<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-12
</Table>
<Table>
PROGRESS ENERGY, INC.
- ----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
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.:
------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------
</Table>
<Page>
[GRAPHIC]
Progress Energy, Inc.
410 S. Wilmington Street
Raleigh, NC 27601
March 31, 2003
Dear Shareholder:
I am pleased to invite you to attend the 2003 Annual Meeting of the
Shareholders of Progress Energy, Inc. The meeting will be held at 10:00
o'clock a.m. on May 14, 2003, at the Asheville Community Theatre, 35 E. Walnut
Street, Asheville, North Carolina.
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 two shareholder proposals.
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 THROUGH 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 2003.
Sincerely,
[GRAPHIC]
William Cavanaugh III
Chairman of the Board 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 THROUGH 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 14, 2003
The Annual Meeting of the Shareholders of Progress Energy, Inc. will be held
at 10:00 o'clock a.m. on May 14, 2003, at the Asheville Community Theatre, 35 E.
Walnut Street, Asheville, North Carolina. The meeting will be held in order to:
(1) Elect five (5) Class II directors of the Company to serve three-year
terms.
(2) Vote on a shareholder proposal relating to performance-based stock
options.
(3) Vote on a shareholder proposal relating to the expensing of stock
options.
(4) 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 7, 2003, will be entitled to attend the meeting and 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
March 31, 2003
<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 solicitation by the
Board of Directors of Progress Energy, Inc. (Company) 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 14, 2003, at the Asheville Community Theatre, 35 E. Walnut
Street, Asheville, North Carolina. (For directions to the meeting location,
please see map included at the end of the Proxy Statement.) This Proxy Statement
and form of proxy were first sent to shareholders on or about March 31, 2003.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR 2002,
INCLUDING FINANCIAL STATEMENTS AND SCHEDULES, ARE AVAILABLE UPON WRITTEN
REQUEST, WITHOUT CHARGE, TO THE PERSONS WHOSE PROXIES ARE SOLICITED. ANY EXHIBIT
TO THE 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. 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 OUR SHAREHOLDER RELATIONS DEPARTMENT AT
800-662-7232, AND WE WILL PROMPTLY SEND YOU SEPARATE COPIES.
1
<Page>
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, e-mail or other electronic media or personally by officers and
employees of the Company and its subsidiaries, who will not be specially
compensated for such services.
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, "AGAINST" the shareholder proposal relating to
performance-based stock options as set forth in this Proxy Statement, "AGAINST"
the shareholder proposal relating to the expensing of stock options as 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 through 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 7, 2003 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 7, 2003, there were outstanding 239,189,167 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 shareholder proposals and 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.
2
<Page>
ELECTION OF DIRECTORS
Based on the report of the Corporate Governance Committee (see page 9), the
Board of Directors nominates the five nominees listed below. The nominees to
serve as Directors in Class II for terms expiring in 2006 and until their
respective successors are elected and qualified are Edwin B. Borden, James E.
Bostic, Jr., David L. Burner, Richard L. Daugherty and Richard A. Nunis.
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 of public companies are set
forth below. (Carolina Power & Light Company and Florida Progress Corporation,
which are noted in the descriptions below, are both wholly-owned subsidiaries of
the Company.) Information concerning the number of shares of the Company's
Common Stock beneficially owned, directly or indirectly, by all current
Directors appears on page 6 of this Proxy Statement.
NOMINEES FOR ELECTION--CLASS II
(Terms Expiring in 2006)
EDWIN B. BORDEN, age 69, is President of The Borden Manufacturing Company, a
textile management services company. He has served as a Director of the Company
and it predecessors since 1985 and also serves as a director of Carolina
Power & Light Company, Florida Progress Corporation, Jefferson-Pilot Financial,
Jefferson-Pilot Life Insurance Company, Ruddick Corporation and Winston
Hotels, Inc.
JAMES E. BOSTIC, JR., age 55, is Executive Vice President of Georgia-Pacific
Corporation, a manufacturer and distributor of tissue paper, packaging, building
products, pulp and related chemicals (since January 2001). He previously served
as Senior Vice President of Georgia-Pacific Corporation (from January 1995 to
December 2000). He has served as a director of the Company since July 10, 2002
and also serves as a director of Carolina Power & Light Company and Florida
Progress Corporation.
DAVID L. BURNER, age 63, is Chairman and Chief Executive Officer of the
Goodrich Corporation, a provider of aerospace components, systems and services
(since July 1997). 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 67, formerly Executive Director of NCSU Research
Corporation, a development corporation of the Centennial Campus of North
Carolina State University. He previously served as Vice President of IBM PC
Company and Senior State Executive of IBM Corp. 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.
3
<Page>
RICHARD A. NUNIS, age 70, 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 2000 and also serves as a director of Carolina
Power & Light Company and Florida Progress Corporation.
DIRECTORS CONTINUING IN OFFICE--CLASS I
(Terms Expiring in 2005)
W. D. FREDERICK, JR., age 68, is a citrus grower and rancher. He is a
retired partner in the law firm of Holland & Knight and a former mayor of
Orlando, Florida. He has served as a Director of the Company since 2000 and also
serves as a director of Carolina Power & Light Company, Florida Progress
Corporation and Blue Cross/Blue Shield of Florida.
WILLIAM O. MCCOY, age 69, is a partner in Franklin Street Partners, an
investment management firm (since 1997). 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 is also formerly Vice Chairman of the Board,
BellSouth Corp., and President and Chief Executive Officer, BellSouth
Enterprises. 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.
JOHN H. MULLIN, III, age 61, is Chairman of Ridgeway Farm, LLC, a limited
liability company engaged in farming, timber and agricultural activities. He is
a former Managing Director of Dillon, Read & Co. (investment bankers). 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, Sonoco Products Company and Alex Brown
Realty, Inc., and as a Trustee of The Putnam Funds.
CARLOS A. SALADRIGAS, age 54, is Chairman of Premier American Bank in Miami,
Florida. He is also a retired 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 has served as a Director of the Company since 2001 and also
serves as a director of Carolina Power & Light Company and Florida Progress
Corporation.
J. TYLEE WILSON, age 71, 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 III
(Terms Expiring in 2004)
WILLIAM CAVANAUGH III, age 64, is Chairman and Chief Executive Officer of
the Company (since August 1999). He also serves as Chairman, Progress Energy
Service Company, LLC (July 2000 to present); Chairman, Florida Power Corporation
(November 30, 2000 to present); Chairman, President and Chief Executive Officer,
Florida Progress Corporation (November 30, 2000 to present); Chairman, Progress
Energy Ventures, Inc. (March 2000 to present); and Chairman, President and Chief
Executive Officer, 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 Duke Realty Corporation.
CHARLES W. COKER, age 69, 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
4
<Page>
Carolina Power & Light Company, Florida Progress Corporation, Bank of America
Corporation and Sara Lee Corporation.
E. MARIE MCKEE, age 52, is Senior Vice President of Corning Incorporated, a
developer of technologies for glass, ceramics, fiber optics and photonics. She
also serves as President and Chief Executive Officer of Steuben Glass. 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 68, 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
2000 and also serves as a director of Carolina Power & Light Company, Florida
Progress Corporation and Raymond James Bank, FSB.
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, 2002. 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 24,379,179(1) 11 %
225 Franklin Street
Boston, MA 02110
Capital Research and Management Company 13,259,340(2) 5.6 %
333 Hope Street
Los Angeles, CA 90071
</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 5,594,310 shares, shared power to vote with
respect to 18,254,510 shares, sole power to dispose of 24,357,716 shares and
shared power to dispose of 21,463. 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 advisor that manages The American Funds
Group of mutual funds. Capital Research and Management Company has sole power to
dispose of 13,259,340 shares of Common Stock, and has disclaimed beneficial
ownership of all shares of Common Stock.
5
<Page>
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 February 28, 2003, 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 economic value at all times to one share of
Common Stock. As of February 28, 2003, 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 5,632 Common Stock
30,216(2) Units
James E. Bostic, Jr. 400 Common Stock
381(3) Units
David L. Burner 200 Common Stock
7,320(2) Units
William Cavanaugh III 397,344(8) Common Stock
243,238(4,5,6,7) Units
Charles W. Coker 7,498(9) Common Stock
35,292(2) Units
Richard L. Daugherty 1,058 Common Stock
21,691(2) Units
W. D. Frederick, Jr. 1,000 Common Stock
4,210(2) Units
William D. Johnson 76,526(11) Common Stock
25,687(5,6,7) Units
William O. McCoy 1,000 Common Stock
13,386(2) Units
Robert B. McGehee 80,309(12) Common Stock
32,755(5,6,7) Units
E. Marie McKee 1,000 Common Stock
7,757(2) Units
John H. Mullin, III 4,000(10) Common Stock
9,097(2) Units
Richard A. Nunis 5,000 Common Stock
2,085(2) Units
William S. Orser 79,349(13) Common Stock
59,259(4,5,6) Units
Carlos A. Saladrigas 4,600 Common Stock
549(3) Units
Peter M. Scott III 78,196(14) Common Stock
25,465(5,6) Units
J. Tylee Wilson 6,000 Common Stock
9,893(2) Units
Jean Giles Wittner 3,000(15) Common Stock
4,143(2) Units
Shares of Common Stock(16) and Units 1,113,625 Common Stock
beneficially owned by all directors and 723,771 Units
executive officers of the Company as a group
(28 persons)
</Table>
6
<Page>
(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 10).
(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 and 2002 Equity Incentive Plans (see "Long-Term Incentive
Plan Awards Table" on page 15 and footnote 1 thereunder for performance shares
awarded in 2002).
(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 12 and footnote 5
thereunder).
(7)Consists of performance units recorded to reflect awards deferred
under the Management Incentive Compensation Plan.
(8)Includes 258,500 shares of Restricted Stock, 8,255 shares with shared
voting and investment power owned by members of immediate family to which
beneficial ownership has not been disclaimed, and 67,366 shares of Company
Common Stock Mr. Cavanaugh has the right to acquire beneficial ownership of
within 60 days through the exercise of certain stock options.
(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 3,000 shares with shared voting and investment power owned
by members of immediate family to which beneficial ownership has not been
disclaimed.
(11)Includes 54,134 shares of Restricted Stock and 14,166 shares of
Company Common Stock Mr. Johnson has the right to acquire beneficial ownership
of within 60 days through the exercise of certain stock options.
(12)Includes 55,634 shares of Restricted Stock and 18,366 shares of
Company Common Stock Mr. McGehee has the right to acquire beneficial ownership
of within 60 days through the exercise of certain stock options.
(13)Includes 29,400 shares of Restricted Stock and 16,666 shares of
Company Common Stock Mr. Orser has the right to acquire beneficial ownership of
within 60 days through the exercise of certain stock options.
(14)Includes 63,300 shares of Restricted Stock and 14,166 shares of
Company Common Stock Mr. Scott has the right to acquire beneficial ownership of
within 60 days through the exercise of certain stock options.
(15)Includes 1,000 shares with shared voting and investment power owned
by members of immediate family to which beneficial ownership has not been
disclaimed.
(16)Includes shares each group member has the right to acquire
beneficial ownership of within 60 days through the exercise of certain stock
options.
7
<Page>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2002, five of the Company's Directors had indirect interests in
routine commercial transactions for the sale of goods and services to which the
Company or one of its subsidiaries was a party; however, none of those interests
were material, and thus are not required to be disclosed.
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
2002 fiscal year were met.
CORPORATE GOVERNANCE
The Board of Directors operates pursuant to an established set of written
Corporate Governance Guidelines (the "Guidelines") that set forth the Company's
corporate governance philosophy and the governance policies and practices the
Company has implemented in support of that philosophy. The three core governance
principles embraced by the Board are integrity, accountability and independence.
The Guidelines describe Board membership criteria, the Board selection and
orientation process and Board leadership. The Guidelines require that a minimum
of eighty percent of the Board's members be independent and that the membership
of each Board Committee, except the Executive Committee, consist only of
independent directors. Directors who are not full-time employees of the Company
generally must retire from the Board at age 73. Directors whose job
responsibilities or other factors relating to their selection to the Board
change materially after their election are required to submit a letter of
resignation to the Board. The Board will have an opportunity to review the
continued appropriateness of the individual's Board membership and the
Governance Committee will make the initial recommendation as to the individual's
continued Board membership. The Guidelines also describe the stock ownership
guidelines that are applicable to Board members and prohibit compensation to
Board members other than directors' fees and payments.
The Guidelines provide that the Organization and Compensation Committee of
the Board will evaluate the performance of the Chief Executive Officer on an
annual basis, using objective criteria, and will communicate the results of its
evaluation to the full Board. The Guidelines also provide that the Corporate
Governance Committee is responsible for conducting an annual assessment of the
performance and effectiveness of the Board, and its standing committees, and
reporting the results of each assessment to the full Board annually.
The Guidelines provide that Board members have complete access to the
Company's management, and can retain, at Company expense, independent advisors
or consultants to assist the Board in fulfilling its responsibilities, as it
deems necessary. The Guidelines also state that it is the Board's policy that
the non-employee directors meet in executive session on a regularly scheduled
basis. Those sessions are chaired by the Presiding Director, who is also
Chairman of the Corporate Governance Committee.
In keeping with the Board's commitment to sound corporate governance, the
Company has adopted a comprehensive written code of ethics that incorporates an
effective reporting and enforcement mechanism. The Code of Ethics is applicable
to all Company employees, including the Company's Chief Executive Officer, its
Chief Financial Officer and its Controller. The Board has adopted the Company's
Code of Ethics as its own standard. Board members, Company officers and Company
employees certify their compliance with the Company Code of Ethics on an annual
basis.
The Company's Corporate Governance Guidelines and Code of Ethics are posted
on its Internet Web site, and can be accessed at www.progress-energy.com under
the Investor Section.
8
<Page>
BOARD OF DIRECTORS
The Board of Directors is currently comprised of fourteen (14) members. The
Board of Directors met six times in 2002. Average attendance of the Directors at
the meetings of the Board and its Committees held during 2002 was 96%.
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,
2002, 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 conducted its business by two
written consents to actions without meeting during 2002.
AUDIT AND CORPORATE PERFORMANCE COMMITTEE
The Audit and Corporate Performance Committee is presently composed of seven
non-employee Directors--Messrs. Richard L. Daugherty, Chairman, James E. Bostic,
Jr., David L. Burner, W. D. Frederick, Jr., John H. Mullin, III and Carlos A.
Saladrigas and Ms. Jean Giles Wittner. The work of this Committee includes
oversight responsibilities relating to the integrity of the Company's financial
statements, compliance with legal and regulatory requirements, the independent
auditor's qualifications and independence, performance of the internal audit
function and independent auditors and the Corporate Ethics Program. The
Committee held five meetings in 2002.
CORPORATE GOVERNANCE COMMITTEE
The Corporate Governance Committee is presently composed of four independent
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 is responsible for conducting investigations into or studies of
matters within the scope of its responsibilities and to retain outside advisors
to identify director candidates. 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 eight meetings
in 2002.
9
<Page>
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, financial
position, strategic planning and investments, pension funds and financing plans.
The Committee also monitors the Company's risk management activities, financial
position and recommends changes to the Company's dividend policy and proposed
budget. The Committee held six meetings in 2002.
COMMITTEE ON OPERATIONS, ENVIRONMENTAL, HEALTH AND SAFETY ISSUES
The Committee on Operations, Environmental, Health and Safety Issues is
presently composed of seven non-employee Directors--Messrs. Edwin B. Borden,
Chairman, James E. Bostic, Jr., 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 for generation,
transmission and distribution, fuel production and transportation, customer
service, energy trading and term marketing, and other Company operations. The
Committee reviews and assesses Company policies, procedures, and practices
relative to the protection of the environment and the health and 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 2002.
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 verifies 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, evaluates the performance of the Chief
Executive Officer and oversees plans for management succession. The Committee
held five meetings in 2002.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS' COMPENSATION
Directors who are not employees of the Company receive an annual retainer of
$45,000, 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 $1,500.
The Chairman of each Committee receives an additional retainer of $5,000 per
year. Directors who are not employees of the Company receive an attendance fee
of $1,500 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
10
<Page>
be invested in a number of Units of Common Stock of the Company, but
participating Directors receive no equity interest or voting rights in any
shares of 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.
Pursuant to the Company's 2002 Equity Incentive Compensation Plan, Directors
are also eligible to receive grants of up to 2,000 non-qualified stock options
on May 1 of each year, subject to the Board's approval. The grants will be made
pursuant to individual award agreements between the Company and each Director.
In order to be eligible for an annual grant, an individual must have been an
outside member of the Company's Board of Directors on May 1 of the year in which
the award is granted. Each annual grant will vest on the first anniversary of
the grant date, and will be exercisable for ten years from the grant date. Stock
options granted to Directors will vest early in the event of a change-in-control
of the Company.
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 economic value to
one share of the Company's Common Stock, but does not represent an equity
interest or entitle its holder to vote. 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 $500,000.
11
<Page>
The Educational Plan was discontinued September 16, 1998 and is not offered
as a benefit for any Director who joins the Board subsequent to that date. The
Educational Plan may be terminated at any time in the discretion of the
Executive Committee without recourse or obligation to the Company.
SERVICE ON BOARDS OF SUBSIDIARIES
All compensation paid to outside Directors is for services rendered on
behalf of the Company's Board of Directors and the boards of Carolina Power &
Light Company and Florida Progress Corporation.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
---------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------------- ------------- ----------
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
NAME AND SALARY(1) BONUS(2) COMPENSATION(3) AWARD(S)(4,5) PAYOUTS(6) COMPENSATION(7)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------------
William Cavanaugh III, 2002 $1,134,231 $ 900,000 $ 181,661(8) $5,938,322(9) $1,162,641 $414,377(10)
Chairman and 2001 1,043,380 1,300,000 126,616 46,824 296,949 329,140
Chief Executive Officer 2000 871,483 1,657,640 76,991 3,871,402 N/A 258,389
William S. Orser, 2002 $ 559,846 $ 215,000 $ 23,972 $ 469,631(11) $ 435,990 $155,413(12)
Group President-- 2001 548,225 350,000 5,943 624,194 113,124 128,367
CP&L 2000 469,789 416,963 7,144 178,624 N/A 105,758
Robert B. McGehee, 2002 $ 524,923 $ 225,000 $ 42,995 $1,257,073(13) $ 280,972 $106,122(14)
President and Chief 2001 487,110 328,000 15,484 598,246 73,530 93,785
Operating Officer 2000 337,513 444,281 15,901 280,030 N/A 74,807
William D. Johnson, 2002 $ 433,885 $ 170,000 $ 22,700 $1,194,325(15) $ 193,773 $ 74,381(16)
Executive Vice 2001 378,776 255,000 78,698 394,701 21,352 56,923
President, General 2000 247,009 265,803(15) 26,734 405,131 N/A 38,012
Counsel and Secretary
Peter M. Scott III, 2002 $ 434,846 $ 160,000 $ 4,586 $1,195,496(17) N/A $100,491(18)
Executive Vice 2001 422,283 275,000 7,635 138,990 N/A 80,707
President and 2000 206,613 304,000 50,350 1,126,195 N/A 50,485
Chief Financial
Officer
- ---------------------------------------------------------------------------------------------------------------------------------
</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 26.
(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 22.
(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 and 2002 Equity Incentive Plans. 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 behalf
of the participant but for the deferral of salary under the Management Deferred
Compensation Plan (MDCP)
12
<Page>
and compensation limitations under Section 415 of the Internal Revenue Code of
1986, as amended. Previously, matchable deferrals were provided only in Phantom
Stock Units, but effective January 1, 2003 and thereafter, the value of
matchable deferrals is credited to a deemed stable value fund, rather than
Phantom Stock Units to eliminate reporting requirements for de minimus
incremental derivative security additions. 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. Participants with one
or more years of service with the Company are 100% vested in all matchable
deferrals credited to their account under the MDCP Plan. Payment of the value of
the Phantom Stock Units and deemed investment funds 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 26.
(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 2002 on
awards granted under the Long-Term Compensation Program and dividends allocated
in 2002 on awards granted under the Performance Share Sub-Plan.
(8)Consists of (i) $105,676 in gross-up payments for certain federal
and state income tax obligations; and (ii) certain perquisites, including
company airplane expenses of $37,296 which exceed thresholds for footnote
disclosure.
(9)Consists of (i) 33,500 shares of Restricted Stock valued at
$1,744,710 as of May 8, 2002 (one third of these shares of Restricted Stock will
vest on each of the first, second and third anniversaries of the grant date);
(ii) 100,000 shares of Restricted Stock valued at $4,145,996 as of October 1,
2002 (these shares are all scheduled to vest on February 1, 2005); and
(iii) 1,034 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 283,500 shares of Restricted Stock, which were
valued at $12,289,725 as of December 31, 2002.
(10)Consists of (i) $61,468 which represents dividends earned in 2002
on performance units awarded under the Long-Term Compensation Program;
(ii) $268,157 which represents dividends allocated in 2002 on performance shares
awarded under the Performance Share Sub-Plan; (iii) $9,825 which represents
Company contributions under the Progress Energy 401(k) Savings & Stock Ownership
Plan; and (iv) $74,927 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.
(11)Consists of (i) 9,404 shares of Restricted Stock valued at $449,208
as of March 20, 2002; and (ii) 442 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 42,734 shares of Restricted Stock
which were valued at $1,852,519 as of December 31, 2002.
(12)Consists of (i) $24,975 which represents dividends earned in 2002
on performance units awarded under the Long-Term Compensation Program;
(ii) $83,885 which represents dividends allocated in 2002 on performance shares
awarded under the Performance Share Sub-Plan; (iii) $10,335 which represents
Company contributions under the Progress Energy 401(k) Savings & Stock Ownership
Plan; and (iv) $36,218 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.
(13)Consists of (i) 8,600 shares of Restricted Stock valued at $410,978
as of March 20, 2002; (ii) 20,000 shares of Restricted Stock valued at $829,194
as of October 1, 2002; and (iii) 368 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 61,834 shares of
Restricted Stock which were valued at $2,680,504 as of December 31, 2002.
13
<Page>
(14)Consists of (i) $61,281 which represents dividends allocated in
2002 on performance shares awarded under the Performance Share Sub-Plan;
(ii) $9,825 which represents Company contributions under the Progress Energy
401(k) Savings & Stock Ownership Plan; and (iii) $35,016 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.
(15)Consists of (i) 7,400 shares of Restricted Stock valued at $353,632
as of March 20, 2002; (ii) 20,000 shares of Restricted Stock valued at $829,199
as of October 1, 2002; and (iii) 251 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 55,834 shares of
Restricted Stock, which were valued at $2,420,404 as of December 31, 2002.
(16)Consists of (i) $47,931 which represents dividends allocated in
2002 on performance shares awarded under the Performance Share Sub-Plan;
(ii) $9,825 which represents Company contributions under the Progress Energy
401(k) Savings & Stock Ownership Plan; and (iii) $16,625 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.
(17)Consists of (i) 7,400 shares of Restricted Stock valued at $353,632
as of March 20, 2002; (ii) 20,000 shares of Restricted Stock valued at $829,199
as of October 1, 2002; and (iii) 275 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 63,300 shares of
Restricted Stock, which were valued at $2,744,055 as of December 31, 2002.
(18)Consists of (i) $47,855 which represents dividends allocated in
2002 on performance shares awarded under the Performance Share Sub-Plan;
(ii) $9,825 which represents Company contributions under the Progress Energy
401(k) Savings & Stock Ownership Plan; and (iii) $42,811 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.
14
<Page>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------------------------------------------------- ------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED FISCAL YEAR* PRICE DATE 5% 10%
- ------------------------ ------------ ------------ ---------------- ---------- ------------- --------------
William Cavanaugh III... 228,000 7.95% $41.97 9/30/2012 $6,017,993 $15,250,777
William S. Orser........ 55,000 1.92% $41.97 9/30/2012 $1,451,709 $ 3,678,915
Robert B. McGehee....... 92,100 3.21% $41.97 9/30/2012 $2,430,953 $ 6,160,511
William D. Johnson...... 50,500 1.76% $41.97 9/30/2012 $1,332,933 $ 3,377,913
Peter M. Scott III...... 46,000 1.60% $41.97 9/30/2012 $1,214,157 $ 3,076,911
</Table>
*Excludes 24,000 stock options that were granted to non-employee directors in
the last fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING THE-MONEY OPTIONS/
SHARES UNEXERCISED OPTIONS/SARS AT SARS
ACQUIRED FY-END AT FY-END
ON VALUE --------------------------- EXERCISABLE/
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE UNEXERCISABLE*
- ---------------------------------- -------- -------- ----------- ------------- ------------------------
William Cavanaugh III............. 0 $ 0.00 67,366 362,734 $314,640
William S. Orser.................. 0 $ 0.00 16,666 88,334 $ 75,900
Robert B. McGehee................. 0 $ 0.00 18,366 128,834 $127,098
William D. Johnson................ 0 $ 0.00 14,166 78,834 $ 69,690
Peter M. Scott III................ 0 $ 0.00 14,166 74,334 $ 63,480
</Table>
*The values reported in this column relate to options that were unexercisable at
December 31, 2002.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<Table>
<Caption>
NUMBER OF PERFORMANCE
NAME UNITS(1) PERIOD ENDS
- ---- --------- -----------
William Cavanaugh III,
Chairman and
Chief Executive Officer................................... 36,428 2004
William S. Orser,
Group President--CP&L..................................... 9,415 2004
Robert B. McGehee,
President and Chief Operating Officer..................... 8,581 2004
William D. Johnson,
Executive Vice President,
General Counsel and Secretary............................. 7,332 2004
Peter M. Scott III,
Executive Vice President and
Chief Financial Officer................................... 7,332 2004
</Table>
15
<Page>
- ------------------------
(1)Consists of the number of performance shares awarded in 2002 under the
Performance Share Sub-Plan of the 2002 Equity Incentive Plan, based on the
closing price of a share of the Company's Common Stock on March 19, 2002, 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 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 major 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 March 31 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 during the month of April 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, retirement or a divestiture, 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 23.
16
<Page>
PENSION PLAN TABLE
<Table>
<Caption>
- -----------------------------------------------------------------------
AVERAGE ESTIMATED ANNUAL PENSION AT NORMAL RETIREMENT
COMPENSATION (YEARS OF CREDITED SERVICE)
- -----------------------------------------------------------------------
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
1,320,000 538,000 792,000 818,400
1,380,000 552,000 828,000 855,600
- -----------------------------------------------------------------------
</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 15 years of credited service, and Mr. Scott
has 11 years of credited service.
17
<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 60 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
Pursuant to the terms of his agreement, Mr. Cavanaugh's target compensation
under the Company's Management Incentive Compensation Plan (MICP) increased to
85% of base salary earnings, effective January 1, 2003. Mr. Cavanaugh's target
compensation under the Performance Share Sub-Plan (PSSP) of the Company's 2002
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
Pursuant to the terms of his agreement, Mr. Orser's target compensation
under the Company's MICP increased to 55% of base salary earnings, effective
January 1, 2003. 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 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
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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
Pursuant to the terms of his agreement, Mr. McGehee's target compensation
under the Company's MICP increased to 70% of base salary earnings, effective
January 1, 2003. Mr. McGehee's target compensation under the PSSP is 115% 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 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.
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AGREEMENT WITH MR. JOHNSON
Pursuant to the terms of his agreement, Mr. Johnson's target compensation
under the MICP increased to 55% of base salary earnings, effective January 1,
2003. Mr. Johnson's target compensation under the PSSP 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
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.
AGREEMENT WITH MR. SCOTT
Pursuant to the terms of his agreement, Mr. Scott's target compensation
under the MICP increased to 55% of base salary earnings, effective January 1,
2003. Mr. Scott's target compensation under the PSSP 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.
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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 2002 Equity
Incentive Plan.
COMPENSATION PRINCIPLES
COMPARISON GROUPS
The Committee has entered into a contract with an independent executive
benefits consulting firm that assists the Committee in meeting its compensation
objectives for the Company's executives. 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 fifteen 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 31, 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 2002 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 one to four 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.
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.
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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 2002 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 employees under the
corporate incentive feature of the Company's 401(k) Savings & Stock Ownership
Plan, a tax qualified 401(k) plan. Incentive matching allocations 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 electric utility companies currently comprising
the Standard & Poor's Electric Index shown in the performance graph on page 31.
If participants at the senior executive 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 senior
executive 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
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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 2002. At a meeting of the Committee on March 18, 2003,
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
2002 EQUITY INCENTIVE PLAN
The 2002 Equity Incentive Plan (the "Plan"), which was approved by the
Company's shareholders in 2002, 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 May 8, 2002, and will expire on May 8, 2012. The
Plan was further amended and restated effective July 10, 2002. All awards
granted under the Company's 1997 Equity Incentive Plan prior to and outstanding
on May 8, 2002 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 years pursuant to awards made under the Plan cannot
exceed 15,000,000 shares of Common 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. 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 remained available for issuance under the
1997 Equity Incentive Plan (approximately 1,700,000 shares) were transferred to
the Plan.
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 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.
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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 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
March 31 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 during the month of April 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, retirement or divestiture, 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. 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.
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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 as noted
below. 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 retirement or under certain situations following 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. The maximum number of shares of the Company's Common Stock that may
be granted in the form of Restricted Stock is 3,000,000 shares. The maximum
number of shares of Company Common Stock that may be granted in the form of
restricted stock in a single calendar year to any one participant is 250,000.
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.
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 permit the cashless exercise of
the option.
The maximum number of shares of Company Common Stock that may be granted in
the form of Incentive Stock Options is 10,000,000 shares. The maximum number of
shares of Company Common Stock that may be granted in the form of options in a
single calendar year to any one participant is 2,000,000.
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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 a stable value fund. 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.
- 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 of
$3,000,000 for those officers of the Company who are also members of the
Board of Directors. The Company is in the process of evaluating its split
dollar life insurance program in connection with recently proposed
regulations and the Sarbanes-Oxley Act's prohibition on loans to corporate
officers.
- 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 Internal Revenue Code of 1986, as amended ("Code"),
eligible, highly compensated employees of participating companies may
invest up to 18% of eligible base salary earnings (up to a maximum of
$11,000 in 2002 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 (the "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 the Pension 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
26
<Page>
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
2002 for related federal and state income tax obligations, as disclosed in
the Summary Compensation Table on page 12.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Compensation in 2002 for the Chief Executive Officer was consistent with the
compensation principles described above and reflected performance of the Company
and the individual in 2002, as well as services in 2002. The determination of
his compensation by the Committee was qualitative in nature and 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 2002 fell within the targeted level (75th percentile) of overall
compensation paid to chief executive officers in the comparison groups.
The Committee considered the Company's significant regulatory successes in
both Florida and North Carolina. The settlement of the Florida rate proceeding
provides for rate stability without a cap on return on equity through 2005. The
enactment of the North Carolina Clean Air Bill provides for a five year rate
freeze in North Carolina and accelerated amortization of the capital costs
associated with the new clean air requirements. Together, these two successes
provide certainty and clarity regarding the rate environment for the Company's
utility operations over the next several years. The Committee also took into
account the continued excellent operational performance of the Company's
generating units and transmission and distribution facilities, as evidenced by
their availability, safe operation, short, well-managed outages and good
material condition. The Committee also considered the success of the Company in
negotiating a competitive labor agreement with Progress Energy Florida employees
represented by the International Brotherhood of Electric Workers. The Committee
considered the fact that while the Company did not meet its earnings per share
target for 2002, it maintained its investment-grade credit rating despite
difficult conditions in the capital markets and significantly out-performed
other utility companies in terms of total shareholder return. Additionally, the
Committee took into account the Company's solid corporate governance reputation,
noting that Standard & Poors named it one of the top three corporations in the
S&P 500 for transparency in its disclosures regarding finances, operations and
corporate governance.
27
<Page>
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 with revised points of
emphasis that reflected changing market conditions, 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 employee morale and 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
EQUITY COMPENSATION PLAN INFORMATION
<Table>
<Caption>
(A) (C)
NUMBER OF NUMBER OF SECURITIES
SECURITIES TO REMAINING AVAILABLE
BE ISSUED UPON (B) FOR FUTURE ISSUANCE
EXERCISE WEIGHTED-AVERAGE UNDER EQUITY
OF OUTSTANDING EXERCISE PRICE OF COMPENSATION PLANS
OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
- ------------- ------------------- --------------------- ------------------------
Equity compensation plans approved by
security holders 5,157,195 $42.84 13,746,663
Equity compensation plans not approved by
security holders N/A N/A N/A
Total 5,157,195 $42.84 13,746,663
</Table>
*N/A--Not Applicable, as Progress Energy does not sponsor any equity
compensation plans that have not been approved by its security holders.
28
<Page>
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, 2002 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 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, 2002 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. During 2002, three members of the Audit and
Corporate Performance Committee had indirect interests in routine commercial
transactions for the sale of goods or services to which the Company or one of
its subsidiaries was a party; however, all of those interests were immaterial
and the Board of Directors has determined that the relationships do not
interfere with the Committee members' independent judgment.
The Audit Committee has recently amended its written charter. The amended
charter is included as Exhibit A to this proxy statement.
Audit and Corporate Performance
Committee:
Richard L. Daugherty, Chairman
James E. Bostic, Jr.
David L. Burner
W. D. Frederick, Jr.
John H. Mullin, III
Carlos A. Saladrigas
Jean Giles Wittner
29
<Page>
DISCLOSURE OF AUDITORS' FEES
The Audit and Corporate Performance Committee of the Company's Board of
Directors ("Audit Committee") has actively monitored all fees charged by its
independent auditors, Deloitte & Touche LLP, the member firms of Deloitte &
Touche Tohmatsu, and their respective affiliates (collectively, "Deloitte") and
the relationship between audit and non-audit services provided by Deloitte. The
Securities and Exchange Commission ("SEC") recently adopted rules that require
audit committees to pre-approve all services rendered by a company's external
auditors, effective May 6, 2003. In keeping with its proactive approach to
corporate governance matters, the Company has adopted policies and procedures
for approving all audit and permissible non-audit services rendered by Deloitte,
and the fees billed for those services beginning January 1, 2003. The Audit
Committee specifically pre-approved the use of Deloitte for audit and
audit-related services, subject to certain limitations. Audit and audit-related
services include assurance and related activities, services associated with
internal control reviews, reports related to regulatory filings, certain due
diligence services pertaining to acquisitions and general accounting and
reporting advice. The pre-approval policy requires management to obtain specific
pre-approval from the Audit Committee for the use of Deloitte for any
permissible non-audit services, including tax services. The policy also requires
management to update the Audit Committee throughout the year as to the services
provided by Deloitte and the costs of those services.
Set forth below is certain information relating to the aggregate fees billed
by Deloitte for professional services rendered for the fiscal years ended
December 31, 2001 and December 31, 2002. The information is being reported in
accordance with the new SEC disclosure rules that will become effective on
May 6, 2003.
AUDIT FEES
The aggregate fees billed by Deloitte for professional services rendered in
connection with (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); (ii) the reviews of the
financial statements included in the Quarterly Reports on Form 10-Q of the
Company and its SEC reporting subsidiaries; (iii) the audits of the financial
statements of certain non-reporting subsidiaries of the Company; and (iv) SEC
filings, accounting consultations arising as part of the audits and comfort
letters for the years ended December 31, 2001 and December 31, 2002 were
$1,617,860 and $1,863,460, respectively. In completing its audit of the
Company's financial statements, Deloitte relies substantially on its audits of
the Company's SEC reporting and certain non-reporting subsidiaries.
AUDIT-RELATED FEES
The aggregate fees billed by Deloitte for audit-related services rendered to
the Company for the years ended December 31, 2001 and December 31, 2002 were
$326,020 and $507,330 respectively. The services comprising the fees billed for
this category included audits of certain of the Company's non-reporting
subsidiaries, special procedures and letter reports, benefit plan audits and
accounting consultations on prospective transactions.
TAX FEES
The aggregate fees billed by Deloitte for tax services rendered to the
Company for the years ended December 31, 2001 and December 31, 2002 were
$1,411,880 and $554,990, respectively. The services comprising the fees billed
in this category included those related to tax planning and advisory services.
ALL OTHER FEES
The aggregate fees billed by Deloitte for services rendered to the Company,
other than the services described above under Audit Fees, Audit-Related Fees,
and Tax Fees for the years ended December 31, 2001 and December 31, 2002 were
$246,500 and $32,340, respectively. The services comprising the fees billed for
this category were for rate case assistance and training and cash management
consulting.
30
<Page>
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>
1997 1998 1999 2000 2001 2002
Progress Energy Inc. 100 116 79 136 130 132
S&P Electric Index 100 116 93 143 131 112
S&P 500 Index 100 129 156 141 125 97
</Table>
<Table>
<Caption>
MEASUREMENT PERIOD (FISCAL
YEAR COVERED) 1997 1998 1999 2000 2001 2002
PROGRESS ENERGY INC. 100 116 79 136 130 132
S&P ELECTRIC INDEX 100 116 93 143 131 112
S&P 500 INDEX 100 129 156 141 125 97
</Table>
- ------------------------
* $100 Invested on 12/31/97 in Stock or Index.
Including reinvestment of dividends.
Fiscal Year Ending December 31.
31
<Page>
SHAREHOLDER PROPOSALS
Certain of our shareholders have submitted the proposals described below
under Items 2 and 3. Upon written or oral request, the Company will provide the
names, addresses and share ownership information of these proponents. Any such
requests should be directed to our Corporate Secretary. For the reasons set
forth after each of these proposals, the Board recommends a vote "AGAINST"
Items 2 and 3.
ITEM 2: PROPOSAL REGARDING PERFORMANCE-BASED OPTIONS
PROPOSAL
Resolved, that the shareholders of Progress Energy (the "Company") request
that the Board of Directors adopt an executive compensation policy that all
future stock option grants to senior executives shall be performance-based. For
the purposes of this resolution, a stock option is performance-based if the
option exercise price is indexed or linked to an industry peer group stock
performance index so that the options have value only to the extent that the
Company's stock price performance exceeds the peer group performance level.
STATEMENT OF SUPPORT
As long-term shareholders of the Company, we support executive compensation
policies and practices that provide challenging performance objectives and serve
to motivate executives to achieve long-term corporate value maximization goals.
While salaries and bonuses compensate management for short-term results, the
grant of stock and stock options has become the primary vehicle for focusing
management on achieving long-term results. Unfortunately, stock option grants
can and do often provide levels of compensation well beyond those merited. It
has become abundantly clear that stock option grants without specific
performance-based targets often reward executives for stock price increases due
solely to a general stock market rise, rather than to extraordinary company
performance.
Indexed stock options are options whose exercise price moves with an
appropriate peer group index composed of a company's primary competitors. The
resolution requests that the Company's Board ensure that future senior executive
stock option plans link the options exercise price to an industry performance
index associated with a peer group of companies selected by the Board, such as
those companies used in the Company's proxy statement to compare 5 year stock
price performance.
Implementing an indexed stock option plan would mean that our Company's
participating executives would receive payouts only if the Company's stock price
performance was better than that of the peer group average. By tying the
exercise price to a market index, indexed options reward participating
executives for outperforming the competition. Indexed options would have value
when our Company's stock price rises in excess of its peer group average or
declines less than its peer group average stock price decline. By downwardly
adjusting the exercise price of the option during a downturn in the industry,
indexed options remove pressure to reprice stock options. In short, superior
performance would be rewarded.
At present, stock options granted by the Company are not indexed to peer
group performance standards. As long-term owners, we feel strongly that our
Company would benefit from the implementation of a stock option program that
rewarded superior long-term corporate performance. In response to strong
negative public and shareholder reactions to the excessive financial rewards
provided executives by non-performance based option plans, a growing number of
shareholder organizations, executive compensation experts, and companies are
supporting the implementation of performance-based stock option plans such as
that advocated in this resolution. We urge your support for this important
governance reform.
32
<Page>
COMPANY RESPONSE
THE BOARD AND MANAGEMENT OPPOSE THIS SHAREHOLDER PROPOSAL AND RECOMMEND A VOTE
AGAINST ITEM 2 FOR THE REASONS SET FORTH BELOW:
The Board has considered this proposal and believes that its adoption is
unnecessary and would not be in the best interest of the Corporation or its
shareholders.
Although the proposal focuses on stock options, the Company's executive
compensation system is already based on the achievement of performance measures.
As outlined in the report of the Organization and Compensation Committee on page
21, the Company believes that its approach to executive compensation decisions
constitutes performance-based compensation. In reviewing overall individual
performances, the Committee considers such factors as overall performance of the
Company and also relies upon the business units/subsidiary departmental and
individual performance measures.
The proposal seeks to link portions of executive compensation to the
Company's performance relative to its peers. This is already being done. When
making executive compensation decisions, the Committee considers the advice of
an independent executive compensation consultant who compares the compensation
of Company executives to the compensation paid to executives of two groups of
electric utility companies. One comparison group consists of fifteen electric
companies with fossil fuel and nuclear operations in the eastern United States.
The other comparison group is a broad collection of electric utilities across
the nation. The effect of such comparisons on the Committee's analysis is that a
Company executive's performance is viewed in context of the performance and
compensation of peer executives within the electric utilities industry.
In making executive performance and compensation decisions, the Committee
considers the attainment of various corporate goals, total shareholder return,
earnings per share and other financial and operating performance measures,
individual performance and other factors. Performance goals are reviewed and
approved annually by the Board. Inherent to these considerations are comparisons
of the Company's performance in the context of the performance of other industry
executives, sector performance and overall economic conditions.
Like many of its peer companies, the Company provides executive incentive
compensation largely through payment in company stock and stock options. The
Company's stock compensation plan is currently administered through the 2002
Equity Incentive Plan, which was overwhelmingly approved by our shareholders at
the Company's 2002 Annual Shareholders' Meeting. This 2002 Plan is designed to
provide long-term incentives and increase shareholder value over the long term
by aligning the interests of executive officers with those of shareholders.
Stock options awarded pursuant to the 2002 Plan are designed to motivate the
holder to increase the value of the Company, which benefits both the option
holder and the Company's shareholders. The 2002 Plan prohibits the repricing of
options.
The Company believes that it has already established a process that enables
it to fairly determine and to properly make performance-based compensation
decisions regarding the Company's executive officers. The Company believes that
it should maintain the flexibility to make these decisions based on a review of
all relevant information, including specific financial and non-financial
performance results, without imposing a rigid, pre-set mathematical formula for
compensation that might not consider the overall results achieved based on
economic conditions that can change rapidly.
YOUR BOARD OF DIRECTORS AND MANAGEMENT URGE YOU
TO VOTE "AGAINST" THIS PROPOSAL
33
<Page>
ITEM 3: PROPOSAL REGARDING EXPENSING STOCK OPTIONS
PROPOSAL
Resolved, that the shareholders of Progress Energy, Inc. ("Company") hereby
request that the Company's Board of Directors establish a policy of expensing in
the Company's annual income statement the costs of all future stock options
issued by the Company.
STATEMENT OF SUPPORT
Current accounting rules give companies the choice of reporting stock option
expenses annually in the Company income statement or as a footnote in the annual
report (See: Financial Accounting Standards Board Statement 123). Most
companies, including ours, report the cost of stock options as a footnote in the
annual report, rather than include the option costs in determining operating
income. We believe that expensing stock options would more accurately reflect a
company's operational earnings.
Stock options are an important component of our Company's executive
compensation program. Options have replaced salary and bonuses as the most
significant element of executive pay packages at numerous companies. The lack of
option expensing can promote excessive use of options in a company's
compensation plans, obscure and understate the cost of executive compensation
and promote the pursuit of corporate strategies designed to promote short-term
stock price rather than long-term corporate value.
A recent report issued by Standard & Poor's indicated that the expensing of
stock option grant costs would have lowered operational earnings at companies by
as much as 10%. "The failure to expense stock option grants has introduced a
significant distortion in reported earnings," stated Federal Reserve Board
Chairman Alan Greenspan. "Reporting stock options as expenses is a sensible and
positive step toward a clearer and more precise accounting of a company's
worth." GLOBE AND MAIL, "Expensing Options is a Bandwagon Worth Joining,"
Aug. 16, 2002.
Warren Buffet wrote in a New York Times Op-Ed piece on July 24, 2002:
There is a crisis of confidence today about corporate earnings reports
and the credibility of chief executives. And it's justified.
For many years, I've had little confidence in the earnings numbers
reported by most corporations. I'm not talking about Enron and
WorldCom--examples of outright crookedness. Rather, I am referring to the
legal, but improper, accounting methods used by chief executives to inflate
reported earnings...
Options are a huge cost for many corporations and a huge benefit to
executives. No wonder, then, that they have fought ferociously to avoid
making a charge against their earnings. Without blushing, almost all
C.E.O.'s have told their shareholders that options are cost-free...
When a company gives something of value to its employees in return for
their services, it is clearly a compensation expense. And if expenses don't
belong in the earnings statement, where in the world do they belong?
Many companies have responded to investors' concerns about their failure to
expense stock options. In recent months, more than 100 companies, including such
prominent ones as Coca Cola, Washington Post, and General Electric, have decided
to expense stock options in order to provide their shareholders more accurate
financial statements. Our Company has yet to act. We urge your support.
34
<Page>
COMPANY RESPONSE
THE BOARD AND MANAGEMENT OPPOSE THIS SHAREHOLDER PROPOSAL AND RECOMMEND A VOTE
AGAINST ITEM 3 FOR THE REASONS SET FORTH BELOW:
The Board has considered this proposal and believes that its adoption is
unnecessary and would not be in the best interest of the Company or its
shareholders at this time. The Company is not necessarily opposed to the idea of
expensing stock options, but it believes such an important accounting principle
should be applied consistently among all companies, particularly within our
industry. The Company believes that this issue should be definitively resolved
by the appropriate accounting authority before this approach is adopted.
The Company views the use of stock options as a valuable tool for recruiting
and retaining top management talent, and the Company believes that it has used
that tool with prudence and moderation. The Company acknowledges the concerns of
some shareholders that the cost of stock options should be reflected in our
financial statements. The Board recently considered the issue of expensing
options independent of this shareholder proposal and determined that doing so at
this time would not be in the Company's best interest.
Although the issue of expensing stock options has attracted significant
interest from the accounting, legal and investment communities, there is no
standard for valuing options that is applicable to all companies, and no
consensus has emerged on the appropriate method for measuring the true cost of
stock options to a company. These issues must be resolved in a manner that
establishes a uniform approach to valuing options and reflecting their costs in
companies' financial statements. Until that occurs, companies will select among
alternative valuation approaches for stock options and inconsistency in
companies' results will continue.
The Company is complying with Statement of Financial Accounting Standards
No. 123, as amended, which permits entities to account for options in a manner
that can result in no expense being recorded for such options. Accordingly, the
Company discloses, in the notes to its financial statements, pro forma
information with regard to how earnings would have been affected if expense had
been recorded for the options. This mitigates concerns that failure to expense
options could result in misleading financial statements. As disclosed in
Progress Energy's notes to the financial statements, its 2002 net income would
only have been approximately $8.0 million lower if stock options expense had
been recorded, representing a decline of only 1.5% from reported net income.
The Company believes it would be premature for it to adopt a policy that
requires the expensing of options when that approach has not been adopted by all
companies. If the Company elected to expense stock options at this time, its
earnings would be affected while those of some of its competitors and peers
would not. The Company does not believe its shareholders are best served by
adopting a change in its policy for accounting for stock options at this time.
YOUR BOARD OF DIRECTORS AND MANAGEMENT URGE YOU
TO VOTE "AGAINST" THIS PROPOSAL
35
<Page>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Deloitte & Touche LLP has been appointed by the Audit Committee
of 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 2002 Annual Report, which includes financial statements for
the fiscal years ended December 31, 2002, and 2001, 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 7, 2003.
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, 2003 at
the Company's principal executive offices, addressed to the attention of:
<Table>
William D. Johnson
Executive Vice President,
General Counsel and Secretary
Progress Energy, Inc.
Post Office Box 1551
Raleigh, North Carolina 27602-1551
</Table>
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.
36
<Page>
EXHIBIT A
AUDIT AND CORPORATE PERFORMANCE COMMITTEE
CHARTER
PURPOSE AND COMPOSITION
The Audit and Corporate Performance Committee ("Committee") shall be a standing
committee of the Board of Directors ("Board"). The Committee shall assist,
advise, and report regularly to the Board in fulfilling its oversight
responsibilities related to:
- The integrity of the Company's financial statements
- The Company's compliance with legal and regulatory requirements
- The independent auditor's qualifications and independence
- The performance of the Company's internal audit function and independent
auditors, and
- The Corporate Ethics Program.
In meeting its responsibilities, the Committee is expected to provide an open
channel of communication with management, internal audit, the external auditors,
and the Board.
The Committee is composed of at least three members of the Board who are
independent within the meaning of the Listing Standards of the New York Stock
Exchange (NYSE). Committee members shall be appointed and/or removed by the
Board. No member of the Committee shall be removed except by a majority vote of
the independent directors then in office. Committee members shall be free from
any relationships that would interfere with or give the appearance of
interfering with the exercise of independent judgment as a Committee member. All
members shall have a requisite working familiarity with basic finance and
accounting practices in compliance with the Listing Standards of the NYSE.
Furthermore, at least one member of the Committee shall have sufficient
accounting or financial expertise and be designated as a "financial expert" in
compliance with the Listing Standards of the NYSE. Committee members shall be
appointed by the Board normally at the Annual Organizational Meeting of the
Board.
Director's fees shall be the only compensation an audit committee member may
receive from the Company. The Board shall designate one Committee member as
Chairman, who shall preside over the meetings of the Committee and report
Committee actions to the Board.
DUTIES AND RESPONSIBILITIES
Duties and responsibilities of the Committee shall include, but are not limited
to the following:
1. Review with management and the external auditors the annual and quarterly
financial results for the Company, including the disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Discussions with management will also include earnings press
releases, as well as financial information and earnings guidance provided to
analysts and rating agencies. The review should focus on appropriate
disclosure of key events, risk assessment and management, and actual or
contingent liabilities that could materially impact the Company's financial
results or cause the reported information to be misleading. Also review the
annual report to shareholders, the annual/quarterly reports on Forms
10-K/10-Q filed with the Securities and Exchange Commission, and legal and
regulatory matters having a material impact on the financial statements. The
external auditors will have discussions with the Committee on the quality of
the accounting policies and practices used by the Company, any alternative
treatments of financial information, their ramifications and the external
auditors' preferred treatments.
A-1
<Page>
2. Oversee and monitor the work of the external auditors to ensure they are
independent of management and their objectivity is not impaired, recognizing
that the external auditors are accountable to the Board and the Committee.
In determining the independence of the external auditors, the Committee will
annually obtain and review a formal report from the external auditors
affirming their independence as prescribed by the NYSE. Review with the
external auditors any audit problems or difficulties and management's
response.
The Committee has sole authority to retain and terminate the Company's
external auditors and will set clear hiring policies for employees or former
employees of the independent auditors. Annually obtain and review a report
from the external auditors describing the internal quality control process,
including material issues raised by the most recent internal quality control
review or by any inquiry or investigation by government, regulatory or
professional authorities within the past five years.
Annually report to the Board the external audit firm(s) to be retained and
preapprove all audit and non-audit services and fees as noted in the
Committee's Preapproval Procedure. The Committee will review the scope of
any non-audit services to be performed by the external auditors and
determine its impact on the auditors' independence. Review the scope of the
external audit plan and upon completion of the audit, review significant
changes made in the scope of the audit plan. Meet with the external auditors
privately, without management present, at each regular meeting.
3. Oversee and monitor the activities of the Audit Services Department to
ensure the internal audit function maintains appropriate independence and
objectivity in the fulfillment of its responsibilities. The Committee should
review: the audit plan for the upcoming year and the results/changes made to
the prior year's plan; significant audit findings and recommendations and
management's action plans; the adequacy of the budget and staffing for the
Department; and the appointment or dismissal of the Chief Audit Executive.
Meet with the Chief Audit Executive privately, without management present,
at each regular meeting.
4. Assess and monitor the overall control environment of the Company through
discussion with management, the external auditors and the Chief Audit
Executive. Assess the extent to which the audit plans of the external and
internal auditors can be relied on to identify material internal control
weaknesses or fraud.
5. Oversee and monitor the activities of the Corporate Ethics Program. As noted
in the Committee's Complaint Procedure, the Committee will review and take
appropriate action on any complaints received by the Company regarding
questionable accounting, internal controls or auditing matters.
6. Request the external auditors, the internal auditors, or management to
conduct special reviews or studies, as appropriate. Also, the Committee may
obtain advice and assistance from outside legal, accounting or other
advisors, at Company expense.
7. Provide a report in the proxy statement stating that the Committee has
reviewed and discussed the financial statements with management and the
auditors. In addition, this report will include a recommendation to the
Board that the audited financial statements be included in the Company's
annual report on Form 10-K.
8. Reassess annually the effectiveness of this Committee and adequacy of this
Charter. This Charter and the Company's Code of Ethics will be published on
the Company's website. In addition, the disclosure of this Charter will be
stated annually in the proxy, which will contain a copy of the Charter in an
appendix, as required.
A-2
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MEETINGS
The Committee shall hold at least three regular meetings and four quarterly
conference call meetings each year in order to accomplish the aforementioned
duties and responsibilities. The Committee's Chairman may call additional
meetings as needed, to review matters of interest to the Committee. The
Committee may form subcommittees for any purpose that the Committee deems
appropriate and may delegate to such subcommittees such power and authority as
the Audit and Corporate Performance Committee deems appropriate. As deemed
necessary by the Committee, meetings shall be attended by appropriate Company
personnel.
Following each of its meetings, the Committee shall deliver a report on the
meeting to the Board, including a description of all actions taken by the
Committee at the meeting. The Committee shall keep written minutes of its
meetings, which minutes shall be maintained with the books and records of the
Company.
The President of the Service Company or his designee shall, at the request of
the Chairman of the Committee, arrange meetings, prepare meeting agendas, and
serve as Secretary to the Committee.
A-3
<Page>
DIRECTIONS TO PROGRESS ENERGY'S
2003 ANNUAL SHAREHOLDERS' MEETING
(to be held at the Asheville Community Theatre, 35 E. Walnut Street, Asheville)
[GRAPHIC]
3700-PS-03
<Page>
(LOGO) PROGRESS ENERGY
C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
Voter Control Number
____________________
Your vote is important. Please vote immediately.
VOTE-BY-INTERNET
1. Log on to the Internet and go to
http://www.eproxyvote.com/pgn
2. Enter your Voter Control Number listed above and follow the easy steps
outlined on the secured website.
OR
VOTE-BY-TELEPHONE
1. Call toll-free
1-877-PRX-VOTE (1-877-779-8683)
2. Enter your Voter Control Number listed above and follow the easy recorded
instructions.
If you vote over the Internet or by telephone, please do not mail your card.
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE
DIRECTORS RECOMMEND VOTE FOR
1. Election of Directors as set forth in the proxy statement
Nominees: (01) E. Borden, (02) J. Bostic, (03) D. Burner
(04) R. Daugherty, (05) R. Nunis
FOR ALL NOMINEES / / / / WITHHELD FROM ALL NOMINEES
FOR
ALL NOMINEES / /
EXCEPT ___________________________________________
NOTE: If you do not wish your shares voted "FOR" a particular nominee, mark the
"For All Nominees Except" box and write the name(s) on the line above. Your
shares will be voted "FOR" the remaining nominee(s).
DIRECTORS RECOMMEND VOTE AGAINST
For Against Abstain
2. SHAREHOLDER PROPOSAL RELATING TO / / / / / /
PERFORMANCE-BASED STOCK OPTIONS AS
SET FORTH IN THE PROXY STATEMENT.
For Against Abstain
3. SHAREHOLDER PROPOSAL RELATING TO / / / / / /
THE EXPENSING OF STOCK OPTIONS AS
SET FORTH IN THE PROXY STATEMENT.
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS THAT IS PROPERLY BROUGHT BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF.
Mark box at right if an address change has been noted on the / /
reverse side of this card.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY.
(Shareholder sign here) Date:
----------------------------- ----------------------
(Co-owner sign here) Date:
-------------------------------- -----------------------
<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.
If you are a participant in one the Company's 401(k) Plans, 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 through the Internet. Company stock
in the ESOP 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.
Your vote must be submitted prior to the Annual Meeting of Shareholders, May
14, 2003 unless you plan to vote in person at the meeting.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Progress Energy, Inc.
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 14 2003, at
10:00 a.m., and at any adjournment thereof, for the election of directors, and
upon the shareholder proposals listed 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
AGAINST THE SHAREHOLDER PROPOSALS , ALL AS SET FORTH IN THE PROXY STATEMENT. THE
NOMINEES FOR DIRECTOR ARE: E. BORDEN, J. BOSTIC, D. BURNER, R. DAUGHERTY AND R.
NUNIS. 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: