNLESS SPECIFICALLY STATED OTHERWISE IN ANY OF THE COMPANY'S FILINGS UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, THE FOLLOWING
REPORT OF THE AUDIT COMMITTEE SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
The Audit and Corporate Performance Committee has reviewed and discussed the
audited financial statements of the Company for the fiscal year ended
December 31, 2001 with the Company's management and with Deloitte & Touche LLP,
the Company's independent auditors. The Committee discussed with Deloitte &
Touche LLP the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees).
The Committee has received the written disclosures and the letter from
Deloitte & Touche LLP required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and has discussed the
independence of Deloitte & Touche LLP with that firm.
Based upon the review and discussions noted above, the Audit and Corporate
Performance Committee recommended to the Board of Directors that the Company's
audited financial statements be included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001 for filing with the
Securities and Exchange Commission.
The Board of Directors has determined that the members of the Audit and
Corporate Performance Committee are "independent" for purposes of the New York
Stock Exchange listing standards.
The Audit Committee has adopted a written policy statement (charter), which
was included as Exhibit A to the proxy statement dated April 2, 2001 for the
Company's 2001 Annual Meeting of Shareholders.
Audit and Corporate Performance
Committee:
Richard L. Daugherty, Chairman
David L. Burner
W. D. Frederick, Jr.
John H. Mullin, III
Carlos A. Saladrigas
Jean Giles Wittner
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DISCLOSURE OF AUDITORS' FEES
Set forth below is certain information relating to the aggregate fees billed
by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and
their respective affiliates (collectively, "Deloitte") for professional services
rendered for the fiscal year ended December 31, 2001.
AUDIT FEES
The aggregate fees billed by Deloitte for professional services rendered for
(i) the audits of the annual financial statements of the Company and its SEC
reporting subsidiaries (Carolina Power & Light Company, Florida Progress
Corporation and Florida Power Corporation) for the fiscal year ended
December 31, 2001; (ii) the reviews of the financial statements included in the
Quarterly Reports on Form 10-Q of the Company and its SEC reporting subsidiaries
for that fiscal year; and (iii) the audits of the financial statements of
certain non-reporting subsidiaries of the Company for that fiscal year were
$1,589,960. In completing its audit of the Company's financial statements,
Deloitte relies substantially on its audits of the Company's SEC reporting and
non-reporting subsidiaries.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
During the fiscal year ending December 31, 2001, there were no professional
services rendered by Deloitte relating to financial information systems design
and implementation.
ALL OTHER FEES
The aggregate fees billed by Deloitte for services rendered to the Company,
other than the services described above under "Audit Fees" and "Financial
Information Systems Design and Implementation Fees" for the fiscal year ended
December 31, 2001, were $1,887,208.
The Audit and Corporate Performance Committee has considered whether the
provision of non-audit services is compatible with maintaining the principal
accountant's independence.
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PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG PROGRESS ENERGY, INC. S&P 500 STOCK INDEX
AND S&P ELECTRIC INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<Table>
<Caption>
PROGRESS ENERGY INC. S&P ELECTRIC INDEX S&P 500 INDEX
1996 100.00 100.00 100.00
1997 122.30 126.32 133.36
1998 141.92 145.94 171.47
1999 96.49 117.58 207.55
2000 165.77 180.49 188.67
2001 159.25 165.76 166.25
</Table>
<Table>
- ------------------------------------------------------------------------------------------------------------------
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) 1996 1997 1998 1999 2000 2001
- ------------------------------------------------------------------------------------------------------------------
Progress Energy, Inc. 100 122 142 96 166 159
S&P Electric Index 100 126 146 118 180 166
S&P 500 Index 100 133 171 208 189 166
- ------------------------------------------------------------------------------------------------------------------
</Table>
- ------------------------
* $100 Invested on 12/31/96 in Stock or Index.
Including reinvestment of dividends.
Fiscal Year Ending December 31.
32
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MANAGEMENT PROPOSAL
APPROVAL OF THE PROGRESS ENERGY, INC. 2002 EQUITY INCENTIVE PLAN
BACKGROUND
Below is a description of the Progress Energy, Inc. sponsored 2002 Equity
Incentive Plan (the "Plan"), adopted by the Board of Directors of the Company on
March 20, 2002. As provided in the Proxy Statement, "Company" shall mean
Progress Energy, Inc. The 1997 Equity Incentive Plan of Progress Energy, Inc.,
will remain effective with regard to all Awards made thereunder, but shall be
superseded by the Plan with regard to all Awards made after approval of the Plan
by the Company's shareholders. The Board unanimously recommends that the Plan be
approved. In keeping with this recommendation, the Board has directed that the
Plan be submitted to a vote of the shareholders at this Annual Meeting. If
approved by the shareholders as proposed herein, the Plan will allow the
Organization and Compensation Committee (the "Committee") to make various types
of awards to Key Employees and Outside Directors of the Company, and to Key
Employees of the Company's Affiliates.
The Plan, along with other elements of the Company's compensation program,
will support the stock ownership guidelines for Company officers, which were
adopted by the Board at its December 11, 1996 meeting. These guidelines are
designed to link the interests of Company executives with those of shareholders
by ensuring that executives hold an ownership stake in the Company that is
significant in comparison to their salaries, and thus have a sustained interest
in the Company's long-term performance. The guidelines require executives to own
Company "stock," including forms other than shares owned outright by an
executive, valued at between one and four times their individual base salaries,
depending upon their positions. Executives are encouraged to achieve their
target ownership levels within five years.
Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company is not entitled to a federal income tax deduction for
compensation in excess of $1 million paid in any year to a "Covered
Participant," subject to certain exceptions. Compensation that qualifies as
"performance-based" under Section 162(m) of the Code is exempt from this
limitation. The Plan sets forth a list of alternative Performance Measures, the
attainment of which may determine the degree of payout and/or vesting with
respect to Awards that are designed to qualify for the performance-based
exception to Section 162(m) of the Code. Under the Plan, the Committee may grant
Awards in a manner that qualifies them for the exemption for performance-based
compensation, or it may grant Awards that do not qualify for the exemption. The
applicable conditions of the performance-based compensation exemption include,
among others, a requirement that the shareholders of the Company approve the
material terms of the Plan.
Approximately 700 persons are currently eligible to participate in the Plan.
The number of persons eligible to participate in the Plan and the number of
Participants may vary from year to year. The Plan will be administered by the
Committee which is comprised solely of "outside" "non-employee" directors. The
Plan imposes limits on the number of shares of Stock that can be granted in the
form of Incentive Stock Options or in the form of Restricted Stock.
Additionally, the Plan imposes limits on the number of shares of Stock or
derivatives that can be issued in the form of Performance Shares, Performance
Units or other Stock Unit Awards. The Plan also provides that the Option Price
cannot be less than 100% of the Fair Market Value of the Stock on the initial
Grant Date, and that Options cannot be repriced except in limited circumstances
associated with certain capital adjustments and acquisitions.
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The Plan is a broad umbrella plan that allows the Company to enter into
Award Agreements and/or adopt various individual Sub-Plans that will permit the
grant of several different types of Awards. The Plan is reproduced in its
entirety in Appendix A to this Proxy Statement, and all capitalized terms used
but not defined either above or in the following description are defined in the
Plan. The following description is qualified in all respects by reference to the
full Plan document.
PLAN DESCRIPTION
PURPOSE
The purpose of the Plan is to promote the interests of the Company and its
shareholders by (i) attracting and retaining Executive Officers, Outside
Directors and other Key Employees who are essential to the success of the
Company and its Affiliates; (ii) motivating Executive Officers, Outside
Directors and other Key Employees using performance-related and Stock-based
incentives that are linked to the interests of the Company's shareholders; and
(iii) enabling such Executive Officers, Outside Directors and other Key
Employees to share in the long-term growth and success of the Company and its
Affiliates.
ELIGIBILITY
Except as set forth immediately below, the Committee shall have sole and
complete discretion to determine Key Employees, including Executive Officers and
Outside Directors, who shall be eligible to participate in the Plan, subject to
the following limitations: (i) no Outside Director shall be eligible to
participate in the Plan except with approval of the full Board; (ii) no person
owning, directly or indirectly, more than 5% of the total combined voting power
of all classes of stock of the Company shall be eligible to participate in the
Plan; and (iii) only regular, full-time employees shall be eligible to
participate in the Plan, except that Outside Directors may be granted
Non-Qualified Stock Options or Restricted Stock Awards.
The Committee may delegate to the Company's Chief Executive Officer
authority to designate Key Employees and/or Awards to be made to Key Employees
who are not Executive Officers, subject to any limitations imposed by the
Committee, including a fixed maximum Award for any group of Key Employees,
and/or a maximum Award for any Key Employee. Awards to Executive Officers must
be determined by the Committee, and Awards to Outside Directors must be
determined by the Company's Board of Directors.
EFFECTIVE DATE AND DURATION
The Plan shall be effective on the date it is approved by the Company's
shareholders, and shall expire on the tenth anniversary of its effective date;
provided, however, that all Awards made prior to, and outstanding on the
expiration date for the Plan, shall remain valid in accordance with applicable
terms and conditions.
ADMINISTRATION
The Plan shall be administered and interpreted by the Committee, which is
intended to be comprised of "non-employee directors" as defined in Rule 16b-3 of
the Securities Exchange Act of 1934, as amended (the "Act") and to satisfy the
"outside director" provisions of Section 162(m) of the Code. The Committee shall
have sole and complete discretion to adopt, alter, suspend and repeal any such
administrative rules, regulations, guidelines and practices governing operation
of the Plan as it shall from time to time deem advisable. In addition to any
other powers and, subject to the provisions of the Plan, the Committee shall
34
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also have the following specific powers: (i) to determine the terms and
conditions upon which the Awards may be made and exercised; (ii) to determine
all terms and provisions of each Award Agreement and/or Sub-Plan, which need not
be identical for types of Awards nor for the same type of Award to different
Participants; (iii) to construe and interpret the Award Agreements, Sub-Plans
and the Plan; (iv) to establish, amend, or waive rules or regulations for the
Plan's administration; (v) to accelerate the exercisability of any Award, the
length of a Performance Period or the termination of any Period of Restriction,
except for Awards to Participants who are "covered employees" as defined in
Section 162 (m)(3) of the Code who are intended to qualify for the
Performance-Based Exception, other than as may be provided under the terms of
the Award in the event of a Change in Control or as hereinafter specified; and
(vi) to make all other determinations and take all other actions necessary or
advisable for the administration of the Plan, including a determination of
whether an event constitutes a Change in Control of the Company. However, the
Committee has no authority to issue an Option with an Option Price that is less
than 100% of the Fair Market Value of the Stock on the initial Grant Date. Once
established, the Option Price may not be adjusted or amended without shareholder
approval, except under limited circumstances specified in Sections 6.4 and 6.5
of the Plan.
SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
Subject to adjustments as provided in the Plan, the maximum aggregate number
of shares of Stock that may be issued over the years pursuant to Awards made
under the Plan shall not exceed 15,000,000 shares of Stock, which may be in any
combination of Options, Restricted Stock, Performance Shares, other Stock-Based
Awards, or any other right or option that is actually paid out in Stock. This
limit does not apply to grants made to replace or assume existing awards in
connection with the acquisition of a business. Also, shares of Stock that are
still available for issuance under the 1997 Equity Incentive Plan (currently
estimated to be 1,700,000 shares) will be transferred to the Plan. The maximum
number of shares of Stock that may be granted in the form of Incentive Stock
Options shall be 10,000,000 shares. The maximum number of shares of Stock that
may be granted in the form of Restricted Stock shall be 3,000,000 shares. Awards
in the form of Stock Appreciation Rights, Performance Units, or other
Stock-Based Awards that are not paid in the form of Stock shall not be counted
toward the limits stated above. The maximum number of shares of Stock (or
derivatives of shares of Stock) that may be granted in the form of Performance
Shares, Performance Units, or other Stock Unit Awards not payable in shares of
Stock shall be 4,000,000 shares. Shares of Stock may be available from the
authorized but unissued shares of Stock. Except as provided below, the issuance
of Stock in connection with the exercise of, or as other payment for, Awards
under the Plan shall reduce the number of shares of Stock available for future
Awards under the Plan.
If (i) any Option or other Award granted under the Plan terminates, expires,
or lapses for any reason other than exercise of the Award, or (ii) shares of
Stock issued pursuant to the Awards are canceled or forfeited for any reason,
the number of shares of Stock available for Awards under the Plan shall be
increased by the number of shares of Stock that were subject to such Award
(whether initially granted under this Plan or the 1997 Equity Incentive Plan);
provided, however, that such increase shall not be construed to provide for the
issuance of treasury stock.
In the event a Participant pays for any Option or other Award granted under
the Plan through the delivery of previously acquired shares of Stock, the number
of shares of Stock available for Awards under the Plan shall be increased by the
number of shares surrendered by the Participant, subject to Rule 16b-3 under the
Exchange Act as interpreted by the Securities and Exchange Commission or its
staff; provided, however, that such increase shall not be construed to provide
for the issuance of treasury stock.
35
<Page>
The issuance of Stock or Shares pursuant to the Plan may require the
notification and/or approval of the North Carolina Utilities Commission.
TYPES OF AWARDS
The Plan is a broad umbrella Plan that allows the Company to enter into
Award Agreements and adopt various individual Sub-Plans that will permit the
grant of the following types of Awards: Nonqualified Stock Options, Incentive
Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Units,
Performance Shares and Other Stock Unit Awards or Stock-based forms of Awards.
The Plan sets forth certain minimum requirements for each type of Award.
Detailed provisions regarding Awards will be set out either in Award Agreements
or in the Sub-Plans adopted under the Plan. The adoption of any such Sub-Plans
shall not be subject to shareholder approval.
STOCK OPTIONS
The Committee may grant Stock Options, including Nonqualified Stock Options
(NQSOs) and Incentive Stock Options (ISOs) to Key Employees. The Committee may
also grant NQSOs to Directors, but only pursuant to approval by the Board of
Directors. The terms and conditions applicable to each Option grant shall be
detailed in an Award Agreement. Stock Option grants will entitle the Participant
to purchase Stock at prices determined by the Committee at the time of grant.
The Option Price must not be less than 100% of the Fair Market Value of the
Stock on the initial Grant Date. Once established, the Option Price may not be
adjusted or amended without shareholder approval, except under limited
circumstances specified in Sections 6.4 and 6.5 of the Plan. Options granted
under the Plan shall be exercisable at such times as the Committee determines;
provided, however, that no Option may be exercisable within the first year
following the Grant Date (except in the event of a Change in Control), or more
than ten years from the Grant Date. The Option exercise price shall be payable
to the Company in full by any one or a combination of the following: in cash or
its equivalent, or by the delivery of shares of Stock (not subject to any
security interest or pledge) valued at Fair Market Value at the time of
exercise. At the request of the Participant, the Company may permit a Cashless
Exercise of the Option.
ISOs may only be granted to Participants who are employees of the Company or
a "parent corporation" or "subsidiary corporation" (as defined in Sections
424(e) and (f) of the Code) on the Grant Date. The aggregate Fair Market Value
of such shares of Stock (at time of grant) with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year shall
not exceed $100,000. ISOs may not be issued in tandem with NQSOs, and may not be
issued to a Participant who owns Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, or any parent
corporation or subsidiary corporation unless the exercise price of the Options
is fixed at not less than 110% of the Fair Market Value of the Stock.
The maximum number of Options that may be granted in any calendar year to
any one Participant is 2,000,000.
STOCK APPRECIATION RIGHTS
The Committee may grant freestanding Stock Appreciation Rights, Stock
Appreciation Rights in tandem with an Option, or Stock Appreciation Rights in
addition to an Option. The exercise price of each Stock Appreciation Right shall
be determined by the Committee at the time of grant but shall in no event be
less than 100% of the Fair Market Value of the Stock on the Grant Date. The
Participant is entitled to receive an amount equal to the excess of the Fair
Market Value of a share of Stock over the grant price thereof on the date of
exercise of the Stock Appreciation Right. Upon exercise of the Stock
Appreciation
36
<Page>
Rights, the Participant shall be entitled to receive payment from the Company in
an amount determined by multiplying (a) the difference between the Fair Market
Value of a share of stock on the date of exercise of the Stock Appreciation
Right over the grant price specified in the Award Agreement by (b) the number of
shares of Stock with respect to which the Stock Appreciation Right is exercised.
The maximum number of shares of Stock that may be subject to Stock
Appreciation Rights granted to any one Participant in any calendar year is
2,000,000.
RESTRICTED STOCK
The Committee may grant shares of Restricted Stock to Participants in such
amounts and for such duration and/or consideration as it shall determine. Each
Restricted Stock grant shall be evidenced by an Award Agreement specifying the
Period of Restriction, the conditions which must be satisfied prior to removal
of the restriction, the number of shares of Restricted Stock granted, and such
other provisions as the Committee shall determine. The types of restrictions the
Committee may specify in an Award Agreement include but are not limited to
restrictions on acceleration or achievement of terms or vesting based on any
business or financial goals of the Company, such as the Performance Measures
described in the Plan. Participants receiving Restricted Stock Awards are not
required to pay for them (except applicable tax withholding) other than by the
rendering of services or other consideration as determined by the Committee.
Restricted Stock covered by an Award made under the Plan shall become freely
transferable by the Participant after the last day of the Period of Restriction
and/or upon the satisfaction of other conditions as determined by the Committee.
The minimum Period of Restriction shall be at least one year for
performance-based grants of Restricted Stock. The Period of Restriction for
non-performance-based grants of Restricted Stock shall be a minimum of three
years. During that three-year period the removal of restrictions on up to
one-third of the shares may be permitted at the end of each year following the
Grant Date. However, the Committee may remove the restrictions upon Early or
Normal Retirement in the Committee's discretion. Restrictions on grants of
Restricted Stock shall not be removed during the first year following the Grant
Date except in the event of Early or Normal Retirement or in the event of a
Change in Control. Except as described above, the Committee shall not have the
authority to reduce or remove restrictions during the first year following the
Grant Date.
During the Period of Restriction, Participants in whose name Restricted
Stock is granted under the Plan may exercise full voting rights with respect to
those shares, and shall be entitled to receive all dividends and other
distributions paid with respect to those shares of Restricted Stock. If any such
dividends or distributions are paid in shares of Stock, the shares shall be
subject to the same restrictions on transferability as the Restricted Stock with
respect to which they were distributed.
The maximum number of shares of Stock that may be granted as Restricted
Stock to any one Participant during a single calendar year is 250,000.
PERFORMANCE-BASED AWARDS
The Committee may issue Performance Awards in the form of either Performance
Units or Performance Shares, subject to the Performance Measures and Performance
Period it determines. The extent to which Performance Measures are met will
determine the value of each Performance Unit or the number of Performance Shares
earned by the Participant. The terms and conditions of each Performance Award
will be set forth in an Award Agreement and/or a Sub-Plan. Payment of the amount
due upon
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settlement of a Performance Award shall be made in cash and/or Stock, paid in
lump sum or installments as prescribed by the Committee.
Prior to the year that a Performance Award vests, the Committee may permit
the Participant to defer the receipt of his or her Award in accordance with
rules prescribed by the Committee. The maximum number of shares of Stock that
may be the subject of a Performance Share Award in a single calendar year is
250,000. The maximum amount of compensation payable, without regard to any
deferral, to a Participant pursuant to the grant of a Performance Unit Award in
any calendar year is $10,000,000.
OTHER STOCK-BASED AWARDS
The Committee may issue to Participants, either alone or in addition to
other Awards made under the Plan, Stock Unit Awards which may be in the form of
or based on Stock or other securities. The value of each such Award shall be
based, in whole or in part, on the value of the underlying Stock or other
securities. The Committee, in its sole and complete discretion, may determine
that an Award may provide to the Participant (i) dividends or dividend
equivalents (payable on a current or deferred basis) and (ii) cash payments in
lieu of or in addition to an Award. Subject to the provisions of the Plan, the
Committee in its sole and complete discretion, shall determine the terms,
restrictions, conditions, vesting requirements, and payment rules of the Award
which shall be specified in an Award Agreement or a Sub-Plan.
Prior to the year that a Stock Unit vests, the Committee may permit the
Participant to defer the receipt of his or her Award in accordance with rules
prescribed by the Committee. The maximum number of shares that may be granted in
any calendar year to a Participant as a part of a Stock Unit Award shall be
250,000 of Stock. If the value of any Stock Unit Award is not based entirely on
the value of the underlying Stock, the maximum amount of compensation payable,
without regard to any deferral, as a result of all Stock Unit Awards granted in
any calendar year shall be $2,500,000.
AMENDMENT OF PLAN
The Committee or Board may amend, suspend or terminate the Plan, in whole or
in part, at any time; provided, however, that any amendment shall be made with
shareholder approval where such approval is necessary to comply with applicable
tax or regulatory requirements. As previously noted, neither the Committee nor
the Board shall have the authority to "reprice" Options, except under limited
circumstances.
CHANGE IN CONTROL OR DIVESTITURE
In the event of a Change in Control or a Divestiture, the Committee may
provide, either within the terms of the Award Agreement or subsequently, for the
acceleration of the payment and/or vesting of any Award, the extension of the
time during which an Award is exercisable to its full term regardless of a
Participant's termination of employment with the Company, and/or the release of
any restrictions on any Award.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the federal income tax consequences
to Participants and the Company relating to Options and other Awards that may be
granted under the 2002 Equity Incentive Plan.
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NONQUALIFIED STOCK OPTION
There will be no federal income tax consequences to either the optionee or
the Company upon the grant of an NQSO. Upon exercise of an NQSO, the optionee
generally will have taxable ordinary income equal to the difference between the
current fair market value of the shares and the option price, and the Company
will be entitled to a federal income tax deduction of that amount. The tax basis
of the shares will equal the exercise price plus the amount of income recognized
on exercise, and the holding period commences on the date the option is
exercised. Subsequent disposition of the shares will result in either short-term
or long-term capital gain or loss to the optionee and will have no impact on the
Company.
INCENTIVE STOCK OPTION
There will be no federal income tax consequences to either the optionee or
the Company upon the grant or exercise of an ISO. However, unless the holding
period requirements discussed below are violated, the optionee will be deemed to
have a tax preference item (equal to the difference between the current market
value of the shares on the date of exercise and the option price) that may
result in alternative minimum tax liability. If an optionee exercises an ISO and
does not dispose of the shares within two years from the date of grant or within
one year from the date of exercise, any gain realized upon disposition will be
taxable as long-term capital gain, and the Company will not be entitled to any
deduction. If an optionee violates the holding period requirements, the optionee
will realize ordinary income in the year of disposition, and the Company will be
entitled to a corresponding deduction in an amount equal to the excess of
(1) the lesser of (a) the amount realized on the sale or exchange, or (b) the
fair market value of the shares on the date of exercise, over (2) the option
price. Any remaining gain or loss will be treated as a capital gain or loss and
the Company is not entitled to a deduction for said amount.
An ISO which is exercised more than three months after the optionee
terminates employment with the Company will be treated as an NQSO for federal
income tax purposes.
OTHER AWARDS
The federal income tax consequences of other Awards authorized under the
Plan are generally in accordance with the following: Stock Appreciation Rights
are taxed and deductible by the Company in substantially the same manner as
NQSOs; Restricted Stock subject to a substantial risk of forfeiture results in
income recognition equal to the excess of the Fair Market Value of the Shares
over the purchase price (if any) only at the time the restrictions lapse (unless
the recipient elects to accelerate recognition as of the date of grant); cash
dividends on Restricted Stock, Restricted Units, Performance Units, Performance
Shares, other Stock Unit Awards or stock-based forms of Awards and dividend
equivalents generally are subject to tax at the time of payment. In each of the
foregoing cases, the Company will generally have a corresponding deduction at
the time the Participant recognizes income.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 2002 EQUITY
INCENTIVE PLAN.
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RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP has been selected by the Board of
Directors to serve as independent public accountants for the Company for the
current year, having served in that capacity for the Company and its
predecessors since 1930. A representative of Deloitte & Touche LLP will be
present at the Annual Meeting of Shareholders, will have the opportunity to make
a statement and will be available to respond to appropriate questions.
FINANCIAL STATEMENTS
The Company's 2001 Annual Report, which includes financial statements for
the fiscal years ended December 31, 2001, and 2000, together with related notes,
audited statements of income and changes in financial position for the three
most recent years, and the report of Deloitte & Touche LLP, independent public
accountants, was mailed to shareholders of record as of the close of business on
March 1, 2002.
FUTURE SHAREHOLDER PROPOSALS
Shareholder proposals submitted for inclusion in the proxy statement for the
Company's 2003 Annual Meeting must be received no later than December 2, 2002 at
the Company's principal executive offices, addressed to the attention of:
William D. Johnson
Executive Vice President,
General Counsel and Secretary
Progress Energy, Inc.
Post Office Box 1551
Raleigh, North Carolina 27602-1551
Any other proposal which a shareholder desires to be presented for action at
an Annual Meeting must be received by the Secretary of the Company no later than
the close of business on the 60th day prior to 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.
OTHER BUSINESS
The Board of Directors does not intend to bring any business before the
meeting other than that stated in this Proxy Statement. The Board knows of no
other matter to come before the meeting. If other matters are properly brought
before the meeting, it is the intention of the Board of Directors that the
persons named in the enclosed Proxy will vote on such matters pursuant to the
Proxy in accordance with their best judgment.
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APPENDIX A
PROGRESS ENERGY, INC.
2002 EQUITY INCENTIVE PLAN
Section 1. PURPOSE
Progress Energy, Inc. (hereinafter referred to as the "Sponsor"), a North
Carolina corporation, hereby establishes the 2002 Equity Incentive Plan (the
"Plan") to promote the interests of the Sponsor and its shareholders through the
(i) attraction and retention of executive officers, directors and other key
employees essential to the success of Sponsor and its Affiliates;
(ii) motivation of executive officers, directors and other key employees using
performance-related and stock-based incentives linked to the interests of the
Sponsor's shareholders; and (iii) enabling of such executive officers, directors
and other key employees to share in the long-term growth and success of the
Sponsor and its Affiliates. The Plan permits the grant of Nonqualified Stock
Options, Incentive Stock Options (intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended), Stock Appreciation Rights,
Restricted Stock, Performance Shares, Performance Units, and any other Stock
Unit Awards or stock-based forms of Awards as the Committee may determine under
its sole and complete discretion at the time of grant, subject to the provisions
of this Plan document and applicable law. The 1997 Equity Incentive Plan of
Progress Energy, Inc. (the "1997 Plan") shall remain effective with regard to
all Awards made thereunder, but shall be superseded by this Plan with regard to
all Awards after the Effective Date.
Section 2. EFFECTIVE DATE AND DURATION
The Plan was approved by the Board of Directors on March 20, 2002, subject
to approval by the shareholders of the Sponsor. The Plan will become effective
on the date of approval of the Plan by the Sponsor's shareholders (the
"Effective Date"). The Plan shall expire on the tenth anniversary of the
Effective Date; however, all Awards made prior to, and outstanding on such date,
shall remain valid in accordance with their terms and conditions.
Section 3. DEFINITIONS
Except as otherwise defined in the Plan, the following terms shall have the
meanings set forth below:
3.1 "Affiliate" means, with respect to Sponsor, any entity that directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with Sponsor.
3.2 "Award" means individually or collectively, a grant under the Plan of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Units, Performance Shares, or other Stock Unit
Awards.
3.3 "Award Date" or "Grant Date" means the date on which an Award is made by
the Committee under this Plan.
3.4 "Award Agreement" or "Agreement" means a written agreement implementing
the grant of each Award signed by an authorized officer of the Sponsor and by
the Participant.
3.5 "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 under the Exchange Act.
3.6 "Board" or "Board of Directors" means the Board of Directors of the
Sponsor.
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3.7 "Cashless Exercise" means the exercise of an Option by the Participant
in compliance with the Federal Reserve Board's Regulation T (or any successor
provision) or as otherwise permitted by the Committee through the use of a
brokerage firm to make payment to the Sponsor of the exercise price either from
the proceeds of a loan to the Participant from the brokerage firm or from the
proceeds of the sale of Stock issued pursuant to the exercise of the Option, and
upon receipt of such payment, the Sponsor delivers the exercised Stock to the
brokerage firm. The date of exercise of a Cashless Exercise shall be the date
the broker executes the sale of exercised Stock, or if no sale is made, the date
the broker receives the exercise loan notice from the Participant to pay the
Sponsor for the exercised Stock.
3.8 "Change in Control" means a change in control of the Sponsor of a nature
that would be required to be reported in response to Item 1(a) of the Current
Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Exchange Act; provided, that without limitation, such a Change in
Control shall be deemed to have occurred at such time as a "person" (as used in
Section 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 25% or
more of the combined voting power of the Sponsor's outstanding securities
ordinarily having the right to vote in elections of directors; or
(b) individuals who constitute the Board of Directors of the Sponsor on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, or of any board of directors of a successor to the Sponsor,
provided that any person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Sponsor's shareholders, was approved
by a vote of at least three quarters of the directors comprising the Incumbent
Board shall be, for purposes of this subsection (b), considered as though such
person were a member of the Incumbent Board, in each case, as determined by the
Committee in accordance with Section 4.1.
3.9 "CEO" means the chief executive officer of the Sponsor.
3.10 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
3.11 "Committee" means the Organization and Compensation Committee of the
Board, comprised solely of Outside Directors, which will administer the Plan
pursuant to Section 4 herein.
3.12 "Company" means Progress Energy, Inc., including all Affiliates, or any
successor thereto.
3.13 "Covered Participant" means a Participant who is a "covered employee"
as defined in Section 162(m)(3) of the Code, and the regulations promulgated
thereunder.
3.14 "Department" means the Human Resources Department of Progress Energy
Service Company, LLC.
3.15 "Designated Beneficiary" means the beneficiary designated by the
Participant, pursuant to procedures established by the Department, to receive
amounts due to the Participant or to exercise any rights of the Participant to
the extent permitted hereunder in the event of the Participant's death. If the
Participant does not make an effective designation, then the Designated
Beneficiary will be deemed to be the Participant's estate.
3.16 "Disability" means (i) the mental or physical disability, either
occupational or non-occupational in origin, of the Participant defined as "total
disability" in the Long-term Disability Plan of the Sponsor currently in effect
and as amended from time to time or (ii) a determination by the Committee of
"Total Disability" based on medical evidence that precludes the Participant from
engaging in any occupation or employment for wage or profit for at least twelve
months and appears to be permanent. In the case of
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Awards of Incentive Stock Options, "Disability" shall have the meaning set forth
in Section 22(e)(3) of the Code.
3.17 "Divestiture" means the sale (including the spin-off) of, or closing
by, the Company of the business operations in which the Participant is employed.
3.18 "Early Retirement" means retirement of a Participant from employment
with the Company after age 55, but prior to age 65, under the provisions of the
Sponsor's Pension Plan or the Sponsor's Supplemental Senior Executive Retirement
Plan. In the event of a change in the Sponsor's Pension Plan such that there is
no longer a definition of "Early Retirement" or the Participant is not a
participant in the Sponsor's Pension Plan for purposes of this plan, "Early
Retirement" shall mean retirement before age 65 after reaching the 55th birthday
together with completion of 15 years of Vesting Service, or after completion of
35 years of Vesting Service with no age limitation.
3.19 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.20 "Executive Officer" means an individual designated as an "officer" for
purposes of Section 16 of the Securities Exchange Act of 1934 and as an
"executive officer" for Item 401(b) of Regulation S-K by the Board pursuant to
resolutions adopted by the Board from time to time.
3.21 "Fair Market Value" means, on any given date, the closing price of
Stock as reported on the New York Stock Exchange composite tape on such day or,
if no shares of Stock were traded on the New York Stock Exchange on such day,
then on the next preceding day that Stock was traded on such exchange, all as
reported by such source as the Committee may select. In the case of a Cashless
Exercise, Fair Market Value means the price of the Stock at the date and time
the broker executes the sale of exercised Stock.
3.22 "Full-time Employee" means an employee of the Company designated by the
Department as being a "regular, full-time employee" who is eligible for all
plans and programs of the Company set forth for such employees. This designation
excludes all part-time, temporary, leased or contract employees and consultants
to the Company.
3.23 "Incentive Stock Option" means an option to purchase Stock, granted
under Section 7 herein, which is designated as an incentive stock option by the
Committee and is intended to meet the requirements of Section 422 of the Code.
3.24 "Key Employee" means an officer or other employee of the Company, who
is selected for participation in the Plan in accordance with Section 4.2.
3.25 "Nonqualified Stock Option" means an Option to purchase Stock, granted
under Section 7 herein, which is not intended to be an Incentive Stock Option.
3.26 "Normal Retirement" means the retirement of any Participant under the
Sponsor's Pension Plan at age 65. In the event of a change in the Sponsor's
Pension Plan such that there is no longer a definition of "Normal Retirement" or
the Participant is not a participant in the Sponsor's Pension Plan, for purposes
of the Plan, "Normal Retirement" shall mean retirement upon attaining the age of
65 years and completing five years of Vesting Service.
3.27 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
3.28 "Other Stock Unit Award" means Awards of Stock or other Awards that are
valued in whole or in part by reference to, or are otherwise based on, shares of
Stock or other securities of the Sponsor.
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3.29 "Outside Director" means a member of the Board of Directors of the
Sponsor who is not an employee of the Company.
3.30 "Participant" means a Key Employee or Outside Director who has been
granted an Award under the Plan.
3.31 "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
3.32 "Performance Measures" mean, unless and until the Committee proposes
for shareholder approval and the Sponsor's shareholders approve a change in the
general performance measures set forth in this article, the attainment of which
may determine the degree of payout and/or vesting with respect to Awards which
are designed to qualify for the Performance-Based Exception, measure(s) chosen
from among the following alternatives:
(a) Total shareholder return (absolute or peer-group comparative)
(b) Stock price increase (absolute or peer-group comparative)
(c) Dividend payout as a percentage of net income (absolute or peer-group
comparative)
(d) Return on equity (absolute or peer-group comparative)
(e) Return on capital employed (absolute or peer-group comparative)
(f) Cash flow, including operating cash flow, free cash flow, discounted
cash flow return on investment, and cash flow in excess of cost of
capital
(g) Economic value added (income in excess of capital costs)
(h) Cost per KWH (absolute or peer-group comparative)
(i) Revenue per KWH (absolute or peer-group comparative)
(j) Market share
(k) Customer satisfaction as measured by survey instruments (absolute or
peer-group comparative)
(l) Earnings before interest, and taxes (absolute or peer-group
comparative)
(m) Earnings before interest, taxes, depreciation, and amortization
(absolute or peer-group comparative)
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the pre-established Performance Measures; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception may not be adjusted upward (the Committee shall retain the discretion
to adjust such Awards downward), except to the extent permitted under Code
Section 162(m) and the regulations thereunder to reflect corporate
reorganizations or other events.
3.33 "Performance Award" means a performance-based Award, which may be in
the form of either Performance Shares or Performance Units.
3.34 "Performance Period" means the time period designated by the Committee
during which performance goals must be met.
3.35 "Performance Share" means an Award, designated as a Performance Share,
granted to a Participant pursuant to Section 10 herein, the value of which is
determined, in whole or in part, by the
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value of Stock in a manner deemed appropriate by the Committee and described in
the Agreement or Sub-Plan.
3.36 "Performance Unit" means an Award, designated as a Performance Unit,
granted to a Participant pursuant to Section 10 herein, the value of which is
determined, in whole or in part, by the attainment of pre-established goals
relating to Sponsor's or Company's financial or operating performance as deemed
appropriate by the Committee and described in the Agreement or Sub-Plan.
3.37 "Period of Restriction" means the period during which the transfer of
shares of Restricted Stock is restricted, pursuant to Section 9 of the Plan.
3.38 "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
14(d) thereof, including a "group" as defined in Section 13(d).
3.39 "Plan" means the Progress Energy, Inc. 2002 Equity Incentive Plan as
herein described and as hereafter from time to time amended.
3.40 "Restricted Stock" means an Award of Stock granted to a Participant
pursuant to Section 9 of the Plan.
3.41 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange Act
as adopted in Exchange Act Release No. 34-37260 (May 31, 1996, effective
August 15, 1996), or any successor rule as amended from time to time.
3.42 "Section 162(m)" means Section 162(m) of the Code, or any successor
section under the Code, as amended from time to time and as interpreted by final
or proposed regulations promulgated thereunder from time to time.
3.43 "Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, or any successor law, as amended from time
to time.
3.44 "Secretary" means the corporate secretary of the Sponsor.
3.45 "Sponsor" means Progress Energy, Inc., or any successor thereto.
3.46 "Sponsor's Pension Plan" means the Progress Energy Pension Plan, as
amended from time to time, and any successor thereto.
3.47 "Stock" means the common stock of the Sponsor.
3.48 "Stock Appreciation Right" means the right to receive an amount equal
to the excess of the Fair Market Value of a share of Stock (as determined on the
date of exercise) over the Fair Market Value of the Stock on the Award Date of
the Stock Appreciation Right.
3.49 "Stock Unit Award" means an Award of Stock or units granted under
Section 11 of the Plan.
3.50 "Sub-Plan" means a written document that permits the grant of Awards
consistent with the provisions of this Plan.
3.51 "Vesting Service" means each year of employment with the Company in
which a Participant works 1,000 hours.
Section 4. ADMINISTRATION
4.1 THE COMMITTEE. The Plan shall be administered and interpreted by the
Committee which shall have full authority and all powers necessary or desirable
for such administration. The express grant in this
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Plan of any specific power to the Committee shall not be construed as limiting
any power or authority of the Committee. In its sole and complete discretion the
Committee may adopt, alter, suspend and repeal any such administrative rules,
regulations, guidelines, and practices governing the operation of the Plan as it
shall from time to time deem advisable. In addition to any other powers and,
subject to the provisions of the Plan, the Committee shall have the following
specific powers: (i) to determine the terms and conditions upon which the Awards
may be made and exercised; (ii) to determine all terms and provisions of each
Agreement and/or Sub-Plan, which need not be identical for types of Awards nor
for the same type of Award to different Participants; (iii) to construe and
interpret the Agreements, Sub-Plans and the Plan; (iv) to establish, amend, or
waive rules or regulations for the Plan's administration; (v) to accelerate the
exercisability of any Award, the length of a Performance Period or the
termination of any Period of Restriction except for Awards to Covered
Participants that are intended to qualify for the Performance-Based Exception,
other than as may be otherwise provided under the terms of such an Award in the
event of a Change in Control or as hereinafter specified; and (vi) to make all
other determinations and take all other actions necessary or advisable for the
administration of the Plan, including a determination of a Change in Control,
whether based in a change of ownership of the voting power of the Sponsor's
outstanding securities under Section 3.8(a) or a change in the Board of
Directors or an anticipated change in the board of directors of a successor to
the Sponsor in the event of a merger of the Sponsor with another entity under
Section 3.8(b). The Committee may take action by a meeting in person, by
unanimous written consent, or by meeting with the assistance of communications
equipment which allows all Committee members participating in the meeting to
communicate in either oral or written form. The Committee may seek the
assistance or advice of any persons it deems necessary to the proper
administration of the Plan.
4.2 SELECTION OF PARTICIPANTS OTHER THAN OUTSIDE DIRECTORS. Subject to
Section 5 of the Plan, the Committee shall have sole and complete discretion in
determining Key Employees who shall participate in the Plan; provided, however,
the Committee may delegate to the CEO the authority to designate Key Employees
and/or Awards to be made to Key Employees who are not Executive Officers,
subject to any limitations imposed by the Committee on the designation of Key
Employees including a fixed maximum Award amount for any group of Key Employees
and/or a maximum Award amount for any one Key Employee, as determined by the
Committee. Awards made to the Executive Officers shall be determined by the
Committee.
4.3 AWARDS TO OUTSIDE DIRECTORS. Awards to Outside Directors shall be made
in the sole discretion of the full Board of Directors; provided, however, that
Awards of Options to Outside Directors shall be limited to Nonqualified Stock
Options.
4.4 AWARD AGREEMENTS AND SUB-PLANS. Each Award granted under the Plan
shall be granted either under the terms of an Award Agreement and/or a Sub-Plan.
Award Agreements and Sub-Plans shall specify the terms, conditions and any rules
applicable to the Award, including but not limited to, the effect of
transferability, a Change in Control, or death, Disability, Divestiture, Early
Retirement, Normal Retirement or other termination of employment of the
Participant on the Award. If the Award is granted under the terms of an Award
Agreement, the Award Agreement shall be signed by an authorized representative
of the Sponsor and the Participant, and a copy of the signed Award Agreement
shall be provided to the Participant. If the Award is granted under the terms
and conditions of a Sub-Plan, the Sub-Plan shall be approved by the Committee as
an Exhibit to the Plan, and a copy of the Sub-Plan or a summary description
thereof shall be provided to each Participant.
4.5 COMMITTEE DECISIONS. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan shall be final, conclusive, and
binding upon all persons, including the Company, its
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employees, Participants, and Designated Beneficiaries, and the Sponsor's
shareholders, except when the terms of any sale or award of shares of Stock or
any grant of rights or Options under the Plan are required by law or by the
Articles of Incorporation or Bylaws of the Sponsor to be approved by the
Sponsor's Board of Directors or shareholders prior to any such sale, award or
grant.
4.6 RULE 16B-3 AND SECTION 162(M) REQUIREMENTS. Notwithstanding any other
provision of the Plan, the Committee may impose such conditions on any Award,
and the Board may amend the Plan in any such respects, as may be required to
satisfy the requirements of Rule 16b-3 or Section 162(m).
4.7 INDEMNIFICATION OF COMMITTEE. In addition to such other rights of
indemnification as they may have as Outside Directors or as members of the
Committee, the members of the Committee shall be indemnified by the Sponsor
against reasonable expenses incurred from their administration of the Plan. Such
reasonable expenses include, but are not limited to, attorneys' fees, actually
and reasonably incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Award granted or made hereunder, and against all
amounts reasonably paid by them in settlement thereof or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, if such
members acted in good faith and in a manner which they believed to be in, and
not opposed to, the best interests of the Company.
Section 5. ELIGIBILITY
Selection of Participants by the Committee or the CEO under Section 4.2
shall be subject to the following limitations: (i) no person owning, directly or
indirectly, more than 5% of the total combined voting power of all classes of
Stock shall be eligible to participate under the Plan and (ii) only Full-time
Employees shall be eligible to participate under the Plan, except that Outside
Directors may be granted Nonqualified Stock Options or Restricted Stock Awards
in accordance with Section 4.3.
Section 6. SHARES OF STOCK SUBJECT TO THE PLAN
6.1 NUMBER OF SHARES. Subject to adjustment as provided below and except as
otherwise provided in Section 6.4 and Section 6.5 herein, the maximum aggregate
number of shares of Stock that may be issued pursuant to Awards made under the
Plan shall not exceed 15,000,000 shares of Stock, which may be in any
combination of Options, Restricted Stock, Performance Shares or any other right
or Option which is payable in the form of Stock. Additionally, shares of Stock
available for issuance on the Effective Date under the 1997 Plan shall be
transferred to the Plan and added to the shares available for the grant of
Awards under this Plan. The maximum aggregate number of shares that may be
granted in the form of Incentive Stock Options shall be 10,000,000. The maximum
aggregate number of shares of Stock that may be granted in the form of
Restricted Stock shall be 3,000,000 and the maximum aggregate number of shares
of Stock (or derivatives of shares of Stock) that may be granted in the form of
Performance Shares, Performance Units or other Stock Unit Awards shall be
4,000,000. Shares of Stock may be available from the authorized but unissued
shares of Stock or any shares of Stock acquired for the account of the
Participant, including shares of Stock purchased in the open market. Except as
provided in Sections 6.2 and 6.3 herein, the issuance of shares of Stock in
connection with the exercise of, or as other payment for, Awards under the Plan
shall reduce the number of shares of Stock available for future Awards under the
Plan.
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6.2 LAPSED AWARDS OF FORFEITED SHARES OF STOCK. In the event that (i) any
Option or other Award granted under the Plan or the 1997 Plan terminates,
expires, or lapses for any reason other than exercise of the Award or (ii) if
shares of Stock issued pursuant to the Awards are canceled or forfeited for any
reason, the number of shares of Stock available for Awards under the Plan shall
be increased by the number of shares of Stock that were subject to such Award;
provided, however, that this provision shall not be construed to allow for the
issuance of treasury stock.
6.3 DELIVERY OF SHARES OF STOCK AS PAYMENT. In the event a Participant pays
for any Option or other Award granted under the Plan through the delivery of
previously acquired shares of Stock, the number of shares of Stock available for
Awards under the Plan shall be increased by the number of shares of Stock
surrendered by the Participant, subject to Rule 16b-3 as interpreted by the
Securities and Exchange Commission or its staff; provided, however, that this
provision shall not be construed to allow for the issuance of treasury stock.
6.4 CAPITAL ADJUSTMENTS. The number and class of shares of Stock subject to
each outstanding Award, the maximum number of shares of Stock that may be
subject to an Award under Sections 7.7, 8.5, 9.6, 10.6 and 11.1, the Option
Price (as hereinafter defined) and the aggregate number, type and class of
shares of Stock for which Awards thereafter may be made shall be subject to
adjustment, if any, as the Committee deems appropriate, based on the occurrence
of a number of specified and non-specified events; provided, however, that with
respect to Incentive Stock Options such adjustment shall be made in a manner
consistent with Section 424(a) of the Code and, with respect to any Awards to
Executive Officers, shall be consistent with the requirements of Section 162(m)
of the Code and the regulations promulgated thereunder. Such events include but
are not limited to the following:
(a) If the outstanding shares of Stock of the Sponsor are increased,
decreased or exchanged through merger, consolidation, sale of all or
substantially all of the property of the Sponsor, reorganization,
recapitalization, reclassification, stock dividend, stock split or other
distribution in respect to such shares of Stock, for a different number
or type of shares of Stock, or if additional shares of Stock or new or
different shares of Stock are distributed with respect to such shares of
Stock, an appropriate and proportionate adjustment shall be made in:
(i) the maximum number of shares of Stock available for the Plan as
provided in Section 6.1 herein, (ii) the type of shares of Stock or other
securities available for the Plan, (iii) the number of shares of Stock
subject to any then outstanding Awards under the Plan, and (iv) the price
(including exercise price) for each share of Stock (or other kind of
shares or securities) subject to then outstanding Awards, but without
change in the aggregate purchase price as to which such Options remain
exercisable or Restricted Stock releasable.
(b) If other events not specified above in this Section 6.4, such as any
extraordinary cash dividend, split-up, spin-off, combination, exchange of
shares, warrants or rights offering to purchase Stock, or other similar
corporate event affect the Stock such that an adjustment is necessary to
maintain the benefits or potential benefits intended to be provided under
this Plan, then the Committee in its discretion may make adjustments to
any or all of (i) the number and type of shares of Stock which thereafter
may be optioned and sold or awarded or made subject to Stock Appreciation
Rights under the Plan, (ii) the grant, exercise or conversion price of
any Award made under the Plan thereafter, and (iii) the number and price
(including Exercise Price) of each share of Stock (or other kind of
shares or securities) subject to then outstanding Awards, but without
change in the aggregate purchase price as to which such Options remain
exercisable or Restricted Stock releasable. Any adjustment as provided
above for Awards that are intended to qualify for the
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Performance-Based Exception shall be subject to any applicable
restrictions set forth in Section 12 or in Section 162(m).
(c) Any adjustment made by the Committee pursuant to the provisions of this
Section 6.4 shall be final, binding and conclusive. A notice of such
adjustment, including identification of the event causing such an
adjustment, the calculation method of such adjustment, and the change in
price and the number of shares of Stock, or securities, cash or property
purchasable subject to each Award shall be sent to each affected
Participant. No fractional interests shall be issued under the Plan based
on such adjustments, and shall be forfeited.
6.5 ACQUISITIONS. In connection with the acquisition of any business by the
Company or any of its Affiliates, any outstanding grants, awards or sales of
options or other similar rights pertaining to such business may be assumed or
replaced by grants or awards under the Plan upon such terms and conditions as
the Committee determines. The date of any such grant or award shall relate back
to the date of the initial grant or award being assumed or replaced, and service
with the acquired business shall constitute service with the Company for
purposes of such grant or award. Any shares of Stock underlying any grant or
award or sale pursuant to any such acquisition shall be disregarded for purposes
of applying the limitations, and shall not reduce the number of shares of Stock
available, under Section 6.1 above. Notwithstanding any provision in this Plan
to the contrary, the exercise price of any such Award may be below Fair Market
Value in order to replace the value of another award in the sole discretion of
the Committee.
Section 7. STOCK OPTIONS
7.1 GRANT OF STOCK OPTIONS. Subject to the terms and provisions of the Plan
and applicable law, the Committee, at any time and from time to time, may grant
Options to Key Employees, and with respect to Outside Directors pursuant to
approval by the Board, as it shall determine. Except with respect to Outside
Directors, the Committee shall have sole and complete discretion in determining
the type of Option granted, the Option Price (as hereinafter defined), the
duration of the Option, the number of shares of Stock to which an Option
pertains, any conditions imposed upon the exercisability of the Options, the
conditions under which the Option may be terminated and any such other
provisions as may be warranted to comply with the law or rules of any securities
trading system or stock exchange. Notwithstanding the preceeding, the Committee
may delegate to the CEO authority to grant options in accordance with
Section 4.2. Each Option grant shall have such specified terms and conditions
detailed in an Award Agreement. The Agreement shall specify whether the Option
is intended to be an Incentive Stock Option within the meaning of Section 422 of
the Code, or a Nonqualified Stock Option.
7.2 OPTION PRICE. The exercise price per share of Stock covered by an
Option ("Option Price") shall be determined at the time of grant by the
Committee, subject to Section 6.5 hereof and the limitation that the Option
Price shall not be less than 100% of the Fair Market Value of the Stock on the
Grant Date.
7.3 EXERCISABILITY. Options granted under the Plan shall be exercisable at
such times and be subject to such restrictions and conditions as the Committee
or the CEO, as the case may be, shall determine, which will be specified in the
Award Agreement and need not be the same for each Participant. However, no
Option may be exercisable within the first year following the Grant Date, except
in the event of a Change in Control, or after the expiration of ten (10) years
from the Grant Date.
7.4 LIMITATIONS ON INCENTIVE STOCK OPTIONS. Incentive Stock Options may be
granted only to Participants who are employees of the Sponsor or of a "Parent
Corporation" or "Subsidiary Corporation"
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(as defined in Sections 424(e) and (f) of the Code, respectively) at the Grant
Date. The aggregate Fair Market Value (determined as of the time the Stock
Option is granted) of the Stock with respect to which Incentive Stock Options
are exercisable for the first time by a Participant during any calendar year
(under all option plans of the Company and of any Parent Corporation or
Subsidiary Corporation) shall not exceed one hundred thousand dollars
($100,000). For purposes of the preceding sentence, Incentive Stock Options will
be taken into account in the order in which they are granted. The per-share
exercise price of an Incentive Stock Option shall not be less than one hundred
percent (100%) of the Fair Market Value of the Stock on the Grant Date, and no
Incentive Stock Option may be exercised later than ten (10) years after the date
it is granted. In addition, no Incentive Stock Option may be issued to a
Participant in tandem with a Nonqualified Stock Option. Further, Incentive Stock
Options may not be granted to any Participant who, at the time of grant, owns
stock possessing (after the application of the attribution rules of
Section 424(d) of the Code) more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Parent Corporation or
Subsidiary Corporation, unless the exercise price of the option is fixed at not
less than one hundred ten percent (110%) of the Fair Market Value of the Stock
on the Grant Date and the exercise of such Option is prohibited by its terms
after the expiration of five (5) years from the Grant Date of such Option.
7.5 METHOD OF EXERCISE. Options shall be exercised by the delivery of a
notice from the Participant to the Secretary (or his or her designee) in the
form prescribed by the Committee setting forth the number of shares of Stock
with respect to which the Option is to be exercised, accompanied by full payment
for the shares of Stock. The Option Price shall be payable to the Sponsor in
full in cash, or its equivalent, or by delivery of shares of Stock (not subject
to any security interest or pledge) valued at Fair Market Value at the time of
exercise or by a combination of the foregoing. In addition, the Committee may
permit the Cashless Exercise of the Option. As soon as practicable, after
receipt of notice and payment, the Sponsor shall deliver to the Participant,
Stock certificates in an appropriate amount based upon the number of shares of
Stock with respect to which the option is exercised, issued in the Participant's
name.
7.6 NOTICE. Each Participant shall give prompt notice to the Sponsor of any
disposition of shares of Stock acquired upon exercise of an Incentive Stock
Option if such disposition occurs within either two (2) years after the Grant
Date or one (l) year after the date of transfer of such shares of Stock to the
Participant upon the exercise of such Incentive Stock Option.
7.7 MAXIMUM AWARD. The maximum number of shares of Stock that may be
granted in the form of Options pursuant to any Award granted in a single
calendar year to any one Participant shall be 2,000,000.
7.8 LIMITATION ON TRANSFERABILITY. Solely to the extent permitted by the
Committee in an Award Agreement and subject to the terms and conditions as the
Committee shall specify, a Nonqualified Stock Option (but not an Incentive Stock
Option) may be transferred to members of the Participant's immediate family (as
determined by the Committee) or to trusts, partnerships or corporations whose
beneficiaries, members or owners are members of the Participant's immediate
family, and/or to such other persons or entities as may be approved by the
Committee in advance and set forth in an Award Agreement, in each case subject
to the condition that the Committee be satisfied that such transfer is being
made for estate or tax planning purposes or for gratuitous or donative purposes,
without consideration (other than nominal consideration) being received
therefor. Except to the extent permitted by the Committee in accordance with the
foregoing, an Option shall be nontransferable otherwise than by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the Participant only by such Participant.
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Section 8. STOCK APPRECIATION RIGHTS.
8.1 GRANT OF STOCK APPRECIATION RIGHTS. Subject to the terms and provisions
of the Plan and applicable law, the Committee, at any time and from time to
time, may grant freestanding Stock Appreciation Rights, Stock Appreciation
Rights in tandem with an Option, or Stock Appreciation Rights in addition to an
Option. Stock Appreciation Rights granted in tandem with an Option or in
addition to an Option may be granted at the time of the Option or at a later
time.
8.2 PRICE. The exercise price of each Stock Appreciation Right shall be
determined at the time of grant by the Committee, subject to the limitation that
the grant price shall not be less than 100% of Fair Market Value of the Stock on
the Grant Date.
8.3 EXERCISE. The Participant shall be entitled to receive payment upon
exercise of a Stock Appreciation Right in accordance with Section 8.4.
8.4 PAYMENT. Upon exercise of the Stock Appreciation Right, the Participant
shall be entitled to receive payment from the Company in an amount determined by
multiplying (a) the difference between the Fair Market Value of a share of Stock
on the date of Exercise of the Stock Appreciation Right over the grant price
specified in the Award Agreement by (b) the number of shares of Stock with
respect to which the Stock Appreciation Right is exercised.
8.5 MAXIMUM AWARD. The maximum number of shares of Stock that may be
subject to Stock Appreciation Rights granted to any Participant during a single
calendar year shall be 2,000,000.
Section 9. RESTRICTED STOCK
9.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan and applicable law, the Committee, at any time and from time to time, may
grant shares of Restricted Stock under the Plan to such Participants, and in
such amounts and for such duration and/or consideration as it shall determine.
Participants receiving Restricted Stock Awards are not required to pay the
Sponsor or the Company therefor (except for applicable tax withholding) other
than the rendering of services and/or other consideration as determined by the
Committee at its sole discretion.
9.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by an Agreement that shall specify the Period of Restriction; the
conditions which must be satisfied prior to removal of the restriction; the
number of shares of Restricted Stock granted; and such other provisions as the
Committee shall determine. The Committee may specify, but is not limited to, the
following types of restrictions in the Award Agreement: (i) restrictions on
acceleration or achievement of terms or vesting based an any business or
financial goals of the Company, including, but not limited to the Performance
Measures set out in Section 3.32, and (ii) any other further restrictions that
may be advisable under the law, including requirements set forth by the
Securities Act, any securities trading system or stock exchange upon which such
shares under the Plan are listed.
9.3 REMOVAL OF RESTRICTIONS. Except as otherwise noted in this Section 9,
Restricted Stock covered by each Award made under the Plan shall be provided to
and become freely transferable by the Participant after the last day of the
Period of Restriction and/or upon the satisfaction of other conditions as
determined by the Committee. Except as specifically provided in this Section 9,
the Committee shall have no authority to reduce or remove the restrictions or to
reduce or remove the Period of Restriction without the express consent of the
shareholders of the Sponsor. If the grant of Restricted Stock is performance
based, the total Restricted Period for any or all shares or units of Restricted
Stock so granted shall be no
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less than one (1) year. Any other shares of Restricted Stock issued pursuant to
this Section 9 shall provide that the minimum Period of Restrictions shall be
three (3) years, which Period of Restriction may permit the removal of
restrictions on no more than one-third (1/3) of the shares of Restricted Stock
at the end of the first year following the Grant Date, and the removal of the
restrictions on an additional one-third (1/3) of the shares at the end of each
subsequent year. Notwithstanding the previous sentence, if a Participant
terminates employment from the Company at or following Early Retirement or
Normal Retirement, any time-based Period of Restriction may be removed at the
discretion of the Committee. In no event shall any restrictions be removed from
shares of Restricted Stock during the first year following the Grant Date,
except due to retirement as described in the preceding sentence or in the event
of a Change in Control.
9.4 VOTING RIGHTS. During the Period of Restriction, Participants in whose
name Restricted Stock is granted under the Plan may exercise full voting rights
with respect to those shares.
9.5 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants in whose name Restricted Stock is granted under the Plan shall be
entitled to receive all dividends and other distributions paid with respect to
those shares. If any such dividends or distributions are paid in shares, the
shares shall be subject to the same restrictions on transferability as the
Restricted Stock with respect to which they were distributed.
9.6 MAXIMUM AWARD. The maximum number of shares of Stock that may be
granted in the form of Restricted Stock pursuant to an Award granted to a
Participant during a single calendar year shall be 250,000.
Section 10. PERFORMANCE BASED AWARDS
10.1 GRANT OF PERFORMANCE AWARDS. Subject to the terms and provisions of
the Plan and applicable law, the Committee, at any time and from time to time,
may issue Performance Awards in the form of either Performance Units or
Performance Shares to Participants subject to the Performance Measures and
Performance Period as it shall determine. The Committee shall have complete
discretion in determining the number and value of Performance Units or
Performance Shares granted to each Participant. Participants receiving
Performance Awards are not required to pay the Sponsor or a Subsidiary or
Affiliate therefor (except for applicable tax withholding) other than the
rendering of services.
10.2 VALUE OF PERFORMANCE AWARDS. The Committee shall determine the number
and value of Performance Units or Performance Shares granted to each Participant
as a Performance Award. The Committee shall set Performance Measures in its
discretion for each Participant who is granted a Performance Award. The extent
to which such Performance Measures are met will determine the value of the
Performance Unit to the Participant or the number of Performance Shares earned
by the Participant. Such Performance Measures may be particular to a
Participant, may relate to the performance of the Affiliate which employs him or
her, may be based on the division which employs him or her, may be based on the
performance of the Company generally, or a combination of the foregoing. The
terms and conditions of each Performance Award will be set forth in an Agreement
and/or a Sub-Plan.
10.3 SETTLEMENT OF PERFORMANCE AWARDS. After a Performance Period has
ended, the holder of a Performance Unit or Performance Share shall be entitled
to receive the value thereof based on the degree to which the Performance
Measures established by the Committee and set forth in the Agreement and/or
Sub-Plan have been satisfied.
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10.4 FORM OF PAYMENT. Payment of the amount to which a Participant shall be
entitled upon the settlement of a Performance Award shall be made in cash,
Stock, or a combination thereof as determined by the Committee. Payment may be
made in a lump sum or installments as prescribed by the Committee.
10.5 DEFERRAL OF PERFORMANCE AWARDS. Prior to the year with respect to
which a Performance Award may vest, the Committee may permit a Participant to
elect, in accordance with rules prescribed by the Committee, not to receive a
distribution upon the vesting of such Performance Award and instead have the
Company continue to maintain the Performance Award on its books of account.
10.6 MAXIMUM AWARD. The maximum number of shares of Stock that may be the
subject of a Performance Share Award granted to a Participant in a single
calendar year shall be 250,000. The maximum amount of compensation payable,
without regard to any deferred amounts, to a Participant pursuant to the grant
of Performance Unit Awards in any calendar year shall be $10,000,000.
Section 11. OTHER STOCK BASED AWARDS
11.1 GRANT OF OTHER STOCK BASED AWARDS. Subject to the terms and provisions
of the Plan and applicable law, the Committee, at any time and from time to
time, may issue to Participants, either alone or in addition to other Awards
made under the Plan, Stock Unit Awards which may be in the form of or based on
Stock or other securities. The maximum number of shares of Stock that may be
granted in any calendar year to a Participant as part of a Stock Unit Award
shall be 250,000. If the value of any Stock Unit Award is not based entirely on
the value of the underlying Stock, the maximum amount of compensation payable,
without regard to any deferred amounts, to a Participant pursuant to the grant
of all such Stock Unit Awards in any calendar year shall be $2,500,000. The
Committee, in its sole and complete discretion, may determine that an Award,
either in the form of a Stock Unit Award under this Section 11 or as an Award
granted pursuant to Sections 7 through 10, may provide to the Participant
(i) dividends or dividend equivalents (payable on a current or deferred basis)
and (ii) cash payments in lieu of or in addition to an Award. Subject to the
provisions of the Plan, the Committee in its sole and complete discretion, shall
determine the terms, restrictions, conditions, vesting requirements, and payment
rules (all of which are sometimes hereinafter collectively referred to as
"rules") of the Award. The Award Agreement and/or Sub-Plan shall specify the
rules of each Award as determined by the Committee. However, each Stock Unit
Award need not be subject to identical rules.
11.2 RULES. The Committee, in its sole and complete discretion, may grant a
Stock Unit Award subject to the following rules:
(a) Stock or other securities issued pursuant to Stock Unit Awards may not
be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated by a Participant until the expiration of at least six months
from the Award Date, except that such limitation shall not apply in the
case of death or Disability of the Participant. All rights with respect
to such other Stock Unit Awards granted to a Participant under the Plan
shall be exercisable during his or her lifetime only by such Participant
or his or her guardian or legal representative.
(b) Stock Unit Awards may require the payment of cash consideration by the
Participant in receipt of the Award or provide that the Award, and any
Stock or other securities issued in conjunction with the Award be
delivered without the payment of cash consideration.
(c) The Committee, in its sole and complete discretion, may establish
certain Performance Measures that may relate in whole or in part to
receipt of the Stock Unit Awards.
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(d) Stock Unit Awards may be subject to a deferred payment schedule and/or
vesting over a specified employment period.
(e) The Committee, in its sole and complete discretion, as a result of
certain circumstances, may waive or otherwise remove, in whole or in
part, any restriction or condition imposed on a Stock Unit Award at the
time of grant.
11.3 DEFERRAL OF STOCK UNITS. Prior to the year with respect to which a
Stock Unit may vest, the Committee may permit a Participant to elect, in
accordance with rules prescribed by the Committee, not to receive a distribution
upon the vesting of such Stock Unit and instead have the Company continue to
maintain the Stock Unit on its books of account.
Section 12. SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS. Unless
the Committee in its sole discretion determines that any Award made to a Covered
Employee is not intended to qualify for the Performance Based Exception under
Section 162(m), Awards subject to Performance Measures that are granted to
Covered Participants under this Plan shall be governed by the conditions of this
Section 12, in addition to the requirements of Sections 9, 10, and 11 above.
Should conditions set forth under this Section 12 (when applicable) conflict
with the requirements of Sections 9, 10, and 11, the conditions of this
Section 12 shall prevail.
(a) Performance Measures for Covered Participants shall be established by
the Committee in writing prior to the beginning of the Performance
Period, or by such other later date during the Performance Period as may
be permitted under Section 162(m). Performance Measures for Covered
Participants may include alternative and multiple Performance Measures
and may be based on one or more business criteria.
(b) All Performance Measures must be objective and must satisfy third party
"objectivity" standards under Section 162(m).
(c) The Performance Measures shall not allow for any discretion by the
Committee as to an increase in any Award, but discretion to lower an
Award is permissible.
(d) The Award and payment of any Award under this Plan to a Covered
Participant with respect to relevant Performance Period shall be
contingent upon the attainment of the Performance Measures that are
applicable to such Covered Participant. The Committee shall certify in
writing prior to payment of any such Award that such applicable
Performance Measures relating to the Award are satisfied. Approved
minutes of the Committee may be used for this purpose.
(e) All Awards to Covered Participants under this Plan shall be further
subject to such other conditions, restrictions, and requirements as the
Committee may determine to be necessary to carry out the purpose of this
Section 12.
Section 13. GENERAL PROVISIONS
13.1 WITHHOLDING. The Company shall have the right to deduct or withhold,
or require a Participant to remit to the Company, any taxes, including
employment taxes, required by law to be withheld with respect to the Awards made
under this Plan. In the event an Award is paid in the form of Stock, the
Committee may require the Participant to remit to the Company the amount of any
taxes required to be withheld from such payment in Stock, or, in lieu thereof
the Company may withhold (or the Participant may be provided the opportunity to
elect to tender) the number of shares of Stock equal in Fair Market Value to the
amount required to be withheld.
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13.2 NO RIGHT TO EMPLOYMENT. No granting of an Award shall be construed as
a right to employment with the Company.
13.3 RIGHTS AS SHAREHOLDER. Subject to the Award provisions, no Participant
or Designated Beneficiary shall be deemed a shareholder of the Sponsor nor have
any rights as such with respect to any shares of Stock to be provided under the
Plan until he or she has become the holder of such shares. Notwithstanding the
aforementioned, with respect to Stock granted under a Restricted Stock Agreement
under this Plan, the Participant or Designated Beneficiary of such Award shall
be deemed the owner of such shares. As such, unless contrary to the provisions
herein or in any such related Award Agreement, such shareholder shall be
entitled to full voting, dividend and distribution rights as provided any other
Sponsor shareholder.
13.4 CONSTRUCTION OF THE PLAN. The Plan, and its rules, rights, Agreements,
Sub-Plans and regulations, shall be governed, construed, interpreted and
administered in accordance with applicable Federal laws, or to the extent that
Federal laws do not apply, the laws of the State of North Carolina. In the event
any provision of the Plan shall be held invalid, illegal or unenforceable, in
whole or in part, for any reason, such determination shall not affect the
validity, legality or enforceability of any remaining provision, or portion of
provision, of the Plan overall, which shall remain in full force and effect.
13.5 AMENDMENT OF PLAN. The Committee or the Board of Directors may amend,
suspend, or terminate the Plan or any portion thereof at any time, provided
(a) such amendment is made with shareholder approval if such approval is
necessary to comply with any tax or regulatory requirement, including for these
purposes any approval requirement for the Performance-Based Exception under
Section 162(m), and (b) such amendment may not adjust or amend the exercise
price of Options previously granted to a Participant without further shareholder
approval except as provided in Sections 6.4 and 6.5 hereof. The Committee in its
discretion may amend the Plan so as to conform with any applicable regulatory
requirements subject to any provisions to the contrary specified herein.
13.6 AMENDMENT OF AWARD. At any time and in its sole and complete
discretion, the Committee may amend any Award for the following reasons:
(i) additions and/or changes are made to the Code, any federal or state
securities law, or other law or regulations subsequent to the Grant Date, and
have an impact on the Award; or (ii) for any other reason not described in
clause (i), provided (a) such amendment does not adversely affect a Participant
or, if it does, provided the Participant gives his or her consent to such
amendment, and (b) such amendment may not adjust or amend the exercise price of
Options previously granted to a Participant without further shareholder approval
except as provided in Sections 6.4 and 6.5 hereof.
13.7 EXEMPTION FROM COMPUTATION OF COMPENSATION FOR OTHER PURPOSES. By
accepting an Award under this Plan, each Participant agrees that such Award
shall be considered special incentive compensation and will be exempt from
inclusion as "wages" or "salary" for purposes of calculating benefits under
pension, profit sharing, disability, severance, life insurance, and other
employee benefit plans of the Company, except as otherwise provided in those
benefit plans.
13.8 LEGEND. In its sole and complete discretion, the Committee may elect
to legend certificates representing shares of Stock sold or awarded under the
Plan, to make appropriate references to the restrictions imposed on such shares.
13.9 EXECUTIVE OFFICERS AND COVERED PARTICIPANTS. All Award Agreements
and/or Sub-Plans for Participants subject to Section 16(b) shall be deemed to
include any such additional terms, conditions, limitations and provisions as
Rule 16b-3 requires, unless the Committee in its discretion determines that
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any such Award should not be governed by Rule 16b-3. All Awards subject to the
Performance-Based Exception shall be deemed to include any such additional
terms, conditions, limitations and provisions as are necessary to comply with
the Performance-Based Compensation exemption of Section 162(m), unless the
Committee, in its sole discretion, determines that an Award to a Covered
Participant is not intended to qualify for the Performance-Based Exception.
13.10 CHANGE IN CONTROL. In the event of a Change in Control, the Committee
may provide, in its sole and complete discretion, either within the terms of the
Award Agreement or subsequently, for the acceleration of the payment and/or
vesting of any Award, the extension of the time during which an Award is
exercisable to its full term regardless of a Participant's termination of
employment with the Company and/or the release of any restrictions on any Award.
13.11 DIVESTITURE. In the event of a Divestiture, the Committee may
provide, in its sole and complete discretion, either within the terms of the
Award Agreement or subsequently, for the acceleration of the payment and/or
vesting of any Award, the extension of the time during which an Award is
exercisable to its full term regardless of a Participant's termination of
employment with the Company and/or the release of any restrictions on any Award
or the assumption of an Award as contemplated in Section 13.14.
13.12 UNFUNDED OBLIGATION. Nothing in this Plan shall be interpreted or
construed to require the Company in any manner to fund any obligation to the
Participants or any Designated Beneficiary. Nothing contained in this Plan nor
any action taken hereunder shall create, or be construed to create a trust of
any kind, or a fiduciary relationship between the Company and/or the Committee,
and the Participants and/or any Designated Beneficiary. To the extent that any
Participant or Designated Beneficiary acquires a right to receive payments under
this Plan, such rights shall be no greater than the rights of any unsecured
general creditor of the Sponsor.
13.13 PLAN EXPENSES. All reasonable expenses of the Plan shall be paid by
the Company.
13.14 TRANSFER. The sponsorship of this Plan may be assumed by any
Affiliate of the Sponsor in the case of a reorganization of the Sponsor and its
Affiliates, or by any successor in interest of the Sponsor. Further, in the
event any Award under the Plan is assumed by an Affiliate or another entity in
connection with the disposition or sale of any business of the Sponsor and its
Affiliates, the Award so assumed shall be cancelled under the Plan.
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DIRECTIONS TO PROGRESS ENERGY'S
2002 ANNUAL SHAREHOLDERS' MEETING
(to be held at the Mahaffey Theater, Bayfront Center, St. Petersburg, FL)
[MAP]
CPLCM-PS-02
<Page>
(LOGO) PROGRESS ENERGY
<Table>
<Caption>
VOTE BY TELEPHONE VOTE BY INTERNET
It's fast, convenient and immediate. It's fast, convenient and your vote is immediately confirmed and
Call Toll Free on a Touch Tone Phone posted.
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy Statement and this 1. Read the accompanying Proxy Statement and this
Proxy Card. Proxy Card.
2. Call the toll free number 2. Go to the Website.
(1-877-779-8683). http://www.eproxyvote.com/pgn
There is NO CHARGE for this call.
3. Enter your Control Number located on this Proxy Card.
3. Enter your Control Number located on this Proxy Card. 4. Follow the instructions provided.
4. Follow the recorded instructions.
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-877-779-8683 anytime! Go to http://www.eproxyvote.com/pgn anytime!
</Table>
DO NOT RETURN THIS PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET UNLESS
YOU INTEND TO REVOKE YOUR PRIOR VOTE.
DETACH CARD DETACH CARD
|X| PLEASE MARK VOTE
AS IN THIS EXAMPLE
<Table>
<Caption>
PROGRESS ENERGY, INC. DIRECTORS RECOMMEND VOTE FOR
----------------------------
MARK BOX AT RIGHT IF AN ADDRESS CHANGE HAS |_| 1. ELECTION OF DIRECTORS AS SET FORTH
BEEN NOTED ON THE REVERSE SIDE OF THIS CARD. IN THE PROXY STATEMENT For All With-- For All
Nominees hold Except
|_| |_| |_|
CONTROL NUMBER: NOMINEES:
(01) W. FREDERICK (04) C. SALADRIGAS
(02) W. MCCOY (05) J. WILSON
(03) J. MULLIN
</Table>
<Table>
NOTE: IF YOU DO NOT WISH YOUR SHARES VOTED "FOR" A PARTICULAR NOMINEE, MARK
THE "FOR ALL EXCEPT" BOX AND STRIKE A LINE THROUGH THE NAME(S) OF THE
NOMINEE(S). YOUR SHARES WILL BE VOTED "FOR" THE REMAINING NOMINEE(S).
</Table>
<Table>
<Caption>
DIRECTORS RECOMMEND VOTE FOR
----------------------------
For Against Abstain
2. THE PROPOSAL TO APPROVE THE 2002
EQUITY INCENTIVE PLAN. |_| |_| |_|
</Table>
<Table>
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS THAT IS PROPERLY BROUGHT BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF.
</Table>
<Table>
Please be sure to sign and date this Proxy. Date
Shareholder sign here Co-owner sign here
</Table>
<Page>
PROGRESS ENERGY, INC.
Dear Shareholder,
Please take note of the important information enclosed with the Proxy
Card. That information relates to the management and operation of your
Company and requires your immediate attention and approval. Details are
discussed in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your
right to vote your shares.
Please mark the box on this Proxy Card to indicate how you would like
your shares to be voted, then sign the card, detach it and return your
proxy card in the enclosed postage paid envelope. Or you may vote by
telephone or Internet by following the instructions on the proxy.
Your vote must be received prior to the Annual Meeting of Shareholders,
May 8, 2002.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Progress Energy, Inc.
ZCPLP2
PROGRESS ENERGY, INC.
410 S. WILMINGTON STREET, RALEIGH, NORTH CAROLINA 27601
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
PROXY. The undersigned hereby appoints William Cavanaugh III and Robert B.
McGehee, and each of them as Proxies, with full power of substitution, to vote
the shares of stock of Progress Energy, Inc. registered in the name of the
undersigned, or which the undersigned has the power to vote, at the Annual
Meeting of Shareholders of the Company to be held Wednesday, May 8, 2002, at
10:00 a.m., and at any adjournment thereof, for the election of directors, and
upon the proposal set forth on the reverse side hereof, and upon other matters
properly brought before the meeting. The undersigned acknowledges receipt of the
notice of said Annual Meeting and the proxy statement.
THIS PROXY WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S).
UNLESS OTHERWISE SPECIFIED, IT WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND
FOR THE BOARD OF DIRECTORS' PROPOSAL TO APPROVE THE 2002 EQUITY INCENTIVE PLAN,
ALL AS SET FORTH IN THE PROXY STATEMENT. THE NOMINEES FOR DIRECTOR ARE: W.
FREDERICK, W. MCCOY, J. MULLIN, C. SALADRIGAS AND J. WILSON. IF ANY DIRECTOR
BECOMES UNAVAILABLE, THE PROXIES WILL VOTE FOR A SUBSTITUTE DESIGNATED BY THE
BOARD.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name(s) appear(s) hereon. When signing as attorney,
executor, administrator, trustee or guardian, or as custodian for a minor,
please give full title as such. If a corporation, please have signed in full
corporate name by any authorized officer, giving full title. If a partnership,
sign in full partnership name by an authorized person, giving full title.
HAS YOUR ADDRESS CHANGED? IF SO, COMPLETE BELOW.
NEW ADDRESS: