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Exhibit 2.1
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CONFORMED COPY
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AGREEMENT AND PLAN OF MERGER
by and among
DUKE ENERGY CORPORATION,
CINERGY CORP.,
DEER HOLDING CORP.,
DEER ACQUISITION CORP.
and
COUGAR ACQUISITION CORP.
Dated as of May 8, 2005
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TABLE OF CONTENTS
ARTICLE I
The Mergers and the Restructuring Transactions
Page
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Section 1.01 The Duke
Merger.............................................................2
Section 1.02 The Duke
Conversion.........................................................2
Section 1.03 The Restructuring
Transactions..............................................2
Section 1.04 The Cinergy
Merger..........................................................3
Section 1.05
Closing.....................................................................3
Section 1.06 Effective Time of the Duke and Cinergy
Mergers..............................3
Section 1.07 Effects of the Mergers and the
Conversion...................................4
Section 1.08 Organizational Documents of Duke, Cinergy and the
Company...................4
Section 1.09 Directors and Officers of Duke and
Cinergy..................................5
Section 1.10 Directors and Officers of the
Company.......................................5
Section 1.11 Post-Merger
Operations......................................................6
Section 1.12 Transition
Committee........................................................6
ARTICLE II
Effects of the Mergers on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
Section 2.01 Effect on Capital
Stock.....................................................6
Section 2.02 Exchange of
Certificates....................................................8
Section 2.03 Dissenting
Shares..........................................................13
ARTICLE III
Representations and Warranties
Section 3.01 Representations and Warranties of
Cinergy..................................14
Section 3.02 Representations and Warranties of
Duke.....................................29
ARTICLE IV
Covenants
Section 4.01 Covenants of
Cinergy.......................................................43
Section 4.02 Covenants of
Duke..........................................................49
Section 4.03 No Solicitation by
Cinergy.................................................54
Section 4.04 No Solicitation by
Duke....................................................57
Section 4.05 Other
Actions..............................................................60
Section 4.06 Coordination of
Dividends..................................................60
Section 4.07 Redemption of Duke Preferred Stock and Duke
Preferred Stock A..............60
Section 4.08 Transfer of Certain
Assets.................................................60
ARTICLE V
Additional Agreements
Section 5.01 Preparation of the Form S-4 and the Joint Proxy
Statement; Shareholders
Meetings...........................................61
Section 5.02 Letters of Cinergy's
Accountants...........................................62
Section 5.03 Letters of Duke's
Accountants..............................................62
Section 5.04 Access to Information; Effect of
Review....................................62
Section 5.05 Regulatory Matters; Reasonable Best
Efforts................................63
Section 5.06 Stock Options; Restricted Stock and Equity Awards;
Stock Plans.............65
Section 5.07 Employee
Matters...........................................................68
Section 5.08 Indemnification, Exculpation and
Insurance.................................69
Section 5.09 Fees and
Expenses..........................................................71
Section 5.10 Public
Announcements.......................................................74
Section 5.11
Affiliates.................................................................75
Section 5.12 NYSE
Listing...............................................................75
Section 5.13 Shareholder
Litigation.....................................................75
Section 5.14 Tax-Free Reorganization
Treatment..........................................75
Section 5.15 Standstill Agreements; Confidentiality
Agreements..........................75
ARTICLE VI
Conditions Precedent
Section 6.01 Conditions to Each Party's Obligation to Effect the
Mergers................76
Section 6.02 Conditions to Obligations of
Cinergy.......................................76
Section 6.03 Conditions to Obligations of
Duke..........................................77
Section 6.04 Frustration of Closing
Conditions..........................................78
ARTICLE VII
Termination, Amendment and Waiver
Section 7.01
Termination................................................................78
Section 7.02 Effect of
Termination......................................................81
Section 7.03
Amendment..................................................................82
Section 7.04 Extension;
Waiver..........................................................82
ARTICLE VIII
General Provisions
Section 8.01 Nonsurvival of Representations and
Warranties..............................82
Section 8.02
Notices....................................................................82
Section 8.03
Definitions................................................................83
Section 8.04 Interpretation and Other
Matters...........................................84
Section 8.05
Counterparts...............................................................85
Section 8.06 Entire Agreement; No Third-Party
Beneficiaries.............................85
Section 8.07 Governing
Law..............................................................85
Section 8.08
Assignment.................................................................85
Section 8.09
Enforcement................................................................85
Section 8.10
Severability...............................................................86
Section 8.11 Waiver of Jury
Trial.......................................................86
Section 8.12 Alternative
Structure......................................................86
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AGREEMENT AND PLAN OF MERGER, dated as of May 8, 2005 (this
"Agreement"), by and among DUKE ENERGY CORPORATION, a North
Carolina
corporation ("Duke"), CINERGY CORP., a Delaware corporation
("Cinergy"), DEER
HOLDING CORP., a Delaware corporation (the "Company") and a
wholly-owned
subsidiary of Duke, DEER ACQUISITION CORP., a North Carolina
corporation and a
wholly-owned subsidiary of the Company ("Merger Sub A"), and
COUGAR
ACQUISITION CORP., a Delaware corporation and a wholly-owned
subsidiary of the
Company ("Merger Sub B").
WHEREAS the respective Boards of Directors of Duke, Cinergy,
the Company, Merger Sub A and Merger Sub B have approved the
consummation of
the business combination provided for in this Agreement,
pursuant to which
Merger Sub A and Merger Sub B will merge, respectively, with and
into Duke and
Cinergy, respectively, whereby, subject to the terms of Article
II, each share
of common stock, no par value per share, of Duke (including,
except as the
context otherwise requires, the associated Duke Rights as
defined in Section
3.02(b), the "Duke Common Stock") and each share of common
stock, par value
$.01 per share, of Cinergy (the "Cinergy Common Stock") will be
converted into
the right to receive the Merger Consideration (as defined in
Section 2.01)
(such transactions are referred to herein individually as the
"Duke Merger"
and the "Cinergy Merger", respectively, and collectively as the
"Mergers"), as
a result of which the holders of Duke Common Stock and Cinergy
Common Stock
will together own all of the outstanding shares of common stock,
no par value
per share, of the Company (the "Company Common Stock") (and the
Company will,
in turn, own all of the outstanding shares of common stock, no
par value per
share, of the surviving corporation in the Duke Merger (the
"Surviving Duke
Common Stock") and all of the outstanding shares of common
stock, par value
$.01 per share, of the surviving corporation in the Cinergy
Merger (the
"Surviving Cinergy Common Stock"));
WHEREAS the respective Boards of Directors of Duke, the
Company and Merger Sub A have approved the conversion of Duke
into a limited
liability company organized under the laws of the State of North
Carolina
("Duke Power LLC") as provided for in this Agreement, whereby,
subject to the
terms and conditions of this Agreement, the outstanding shares
of Surviving
Duke Common Stock shall be converted into membership interests
of Duke Power
LLC;
WHEREAS the respective Boards of Directors of Duke and the
Company have approved the distribution by Duke to the Company of
Duke Capital
LLC ("Duke Capital"), a Delaware limited liability company and
wholly-owned
subsidiary of Duke, and the Restructuring Transactions (as
defined below);
WHEREAS the respective Boards of Directors of Duke and
Cinergy have each determined that the Mergers and the other
transactions
contemplated hereby are consistent with, and in furtherance of,
the best
interests of their respective corporations and shareholders and
each of Duke's
and Cinergy's respective business strategies and goals;
WHEREAS Duke and Cinergy desire to make certain
representations, warranties, covenants and agreements in
connection with the
Mergers and the transactions contemplated by this Agreement and
also to
prescribe various conditions to the Mergers and the
Restructuring
Transactions; and
WHEREAS, for United States federal income tax purposes, it
is intended that the Duke Merger and the Duke Conversion (as
defined below)
(together, the "Duke Reorganization") shall qualify as a
reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code")
and that the Cinergy Merger shall qualify as a reorganization
within the
meaning of Section 368(a) of the Code, and this Agreement is
intended to be,
and is hereby, adopted as a plan of reorganization within the
meaning of
Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements contained
in this
Agreement, the parties agree as follows:
ARTICLE I
The Mergers and the Restructuring Transactions
Section 1.01 The Duke Merger. Upon the terms and subject to
the conditions set forth in this Agreement, at the Duke
Effective Time (as
defined in Section 1.06), Merger Sub A shall be merged with and
into Duke in
accordance with the North Carolina Business Corporation Act (the
"NCBCA").
Duke shall be the surviving corporation in the Duke Merger and
shall continue
its corporate existence under the laws of the State of North
Carolina and
shall succeed to and assume all of the rights and obligations of
Duke and
Merger Sub A in accordance with the NCBCA. As a result of the
Duke Merger,
Duke shall become a wholly-owned subsidiary of the Company.
Section 1.02 The Duke Conversion. Upon the terms and subject
to the conditions set forth in this Agreement, immediately
following the
effectiveness of the Duke Merger, Duke may convert to a limited
liability
company (the "Duke Conversion") pursuant to a plan of conversion
adopted
pursuant to Section 55-11A-11 of the NCBCA and Section 57C-9A-02
of the North
Carolina Limited Liability Company Act (the "NCLLCA"). Following
the Duke
Conversion, Duke Power LLC will be a limited liability company
all of whose
membership or other equity interests are held by the
Company.
Section 1.03 The Restructuring Transactions.
(a) Immediately following the effectiveness of the
Duke Conversion, Duke Power LLC may, and may cause its
subsidiaries to, effect
the transactions set forth on Section 1.03(a) of the Duke
Disclosure Letter
(as defined in Section 3.02(a)).
(b) Immediately following the consummation of the
transactions set forth on Section 1.03(a) of the Duke Disclosure
Letter, Duke
Power LLC may distribute to the Company the membership interests
in Duke
Capital (the "Duke Capital Transfer"). Following the Duke
Capital Transfer,
Duke Capital will be a direct wholly-owned subsidiary of the
Company.
(c) Immediately following the effectiveness of the
Duke Capital Transfer, the Company may cause Duke Capital to
effect the
transactions set forth on Section 1.03(c) of the Duke Disclosure
Letter (the
Duke Conversion, the Duke Capital Transfer and the transactions
set forth on
Section 1.03(a) and Section 1.03(c) of the Duke Disclosure
Letter are referred
to herein as the "Restructuring Transactions"). Duke shall
provide prior
notice to Cinergy of any Restructuring Transactions it proposes
to effect.
Immediately after the Duke Effective Time, all shares of Company
Common Stock
owned by Duke shall be cancelled.
Section 1.04 The Cinergy Merger. Upon the terms and subject
to the conditions set forth in this Agreement, immediately
following the
latest of consummation of the Duke Merger or any Restructuring
Transactions,
at the Cinergy Effective Time (as defined in Section 1.06),
Merger Sub B shall
be merged with and into Cinergy in accordance with the Delaware
General
Corporation Law (the "DGCL"). Cinergy shall be the surviving
corporation in
the Cinergy Merger and shall continue its corporate existence
under the laws
of the State of Delaware and shall succeed to and assume all of
the rights and
obligations of Cinergy and Merger Sub B in accordance with the
DGCL. As a
result of the Cinergy Merger, Cinergy shall become a
wholly-owned subsidiary
of the Company.
Section 1.05 Closing. The closing of the Mergers and the
Restructuring Transactions (the "Closing") will take place at
10:00 a.m.,
local time, on a date to be specified by the parties (the
"Closing Date"),
which shall be no later than the second business day after
satisfaction or
waiver of the conditions set forth in Article VI, (other than
those conditions
that by their terms are to be satisfied at the Closing, but
subject to the
satisfaction or waiver of such conditions at such time) unless
another time or
date is agreed to by the parties hereto. The Closing shall be
held at such
location in The City of New York as is agreed to by the parties
hereto.
Section 1.06 Effective Time of the Duke and Cinergy Mergers.
Subject to the provisions of this Agreement, (i) with respect to
the Duke
Merger, as soon as practicable after 10:00 a.m., local time, on
the Closing
Date the parties thereto shall file articles of merger (the
"Duke Articles of
Merger") executed in accordance with, and containing such
information as is
required by, Section 55-11-05 of the NCBCA with the Secretary of
State of the
State of North Carolina and on or after the Closing Date shall
make all other
filings or recordings required under the NCBCA, (ii) with
respect to the Duke
Conversion, as soon as practicable on the Closing Date following
the Duke
Effective Time, Duke shall file articles of organization of Duke
Power LLC
(the "Duke Power Articles of Organization") and articles of
conversion (the
"Duke Articles of Conversion") executed in accordance with, and
containing
such information as is required by, Section 55-11A-12 of the
NCBCA and Section
57C-9A-02 of the NCLLCA with the Secretary of State of the State
of North
Carolina and on or after the Closing Date shall make all other
filings or
recordings required under the NCBCA and the NCLLCA, and (iii)
with respect to
the Cinergy Merger, immediately following the consummation of
the
Restructuring Transactions, the parties thereto shall file a
certificate of
merger (the "Cinergy Certificate of Merger") executed in
accordance with, and
containing such information as is required by, the relevant
provisions of
Section 251 of the DGCL with the Secretary of State of the State
of Delaware
and on or after the Closing Date shall make all other filings or
recordings
required under the DGCL. The Duke Merger shall become effective
at such time
as the Duke Articles of Merger are duly filed with the Secretary
of State of
the State of North Carolina (the time the Duke Merger becomes
effective being
hereinafter referred to as the "Duke Effective Time"), the Duke
Conversion
shall become effective at such time as the Duke Articles of
Conversion and the
Duke Power Articles of Organization are duly filed with the
Secretary of State
of the State of North Carolina (the time the Duke Conversion
becomes effective
being hereinafter referred to as the "Conversion Effective
Time"), and the
Cinergy Merger shall become effective at such time as the
Cinergy Certificate
of Merger is duly filed with the Secretary of State of the State
of Delaware
(the time the Cinergy Merger becomes effective being hereinafter
referred to
as the "Cinergy Effective Time"). The latest time to occur of
the Duke
Effective Time, the Conversion Effective Time and the Cinergy
Effective Time
shall hereinafter be referred to as the "Effective Time."
Section 1.07 Effects of the Mergers and the Conversion. The
Duke Merger, the Cinergy Merger and the Duke Conversion shall
generally have
the effects set forth in this Agreement and the applicable
provisions of the
NCBCA, the DGCL and the NCLLCA respectively.
Section 1.08 Organizational Documents of Duke, Cinergy and
the Company.
(a)
(i) At the Duke Effective Time, (a) the articles
of incorporation of Duke, as in effect immediately prior to the
Duke
Effective Time, shall be the articles of incorporation of Duke
as the
surviving corporation in the Duke Merger and (b) the by-laws of
Duke, as
in effect immediately prior to the Duke Effective Time, shall be
the
by-laws of Duke as the surviving corporation in the Duke Merger,
in each
case until superceded by the Duke Power Articles of Organization
filed as
part of the Duke Conversion; and
(ii) At the Conversion Effective Time, the parties
shall (i) file the Duke Power LLC Articles of Organization in a
form
mutually acceptable to the parties hereto and (ii) cause Duke
Power LLC
to adopt an operating agreement mutually acceptable to the
parties
hereto; and
(iii) At the Cinergy Effective Time, (A) the
certificate of incorporation of Merger Sub B, as in effect
immediately
prior to the Cinergy Effective Time, shall be the certificate
of
incorporation of Cinergy as the surviving corporation in the
Cinergy
Merger until thereafter changed or amended as provided therein
or by
applicable law and (B) the by-laws of Merger Sub B, as in
effect
immediately prior to the Cinergy Effective Time, shall be the
by-laws of
Cinergy as the surviving corporation in the Cinergy Merger,
until
thereafter changed or amended as provided therein, in the
certificate of
incorporation of Cinergy or by applicable law.
(b) The parties shall take all appropriate action so
that, at the Duke Effective Time, (i) the certificate of
incorporation of the
Company shall be in the form attached as Exhibit A hereto and
(ii) the by-laws
of the Company shall be in the form attached as Exhibit B
hereto. Each of Duke
and Cinergy shall take all actions necessary to cause the
Company, Merger Sub
A and Merger Sub B to take any actions necessary in order to
consummate the
Mergers, the Restructuring Transactions and the other
transactions
contemplated hereby.
Section 1.09 Directors and Officers of Duke and Cinergy.
(a) The directors of Merger Sub A at the Duke
Effective Time shall, from and after the Duke Effective Time, be
the directors
of Duke as the surviving corporation in the Duke Merger until
their successors
have been duly elected or appointed and qualified.
(b) Subject to Section 1.10, the officers of Duke at
the Duke Effective Time shall, from and after the Duke Effective
Time,
continue to be the officers of Duke as the surviving corporation
in the Duke
Merger until their successors have been duly elected or
appointed and
qualified.
(c) The directors of Duke at the Conversion Effective
Time shall, from and after the Conversion Effective Time, be the
managers of
Duke Power LLC until their successors have been duly elected or
appointed and
qualified.
(d) Subject to Section 1.10, the officers of Duke at
the Conversion Effective Time shall, from and after the
Conversion Effective
Time, continue to be the officers of Duke Power LLC until their
successors
have been duly elected or appointed and qualified.
(e) The directors of Merger Sub B at the Cinergy
Effective Time shall, from and after the Cinergy Effective Time,
be the
directors of Cinergy as the surviving corporation in the Cinergy
Merger until
their successors have been duly elected or appointed and
qualified.
(f) Subject to Section 1.10, the officers of Cinergy
at the Cinergy Effective Time shall, from and after the Cinergy
Effective
Time, continue to be the officers of Cinergy as the surviving
corporation in
the Cinergy Merger until their successors have been duly elected
or appointed
and qualified.
Section 1.10 Directors and Officers of the Company. Exhibit
C hereto sets forth (i) as of the Effective Time, subject to the
By-Laws of
the Company effective as of the Effective Time, the number of
directors
constituting the Board of Directors of the Company and the
number of Duke
Directors (as defined in Exhibit B hereto) and the number of
Cinergy Directors
(as defined in Exhibit B hereto), (ii) as of the Effective Time,
the Chairman
of the Board of Directors of the Company and the President and
Chief Executive
Officer of the Company, and (iii) the manner in which certain
senior officers
of the Company as of the Effective Time will be selected after
the date hereof
and prior to the Effective Time. Certain of the responsibilities
of the
Chairman of the Board of Directors of the Company are set forth
on Exhibit C
hereto. The material terms of the changes to the existing
employment agreement
of the President and Chief Executive Officer of Cinergy to be in
effect as of
the Effective Time in his employment agreement with the Company
as the
President and Chief Executive Officer of the Company are set
forth on Exhibit
D hereto. The parties shall use their commercially reasonable
efforts to cause
an amended employment agreement reflecting such terms to be
executed by the
Company and the Chief Executive Officer of the Company as
promptly as
practicable after the date hereof.
Section 1.11 Post-Merger Operations. Following the Effective
Time, the Company shall conduct its operations in accordance
with the
following:
(a) Name. At the Effective Time, the Company's name
shall be changed to "Duke Energy Corporation."
(b) Principal Corporate Offices. The Company shall
maintain its headquarters and principal corporate offices in
Charlotte, North
Carolina. Each of Duke Power LLC, The Cincinnati Gas &
Electric Company, PSI
Energy, Inc. and The Union Light, Heat and Power Company shall
maintain its
utility headquarters in its present location.
(c) Charities. The parties agree that provision of
charitable contributions and community support in their
respective service
areas serves a number of their important corporate goals. During
the two-year
period immediately following the Cinergy Effective Time, the
Company and its
subsidiaries taken as a whole intend to continue to provide
charitable
contributions and community support within the service areas of
the parties
and each of their respective subsidiaries in each service area
at levels
substantially comparable to the levels of charitable
contributions and
community support provided, directly or indirectly, by Duke and
Cinergy within
their respective service areas during the two-year period
immediately prior to
the Effective Time.
Section 1.12 Transition Committee. The parties shall create
a special transition committee (the "Transition Committee") that
shall be
co-chaired by the Chief Executive Officer of Duke and the Chief
Executive
Officer of Cinergy and shall be composed of such chief executive
officers and
two other designees of Duke and one other designee of Cinergy.
After the date
hereof and prior to the Effective Time, the Transition Committee
shall examine
various alternatives regarding the manner in which to best
organize and manage
the business of the Company after the Cinergy Effective Time,
subject to
applicable law.
ARTICLE II
Effects of the Mergers on the Capital Stock of the Constituent
Corporations;
Exchange of Certificates
Section 2.01 Effect on Capital Stock. (a) At the Duke
Effective Time, by virtue of the Duke Merger and without any
action on the
part of the holder of any shares of Duke Common Stock or any
capital stock of
Merger Sub A:
(i) Cancellation of Certain Duke Common Stock.
Each share of Duke Common Stock that is owned by Duke, Cinergy
or the
Company shall automatically be canceled and retired and shall
cease to
exist, and no consideration shall be delivered in exchange
therefore.
(ii) Conversion of Duke Common Stock. Subject to
Section 2.02(e), each issued and outstanding share of Duke
Common Stock
(other than shares to be canceled in accordance with Section
2.01(a)(i)
and Dissenting Shares (as defined in Section 2.03)) shall be
converted
into the right to receive 1 (the "Duke Ratio") fully paid
and
nonassessable share of Company Common Stock (such aggregate
amount, the
"Duke Merger Consideration"). As of the Duke Effective Time, all
such
shares of Duke Common Stock shall no longer be outstanding and
shall
automatically be canceled and retired and shall cease to exist,
and each
holder of a certificate representing any such shares of Duke
Common Stock
shall cease to have any rights with respect thereto, except the
right to
receive the shares of Company Common Stock (and cash in lieu
of
fractional shares of Company Common Stock) to be issued or paid
in
consideration therefore upon the surrender of such certificate
in
accordance with Section 2.02, without interest and the right to
receive
dividends and other distributions in accordance with Section
2.02.
(iii) Conversion of Merger Sub A Common Stock. The
aggregate of all shares of the capital stock of Merger Sub A
issued and
outstanding immediately prior to the Duke Effective Time (of
which, as of
the date of this Agreement, 100 shares of common stock, par
value $.01
per share, are issued and outstanding, each entitling the holder
thereof
to vote on the approval of this Agreement) shall be converted
into 100
shares of Surviving Duke Common Stock.
(b) At the Cinergy Effective Time, by virtue of
the Cinergy Merger and without any action on the part of any
holder of
Cinergy Common Stock or any capital stock of Merger Sub B:
(i) Cancellation of Certain Cinergy Common Stock.
Each share of Cinergy Common Stock that is owned by Cinergy,
Duke or the
Company shall automatically be canceled and retired and shall
cease to
exist, and no consideration shall be delivered in exchange
therefore.
(ii) Conversion of Cinergy Common Stock. Subject
to Section 2.02(e), each issued and outstanding share of Cinergy
Common
Stock (other than shares to be canceled in accordance with
Section
2.01(b)(i)) shall be converted into the right to receive 1.56
(the
"Cinergy Ratio") fully paid and nonassessable shares of Company
Common
Stock (such aggregate amount, the "Cinergy Merger
Consideration," and,
together with the Duke Merger Consideration, the "Merger
Consideration").
As of the Cinergy Effective Time, all such shares of Cinergy
Common Stock
shall no longer be outstanding and shall automatically be
canceled and
retired and shall cease to exist, and each holder of a
certificate
representing any such shares of Cinergy Common Stock shall cease
to have
any rights with respect thereto, except the right to receive the
shares
of Company Common Stock (and cash in lieu of fractional shares
of Company
Common Stock) to be issued or paid in consideration therefore
upon the
surrender of such certificate in accordance with Section 2.02,
without
interest and the right to receive dividends and other
distributions in
accordance with Section 2.02.
(iii) Conversion of Merger Sub B Common Stock. The
aggregate of all shares of the capital stock of Merger Sub B
issued and
outstanding immediately prior to the Cinergy Effective Time (of
which, as
of the date of this Agreement, 100 shares of common stock,
without par
value, are issued and outstanding, each entitling the holder
thereof to
vote on the approval of this Agreement) shall be converted into
the right
to receive 100 shares of Surviving Cinergy Common Stock.
(c) Duke Preferred Stock and Preferred Stock A.
Prior to the Duke Effective Time, each issued and outstanding
share of
Preferred Stock, par value $100 per share ("Duke Preferred
Stock"), of
Duke and each issued outstanding share of Preferred Stock A, par
value
$25 per share ("Duke Preferred Stock A"), of Duke shall be
redeemed in
accordance with Section 4.07.
(d) Exchangeable Shares of Duke Energy Canada
Exchangeco, Inc. As of the Duke Effective Time, each issued
and
outstanding exchangeable share (the "Exchangeable Shares") of
Duke Energy
Canada Exchangeco, Inc. ("Exchangeco"), a corporation
incorporated under
the laws of Canada and an indirect subsidiary of Duke, shall
become
exchangeable for one share of Company Common Stock and one share
of
Company Common Stock shall be issuable upon a redemption or
retraction of
each Exchangeable Share, in each case in accordance with the
terms of the
provisions relating to the Exchangeable Shares as of immediately
prior to
the Duke Effective Time. In addition, following the Effective
Time, the
Company shall execute such assignment and assumption agreements
and
documentation as are necessary to cause the Company to be bound
by the
terms and provisions of the Support Agreement among Duke, Duke
Canada
Call Co. and Exchangeco dated March 14, 2002, and the Voting and
Exchange
Trust Agreement among Duke, Exchangeco and Computershare Trust
Company of
Canada, dated March 14, 2002.
Section 2.02 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, the
Company shall enter into an agreement with such bank or trust
company as may
be mutually agreed by Duke and Cinergy (the "Exchange Agent"),
which agreement
shall provide that the Company shall deposit with the Exchange
Agent as of the
Effective Time, for the benefit of the holders of shares of Duke
Common Stock
and Cinergy Common Stock, for exchange in accordance with this
Article II,
through the Exchange Agent, certificates representing the shares
of Company
Common Stock (such shares of Company Common Stock, together with
any dividends
or distributions with respect thereto with a record date after
the Cinergy
Effective Time, being hereinafter referred to as the "Exchange
Fund")
representing the Merger Consideration.
(b) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Exchange Agent shall
mail to each
holder of record of a certificate or certificates that
immediately prior to
the Effective Time represented outstanding shares of Duke Common
Stock or
Cinergy Common Stock (the "Certificates") whose shares were
converted into the
right to receive shares of Company Common Stock pursuant to
Section 2.01, (i)
a letter of transmittal (which shall specify that delivery shall
be effected,
and risk of loss and title to the Certificates shall pass, only
upon delivery
of the Certificates to the Exchange Agent and shall be in such
form and have
such other provisions as Duke and Cinergy may reasonably
specify) and (ii)
instructions for use in surrendering the Certificates in
exchange for
certificates representing whole shares of Company Common Stock,
cash in lieu
of fractional shares pursuant to Section 2.02(e) and any
dividends or other
distributions payable pursuant to Section 2.02(c). Upon
surrender of a
Certificate for cancellation to the Exchange Agent, together
with such letter
of transmittal, duly executed, and such other documents as may
reasonably be
required by the Exchange Agent, the holder of such Certificate
shall be
entitled to receive in exchange therefore a certificate
representing that
number of whole shares of Company Common Stock that such holder
has the right
to receive pursuant to the provisions of this Article II,
certain dividends or
other distributions in accordance with Section 2.02(c) and cash
in lieu of any
fractional share of Company Common Stock in accordance with
Section 2.02(e),
and the Certificate so surrendered shall forthwith be canceled.
In the event
of a transfer of ownership of Duke Common Stock or Cinergy
Common Stock that
is not registered in the transfer records of Duke or Cinergy, as
the case may
be, a certificate representing the proper number of shares of
Company Common
Stock may be issued to a person other than the person in whose
name the
Certificate so surrendered is registered if such Certificate
shall be properly
endorsed or otherwise be in proper form for transfer and the
person requesting
such issuance shall pay any transfer or other taxes required by
reason of the
issuance of shares of Company Common Stock to a person other
than the
registered holder of such Certificate or establish to the
satisfaction of the
Company that such tax has been paid or is not applicable. Until
surrendered as
contemplated by this Section 2.02, each Certificate shall be
deemed at any
time after the Duke Effective Time or the Cinergy Effective
Time, as the case
may be, to represent only the right to receive upon such
surrender the Merger
Consideration, which the holder thereof has the right to receive
in respect of
such Certificate pursuant to the provisions of this Article II,
certain
dividends or other distributions in accordance with Section
2.02(c) and cash
in lieu of any fractional share of Duke Common Stock or Cinergy
Common Stock,
as the case may be, in accordance with Section 2.02(e). No
interest shall be
paid or will accrue on the Merger Consideration or any cash
payable to holders
of Certificates pursuant to the provisions of this Article
II.
(c) Distributions with Respect to Unexchanged Shares.
No dividends or other distributions with respect to Company
Common Stock shall
be declared or paid with a record date on or after the Duke
Effective Time and
on or prior to the Effective Time. No dividends or other
distributions with
respect to Company Common Stock with a record date after the
Effective Time
shall be paid to the holder of any unsurrendered Certificate
with respect to
the shares of Company Common Stock issuable hereunder in respect
thereof and
no cash payment in lieu of fractional shares shall be paid to
any such holder
pursuant to Section 2.02(e), and all such dividends, other
distributions and
cash in lieu of fractional shares of Company Common Stock shall
be paid by the
Company to the Exchange Agent and shall be included in the
Exchange Fund, in
each case until the surrender of such Certificate in accordance
with this
Article II. Subject to the effect of applicable escheat or
similar laws,
following surrender of any such Certificate there shall be paid
to the holder
of the certificate representing whole shares of Company Common
Stock issued in
exchange therefore, without interest, (i) promptly after the
time of such
surrender, the amount of dividends or other distributions with a
record date
after the Effective Time theretofore paid with respect to such
whole shares of
Company Common Stock and the amount of any cash payable in lieu
of a
fractional share of Company Common Stock to which such holder is
entitled
pursuant to Section 2.02(e) and (ii) at the appropriate payment
date, the
amount of dividends or other distributions with a record date
after the
Effective Time but prior to such surrender and with a payment
date subsequent
to such surrender payable with respect to such whole shares of
Company Common
Stock.
(d) No Further Ownership Rights in Duke Common Stock
or Cinergy Common Stock. All shares of Company Common Stock
issued upon the
surrender for exchange of Certificates in accordance with the
terms of this
Article II (including any cash paid pursuant to this Article II)
shall be
deemed to have been issued (and paid) in full satisfaction of
all rights
pertaining to the shares of Duke Common Stock or Cinergy Common
Stock, as the
case may be, theretofore represented by such Certificates,
subject, however,
to Duke's and Cinergy's respective obligations to pay any
dividends or make
any other distributions with a record date prior to the Duke
Effective Time or
the Cinergy Effective Time, as the case may be, that may have
been declared or
made by Duke or Cinergy, as the case may be, on such shares of
Duke Common
Stock or Cinergy Common Stock that remain unpaid at the Duke
Effective Time or
the Cinergy Effective Time, as the case may be, and there shall
be no further
registration of transfers on the stock transfer books of Duke or
Cinergy of
the shares of Duke Common Stock and Cinergy Common Stock,
respectively, that
were outstanding immediately prior to the Duke Effective Time or
the Cinergy
Effective Time, as the case may be. If, after the Duke Effective
Time or the
Cinergy Effective Time, as the case may be, Certificates are
presented to the
Company, Duke, Cinergy or the Exchange Agent for any reason,
they shall be
canceled and exchanged as provided in this Article II, except as
otherwise
provided by law.
(e) No Fractional Shares.
(i) No certificates or scrip representing
fractional shares of Company Common Stock shall be issued upon
the
surrender for exchange of Certificates, no dividend or
distribution of
the Company shall relate to such fractional share interests and
such
fractional share interests will not entitle the owner thereof to
vote or
to any rights of a shareholder of the Company.
(ii) As promptly as practicable following the
Cinergy Effective Time, the Exchange Agent shall determine the
excess of
(A) the number of whole shares of Company Common Stock delivered
to the
Exchange Agent by the Company pursuant to Section 2.02(a)
representing
the Cinergy Merger Consideration over (B) the aggregate number
of whole
shares of Company Common Stock to be distributed to former
holders of
Cinergy Common Stock pursuant to Section 2.02(b) (such excess
being
herein called the "Cinergy Excess Shares"). Following the
Cinergy
Effective Time, the Exchange Agent shall, on behalf of
former
shareholders of Cinergy, sell the Cinergy Excess Shares at
then-prevailing prices on the New York Stock Exchange, Inc.
("NYSE"), all
in the manner provided in Section 2.02(e)(iii). As promptly
as
practicable following the Duke Effective Time, the Exchange
Agent shall
determine the excess, if any, of (A) the number of whole shares
of
Company Common Stock delivered to the Exchange Agent by the
Company
pursuant to Section 2.02(a) representing the Duke Merger
Consideration
over (B) the aggregate number of whole shares of Company Common
Stock to
be distributed to former holders of Duke Common Stock pursuant
to Section
2.02(b) (such excess being herein called the "Duke Excess
Shares").
Following the Duke Effective Time, the Exchange Agent shall, on
behalf of
former shareholders of Duke, sell the Duke Excess Shares at
then-prevailing prices on the NYSE, all in the manner provided
in Section
2.02(e)(iv).
(iii) The sale of the Cinergy Excess Shares by the
Exchange Agent shall be executed on the NYSE through one or more
member
firms of the NYSE and shall be executed in round lots to the
extent
practicable. The Exchange Agent shall use reasonable efforts to
complete
the sale of the Cinergy Excess Shares as promptly following the
Effective
Time as, in the Exchange Agent's sole judgment, is practicable
consistent
with obtaining the best execution of such sales in light of
prevailing
market conditions. Until the net proceeds of such sale or sales
have been
distributed to the holders of Certificates formerly representing
Cinergy
Common Stock, the Exchange Agent shall hold such proceeds in
trust for
holders of Cinergy Common Stock (the "Cinergy Common Shares
Trust").
Cinergy shall pay all commissions, transfer taxes and other
out-of-pocket
transaction costs, including the expenses and compensation of
the
Exchange Agent incurred in connection with such sale of the
Cinergy
Excess Shares. The Exchange Agent shall determine the portion of
the
Cinergy Common Shares Trust to which each former holder of
Cinergy Common
Stock is entitled, if any, by multiplying the amount of the
aggregate net
proceeds composing the Cinergy Common Shares Trust by a
fraction, the
numerator of which is the amount of the fractional share
interest to
which such former holder of Cinergy Common Stock is entitled
(after
taking into account all shares of Cinergy Common Stock held at
the
Cinergy Effective Time by such holder) and the denominator of
which is
the aggregate amount of fractional share interests to which all
former
holders of Cinergy Common Stock are entitled.
(iv) The sale of the Duke Excess Shares by the
Exchange Agent shall be executed on the NYSE through one or more
member
firms of the NYSE and shall be executed in round lots to the
extent
practicable. The Exchange Agent shall use reasonable efforts to
complete
the sale of the Duke Excess Shares as promptly following the
Effective
Time as, in the Exchange Agent's sole judgment, is practicable
consistent
with obtaining the best execution of such sales in light of
prevailing
market conditions. Until the net proceeds of such sale or sales
have been
distributed to the holders of Certificates formerly representing
Duke
Common Stock, the Exchange Agent shall hold such proceeds in
trust for
holders of Duke Common Stock (the "Duke Common Shares Trust").
Duke shall
pay all commissions, transfer taxes and other out-of-pocket
transaction
costs, including the expenses and compensation of the Exchange
Agent
incurred in connection with such sale of the Duke Excess Shares.
The
Exchange Agent shall determine the portion of the Duke Common
Shares
Trust to which each former holder of Duke Common Stock is
entitled, if
any, by multiplying the amount of the aggregate net proceeds
composing
the Duke Common Shares Trust by a fraction, the numerator of
which is the
amount of the fractional share interest to which such former
holder of
Duke Common Stock is entitled (after taking into account all
shares of
Duke Common Stock held at the Duke Effective Time by such
holder) and the
denominator of which is the aggregate amount of fractional
share
interests to which all former holders of Duke Common Stock are
entitled.
(v) As soon as practicable after the determination
of the amount of cash, if any, to be paid to holders of
Certificates
formerly representing Duke Common Stock or Cinergy Common Stock,
as the
case may be, with respect to any fractional share interests, the
Exchange
Agent shall make available such amounts to such holders of
Certificates
formerly representing Duke Common Stock or Cinergy Common Stock,
as the
case may be, subject to and in accordance with the terms of
Section
2.02(c).
(f) Termination of Exchange Fund. Any portion of the
Exchange Fund that remains undistributed to the holders of the
Certificates
for six months after the Effective Time shall be delivered to
the Company,
upon demand, and any holders of the Certificates who have not
theretofore
complied with this Article II shall thereafter look only to the
Company for
payment of their claim for Merger Consideration, any dividends
or
distributions with respect to Company Common Stock and any cash
in lieu of
fractional shares of Company Common Stock.
(g) No Liability. None of the Company, Duke, Cinergy
or the Exchange Agent or any of their respective directors,
officers,
employees and agents shall be liable to any person in respect of
any shares of
Company Common Stock, any dividends or distributions with
respect thereto, any
cash in lieu of fractional shares of Company Common Stock or any
cash from the
Exchange Fund, in each case delivered to a public official
pursuant to any
applicable abandoned property, escheat or similar law. If any
Certificate
shall not have been surrendered prior to two years after the
Cinergy Effective
Time (or immediately prior to such earlier date on which any
Cinergy Merger
Consideration, any dividends or distributions payable to the
holder of such
Certificate or any cash payable to the holder of such
Certificate formerly
representing Cinergy Common Stock pursuant to this Article II,
would otherwise
escheat to or become the property of any Governmental Authority
(as defined in
Section 3.01(d)), any such Cinergy Merger Consideration,
dividends or
distributions in respect of such Certificate or such cash shall,
to the extent
permitted by applicable law, become the property of the Company,
free and
clear of all claims or interest of any person previously
entitled thereto. If
any Certificate shall not have been surrendered prior to two
years after the
Duke Effective Time (or immediately prior to such earlier date
on which any
Duke Merger Consideration, any dividends or distributions
payable to the
holder of such Certificate or any cash payable to the holder of
such
Certificate formerly representing Duke Common Stock pursuant to
this Article
II, would otherwise escheat to or become the property of any
Governmental
Authority), any such Duke Merger Consideration, dividends or
distributions in
respect of such Certificate or such cash shall, to the extent
permitted by
applicable law, become the property of the Company, free and
clear of all
claims or interest of any person previously entitled
thereto.
(h) Investment of Exchange Fund. The Exchange Agent
shall invest any cash included in the Exchange Fund, as directed
by the
Company, on a daily basis. Any interest and other income
resulting from such
investments shall be paid to the Company.
(i) Withholding Rights. The Company and the Exchange
Agent shall be entitled to deduct and withhold from any
consideration payable
pursuant to this Agreement to any Person who was a holder of
Duke Common Stock
or Cinergy Common Stock, as the case may be, immediately prior
to the Duke
Effective Time or the Cinergy Effective Time, as the case may
be, such amounts
as the Company and the Exchange Agent may be required to deduct
and withhold
with respect to the making of such payment under the Code or any
other
provision of applicable federal, state, local or foreign tax
law. To the
extent that amounts are so withheld by the Company or the
Exchange Agent and
duly paid over to the applicable taxing authority, such withheld
amounts shall
be treated for all purposes of this Agreement as having been
paid to the
Person to whom such consideration would otherwise have been
paid.
(j) Lost, Stolen or Destroyed Certificates. If any
Certificate shall have been lost, stolen or destroyed, upon the
making of an
affidavit of that fact by the person claiming such Certificate
to be lost,
stolen or destroyed and, if required by the Company, the posting
by such
person of a bond in such reasonable amount as the Company may
direct as
indemnity against any claim that may be made against it with
respect to such
Certificate, the Exchange Agent shall issue in exchange for such
lost, stolen
or destroyed Certificate, the Merger Consideration and, if
applicable, any
unpaid dividends and distributions on shares of Company Common
Stock
deliverable in respect thereof and any cash in lieu of
fractional shares, in
each case pursuant to this Agreement.
(k) Adjustments to Prevent Dilution. In the event that
Duke changes the number of shares of Duke Common Stock or
securities
convertible or exchangeable into or exercisable for shares of
Duke Common
Stock, Cinergy changes the number of shares of Cinergy Common
Stock or
securities convertible or exchangeable into or exercisable for
shares of
Cinergy Common Stock, issued and outstanding prior to the
Effective Time, or
the Company changes the number of shares of Company Common Stock
or securities
convertible or exchangeable into or exercisable for shares of
Company Common
Stock issued and outstanding after the Duke Effective Time and
prior to the
Cinergy Effective Time, in each case as a result of a
reclassification, stock
split (including a reverse stock split), stock dividend or
distribution,
recapitalization, merger, subdivision, issuer tender or exchange
offer, or
other similar transaction, except to the extent any of the
foregoing actions
are expressly permitted by this Agreement, the Cinergy Ratio
shall be
equitably adjusted.
(l) Uncertificated Shares. In the case of outstanding
shares of Cinergy Common Stock or Duke Common Stock that are not
represented
by Certificates, the parties shall make such adjustments to this
Section 2.02
as are necessary or appropriate to implement the same purpose
and effect that
this Section 2.02 has with respect to shares of Cinergy Common
Stock and Duke
Common Stock that are represented by Certificates.
Section 2.03 Dissenting Shares. Any holder of shares of Duke
Common Stock who shall have exercised rights to dissent with
respect to the
Duke Merger in accordance with the NCBCA and who has properly
exercised such
holder's rights to demand payment of the "fair value" of the
holder's shares
of Duke Common Stock (the "Dissenting Shares") as provided in
the NCBCA (the
"Dissenting Shareholder") shall thereafter have only such
rights, if any, as
are provided a Dissenting Shareholder in accordance with the
NCBCA and shall
have no rights to receive the Merger Consideration pursuant to
Section 2.01
(provided, that nothing contained herein shall limit such
Dissenting
Shareholder's rights to the payment of all declared and unpaid
dividends on
Duke Common Stock); provided, however, that if a Dissenting
Shareholder shall
fail to properly demand payment (in accordance with the NCBCA)
or shall have
effectively withdrawn or lost such rights to relief as a
Dissenting
Shareholder under the NCBCA, then such Dissenting Shareholder's
Dissenting
Shares automatically shall cease to be Dissenting Shares and
shall be
converted into and represent only the right to receive, upon
surrender of the
Certificate representing the Dissenting Shares, the Merger
Consideration
pursuant to Section 2.01 and declared and unpaid dividends or
other
distributions as provided in Section 2.02(b) and Section
2.02(c). Duke shall
give Cinergy and the Company prompt notice of any demands
received by Duke
prior to the Duke Effective Time, any attempted withdrawals of
such demands
and any other instruments served pursuant to the NCBCA and
received by Duke
relating to Duke's shareholders rights of dissent under the
NCBCA, and Duke
and Cinergy shall cooperate with respect to all negotiations and
proceedings
with respect to such demands.
ARTICLE III
Representations and Warranties
Section 3.01 Representations and Warranties of Cinergy.
Except as set forth in the letter dated the date of this
Agreement and
delivered to Duke by Cinergy concurrently with the execution and
delivery of
this Agreement (the "Cinergy Disclosure Letter") or, to the
extent the
qualifying nature of such disclosure is readily apparent
therefrom, as set
forth in the Cinergy SEC Reports (as defined in Section 3.01(e))
filed on or
after January 1, 2004 and prior to the date hereof, Cinergy
represents and
warrants to Duke as follows:
(a) Organization and Qualification.
(i) Each of Cinergy and its subsidiaries is duly
organized, validly existing and in good standing (with respect
to
jurisdictions that recognize the concept of good standing) under
the laws
of its jurisdiction of organization and has full power and
authority to
conduct its business as and to the extent now conducted and to
own, use
and lease its assets and properties, except for such failures to
be so
organized, existing and in good standing (with respect to
jurisdictions
that recognize the concept of good standing) or to have such
power and
authority that, individually or in the aggregate, have not had
and could
not reasonably be expected to have a material adverse effect (as
defined
in Section 8.03) on Cinergy. Each of Cinergy and its
subsidiaries is duly
qualified, licensed or admitted to do business and is in good
standing
(with respect to jurisdictions that recognize the concept of
good
standing) in each jurisdiction in which the ownership, use or
leasing of
its assets and properties, or the conduct or nature of its
business,
makes such qualification, licensing or admission necessary,
except for
such failures to be so qualified, licensed or admitted and in
good
standing (with respect to jurisdictions that recognize the
concept of
good standing) that, individually or in the aggregate, have not
had and
could not reasonably be expected to have a material adverse
effect on
Cinergy. Section 3.01(a) of the Cinergy Disclosure Letter sets
forth as
of the date of this Agreement the name and jurisdiction of
organization
of each subsidiary of Cinergy.
(ii) Section 3.01(a) of the Cinergy Disclosure
Letter sets forth a description as of the date of this
Agreement, of all
Cinergy Joint Ventures, including (x) the name of each such
entity and
(y) a brief description of the principal line or lines of
business
conducted by each such entity. For purposes of this
Agreement:
(A) "Joint Venture" of a person or entity
shall mean any person that is not a subsidiary of such first
person,
in which such first person or one or more of its subsidiaries
owns
directly or indirectly an equity interest, other than equity
interests held for passive investment purposes that are less
than 5%
of each class of the outstanding voting securities or equity
interests of such second person;
(B) "Cinergy Joint Venture" shall mean any
Joint Venture of Cinergy or any of its subsidiaries in which the
net
book value as of December 31, 2004 of Cinergy's or its
subsidiaries'
interest exceeds $35,000,000; and
(C) "Duke Joint Venture" shall mean any Joint
Venture of Duke or any of its subsidiaries in which the
invested
capital associated with Duke's or its subsidiaries' interest
exceeds
$100,000,000.
(iii) Except for interests in the subsidiaries of
Cinergy, the Cinergy Joint Ventures and interests acquired after
the date
of this Agreement without violating any covenant or agreement
set forth
herein. Cinergy does not directly or indirectly own any equity
or similar
interest in, or any interest convertible into or exchangeable
or
exercisable for, any equity or similar interest in, any person,
in which
the net book value as of December 31, 2004 of such interest
individually
exceeds $35,000,000.
(b) Capital Stock.
(i) The authorized capital stock of Cinergy
consists of:
(A) 600,000,000 shares of Cinergy Common
Stock, of which 198,360,398 shares were issued and outstanding
as of
May 6, 2005; and
(B) 10,000,000 shares of preferred stock, par
value $.01 per share, none of which were issued and outstanding
as
of the date of this Agreement.
As of March 31, 2005, 138,862 shares of Cinergy Common Stock
were held in the treasury of Cinergy. As of the date of this
Agreement,
5,837,978 shares of Cinergy Common Stock were subject to
outstanding Cinergy
Employee Stock Options (as defined in Section 5.06(a)) and
6,914,109
additional shares of Cinergy Common Stock were reserved for
issuance pursuant
to the Cinergy Corp. 1996 Long-Term Incentive Compensation Plan,
Stock Option
Plan, Employee Stock Purchase and Savings Plan, UK Sharesave
Scheme,
Retirement Plan for Directors, Directors' Deferred Compensation
Plan,
Directors' Equity Compensation Plan and any other compensatory
plan, program
or arrangement under which shares of Cinergy Common Stock are
reserved for
issuance (collectively, the "Cinergy Employee Stock Option
Plans"). All of the
issued and outstanding shares of Cinergy Common Stock are, and
all shares
reserved for issuance will be, upon issuance in accordance with
the terms
specified in the instruments or agreements pursuant to which
they are
issuable, duly authorized, validly issued, fully paid and
nonassessable.
Except as disclosed in this Section 3.01(b), as of the date of
this Agreement
there are no outstanding subscriptions, options, warrants,
rights (including
stock appreciation rights), preemptive rights or other
contracts, commitments,
understandings or arrangements, including any right of
conversion or exchange
under any outstanding security, instrument or agreement
(together, "Options"),
obligating Cinergy or any of its subsidiaries to issue or sell
any shares of
capital stock of Cinergy or to grant, extend or enter into any
Option with
respect thereto.
(ii) Except as permitted by this Agreement, all of
the outstanding shares of capital stock of each subsidiary of
Cinergy are
duly authorized, validly issued, fully paid and nonassessable
and are
owned, beneficially and of record, by Cinergy or a subsidiary,
free and
clear of any liens, claims, mortgages, encumbrances, pledges,
security
interests, equities and charges of any kind (each a "Lien"),
except for
any of the foregoing that, individually or in the aggregate,
have not had
and could not reasonably be expected to have a material adverse
effect on
Cinergy. There are no (A) outstanding Options obligating Cinergy
or any
of its subsidiaries to issue or sell any shares of capital stock
of any
subsidiary of Cinergy or to grant, extend or enter into any such
Option
or (B) voting trusts, proxies or other commitments,
understandings,
restrictions or arrangements in favor of any person other than
Cinergy or
a subsidiary wholly-owned, directly or indirectly, by Cinergy
with
respect to the voting of or the right to participate in
dividends or
other earnings on any capital stock of any subsidiary of
Cinergy.
(iii) Cinergy is a "registered holding company" as
defined under Section 2(a)(12) of the Public Utility Holding
Company Act
of 1935, as amended (the "1935 Act").
(iv) As of the date of this Agreement, no bonds,
debentures, notes or other indebtedness of Cinergy or any of
its
subsidiaries having the right to vote (or which are convertible
into or
exercisable for securities having the right to vote)
(collectively,
"Cinergy Voting Debt") on any matters on which Cinergy
shareholders may
vote are issued or outstanding nor are there any outstanding
Options
obligating Cinergy or any of its subsidiaries to issue or sell
any
Cinergy Voting Debt or to grant, extend or enter into any Option
with
respect thereto.
(c) Authority. Cinergy has full corporate power and
authority to enter into this Agreement, to perform its
obligations hereunder
and, subject to obtaining Cinergy Shareholder Approval (as
defined in Section
3.01(p)), to consummate the transactions contemplated hereby.
The execution,
delivery and performance of this Agreement by Cinergy and the
consummation by
Cinergy of the transactions contemplated hereby have been duly
and validly
adopted and approved by the Board of Directors of Cinergy, the
Board of
Directors of Cinergy has recommended approval of this Agreement
by the
shareholders of Cinergy and directed that this Agreement be
submitted to the
shareholders of Cinergy for their approval, and no other
corporate proceedings
on the part of Cinergy or its shareholders are necessary to
authorize the
execution, delivery and performance of this Agreement by Cinergy
and the
consummation by Cinergy of the Cinergy Merger and the other
transactions
contemplated hereby, other than obtaining Cinergy Shareholder
Approval. This
Agreement has been duly and validly executed and delivered by
Cinergy and
constitutes a legal, valid and binding obligation of Cinergy
enforceable
against Cinergy in accordance with its terms.
(d) No Conflicts; Approvals and Consents.
(i) The execution and delivery of this Agreement
by Cinergy do not, and the performance by Cinergy of its
obligations
hereunder and the consummation of the Mergers and the other
transactions
contemplated hereby will not, conflict with, result in a
violation or
breach of, constitute (with or without notice or lapse of time
or both) a
default under, result in or give to any person any right of
payment or
reimbursement, termination, cancellation, modification or
acceleration
of, or result in the creation or imposition of any Lien upon any
of the
assets or properties of Cinergy or any of its subsidiaries or
any of the
Cinergy Joint Ventures under, any of the terms, conditions or
provisions
of (A) the certificates or articles of incorporation or by-laws
(or other
comparable organizational documents) of Cinergy or any of
its
subsidiaries or any of the Cinergy Joint Ventures, or (B)
subject to the
obtaining of Cinergy Shareholder Approval and the taking of the
actions
described in paragraph (ii) of this Section 3.01(d) and
obtaining the
Duke Required Statutory Approvals (as defined in Section
3.02(d)(ii)),
(x) any statute, law, rule, regulation or ordinance (together,
"laws"),
or any judgment, order, writ or decree (together, "orders"), of
any
Federal, state, local or foreign government or any court of
competent
jurisdiction, administrative agency or commission or other
governmental
authority or instrumentality, domestic, foreign or supranational
(each, a
"Governmental Authority") applicable to Cinergy or any of
its
subsidiaries or any of the Cinergy Joint Ventures or any of
their
respective assets or properties, or (y) any note, bond,
mortgage,
security agreement, agreement, indenture, franchise,
concession,
contract, lease or other instrument to which Cinergy or any of
its
subsidiaries or any of the Cinergy Joint Ventures is a party or
by which
Cinergy or any of its subsidiaries or any of the Cinergy Joint
Ventures
or any of their respective assets or properties is bound,
excluding from
the foregoing clauses (x) and (y) such items that, individually
or in the
aggregate, have not had and could not reasonably be expected to
have a
material adverse effect on Cinergy.
(ii) Except for (A) compliance with, and filings
under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as
amended, and the rules and regulations thereunder (the "HSR
Act"); (B)
the filing with and, to the extent required, the declaration
of
effectiveness by the Securities and Exchange Commission (the
"SEC") of
(1) a proxy statement relating to the approval of this Agreement
by
Cinergy's shareholders (such proxy statement, together with the
proxy
statement relating to the approval of this Agreement by
Duke's
shareholders, in each case as amended or supplemented from time
to time,
the "Joint Proxy Statement") pursuant to the Securities Exchange
Act of
1934, as amended, and the rules and regulations thereunder (the
"Exchange
Act"), (2) the registration statement on Form S-4 prepared in
connection
with the issuance of Company Common Stock in the Mergers (the
"Form S-4")
and (3) such reports under the Exchange Act as may be required
in
connection with this Agreement and the transactions contemplated
hereby;
(C) the filing of documents with various state securities
authorities
that may be required in connection with the transactions
contemplated
hereby; (D) such filings with and approvals of the NYSE to
permit the
shares of Company Common Stock that are to be issued pursuant to
Article
II to be listed on the NYSE; (E) the registration, consents,
approvals
and notices required under the 1935 Act; (F) notice to, and the
consent
and approval of, the Federal Energy Regulatory Commission (the
"FERC")
under Section 203 of the Federal Power Act, as amended (the
"Power Act"),
or an order under the Power Act disclaiming jurisdiction over
the
transactions contemplated hereby; (G) the filing of an
application to,
and consent and approval of, and issuance of any required
licenses and
license amendments by, the Nuclear Regulatory Commission (the
"NRC")
under the Atomic Energy Act of 1954, as amended (the "Atomic
Energy
Act"); (H) the filing of the Cinergy Certificate of Merger and
other
appropriate merger documents required by the DGCL with the
Secretary of
State of the State of Delaware and appropriate documents with
the
relevant authorities of other states in which Cinergy is
qualified to do
business; (I) compliance with and such filings as may be
required under
applicable Environmental Laws (as defined in Section 3.01(n));
(J) to the
extent required, notice to and the approval of (1) the Public
Utilities
Commission of Ohio ("PUCO"), (2) the Indiana Utility
Regulatory
Commission ("IURC"), (3) the Kentucky Public Service Commission
("KPSC"),
(4) the North Carolina Utilities Commission ("NCUC"), and (5)
the Public
Service Commission of South Carolina ("PSCSC" and, collectively
with
PUCO, IURC, KPSC, and NCUC, the "Applicable PSCs"); (K)
required
pre-approvals (the "FCC Pre-Approvals") of license transfers
with the
Federal Communications Commission (the "FCC"); (L) such other
items as
disclosed in Section 3.01(d) of the Cinergy Disclosure Letter;
and (M)
compliance with, and filings under, antitrust or competition
laws of any
foreign jurisdiction, including the Competition Act (Canada),
Investment
Canada Act and other applicable Canadian federal and
provincial
regulatory requirements (the items set forth above in clauses
(A) through
(H) and (J), collectively, the "Cinergy Required Statutory
Approvals"),
no consent, approval, license, order or authorization
("Consents") or
action of, registration, declaration or filing with or notice to
any
Governmental Authority is necessary or required to be obtained
or made in
connection with the execution and delivery of this Agreement by
Cinergy,
the performance by Cinergy of its obligations hereunder or
the
consummation of the Mergers and the other transactions
contemplated
hereby, other than such items that the failure to make or
obtain, as the
case may be, individually or in the aggregate, could not
reasonably be
expected to have a material adverse effect on Cinergy.
(e) SEC Reports, Financial Statements and Utility
Reports.
(i) Cinergy and its subsidiaries have filed each
form, report, schedule, registration statement, registration
exemption,
if applicable, definitive proxy statement and other document
(together
with all amendments thereof and supplements thereto) required to
be filed
by Cinergy or any of its subsidiaries pursuant to the Securities
Act of
1933, as amended, and the rules and regulations thereunder
(the
"Securities Act") or the Exchange Act with the SEC since January
1, 2002
(as such documents have since the time of their filing been
amended or
supplemented, the "Cinergy SEC Reports"). As of their respective
dates,
after giving effect to any amendments or supplements thereto,
the Cinergy
SEC Reports (A) complied as to form in all material respects
with the
requirements of the Securities Act or the Exchange Act, if
applicable, as
the case may be, and, to the extent in effect and applicable,
the
Sarbanes-Oxley Act of 2002 ("SOX"), and (B) did not contain any
untrue
statement of a material fact or omit to state a material fact
required to
be stated therein or necessary in order to make the statements
therein,
in light of the circumstances under which they were made, not
misleading.
(ii) Each of the principal executive officer of
Cinergy and the principal financial officer of Cinergy (or each
former
principal executive officer of Cinergy and each former
principal
financial officer of Cinergy, as applicable) has made all
certifications
required by Rule 13a-14 or 15d-14 under the Exchange Act or
Sections 302
and 906 of SOX and the rules and regulations of the SEC
promulgated
thereunder with respect to the Cinergy SEC Reports. For purposes
of the
preceding sentence, "principal executive officer" and
"principal
financial officer" shall have the meanings given to such terms
in SOX.
Since the effectiveness of SOX, neither Cinergy nor any of
its
subsidiaries has arranged any outstanding "extensions of credit"
to
directors or executive officers within the meaning of Section
402 of SOX.
(iii) The audited consolidated financial
statements and unaudited interim consolidated financial
statements
(including, in each case, the notes, if any, thereto) included
in the
Cinergy SEC Reports (the "Cinergy Financial Statements")
complied as to
form in all material respects with the published rules and
regulations of
the SEC with respect thereto, were prepared in accordance with
United
States generally accepted accounting principles ("GAAP") applied
on a
consistent basis during the periods involved (except as may be
indicated
therein or in the notes thereto and except with respect to
unaudited
statements as permitted by Form 10-Q of the SEC) and fairly
present
(subject, in the case of the unaudited interim financial
statements, to
normal, recurring year-end audit adjustments that were not or
are not
expected to be, individually or in the aggregate, materially
adverse to
Cinergy) the consolidated financial position of Cinergy and
its
consolidated subsidiaries as of the respective dates thereof and
the
consolidated results of their operations and cash flows for
the
respective periods then ended.
(iv) All filings (other than immaterial filings)
required to be made by Cinergy or any of its subsidiaries since
January
1, 2002, under the 1935 Act, the Power Act, the Communications
Act of
1934 and applicable state laws and regulations, have been filed
with the
SEC, the FERC, the Department of Energy (the "DOE"), the FCC or
any
applicable state public utility commissions (including, to the
extent
required, PUCO, IURC and KPSC), as the case may be, including
all forms,
statements, reports, agreements (oral or written) and all
documents,
exhibits, amendments and supplements appertaining thereto,
including all
rates, tariffs, franchises, service agreements and related
documents and
all such filings complied, as of their respective dates, with
all
applicable requirements of the applicable statute and the rules
and
regulations thereunder, except for filings the failure of which
to make
or the failure of which to make in compliance with all
applicable
requirements of the applicable statute and the rules and
regulations
thereunder, individually or in the aggregate, have not had and
could not
reasonably be expected to have a material adverse effect on
Cinergy.
(v) The management of Cinergy has (x) designed
disclosure controls and procedures (as defined in Rule 13a-15(e)
of the
Exchange Act), or caused such disclosure controls and procedures
to be
designed under their supervision, to ensure that material
information
relating to Cinergy, including its consolidated subsidiaries, is
made
known to the management of Cinergy by others within those
entities, and
(y) has disclosed, based on its most recent evaluation of
internal
control over financial reporting (as defined in Rule 13a-15(f)
of the
Exchange Act), to Cinergy's outside auditors and the audit
committee of
the Board of Directors of Cinergy (A) all significant
deficiencies and
material weaknesses in the design or operation of internal
control over
financial reporting which are reasonably likely to adversely
affect
Cinergy's ability to record, process, summarize and report
financial
information and (B) any fraud, whether or not material, that
involves
management or other employees who have a significant role in
Cinergy's
internal control over financial reporting. Since December 31,
2004, any
material change in internal control over financial reporting
required to
be disclosed in any Cinergy SEC Report has been so
disclosed.
(vi) Since December 31, 2004, (x) neither Cinergy
nor any of its subsidiaries nor, to the knowledge of the
Executive
Officers (for the purposes of this Section 3.01(e)(vi), as such
term is
defined in Section 3b-7 of the Exchange Act) of Cinergy, any
director,
officer, employee, auditor, accountant or representative of
Cinergy or
any of its subsidiaries has received or otherwise obtained
knowledge of
any material complaint, allegation, assertion or claim, whether
written
or oral, regarding the accounting or auditing practices,
procedures,
methodologies or methods of Cinergy or any of its subsidiaries
or their
respective internal accounting controls relating to periods
after
December 31, 2004, including any material complaint,
allegation,
assertion or claim that Cinergy or any of its subsidiaries has
engaged in
questionable accounting or auditing practices (except for any of
the
foregoing after the date hereof which have no reasonable basis),
and (y)
to the knowledge of the Executive Officers of Cinergy, no
attorney
representing Cinergy or any of its subsidiaries, whether or not
employed
by Cinergy or any of its subsidiaries, has reported evidence of
a
material violation of securities laws, breach of fiduciary duty
or
similar violation, relating to periods after December 31, 2004,
by
Cinergy or any of its officers, directors, employees or agents
to the
Board of Directors of Cinergy or any committee thereof or to any
director
or Executive Officer of Cinergy.
(f) Absence of Certain Changes or Events. Since
December 31, 2004, through the date hereof, there has not been
any change,
event or development that, individually or in the aggregate, has
had or could
reasonably be expected to have a material adverse effect on
Cinergy.
(g) Absence of Undisclosed Liabilities. Except for
matters reflected or reserved against in the balance sheet (or
notes thereto)
as of December 31, 2004, included in the Cinergy Financial
Statements, as of
the date of this Agreement, neither Cinergy nor any of its
subsidiaries has
any liabilities or obligations (whether absolute, accrued,
contingent, fixed
or otherwise, or whether due or to become due) of any nature
that would be
required by GAAP to be reflected on a consolidated balance sheet
of Cinergy
and its consolidated subsidiaries (including the notes thereto),
except
liabilities or obligations (i) that were incurred in the
ordinary course of
business consistent with past practice since December 31, 2004,
or (ii) that,
individually or in the aggregate, have not had and could not
reasonably be
expected to have a material adverse effect on Cinergy.
(h) Legal Proceedings. Except for environmental
matters, which are the subject of Section 3.01(n), as of the
date of this
Agreement, (i) there are no actions, suits, arbitrations or
proceedings
pending or, to the knowledge of Cinergy, threatened against,
relating to or
affecting, nor to the knowledge of Cinergy are there any
Governmental
Authority investigations or audits pending or threatened
against, relating to
or affecting, Cinergy or any of its subsidiaries or any of the
Cinergy Joint
Ventures or any of their respective assets and properties that,
in each case,
individually or in the aggregate, have had or could reasonably
be expected to
have a material adverse effect on Cinergy, and (ii) neither
Cinergy nor any of
its subsidiaries is subject to any order of any Governmental
Authority that,
individually or in the aggregate, has had or could reasonably be
expected to
have a material adverse effect on Cinergy.
(i) Information Supplied. None of the information
supplied or to be supplied by Cinergy for inclusion or
incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 is
filed with the
SEC, at any time it is amended or supplemented or at the time it
becomes
effective under the Securities Act, contain any untrue statement
of a material
fact or omit to state any material fact required to be stated
therein or
necessary to make the statements therein not misleading, or (ii)
the Joint
Proxy Statement will, at the date it is first mailed to
Cinergy's shareholders
or Duke's shareholders or at the time of the Cinergy
Shareholders Meeting (as
defined in Section 5.01) or the Duke Shareholders Meeting (as
defined in
Section 5.01), contain any untrue statement of a material fact
or omit to
state any material fact required to be stated therein or
necessary in order to
make the statements therein, in light of the circumstances under
which they
are made, not misleading. The Joint Proxy Statement will comply
as to form in
all material respects with the requirements of the Exchange Act
and the rules
and regulations thereunder, except that no representation is
made by Cinergy
with respect to statements made or incorporated by reference
therein based on
information supplied by or on behalf of Duke for inclusion or
incorporation by
reference in the Joint Proxy Statement.
(j) Permits; Compliance with Laws and Orders. Cinergy,
its subsidiaries and the Cinergy Joint Ventures hold all
permits, licenses,
certificates, authorizations and approvals of all Governmental
Authorities
("Permits") necessary for the lawful conduct of their respective
businesses,
except for failures to hold such Permits that, individually or
in the
aggregate, have not had and could not reasonably be expected to
have a
material adverse effect on Cinergy. Cinergy, its subsidiaries
and the Cinergy
Joint Ventures are in compliance with the terms of their
Permits, except
failures so to comply that, individually or in the aggregate,
have not had and
could not reasonably be expected to have a material adverse
effect on Cinergy.
Cinergy, its subsidiaries and the Cinergy Joint Ventures are not
in violation
of or default under any law or order of any Governmental
Authority, except for
such violations or defaults that, individually or in the
aggregate, have not
had and could not reasonably be expected to have a material
adverse effect on
Cinergy. Cinergy is, and has been, in compliance in all material
respects with
(i) the provisions of SOX applicable to it on or prior to the
date hereof and
has implemented such programs and has taken all reasonable steps
necessary to
ensure Cinergy's future compliance (not later than the relevant
statutory and
regulatory deadlines therefore) with all provisions of SOX which
shall become
applicable to Cinergy after the date hereof and (ii) the
applicable listing
standards and corporate governance rules and regulations of the
NYSE. This
Section 3.01(j) does not relate to matters with respect to
taxes, such matters
being the subject of Section 3.01(k), Environmental Laws, such
matters being
the subject of Section 3.01(n) and benefits plans, such matters
being the
subject of Section 3.01(l).
(k) Taxes. Except as has not had, and could not
reasonably be expected to have, a material adverse effect on
Cinergy:
(i) Each of Cinergy and its subsidiaries has
timely filed, or has caused to be timely filed on its behalf,
all Tax
Returns (as defined below) required to be filed by it, and all
such Tax
Returns are true, complete and accurate. All Taxes (as defined
below)
shown to be due and owing on such Tax Returns have been timely
paid.
(ii) The most recent financial statements
contained in the Cinergy SEC Reports filed prior to the date of
this
Agreement reflect, in accordance with GAAP, an adequate reserve
for all
Taxes payable by Cinergy and its subsidiaries for all taxable
periods
through the date of such financial statements.
(iii) There is no audit, examination,
deficiency, refund litigation, proposed adjustment or matter
in
controversy with respect to any Taxes or Tax Return of Cinergy
or its
subsidiaries, to the knowledge of Cinergy, neither Cinergy nor
any of its
subsidiaries has received written notice of any claim made by
a
governmental authority in a jurisdiction where Cinergy or any of
its
subsidiaries, as applicable, does not file a Tax Return, that
Cinergy or
such subsidiary is or may be subject to income taxation by
that
jurisdiction, no deficiency with respect to any Taxes has been
proposed,
asserted or assessed against Cinergy or any of its subsidiaries,
and no
requests for waivers of the time to assess any Taxes are
pending.
(iv) The federal income Tax Returns of Cinergy
and its subsidiaries have been examined by and settled with the
Internal
Revenue Service ("IRS") (or the applicable statutes of
limitation have
lapsed) for all years through 1990. All material assessments for
Taxes
due with respect to such completed and settled examinations or
any
concluded litigation have been fully paid.
(v) There are no outstanding written
agreements, consents or waivers to extend the statutory period
of
limitations applicable to the assessment of any Taxes or
deficiencies
against Cinergy or any of its subsidiaries, and no power of
attorney
granted by either Cinergy or any of its subsidiaries with
respect to any
Taxes is currently in force.
(vi) Neither Cinergy nor any of its
subsidiaries is a party to any agreement providing for the
allocation or
sharing of Taxes imposed on or with respect to any individual or
other
Person (other than (I) such agreements with customers, vendors,
lessors
or the like entered into in the ordinary course of business and
(II)
agreements with or among Cinergy or any of its subsidiaries),
and neither
Cinergy nor any of its subsidiaries (A) has been a member of
an
affiliated group (or similar state, local or foreign filing
group) filing
a consolidated U.S. federal income Tax Return (other than the
group the
common parent of which is Cinergy) or (B) has any liability for
the Taxes
of any person (other than Cinergy or any of its subsidiaries)
(I) under
Treasury Regulation ss. 1.1502-6 (or any similar provision of
state,
local or foreign law), or (II) as a transferee or successor.
(vii) There are no material Liens for Taxes
(other than for current Taxes not yet due and payable) on the
assets of
Cinergy and its subsidiaries.
(viii) Neither Cinergy nor any of its
subsidiaries has taken or agreed to take any action or knows of
any
fact, agreement, plan or other circumstance that is
reasonably
likely to prevent or impede either the Duke Reorganization
from
qualifying as a reorganization under Section 368(a) of the Code
or
the Cinergy Merger from qualifying as a reorganization under
Section
368(a) of the Code.
For purposes of this Agreement:
"Taxes" means any and all federal, state, local, foreign or
other taxes of any kind (together with any and all interest,
penalties,
additions to tax and additional amounts imposed with respect
thereto) imposed
by any governmental authority, including, without limitation,
taxes or other
charges on or with respect to income, franchises, windfall or
other profits,
gross receipts, property, sales, use, capital stock, payroll,
employment,
unemployment, social security, workers' compensation, or net
worth, and taxes
or other charges in the nature of excise, withholding, ad
valorem or value
added.
"Tax Return" means any return, report or similar statement
(including the schedules attached thereto) required to be filed
with respect
to Taxes, including, without limitation, any information return,
claim for
refund, amended return, or declaration of estimated Taxes.
(l) Employee Benefit Plans; ERISA.
(i) Except for such matters that, individually or
in the aggregate, have not had and could not reasonably be
expected to
have a material adverse effect on Cinergy, (A) all Cinergy
Employee
Benefit Plans (as defined below) are in compliance with all
applicable
requirements of law, including ERISA (as defined below) and the
Code, and
(B) there does not now exist, nor do any circumstances exist
that could
result in, any Controlled Group Liability that would be a
liability of
Cinergy or any of its subsidiaries following the Closing. The
only
material employment agreements, severance agreements or
severance
policies applicable to Cinergy or any of its subsidiaries are
the
agreements and policies disclosed in Section 3.01(l)(i) of the
Cinergy
Disclosure Letter.
(ii) As used herein:
(A) "Controlled Group Liability" means any and
all liabilities (i) under Title IV of ERISA, (ii) under Section
302
of ERISA, (iii) under Sections 412 and 4971 of the Code, and
(iv) as
a result of a failure to comply with the continuation
coverage
requirements of Section 601 et seq. of ERISA and Section 4980B
of
the Code.
(B) "Cinergy Employee Benefit Plan" means any
Plan entered into, established, maintained, sponsored,
contributed
to or required to be contributed to by Cinergy or any of its
subsidiaries for the benefit of the current or former employees
or
directors of Cinergy or any of its subsidiaries and existing on
the
date of this Agreement or at any time subsequent thereto and, in
the
case of a Plan (as defined below) that is subject to Part 3 of
Title
I of the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder ("ERISA"),
Section
412 of the Code or Title IV of ERISA, at any time during the
five-year period preceding the date of this Agreement with
respect
to which Cinergy or any of its subsidiaries has or could
reasonably
be expected to have any present or future actual or
contingent
liabilities;
(C) "Plan" means any employment, bonus,
incentive compensation, deferred compensation, long term
incentive,
pension, profit sharing, retirement, stock purchase, stock
option,
stock ownership, stock appreciation rights, phantom stock, leave
of
absence, layoff, vacation, day or dependent care, legal
services,
cafeteria, life, health, medical, accident, disability,
workmen's
compensation or other insurance, severance, separation,
termination,
change of control or other benefit plan, agreement,
practice,
policy, program, scheme or arrangement of any kind, whether
written
or oral, including any "employee benefit plan" within the
meaning of
Section 3(3) of ERISA; and
(iii) No event has occurred, and there exists no
condition or set of circumstances in connection with any Cinergy
Employee
Benefit Plan, that has had or could reasonably be expected to
have a
material adverse effect on Cinergy.
(iv) Section 3.01(l)(iv) of the Cinergy Disclosure
Letter identifies each Cinergy Employee Benefit Plan that
provides, upon
the occurrence of a change in the ownership or effective control
of
Cinergy or its subsidiaries or a change in the ownership of all
or a
substantial portion of the assets of Cinergy or its
subsidiaries, either
alone or upon the occurrence of any additional or subsequent
events and
whether or not applicable to the transactions contemplated by
this
Agreement, for (A) an acceleration of the time of payment of or
vesting
in, or an increase in the amount of, compensation or benefits
due any
current or former employee, director or officer of Cinergy or
its
subsidiaries, (B) any forgiveness of indebtedness or obligation
to fund
benefits with respect to any such employee, director or officer,
or (C)
an entitlement of any such employee, director or officer to
severance
pay, unemployment compensation or any other payment or other
benefit.
(m) Labor Matters. As of the date hereof, neither
Cinergy nor any of its subsidiaries is a party to, bound by or
in the process
of negotiating any collective bargaining agreement or other
labor agreement
with any union or labor organization. As of the date of this
Agreement, there
are no disputes, grievances or arbitrations pending or, to the
knowledge of
Cinergy, threatened between Cinergy or any of its subsidiaries
and any trade
union or other representatives of its employees and there is no
charge or
complaint pending or threatened in writing against Cinergy or
any of its
subsidiaries before the National Labor Relations Board (the
"NLRB") or any
similar Governmental Authority, except in each case as,
individually or in the
aggregate, have not had and could not reasonably be expected to
have a
material adverse effect on Cinergy, and, to the knowledge of
Cinergy, as of
the date of this Agreement, there are no material organizational
efforts
presently being made involving any of the employees of Cinergy
or any of its
subsidiaries. From December 31, 2002, to the date of this
Agreement, there has
been no work stoppage, strike, slowdown or lockout by or
affecting employees
of Cinergy or any of its subsidiaries and, to the knowledge of
Cinergy, no
such action has been threatened in writing, except in each case
as,
individually or in the aggregate, have not had and could not
reasonably be
expected to have a material adverse effect on Cinergy. Except
as, individually
or in the aggregate, has not had and could not reasonably be
expected to have
a material adverse effect on Cinergy: (A) there are no
litigations, lawsuits,
claims, charges, complaints, arbitrations, actions,
investigations or
proceedings pending or, to the knowledge of Cinergy, threatened
between or
involving Cinergy or any of its subsidiaries and any of their
respective
current or former employees, independent contractors, applicants
for
employment or classes of the foregoing; (B) Cinergy and its
subsidiaries are
in compliance with all applicable laws, orders, agreements,
contracts and
policies respecting employment and employment practices,
including, without
limitation, all legal requirements respecting terms and
conditions of
employment, equal opportunity, workplace health and safety,
wages and hours,
child labor, immigration, discrimination, disability rights or
benefits,
facility closures and layoffs, workers' compensation, labor
relations,
employee leaves and unemployment insurance; and (C) since
January 1, 2002,
neither Cinergy nor any of its subsidiaries has engaged in any
"plant closing"
or "mass layoff", as defined in the Worker Adjustment Retraining
and
Notification Act or any comparable state or local law (the "WARN
Act"),
without complying with the notice requirements of such laws.
(n) Environmental Matters.
(i) Each of Cinergy, its subsidiaries and the
Cinergy Joint Ventures has been and is in compliance with all
applicable
Environmental Laws (as hereinafter defined), except where the
failure to
be in such compliance, individually or in the aggregate, has not
had and
could not reasonably be expected to have a material adverse
effect on
Cinergy.
(ii) Each of Cinergy, its subsidiaries and the
Cinergy Joint Ventures has obtained all environmental
Permits
(collectively, the "Environmental Permits") necessary for
the
construction of their facilities and the conduct of their
operations as
of the date of this Agreement, as applicable, and all such
Environmental
Permits are in good standing or, where applicable, a renewal
application
has been timely filed and is pending agency approval, and
Cinergy, its
subsidiaries and the Cinergy Joint Ventures are in compliance
with all
terms and conditions of the Environmental Permits, except where
the
failure to obtain such Environmental Permits, of such Permits to
be in
good standing or, where applicable, of a renewal application to
have been
timely filed and be pending or to be in such compliance,
individually or
in the aggregate, has not had and could not reasonably be
expected to
have a material adverse effect on Cinergy.
(iii) There is no Environmental Claim (as
hereinafter defined) pending:
(A) against Cinergy or any of its subsidiaries
or any of the Cinergy Joint Ventures;
(B) to the knowledge of Cinergy, against any
person or entity whose liability for such Environmental Claim
has
been retained or assumed either contractually or by operation of
law
by Cinergy or any of its subsidiaries or any of the Cinergy
Joint
Ventures; or
(C) against any real or personal property or
operations that Cinergy or any of its subsidiaries or any of
the
Cinergy Joint Ventures owns, leases or manages, in whole or in
part,
or, to the knowledge of Cinergy, formerly owned, leased or
managed,
in whole or in part,
except in the case of clause (A), (B) or (C) for such
Environmental
Claims that, individually or in the aggregate, have not had
and
could not reasonably be expected to have a material adverse
effect
on Cinergy.
(iv) To the knowledge of Cinergy, there have not
been any Releases (as hereinafter defined) of any Hazardous
Material (as
hereinafter defined) that would be reasonably likely to form the
basis of
any Environmental Claim against Cinergy or any of its
subsidiaries or any
of the Cinergy Joint Ventures, in each case, except for such
Releases
that, individually or in the aggregate, have not had and could
not
reasonably be expected to have a material adverse effect on
Cinergy.
(v) As used in this Section 3.01(n) and in Section
3.02(n):
(A) "Environmental Claim" means any and all
administrative, regulatory or judicial actions, suits,
orders,
demands, demand letters, directives, claims, liens,
investigations,
proceedings or notices of noncompliance, liability or
violation
(written or oral) by any person or entity (including any
Governmental Authority) alleging potential liability
(including
potential responsibility or liability for enforcement,
investigatory
costs, cleanup costs, governmental response costs, removal
costs,
remedial costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on or
resulting from
(1) the presence or Release into the environment of
any Hazardous Materials at any location;
(2) circumstances forming the basis of any actual
or alleged violation of, or liability under, any Environmental
Law
or Environmental Permit; or
(3) any and all claims by any third party seeking
damages, contribution, indemnification, cost recovery,
compensation
or injunctive relief resulting from the presence or Release of,
or
exposure to, any Hazardous Materials;
(B) "Environmental Laws" means all domestic or
foreign Federal, state and local laws, principles of common law
and
orders relating to pollution, the environment (including
ambient
air, surface water, groundwater, land surface or subsurface
strata)
or protection of human health as it relates to the
environment
including laws relating to the presence or Release of
Hazardous
Materials, or otherwise relating to the manufacture,
processing,
distribution, use, treatment, storage, disposal, transport
or
handling of, or exposure to, Hazardous Materials;
(C) "Hazardous Materials" means (a) any
petroleum or petroleum products, radioactive materials, asbestos
in
any form that is or could become friable, urea formaldehyde
foam
insulation, and polychlorinated biphenyls; and (b) any
chemical,
material, substance or waste that is now prohibited, limited
or
regulated under any Environmental Law; and
(D) "Release" means any actual or threatened
release, spill, emission, leaking, injection, deposit,
disposal,
discharge, dispersal, leaching or migration into the
atmosphere,
soil, surface water, groundwater or property.
(o) No Ownership of Nuclear Power Plants. None of
Cinergy, any of its subsidiaries or any Cinergy Joint Venture
owns, directly
or indirectly, any interest in any nuclear generation station or
manages or
operates any nuclear generation station.
(p) Vote Required. Assuming the accuracy of the
representation and warranty contained in Section 3.02(r), the
affirmative vote
of the holders of record of at least a majority of the
outstanding shares of
Cinergy Common Stock, with respect to the approval of this
Agreement (the
"Cinergy Shareholder Approval"), is the only vote of the holders
of any class
or series of the capital stock of Cinergy or its subsidiaries
required to
approve this Agreement, the Cinergy Merger and the other
transactions
contemplated hereby.
(q) Opinion of Financial Advisor. Cinergy has received
the opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, dated the
date of this Agreement, to the effect that, as of the date of
this Agreement,
the Cinergy Exchange Ratio is fair from a financial point of
view to the
holders of Cinergy Common Stock.
(r) Ownership of Duke Capital Stock. Neither Cinergy
nor any of its subsidiaries or other affiliates beneficially
owns any shares
of Duke capital stock.
(s) Section 203 of the DGCL Not Applicable; Other
Statutes. Cinergy has taken all necessary actions, if any, so
that the
provisions of Section 203 of the DGCL will not, before the
termination of this
Agreement, apply to this Agreement, the Cinergy Merger or the
other
transactions contemplated hereby. No "fair price", "merger
moratorium",
"control share acquisition", or other anti-takeover or similar
statute or
regulation applies or purports to apply to this Agreement, the
Cinergy Merger
or the other transactions contemplated hereby.
(t) Joint Venture Representations. Each representation
or warranty made by Cinergy in this Section 3.01 relating to a
Cinergy Joint
Venture that is neither operated nor managed by Cinergy or a
Cinergy
subsidiary shall be deemed made only to the knowledge of
Cinergy.
(u) Insurance. Except for failures to maintain
insurance or self-insurance that, individually or in the
aggregate, have not
had and could not reasonably be expected to have a material
adverse effect on
Cinergy, from January 1, 2004, through the date of this
Agreement, each of
Cinergy and its subsidiaries has been continuously insured with
financially
responsible insurers or has self-insured, in each case in such
amounts and
with respect to such risks and losses as are customary for
companies in the
United States conducting the business conducted by Cinergy and
its
subsidiaries during such time period. Neither Cinergy nor any of
its
subsidiaries has received any notice of cancellation or
termination with
respect to any insurance policy of Cinergy or any of its
subsidiaries, except
with respect to any cancellation or termination that,
individually or in the
aggregate, has not had and could not reasonably be expected to
have a material
adverse effect on Cinergy.
(v) Trading. Cinergy has established risk parameters,
limits and guidelines in compliance with the risk management
policy approved
by Cinergy's Board of Directors (the "Cinergy Trading
Guidelines") to restrict
the level of risk that Cinergy and its subsidiaries are
authorized to take
with respect to, among other things, the net position resulting
from all
physical commodity transactions, exchange-traded futures and
options
transactions, over-the-counter transactions and derivatives
thereof and
similar transactions (the "Net Cinergy Position") and monitors
compliance by
Cinergy and its subsidiaries with such risk parameters. Cinergy
has provided
the Cinergy Trading Guidelines to Duke prior to the date of this
Agreement. As
of the date of this Agreement, (i) the Net Cinergy Position is
within the risk
parameters that are set forth in the Cinergy Trading Guidelines
and (ii) the
exposure of Cinergy and its subsidiaries with respect to the Net
Cinergy
Position resulting from all such transactions is not material to
Cinergy and
its subsidiaries taken as a whole. From December 31, 2004 to the
date of this
Agreement, neither Cinergy nor any of its subsidiaries has, in
accordance with
its mark to market accounting policies, experienced an aggregate
net loss in
its trading and related operations that would be material to
Cinergy and its
subsidiaries taken as a whole.
Section 3.02 Representations and Warranties of Duke. Except
as set forth in the letter dated the date of this Agreement and
delivered to
Cinergy by Duke concurrently with the execution and delivery of
this Agreement
(the "Duke Disclosure Letter") or, to the extent the qualifying
nature of such
disclosure is readily apparent therefrom, as set forth in the
Duke SEC Reports
(as defined in Section 3.02(e)) filed on or after January 1,
2004 and prior to
the date hereof, Duke represents and warrants to Cinergy as
follows:
(a) Organization and Qualification.
(i) Each of Duke and its subsidiaries is duly
organized, validly existing and in good standing (with respect
to
jurisdictions that recognize the concept of good standing) under
the laws
of its jurisdiction of organization and has full power and
authority to
conduct its business as and to the extent now conducted and to
own, use
and lease its assets and properties, except for such failures to
be so
organized, existing and in good standing (with respect to
jurisdictions
that recognize the concept of good standing) or to have such
power and
authority that, individually or in the aggregate, have not had
and could
not be reasonably expected to have a material adverse effect (as
defined
in Section 8.03) on Duke. Each of Duke and its subsidiaries is
duly
qualified, licensed or admitted to do business and is in good
standing
(with respect to jurisdictions that recognize the concept of
good
standing) in each jurisdiction in which the ownership, use or
leasing of
its assets and properties, or the conduct or nature of its
business,
makes such qualification, licensing or admission necessary,
except for
such failures to be so qualified, licensed or admitted and in
good
standing (with respect to jurisdictions that recognize the
concept of
good standing) that, individually or in the aggregate, have not
had and
could not reasonably be expected to have a material adverse
effect on
Duke. Section 3.02(a) of the Duke Disclosure Letter sets forth
as of the
date of this Agreement the name and jurisdiction of organization
of each
subsidiary of Duke. Each of the Company, Merger Sub A and Merger
Sub B is
a newly formed corporation and has engaged in no activities
except as
contemplated by this Agreement.
(ii) Section 3.02(a) of the Duke Disclosure Letter
sets forth a description as of the date of this Agreement, of
all Duke
Joint Ventures, including (x) the name of each such entity and
(y) a
brief description of the principal line or lines of business
conducted by
each such entity.
(iii) Except for interests in the subsidiaries of
Duke, the Duke Joint Ventures and interests acquired after the
date of
this Agreement without violating any covenant or agreement set
forth
herein, Duke does not directly or indirectly own any equity or
similar
interest in, or any interest convertible into or exchangeable
or
exercisable for, any equity or similar interest in, any person,
in which
the invested capital associated with such interest individually
as of the
date of this Agreement exceeds $100,000,000.
(b) Capital Stock.
(i) The authorized capital stock of Duke consists
of:
(A) 2,000,000,000 shares of Duke Common Stock,
of which 926,431,621 shares were outstanding as of the close
of
business on May 6, 2005;
(B) 1,500,000 shares of Preference Stock, par
value $100 per share ("Duke Preference Stock"), none of which
were
outstanding as of the date of this Agreement;
(C) 20,000,000 shares of Serial Preferred
Stock, no par value, none of which were outstanding as of the
date
of this Agreement;
(D) 12,500,000 shares of Duke Preferred Stock,
of which 1,234,984 shares were outstanding as of the date of
this
Agreement, issued in the following series:
(1) 175,000 shares of 4.5% Cumulative Preferred Stock,
Series C;
(2) 300,000 shares of 7.85% Cumulative Preferred Stock,
Series S;
(3) 249,989 shares of 7.0% Cumulative Preferred Stock,
Series W; and
(4) 299,995 shares of 7.04% Cumulative Preferred Stock,
Series Y; and
(E) 10,000,000 shares of Duke Preferred Stock A, of which
1,257,185 shares were outstanding as of the date of this
Agreement,
issued as 6.375% Cumulative Preferred Stock A.
As of the date of this Agreement, no shares of Duke Common Stock
are held in
the treasury of Duke. As of the date of this Agreement, (x)
1,500,000 shares
of Duke Preference Stock are designated Series A Participating
Preference
Stock (the "Duke Series A Preference Stock") and are reserved
for issuance in
accordance with the Rights Agreement dated as of December 17,
1998, as
amended, by and between Duke and The Bank of New York, as Rights
Agent,
pursuant to which Duke has issued rights (the "Duke Rights") to
purchase such
shares of Duke Series A Preference Stock and (y) 26,635,301
shares of Duke
Common Stock were subject to outstanding Duke Employee Stock
Options (as
defined in Section 5.06(b)), and 24,294,199 additional shares of
Duke Common
Stock were reserved for issuance pursuant to the Duke Power
Company Stock
Incentive Plan and the Duke 1998 Long-Term Incentive Plan and
any other
compensatory plan, program or arrangement under which shares of
Duke Common
Stock are reserved for issuance (collectively, the "Duke Option
Plans"). All
of the issued and outstanding shares of Duke Common Stock are,
and all shares
reserved for issuance will be, upon issuance in accordance with
the terms
specified in the instruments or agreements pursuant to which
they are
issuable, duly authorized, validly issued, fully paid and
nonassessable.
Except as disclosed in this Section 3.02(b), on the date of this
Agreement
there are no outstanding Options obligating Duke or any of its
subsidiaries to
issue or sell any shares of capital stock of Duke or to grant,
extend or enter
into any Option with respect thereto.
(ii) Except as permitted by this Agreement, all of
the outstanding shares of capital stock of each subsidiary of
Duke are
duly authorized, validly issued, fully paid and nonassessable
and are
owned, beneficially and of record, by Duke or a subsidiary, free
and
clear of any Liens, except for any of the foregoing that,
individually or
in the aggregate, have not had and could not reasonably be
expected to
have a material adverse effect on Duke. All of the outstanding
shares of
capital stock of the Company, Merger Sub A and Merger Sub B are
duly
authorized, validly issued, fully paid and nonassessable and are
owned,
beneficially and of record, by Duke (in the case of shares of
capital
stock of the Company) or by the Company (in the case of capital
stock of
Merger Sub A and Merger Sub B). The shares of the Company owned
by Duke,
and the shares of each of Merger Sub A and Merger Sub B owned by
the
Company, are owned free and clear of any Lien. There are no
(A)
outstanding Options obligating Duke or any of its subsidiaries
to issue
or sell any shares of capital stock of any subsidiary of Duke or
to
grant, extend or enter into any such Option or (B) voting
trusts, proxies
or other commitments, understandings, restrictions or
arrangements in
favor of any person other than Duke or a subsidiary
wholly-owned,
directly or indirectly, by Duke with respect to the voting of or
the
right to participate in dividends or other earnings on any
capital stock
of any subsidiary of Duke.
(iii) As of the date of this Agreement, none of
the subsidiaries of Duke or the Duke Joint Ventures is a "public
utility
company", a "holding company", a "subsidiary company" or an
"affiliate"
of any holding company within the meaning of Section 2(a)(5),
2(a)(7),
2(a)(8) or 2(a)(11) of the 1935 Act, respectively. None of Duke,
its
subsidiaries and the Duke Joint Ventures is registered under the
1935
Act.
(iv) As of the date of this Agreement, no bonds,
debentures, notes or other indebtedness of Duke or any of
its
subsidiaries having the right to vote (or which are convertible
into or
exercisable for securities having the right to vote)
(collectively, "Duke
Voting Debt") on any matters on which Duke shareholders may vote
are
issued or outstanding nor are there any outstanding Options
obligating
Duke or any of its subsidiaries to issue or sell any Duke Voting
Debt or
to grant, extend or enter into any Option with respect
thereto.
(v) Each share of Company Common Stock to be
issued in either the Duke Merger or the Cinergy Merger shall be
duly
authorized, validly issued, fully paid and nonassessable and
free and
clear of any Liens.
(c) Authority. Duke has full corporate power and
authority to enter into this Agreement, to perform its
obligations hereunder
and, subject to obtaining Duke Shareholder Approval (as defined
in Section
3.02(p)), to consummate the transactions contemplated hereby.
The execution,
delivery and performance of this Agreement by Duke and the
consummation by
Duke of the transactions contemplated hereby have been duly and
validly
adopted and approved by the Board of Directors of Duke, the
Board of Directors
of Duke has recommended approval of this Agreement by the
shareholders of Duke
and directed that this Agreement be submitted to the
shareholders of Duke for
their approval, and no other corporate proceedings on the part
of Duke or its
shareholders are necessary to authorize the execution, delivery
and
performance of this Agreement by Duke and the consummation by
Duke of the Duke
Merger, the Duke Conversion, the Restructuring Transactions and
the other
transactions contemplated hereby, other than obtaining Duke
Shareholders
Approval. This Agreement has been duly and validly executed and
delivered by
Duke and constitutes a legal, valid and binding obligation of
Duke enforceable
against Duke in accordance with its terms.
(d) No Conflicts; Approvals and Consents.
(i) The execution and delivery of this Agreement
by Duke do not, and the performance by Duke of its obligations
hereunder
and the consummation of the Mergers, the Duke Conversion,
the
Restructuring Transactions and the other transactions
contemplated hereby
will not, conflict with, result in a violation or breach of,
constitute
(with or without notice or lapse of time or both) a default
under, result
in or give to any person any right of payment or
reimbursement,
termination, cancellation, modification or acceleration of, or
result in
the creation or imposition of any Lien upon any of the assets
or
properties of Duke or any of its subsidiaries or any of the Duke
Joint
Ventures under, any of the terms, conditions or provisions of
(A) the
certificates or articles of incorporation or by-laws (or other
comparable
organizational documents) of Duke or any of its subsidiaries or
any of
the Duke Joint Ventures, or (B) subject to the obtaining of
Duke
Shareholder Approval and the taking of the actions described in
paragraph
(ii) of this Section 3.02(d) and obtaining the Cinergy Required
Statutory
Approvals, (x) any laws or orders of any Governmental
Authority
applicable to Duke or any of its subsidiaries or any of the Duke
Joint
Ventures or any of their respective assets or properties, or (y)
any
note, bond, mortgage, security agreement, agreement, indenture,
license,
franchise, permit, concession, contract, lease or other
instrument to
which Duke or any of its subsidiaries or any of the Duke Joint
Ventures
is a party or by which Duke or any of its subsidiaries or any of
the Duke
Joint Ventures or any of their respective assets or properties
is bound,
excluding from the foregoing clauses (x) and (y) such items
that,
individually or in the aggregate, have not had and could not
reasonably
be expected to have a material adverse effect on Duke.
(ii) Except for (A) compliance with, and filings
under, the HSR Act; (B) the filing with, and to the extent
required, the
declaration of effectiveness by, the SEC of (1) the Joint Proxy
Statement
with the SEC pursuant to the Exchange Act, (2) the Form S-4 and
(3) such
reports under the Exchange Act as may be required in connection
with this
Agreement and the transactions contemplated hereby; (C) the
filing of
documents with various state securities authorities that may be
required
in connection with the transactions contemplated hereby; (D)
such filings
with and approvals of the NYSE to permit the shares of Company
Common
Stock that are to be issued pursuant to Article II to be listed
on the
NYSE; (E) the registration, consents, approvals and notices
required
under the 1935 Act; (F) notice to, and the consent and approval
of, FERC
under Section 203 of the Power Act, or an order under the Power
Act
disclaiming jurisdiction over the transactions contemplated
hereby; (G)
the filing of an application to, and consent and approval of,
and
issuance of any required licenses and license amendments by, the
NRC
under the Atomic Energy Act; (H) the filing of the Duke Articles
of
Merger, the Duke Articles of Conversion and other appropriate
merger
documents required by the NCBCA and the NCLLCA with the
Secretary of
State of the State of North Carolina and appropriate documents
with the
relevant authorities of other states in which Duke is qualified
to do
business; (I) compliance with and such filings as may be
required under
applicable Environmental Laws; (J) to the extent required,
notice to and
the approval of, the Applicable PSCs; (K) the FCC Pre-Approvals;
(L) such
other items as disclosed in Section 3.02(d) of the Duke
Disclosure
Letter; and (M) compliance with, and filings under, antitrust
or
competition laws of any foreign jurisdiction, including the
Competition
Act (Canada), Investment Canada Act, and other applicable
Canadian
federal and provincial regulatory requirements (the items set
forth above
in clauses (A) through (H) and (J) collectively, the "Duke
Required
Statutory Approvals"), no Consents or action of,
registration,
declaration or filing with or notice to any Governmental
Authority is
necessary or required to be obtained or made in connection with
the
execution and delivery of this Agreement by Duke, the
performance by Duke
of its obligations hereunder or the consummation of the Mergers,
the Duke
Conversion, the Restructuring Transactions and the other
transactions
contemplated hereby, other than such items that the failure to
make or
obtain, as the case may be, individually or in the aggregate,
could not
reasonably be expected to have a material adverse effect on
Duke.
(e) SEC Reports, Financial Statements and Utility Reports.
(i) Duke and its subsidiaries have filed each
form, report, schedule, registration statement, registration
exemption,
if applicable, definitive proxy statement and other document
(together
with all amendments thereof and supplements thereto) required to
be filed
by Duke or any of its subsidiaries pursuant to the Securities
Act or the
Exchange Act with the SEC since January 1, 2002 (as such
documents have
since the time of their filing been amended or supplemented, the
"Duke
SEC Reports"). As of their respective dates, after giving effect
to any
amendments or supplements thereto, the Duke SEC Reports (A)
complied as
to form in all material respects with the requirements of the
Securities
Act or the Exchange Act, if applicable, as the case may be, and,
to the
extent in effect applicable, SOX and (B) did not contain any
untrue
statement of a material fact or omit to state a material fact
required to
be stated therein or necessary in order to make the statements
therein,
in light of the circumstances under which they were made, not
misleading.
(ii) Each of the principal executive officer of
Duke and the principal financial officer of Duke (or each
former
principal executive officer of Duke and each former principal
financial
officer of Duke, as applicable) has made all certifications
required by
Rule 13a-14 or 15d-14 under the Exchange Act or Sections 302 and
906 of
SOX and the rules and regulations of the SEC promulgated
thereunder with
respect to the Duke SEC Reports. For purposes of the preceding
sentence,
"principal executive officer" and "principal financial officer"
shall
have the meanings given to such terms in SOX. Since the
effectiveness of
SOX, neither Duke nor any of its subsidiaries has arranged
any
outstanding "extensions of credit" to directors or executive
officers
within the meaning of Section 402 of SOX.
(iii) The audited consolidated financial
statements and unaudited interim consolidated financial
statements
(including, in each case, the notes, if any, thereto) included
in the
Duke SEC Reports (the "Duke Financial Statements") complied as
to form in
all material respects with the published rules and regulations
of the SEC
with respect thereto, were prepared in accordance with GAAP
applied on a
consistent basis during the periods involved (except as may be
indicated
therein or in the notes thereto and except with respect to
unaudited
statements as permitted by Form 10-Q of the SEC) and fairly
present
(subject, in the case of the unaudited interim financial
statements, to
normal, recurring year-end audit adjustments that were not or
are not
expected to be, individually or in the aggregate, materially
adverse to
Duke) the consolidated financial position of Duke and its
consolidated
subsidiaries as of the respective dates thereof and the
consolidated
results of their operations and cash flows for the respective
periods
then ended.
(iv) All filings (other than immaterial filings)
required to be made by Duke or any of its subsidiaries since
January 1,
2002, under the 1935 Act, the Power Act, the Atomic Energy Act,
the
Natural Gas Act, the Natural Gas Policy Act of 1978, the
Communications
Act of 1934 and applicable state laws and regulations, have been
filed
with the SEC, the FERC, the DOE, the NRC, the FCC or any
applicable state
public utility commissions (including, to the extent required,
NCUC and
PSCSC), as the case may be, including all forms, statements,
reports,
agreements (oral or written) and all documents, exhibits,
amendments and
supplements appertaining thereto, including all rates,
tariffs,
franchises, service agreements and related documents and all
such filings
complied, as of their respective dates, with all applicable
requirements
of the applicable statute and the rules and regulations
thereunder,
except for filings the failure of which to make or the failure
of which
to make in compliance with all requirements of the applicable
statute and
the rules and regulations thereunder, individually or in the
aggregate,
have not had and could not reasonably be expected to have a
material
adverse effect on Duke.
(v) The management of Duke has (x) designed
disclosure controls and procedures (as defined in Rule 13a-15(e)
of the
Exchange Act), or caused such disclosure controls and procedures
to be
designed under their supervision to ensure that material
information
relating to Duke, including its consolidated subsidiaries, is
made known
to the management of Duke by others within those entities, and
(y) has
disclosed, based on its most recent evaluation of internal
control over
financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act),
to Duke's outside auditors and the audit committee of the Board
of
Directors of Duke (A) all significant deficiencies and
material
weaknesses in the design or operation of internal control over
financial
reporting which are reasonably likely to adversely affect Duke's
ability
to record, process, summarize and report financial information
and (B)
any fraud, whether or not material, that involves management or
other
employees who have a significant role in Duke's internal control
over
financial reporting. Since December 31, 2004, any material
change in
internal control over financial reporting required to be
disclosed in any
Duke SEC Report has been so disclosed.
(vi) Since December 31, 2004, (x) neither Duke nor
any of its subsidiaries nor, to the knowledge of the Executive
Officers
(for the purpose of this Section 3.02(e)(vi), as such term is
defined in
Section 3b-7 of the Exchange Act) of Duke, any director,
officer,
employee, auditor, accountant or representative of Duke or any
of its
subsidiaries has received or otherwise obtained knowledge of any
material
complaint, allegation, assertion or claim, whether written or
oral,
regarding the accounting or auditing practices, procedures,
methodologies
or methods of Duke or any of its subsidiaries or their
respective
internal accounting controls relating to periods after December
31, 2004,
including any material complaint, allegation, assertion or claim
that
Duke or any of its subsidiaries has engaged in questionable
accounting or
auditing practices (except for any of the foregoing after the
date hereof
which have no reasonable basis), and (y) to the knowledge of
the
Executive Officers of Duke, no attorney representing Duke or any
of its
subsidiaries, whether or not employed by Duke or any of its
subsidiaries,
has reported evidence of a material violation of securities
laws, breach
of fiduciary duty or similar violation, relating to periods
after
December 31, 2004, by Duke or any of its officers, directors,
employees
or agents to the Board of Directors of Duke or any committee
thereof or,
to any director or Executive Officer of Duke.
(f) Absence of Certain Changes or Events. Since December 31,
2004 through the date hereof, there has not been any change,
event or
development that, individually or in the aggregate, has had or
could
reasonably be expected to have a material adverse effect on
Duke.
(g) Absence of Undisclosed Liabilities. Except for matters
reflected or reserved against in the balance sheet (or notes
thereto) as of
December 31, 2004, included in the Duke Financial Statements, as
of the date
of this Agreement, neither Duke nor any of its subsidiaries has
any
liabilities or obligations (whether absolute, accrued,
contingent, fixed or
otherwise, or whether due or to become due) of any nature that
would be
required by GAAP to be reflected on a consolidated balance sheet
of Duke and
its consolidated subsidiaries (including the notes thereto),
except
liabilities or obligations (i) that were incurred in the
ordinary course of
business consistent with past practice since December 31, 2004,
or (ii) that,
individually or in the aggregate, have not had and could not
reasonably be
expected to have a material adverse effect on Duke.
(h) Legal Proceedings. Except for environmental matters,
which are the subject of Section 3.02(n), as of the date of this
Agreement,
(i) there are no actions, suits, arbitrations or proceedings
pending or, to
the knowledge of Duke, threatened against, relating to or
affecting, nor to
the knowledge of Duke are there any Governmental Authority
investigations or
audits pending or threatened against, relating to or affecting,
Duke or any of
its subsidiaries or any of the Duke Joint Ventures or any of
their respective
assets and properties that, in each case, individually or in the
aggregate,
have had or could reasonably be expected to have a material
adverse effect on
Duke, and (ii) neither Duke nor any of its subsidiaries is
subject to any
order of any Governmental Authority that, individually or in the
aggregate,
has had or could reasonably be expected to have a material
adverse effect on
Duke.
(i) Information Supplied. None of the information supplied
or to be supplied by Duke for inclusion or incorporation by
reference in (i)
the Form S-4 will, at the time the Form S-4 is filed with the
SEC, at any time
it is amended or supplemented or at the time it becomes
effective under the
Securities Act, contain any untrue statement of a material fact
or omit to
state any material fact required to be stated therein or
necessary to make the
statements therein not misleading, or (ii) the Joint Proxy
Statement will, at
the date it is first mailed to Cinergy's shareholders or Duke's
shareholders
or at the time of the Cinergy Shareholders Meeting or the Duke
Shareholders
Meeting, contain any untrue statement of a material fact or omit
to state any
material fact required to be stated therein or necessary in
order to make the
statements therein, in light of the circumstances under which
they are made,
not misleading. The Joint Proxy Statement will comply as to form
in all
material respects with the requirements of the Exchange Act and
the rules and
regulations thereunder, except that no representation is made by
Duke with
respect to statements made or incorporated by reference therein
based on
information supplied by or on behalf of Cinergy for inclusion or
incorporation
by reference in the Joint Proxy Statement.
(j) Permits; Compliance with Laws and Orders. Duke, its
subsidiaries and the Duke Joint Ventures hold all Permits
necessary for the
lawful conduct of their respective businesses, except for
failures to hold
such Permits that, individually or in the aggregate, have not
had and could
not reasonably be expected to have a material adverse effect on
Duke. Duke,
its subsidiaries and the Duke Joint Ventures are in compliance
with the terms
of their Permits, except failures so to comply that,
individually or in the
aggregate, have not had and could not reasonably be expected to
have a
material adverse effect on Duke. Duke, its subsidiaries and the
Duke Joint
Ventures are not in violation of or default under any law or
order of any
Governmental Authority, except for such violations or defaults
that,
individually or in the aggregate, have not had and could not
reasonably be
expected to have a material adverse effect on Duke. Duke is, and
has been, in
compliance in all material respects with (i) the provisions of
SOX applicable
to it on or prior to the date hereof and has implemented such
programs and has
taken all reasonable steps necessary to ensure Duke's future
compliance (not
later than the relevant statutory and regulatory deadlines
therefore) with all
provisions of SOX which shall become applicable to Duke after
the date hereof
and (ii) the applicable listing standards and corporate
governance rules and
regulations of the NYSE. This Section 3.02(j) does not relate to
matters with
respect to taxes, such matters being the subject of Section
3.02(k),
Environmental Laws, such matters being the subject of Section
3.02(n),
benefits plans, such matters being the subject of Section
3.02(l), and nuclear
power plants, such matters being the subject of Section
3.02(o).
(k) Taxes. Except as has not had, and could not reasonably
be expected to have, a material adverse affect on Duke:
(i) Each of Duke and its subsidiaries has timely
filed, or has caused to be timely filed on its behalf, all Tax
Returns
required to be filed by it, and all such Tax Returns are true,
complete
and accurate. All Taxes shown to be due and owing on such Tax
Returns
have been timely paid.
(ii) The most recent financial statements
contained in the Duke SEC Reports filed prior to the date of
this
Agreement reflect, in accordance with GAAP, an adequate reserve
for all
Taxes payable by Duke and its subsidiaries for all taxable
periods
through the date of such financial statements.
(iii) There is no audit, examination, deficiency,
refund litigation, proposed adjustment or matter in controversy
with
respect to any Taxes or Tax Return of Duke or its subsidiaries,
to the
knowledge of Duke, neither Duke nor any of its subsidiaries has
received
written notice of any claim made by a governmental authority in
a
jurisdiction where Duke or any of its subsidiaries, as
applicable, does
not file a Tax Return, that Duke or such subsidiary is or may be
subject
to income taxation by that jurisdiction, no deficiency with
respect to
any Taxes has been proposed, asserted or assessed against Duke
or any of
its subsidiaries, and no requests for waivers of the time to
assess any
Taxes are pending.
(iv) The federal income Tax Returns of Duke and
its subsidiaries have been examined by and settled with the IRS
(or the
applicable statutes of limitation have lapsed) for all years
through
1994. All material assessments for Taxes due with respect to
such
completed and settled examinations or any concluded litigation
have been
fully paid.
(v) There are no outstanding written agreements,
consents or waivers to extend the statutory period of
limitations
applicable to the assessment of any Taxes or deficiencies
against Duke or
any of its subsidiaries, and no power of attorney granted by
either Duke
or any of its subsidiaries with respect to any Taxes is
currently in
force.
(vi) Neither Duke nor any of its subsidiaries is a
party to any agreement providing for the allocation or sharing
of Taxes
imposed on or with respect to any individual or other Person
(other than
(I) such agreements with customers, vendors, lessors or the like
entered
into in the ordinary course of business, and (II) agreements
with or
among Duke or any of its subsidiaries), and neither Duke nor any
of its
subsidiaries (A) has been a member of an affiliated group (or
similar
state, local or foreign filing group) filing a consolidated U.S.
federal
income Tax Return (other than the group the common parent of
which is
Duke) or (B) has any liability for the Taxes of any person
(other than
Duke or any of its subsidiaries) (I) under Treasury Regulation
ss.
1.1502-6 (or any similar provision of state, local or foreign
law), or
(II) as a transferee or successor.
(vii) There are no material Liens for Taxes (other
than for current Taxes not yet due and payable) on the assets of
Duke and
its subsidiaries.
(viii) Neither Duke nor any of its subsidiaries
has taken or agreed to take any action or knows of any fact,
agreement,
plan or other circumstance that is reasonably likely to prevent
or impede
either the Duke Reorganization from qualifying as a
reorganization under
Section 368(a) of the Code or the Cinergy Merger from qualifying
as a
reorganization under Section 368(a) of the Code.
(l) Employee Benefit Plans; ERISA.
(i) Except for such matters that, individually or
in the aggregate, have not had and could not reasonably be
expected to
have a material adverse effect on Duke, (A) all Duke Employee
Benefit
Plans (as defined below) are in compliance with all
applicable
requirements of law, including ERISA (as defined below) and the
Code, and
(B) there does not now exist, nor do any circumstances exist
that could
result in, any Controlled Group Liability that would be a
liability of
Duke or any of its subsidiaries. The only material employment
agreements,
severance agreements or severance policies applicable to Duke or
any of
its subsidiaries are the agreements and policies disclosed in
Section
3.02(l)(i) of the Duke Disclosure Letter.
(ii) As used herein:
(A) "Duke Employee Benefit Plan" means any
Plan entered into, established, maintained, sponsored,
contributed
to or required to be contributed to by Duke or any of its
subsidiaries for the benefit of the current or former employees
or
directors of Duke or any of its subsidiaries and existing on
the
date of this Agreement or at any time subsequent thereto and in
the
case of a Plan that is subject to Part 3 of Title I of
ERISA,
Section 412 of the Code or Title IV of ERISA, at any time during
the
five-year period preceding the date of this Agreement with
respect
to which Duke or any of its subsidiaries has or could reasonably
be
expected to have any present or future actual or contingent
liabilities;
(iii) No event has occurred, and there exists no
condition or set of circumstances in connection with any Duke
Employee
Benefit Plan, that has had or could reasonably be expected to
have a
material adverse effect on Duke.
(iv) Section 3.02(l)(iv) of the Duke Disclosure
Letter identifies each Duke Employee Benefit Plan that provides,
upon the
occurrence of a change in the ownership or effective control of
Duke or
its subsidiaries or a change in the ownership of all or a
substantial
portion of the assets of Duke or its subsidiaries, either alone
or upon
the occurrence of any additional or subsequent events and
whether or not
applicable to the transactions contemplated by this Agreement,
for (A) an
acceleration of the time of payment of or vesting in, or an
increase in
the amount of, compensation or benefits due any current or
former
employee, director or officer of Duke or its subsidiaries, (B)
any
forgiveness of indebtedness or obligation to fund benefits with
respect
to any such employee, director or officer, or (C) an entitlement
of any
such employee, director or officer to severance pay,
unemployment
compensation or any other payment or other benefit.
(m) Labor Matters. As of the date hereof, neither Duke nor
any of its subsidiaries is a party to, bound by or in the
process of
negotiating any collective bargaining agreement or other labor
agreement with
any union or labor organization. As of the date of this
Agreement, there are
no disputes, grievances or arbitrations pending or, to the
knowledge of Duke,
threatened between Duke or any of its subsidiaries and any trade
union or
other representatives of its employees and there is no charge or
complaint
pending or threatened in writing against Duke or any of its
subsidiaries
before the NLRB or any similar Governmental Authority, except in
each case as,
individually or in the aggregate, have not had and could not
reasonably be
expected to have a material adverse effect on Duke, and, to the
knowledge of
Duke, as of the date of this Agreement, there are no material
organizational
efforts presently being made involving any of the employees of
Duke or any of
its subsidiaries. From December 31, 2002, to the date of this
Agreement, there
has been no work stoppage, strike, slowdown or lockout by or
affecting
employees of Duke or any of its subsidiaries and, to the
knowledge of Duke, no
such action has been threatened in writing, except in each case
as,
individually or in the aggregate, have not had and could not
reasonably be
expected to have a material adverse effect on Duke. Except as,
individually or
in the aggregate, has not had and could not reasonably be
expected to have a
material adverse effect on Duke: (A) there are no litigations,
lawsuits,
claims, charges, complaints, arbitrations, actions,
investigations or
proceedings pending or, to the knowledge of Duke, threatened
between or
involving Duke or any of its subsidiaries and any of their
respective current
or former employees, independent contractors, applicants for
employment or
classes of the foregoing; (B) Duke and its subsidiaries are in
compliance with
all applicable laws, orders, agreements, contracts and policies
respecting
employment and employment practices, including, without
limitation, all legal
requirements respecting terms and conditions of employment,
equal opportunity,
workplace health and safety, wages and hours, child labor,
immigration,
discrimination, disability rights or benefits, facility closures
and layoffs,
workers' compensation, labor relations, employee leaves and
unemployment
insurance; and (C) since January 1, 2002, neither Duke nor any
of its
subsidiaries has engaged in any "plant closing" or "mass
layoff", as defined
in the WARN Act, without complying with the notice requirements
of such laws.
(n) Environmental Matters.
(i) Each of Duke, its subsidiaries and the Duke
Joint Ventures has been and is in compliance with all
applicable
Environmental Laws, except where the failure to be in such
compliance,
individually or in the aggregate, has not had and could not
reasonably be
expected to have a material adverse effect on Duke.
(ii) Each of Duke, its subsidiaries and the Duke
Joint Ventures has obtained all Environmental Permits necessary
for the
construction of their facilities and the conduct of their
operations as
of the date of this Agreement, as applicable, and all such
Environmental
Permits are in good standing or, where applicable, a renewal
application
has been timely filed and is pending agency approval, and Duke,
its
subsidiaries and the Duke Joint Ventures are in compliance with
all terms
and conditions of the Environmental Permits, except where the
failure to
obtain such Environmental Permits, of such Permits to be in good
standing
or, where applicable, of a renewal application to have been
timely filed
and be pending or to be in such compliance, individually or in
the
aggregate, has not had and could not reasonably be expected to
have a
material adverse effect on Duke.
(iii) There is no Environmental Claim pending
(A) against Duke or any of its subsidiaries or
any of the Duke Joint Ventures;
(B) to the knowledge of Duke, against any
person or entity whose liability for such Environmental Claim
has
been retained or assumed either contractually or by operation of
law
by Duke or any of its subsidiaries or any of the Duke Joint
Ventures; or
(C) against any real or personal property or
operations that Duke or any of its subsidiaries or any of the
Duke
Joint Ventures owns, leases or manages, in whole or in part, or,
to
the knowledge of Duke, formerly owned, leased or arranged, in
whole
or in part,
except in the case of clause (A), (B) or (C) for such
Environmental
Claims that, individually or in the aggregate, have not had
and
could not reasonably be expected to have a material adverse
effect
on Duke.
(iv) To the knowledge of Duke, there have not been
any Releases of any Hazardous Material that would be reasonably
likely to
form the basis of any Environmental Claim against Duke or any of
its
subsidiaries or any of the Duke Joint Ventures, in each case,
except for
such Releases that, individually or in the aggregate, have not
had and
could not reasonably be expected to have a material adverse
effect on
Duke.
(o) Operations of Nuclear Power Plants. The
operations of the nuclear generation stations owned, in whole or
part, by
Duke or its subsidiaries (collectively, the "Duke Nuclear
Facilities")
are and have been conducted in compliance with all applicable
laws and
Permits, except for such failures to comply that, individually
or in the
aggregate, have not had and could not reasonably be expected to
have a
material adverse effect on Duke. Each of the Duke Nuclear
Facilities
maintains, and is in material compliance with, emergency plans
designed
to respond to an unplanned Release therefrom of radioactive
materials and
each such plan conforms with the requirements of applicable law
in all
material respects. The plans for the decommissioning of each of
the Duke
Nuclear Facilities and for the storage of spent nuclear fuel
conform with
the requirements of applicable law in all material respects and,
solely
with respect to the portion of the Duke Nuclear Facilities
owned,
directly or indirectly, by Duke, are funded consistent with
applicable
law. The operations of the Duke Nuclear Facilities are not the
subject of
any outstanding notices of violation, any ongoing proceeding,
NRC
Diagnostic Team Inspections or requests for information from the
NRC or
any other agency with jurisdiction over such facility, except
for such
notices or requests for information that, individually or in
the
aggregate, have not had and could not reasonably be expected to
have a
material adverse effect on Duke. No Duke Nuclear Facility is
listed by
the NRC in the Unacceptable Performance column of the NRC Action
Matrix,
as a part of NRC's Assessment of Licensee Performance.
Liability
insurance to the full extent required by law for operating the
Duke
Nuclear Facilities remains in full force and effect regarding
such
facilities, except for failures to maintain such insurance in
full force
and effect that, individually or in the aggregate, have not had
and could
not reasonably be expected to have a material adverse effect on
Duke.
(p) Vote Required. Assuming the accuracy of the
representation and warranty contained in Section 3.01(r), the
affirmative vote
of the holders of record of at least a majority of the
outstanding shares of
Duke Common Stock, with respect to the approval of this
Agreement (the "Duke
Shareholder Approval"), is the only vote of the holders of any
class or series
of the capital stock of Duke or its subsidiaries required to
approve this
Agreement, the Duke Merger and the other transactions
contemplated hereby.
(q) Opinion of Financial Advisor. Duke has received
the opinion of each of UBS Securities LLC and Lazard Freres
& Co. LLC dated
the date of this Agreement, to the effect that, as of the date
of this
Agreement, the Duke Exchange Ratio is fair from a financial
point of view to
Duke.
(r) Ownership of Cinergy Capital Stock. Neither Duke
nor any of its subsidiaries or other affiliates beneficially
owns any shares
of Cinergy capital stock.
(s) Duke Rights Agreement. As of the date of this
Agreement, Duke or the Board of Directors of Duke, as the case
may be, has (i)
taken all necessary actions so that the execution and delivery
of this
Agreement and the consummation of the transactions contemplated
hereby will
not result in a "Distribution Date" (as defined in the Duke
Rights Agreement)
and (ii) amended the Duke Rights Agreement to render it
inapplicable to this
Agreement, the Duke Merger and other transactions contemplated
hereby.
(t) Articles 9 and 9A of the NCBCA Not Applicable.
Duke has taken all necessary actions, if any, so that the
provisions of
Articles 9 and 9A of the NCBCA will not, before the termination
of this
Agreement, apply to this Agreement, the Duke Merger or the other
transactions
contemplated hereby. No "fair price", "merger moratorium",
"control share
acquisition", or other anti-takeover or similar statute or
regulation applies
or purports to apply to this Agreement, the Duke Merger or the
other
transactions contemplated hereby.
(u) Joint Venture Representations. Each representation
or warranty made by Duke in this Section 3.02 relating to a Duke
Joint Venture
that is neither operated nor managed by Duke or a Duke
subsidiary shall be
deemed made only to the knowledge of Duke.
(v) Insurance. Except for failures to maintain
insurance or self-insurance that, individually or in the
aggregate, have not
had and could not reasonably be expected to have a material
adverse effect on
Duke, from January 1, 2004, through the date of this Agreement,
each of Duke
and its subsidiaries has been continuously insured with
financially
responsible insurers or has self-insured, in each case in such
amounts and
with respect to such risks and losses as are customary for
companies in the
United States conducting the business conducted by Duke and its
subsidiaries
during such time period. Neither Duke nor any of its
subsidiaries has received
any notice of cancellation or termination with respect to any
insurance policy
of Duke or any of its subsidiaries, except with respect to any
cancellation or
termination that, individually or in the aggregate, has not had
and could not
reasonably be expected to have a material adverse effect on
Duke.
(w) Trading. Duke has established risk parameters,
limits and guidelines in compliance with the risk management
policy approved
by Duke's Board of Directors (the "Duke Trading Guidelines") to
restrict the
level of risk that Duke and its subsidiaries are authorized to
take with
respect to, among other things, the net position resulting from
all physical
commodity transactions, exchange-traded futures and options
transactions,
over-the-counter transactions and derivatives thereof and
similar transactions
(the "Net Duke Position") and monitors compliance by Duke and
its subsidiaries
with such risk parameters. Duke has provided the Duke Trading
Guidelines to
Cinergy prior to the date of this Agreement. As of the date of
this Agreement,
(i) the Net Duke Position is within the risk parameters that are
set forth in
the Duke Trading Guidelines and (ii) the exposure of Duke and
its subsidiaries
with respect to the Net Duke Position resulting from all such
transactions is
not material to Duke and its subsidiaries taken as a whole. From
December 31,
2004 to the date of this Agreement, neither Duke nor any of its
subsidiaries
has, in accordance with its mark to market accounting policies,
experienced an
aggregate net loss in its trading operations that would be
material to Duke
and its subsidiaries taken as a whole.
ARTICLE IV
Covenants
Section 4.01 Covenants of Cinergy. From and after the date
of this Agreement until the Cinergy Effective Time, Cinergy
covenants and
agrees as to itself and its subsidiaries that (except as
expressly
contemplated or permitted by this Agreement, as set forth in
Section 4.01 of
the Cinergy Disclosure Letter, for transactions (other than
those set forth in
Section 4.01(d) to the extent relating to the capital stock of
Cinergy) solely
involving Cinergy and one or more of its direct or indirect
wholly-owned
subsidiaries or between two or more direct or indirect
wholly-owned
subsidiaries of Cinergy, or to the extent that Duke shall
otherwise previously
consent in writing, such consent not to be unreasonably withheld
or delayed):
(a) Ordinary Course. Cinergy and each of its
subsidiaries shall conduct their businesses in all material
respects in the
ordinary course of business consistent with past practice.
Without limiting
the generality of the foregoing, Cinergy and its subsidiaries
shall use
commercially reasonable efforts to preserve intact in all
material respects
their present business organizations, to maintain in effect all
existing
Permits, subject to prudent management of workforce and business
needs, to
keep available the services of their key officers and employees,
to maintain
their assets and properties in good working order and condition,
ordinary wear
and tear excepted, to preserve their relationships with
Governmental
Authorities, customers and suppliers and others having
significant business
dealings with them and to comply in all material respects with
all laws,
orders and Permits of all Governmental Authorities applicable to
them.
(b) Charter Documents. Cinergy shall not amend or
propose to amend its certificate of incorporation or, other than
in a manner
that would not materially restrict the operation of their
businesses, its
by-laws or its subsidiaries' certificate of incorporation or
by-laws (or other
comparable organizational documents).
(c) Dividends. Cinergy shall not, nor shall it permit
any of its subsidiaries to,
(i) declare, set aside or pay any dividends on or
make other distributions in respect of any of its capital stock
or share
capital, except:
(A) that Cinergy may continue the declaration
and payment of regular quarterly cash dividends on Cinergy
Common
Stock, not to exceed $0.48 per share, with usual record and
payment
dates for such dividends in accordance with past dividend
practice;
provided, that if the Cinergy Effective Time does not occur
between
a record date and payment date of a regular quarterly dividend,
a
special dividend may be declared and paid in respect of
Cinergy
Common Stock with respect to the quarter in which the
Cinergy
Effective Time occurs with a record date in such quarter and on
or
prior to the date on which the Cinergy Effective Time occurs,
which
dividend does not exceed an amount equal to the product of (i)
a
fraction the (x) numerator of which is equal to the number of
days
between the last payment date of a regular quarterly dividend
and
the record date of such special dividend (excluding such
last
payment date but including the record date of such special
dividend)
and (y) the denominator of which is equal to the number of
days
between the last payment date of a regular quarterly dividend
and
the same calendar day in the third month after the month in
which
such last payment date occurred (excluding such last payment
date
but including such same calendar day), multiplied by (ii) the
then
permitted quarterly dividend per share, and
(B) for the declaration and payment of
dividends by a direct or indirect wholly-owned subsidiary solely
to
its parent, or by a direct or indirect partially owned
subsidiary of
Cinergy (provided that Cinergy or the Cinergy subsidiary
receives or
is to receive its proportionate share of such dividend or
distribution), and
(C) for the declaration and payment of regular
cash dividends with respect to preferred stock of Cinergy's
subsidiaries outstanding as of the date of the Agreement or
permitted to be issued under the terms of this Agreement,
and
(D) to the extent advisable in the exercise of
the fiduciary duties of the Board of Directors of Cinergy, for
the
declaration and payment of a customary share purchase rights
plan,
provided, that, (1) Cinergy shall provide Duke prior notice of
any
such declaration or payment and (2) in connection with any
such
declaration or payment, the Board of Directors of Cinergy
and
Cinergy shall cause (x) this Agreement and the transactions
contemplated hereby to not result in a "Distribution Date" (as
such
term may be defined in any such share purchase rights plan)
or
similar event under such share purchase rights plan and (y) any
such
share purchase rights plan to be inapplicable in all respects
to
this Agreement, the Duke Merger, the Cinergy Merger and the
other
transactions contemplated hereby; and
(ii) split, combine, reclassify or take similar
action with respect to any of its capital stock or share capital
or issue
or authorize or propose the issuance of any other securities in
respect
of, in lieu of or in substitution for shares of its capital
stock or
comprised in its share capital,
(iii) adopt a plan of complete or partial
liquidation or resolutions providing for or authorizing such
liquidation
or a dissolution, merger, consolidation, restructuring,
recapitalization
or other reorganization, or
(iv) except as disclosed in Section 4.01(c)(iv) of
the Cinergy Disclosure Letter, directly or indirectly redeem,
repurchase
or otherwise acquire any shares of its capital stock or any
Option with
respect thereto except:
(A) in connection with intercompany purchases
of capital stock or share capital, or
(B) for the purpose of funding the Cinergy
Employee Stock Option Plans or employee stock ownership or
dividend
reinvestment and stock purchase plans, or
(C) mandatory repurchases or redemptions of
preferred stock of Cinergy's subsidiaries in accordance with
the
terms thereof.
(d) Share Issuances. Cinergy shall not, nor shall
it permit any of its subsidiaries to issue, deliver or sell, or
authorize or
propose the issuance, delivery or sale of, any shares of its
capital stock or
any Option with respect thereto (other than (i) the issuance of
Cinergy Common
Stock upon the exercise of Cinergy Employee Stock Options
outstanding as of
the date hereof or issued after the date hereof in accordance
with the terms
of this Agreement in accordance with their terms, (ii) the
issuance of Cinergy
Common Stock in respect of other equity compensation awards
granted under the
Cinergy Employee Stock Option Plans outstanding as of the date
hereof or
issued after the date hereof in accordance with the terms of
this Agreement in
accordance with their terms, (iii) the issuance of Cinergy
Employee Stock
Options and the grant of other equity compensation awards
pursuant to the
Cinergy Employee Stock Option Plans in accordance with their
terms providing,
in aggregate, up to an additional 2,000,000 shares of Cinergy
Common Stock in
any 12-month period following the date hereof, provided,
however, that any
Cinergy Employee Stock Options and equity awards granted after
the date of
this Agreement shall, subject to paragraph 4 of Section 4.01(i)
of the Cinergy
Disclosure Letter, be granted on terms pursuant to which such
Cinergy Employee
Stock Options and equity awards shall not vest on the Cinergy
Shareholder
Approval or otherwise on the occurrence of the transactions
contemplated
hereby, provided, further, however, that Cinergy Employee Stock
Options and
equity awards granted after the date of this Agreement may vest
upon
termination of employment by the Company or any of its
subsidiaries without
"cause" or by the participants for "good reason" (each as
defined in the
applicable agreement), in each case, within the two-year period
following the
Cinergy Effective Time, and shall, at the Cinergy Effective
Time, be converted
into options or equity-based awards to acquire or in respect of,
as
applicable, Company Common Stock in the manner contemplated by
Section 5.06,
and (iv) the pro rata issuance by a subsidiary of its capital
stock to its
shareholders, provided, further, subject to Section 4.01(d) of
the Cinergy
Disclosure Letter, that any shares of Cinergy Common Stock that
Cinergy or its
subsidiaries shall contribute, directly or indirectly, to any
employee benefit
plan (including any plan intended to satisfy the requirements of
Section
401(a) of the Code) or that Cinergy or its subsidiaries shall
make subject to
any dividend reinvestment or similar plan shall be shares
purchased in
open-market or privately negotiated transactions, but shall not
constitute
newly issued shares of Cinergy Common Stock), or modify or amend
any right of
any holder of outstanding shares of its capital stock or any
Option with
respect thereto other than to give effect to Section 5.06.
(e) Acquisitions; Capital Expenditures. Except for
(x) acquisitions of, or capital expenditures relating to, the
entities, assets
and facilities identified in Section 4.01(e) of the Cinergy
Disclosure Letter,
(y) expenditures of amounts set forth in Cinergy's capital
expenditure plan
included in Section 4.01(e) of the Cinergy Disclosure Letter,
and (z) capital
expenditures (1) required by law or Governmental Authorities or
(2) incurred
in connection with the repair or replacement of facilities
destroyed or
damaged due to casualty or accident (whether or not covered by
insurance),
Cinergy shall not, nor shall it permit any of its subsidiaries
to, make any
capital expenditures, or acquire or agree to acquire (whether by
merger,
consolidation, purchase or otherwise) any person or assets, if
(A) the
expected gross expenditures and commitments pursuant thereto
(including the
amount of any indebtedness and amounts received for negative
trading positions
assumed) exceeds or may exceed (i) $100,000,000, in the case of
any
acquisition or series of related acquisitions of any person,
asset or property
located in the United States, or (ii) $50,000,000 in the case of
any
acquisition or series of related acquisitions of any person,
asset or property
located outside of the United States (each acquisition or series
of related
acquisitions described in (i) and (ii), a "Cinergy Threshold
Acquisition"),
(B) the expected gross expenditures and commitments pursuant
thereto
(including the amount of any indebtedness and amounts received
for negative
trading positions assumed) exceeds or may exceed, in the
aggregate,
$100,000,000 excluding all Cinergy Threshold Acquisitions
identified in
Section 4.01(e) of the Cinergy Disclosure Letter or to which
Duke has
previously consented in writing, (C) any such acquisition or
capital
expenditure constitutes any line of business that is not
conducted by Cinergy,
its subsidiaries or the Cinergy Joint Ventures as of the date of
this
Agreement or extends any line of business of Cinergy, its
subsidiaries or the
Cinergy Joint Ventures into any geographic region outside of the
continental
United States or Canada in which Cinergy, its subsidiaries or
the Cinergy
Joint Ventures do not conduct business as of the date of this
Agreement, or
(D) any such acquisition or capital expenditure is reasonably
likely,
individually or in the aggregate, to materially delay the
satisfaction of the
conditions set forth in Sections 6.02(d) or Sections 6.03(d) or
prevent the
satisfaction of such conditions.
(f) Dispositions. Except for (x) dispositions set
forth in Section 4.01(f) of the Cinergy Disclosure Letter, (y)
dispositions of
obsolete equipment or assets or dispositions of assets being
replaced, in each
case in the ordinary course of business consistent with past
practice and (z)
dispositions by Cinergy or its subsidiaries of its assets in
accordance with
the terms of restructuring and divestiture plans mandated or
approved by
applicable local or state regulatory agencies, Cinergy shall
not, nor shall it
permit any of its subsidiaries to, sell, lease, grant any
security interest in
or otherwise dispose of or encumber any of its assets or
properties if (A) the
value of such disposition exceeds or may exceed (i)
$100,000,000, in the case
of any disposition or series of related dispositions of any
person, asset or
property located in the United States, or (ii) $50,000,000 in
the case of any
disposition or series of related dispositions of any person,
asset or property
located outside of the United States (each disposition or series
of related
dispositions described in (i) and (ii), a "Cinergy Threshold
Disposition") or
(B) the aggregate value of all such dispositions, excluding all
Cinergy
Threshold Dispositions identified in Section 4.01(f) of the
Cinergy Disclosure
Letter or to which Duke has previously consented in writing,
exceeds or may
exceed, in the aggregate, $100,000,000. For the purposes of this
Section
4.01(f), the value of any disposition or series of related
dispositions shall
mean the greater of (i) the book value or (ii) the sales price,
in each case
of the person, asset or property which is the subject of such
disposition and,
in each case, together with the indebtedness and amounts paid
for negative
trading positions transferred by Cinergy or its subsidiaries in
connection
with such disposition.
(g) Indebtedness. Except as disclosed in Section
4.01(g) of the Cinergy Disclosure Letter, Cinergy shall not, nor
shall it
permit any of its subsidiaries to, (A) incur or guarantee any
indebtedness or
enter into any "keep well" or other agreement to maintain any
financial
condition of another person or enter into any arrangement having
the economic
effect of any of the foregoing (including any capital leases,
"synthetic"
leases or conditional sale or other title retention agreements)
other than (i)
short-term borrowings incurred in the ordinary course of
business, (ii)
letters of credit obtained in the ordinary course of business,
(iii)
borrowings made in connection with the refunding of existing
indebtedness (x)
at maturity or upon final mandatory redemption (without the need
for the
occurrence of any special event) or (y) at a lower cost of
funds, (iv)
borrowings to finance capital expenditures or acquisitions
permitted pursuant
to Section 4.01(e) or indebtedness assumed pursuant thereto, (v)
other
borrowings in an aggregate principal amount not to exceed
$150,000,000
outstanding at any time, (vi) guarantees or other credit support
issued
pursuant to trading or marketing positions established prior to
the date of
this Agreement and (vii) in addition to the guarantees or other
credit support
contemplated by subsection (vi) of this Section 4.01(g),
additional guarantees
or other credit support issued in connection with trading or
marketing
activities in the ordinary course of business or (B) make any
loans or
advances to any other person, other than (i) in the ordinary
course of
business consistent with past practice, (ii) to any direct or
indirect wholly-
owned subsidiary of Cinergy, or, in the case of a subsidiary of
Cinergy, to
Cinergy or (iii) as required pursuant to any obligation in
effect as of the
date of this Agreement.
(h) Marketing of Energy; Trading. Cinergy shall
not, nor shall it permit any of its subsidiaries to, (i) permit
any material
change in policies governing or otherwise relating to the
trading or marketing
of energy other than as a result of acquisitions or capital
expenditures
permitted pursuant to Section 4.01(e) or to increase the
existing aggregate
VaR limit as established by the Risk Policy Committee or (ii)
enter into any
physical commodity transactions, exchange-traded futures and
options
transactions, over-the-counter transactions and derivatives
thereof or similar
transactions other than as permitted by the Cinergy Trading
Guidelines.
(i) Employee Benefits. Except as required by law
or the terms of any collective bargaining agreement or any
Cinergy Employee
Benefit Plan, or as disclosed in Section 4.01(i) of the Cinergy
Disclosure
Letter, Cinergy shall not, nor shall it permit any of its
subsidiaries to,
enter into, adopt, amend or terminate any Cinergy Employee
Benefit Plan, or
other agreement, arrangement, plan or policy between Cinergy or
one of its
subsidiaries and one or more of its directors, officers or
employees (other
than any amendment that is immaterial or administrative in
nature), or except
for normal increases in the ordinary course of business
consistent with past
practice, increase in any manner the compensation or fringe
benefits of any
director, executive officer or other employee, or, except for
normal payments
in the ordinary course of business consistent with past
practice, pay any
benefit not required by any plan or arrangement in effect as of
the date of
this Agreement, provided, however, that the foregoing shall not
restrict
Cinergy or its subsidiaries from (i) entering into or making
available to
newly hired officers and employees or to officers and employees
in the context
of promotions based on job performance or workplace requirements
in the
ordinary course of business consistent with past practice,
plans, agreements,
benefits and compensation arrangements (including incentive
grants) that have,
consistent with past practice, been made available to newly
hired or promoted
officers and employees, or (ii) entering into or amending
collective
bargaining agreements with existing collective bargaining
representatives or
newly
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