-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CayAnmX2cfrAM0yJf+scHytO2VOSzQVSctqBr7lYPzg8kHsE4/8hbyk7BcmkDi4U mkLuaOwaM7x9CgWY1bok5Q== 0000950120-02-000456.txt : 20020802 0000950120-02-000456.hdr.sgml : 20020802 20020802164112 ACCESSION NUMBER: 0000950120-02-000456 CONFORMED SUBMISSION TYPE: U-1 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20020802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMEREN CORP CENTRAL INDEX KEY: 0001002910 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 431723446 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1 SEC ACT: 1935 Act SEC FILE NUMBER: 070-10078 FILM NUMBER: 02718559 BUSINESS ADDRESS: STREET 1: 1901 CHOUTEAU AVE STREET 2: MC 1370 CITY: ST LOUIS STATE: MO ZIP: 63166-6149 BUSINESS PHONE: 431723446 MAIL ADDRESS: STREET 1: 1901 CHOUTEAU AVE STREET 2: MC 1370 CITY: ST LOUIS STATE: MO ZIP: 63103 U-1 1 ameu1_0802.txt FORM U-1 (As filed on August 2, 2002) File No. 70-[_____] UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ---------------------------------------- FORM U-1 APPLICATION OR DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 -------------------------------------- AMEREN CORPORATION AMEREN ENERGY FUELS AND SERVICES COMPANY 1901 Chouteau Avenue St. Louis, Missouri 63103 CILCORP INC. CENTRAL ILLINOIS LIGHT COMPANY CENTRAL ILLINOIS GENERATION, INC. 300 Liberty Street Peoria, Illinois 61602 (Names of companies filing this statement and addresses of principal executive offices) --------------------------------------- AMEREN CORPORATION (Name of top registered holding company parent) ------------------------------------- Steven R. Sullivan Vice President, General Counsel and Secretary Ameren Services Company 1901 Chouteau Avenue St. Louis, Missouri 63103 (Name and address of agent for service) -------------------------------------------------------- The Commission is requested to send copies of all notices, orders and other communications in connection with this Application/Declaration to: Joseph H. Raybuck, Esq. William T. Baker, Jr., Esq. Ameren Services Company Thelen Reid & Priest LLP 1901 Chouteau Avenue 40 West 57th Street St. Louis, Missouri 63103 New York, New York 10019 William J. Harmon, Esq. William C. Weeden Jones, Day, Reavis & Pogue Skadden, Arps, Slate, Meagher 77 West Wacker Drive & Flom, L.L.P. Chicago, Illinois 60601-1692 1440 New York Avenue, NW Washington, DC 20005 2 TABLE OF CONTENTS PAGE ---- ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION...................................1 1.1 Introduction....................................................1 1.2 Description of Ameren and Its Subsidiaries......................2 1.3 Description of CILCORP and Its Subsidiaries.....................4 a. CILCO's Electric Utility Operations.........................5 b. CILCO's Gas Utility Operations..............................7 c. Regulation of CILCO and CIGI................................7 d. CILCORP's Non-Utility Businesses............................7 e. Capitalization of CILCORP and Subsidiaries..................8 1.4 Principal Terms of Stock Purchase Agreement.....................9 1.5 Operation of the Combined System Following the Acquisition.....10 1.6 Financing the Purchase Price...................................10 1.7 Affiliate Transactions.........................................11 a. Existing Sales, Service and Construction Contracts.........11 b. Ameren Services............................................11 c. Ameren Fuels...............................................12 1.8 Financing by CILCORP, CILCO and CIGI...........................12 a. External Financing Transactions............................13 (a) CILCORP...............................................13 (i) Short-term Debt.................................13 (ii) Refinancing of CILCORP Senior Notes.............14 (b) CILCO and CIGI........................................14 (i) Short-term Debt.................................15 (ii) Long-term Securities of CIGI....................15 (c) Interest Rate Hedging Transactions....................16 b. Intrasystem Financing Transactions; Guarantees; Money Pool Transactions..........................................17 (a) Long-term Securities of CILCORP.......................17 (b) Guarantees Issued by CILCORP and Its Subsidiaries.....18 (c) Participation by CILCO in Utility Money Pool..........19 (d) Participation by CILCORP and CIGI in Ameren Non-Utility Money Pool................................19 1.9 Organization and Acquisition of Financing Subsidiaries.........20 1.10 Payment of Dividends by CILCORP Out of Capital and Unearned Surplus........................................................20 1.11 Exemption of CILCORP and CILCO as Holding Companies............21 1.12 Reports Pursuant to Rule 24....................................22 ITEM 2. FEES, COMMISSIONS AND EXPENSES.......................................22 ITEM 3. APPLICABLE STATUTORY PROVISIONS......................................23 3.1 General Overview of Applicable Statutory Provisions............23 3.2 Compliance with Section 10(b)..................................25 a. Section 10(b)(1)...........................................25 3 b. Section 10(b)(2)...........................................28 c. Section 10(b)(3)...........................................30 3.3 Section 10(c)..................................................33 a. Section 10(c)(1)...........................................33 (a) The Transaction will be lawful under Section 8........33 (b) The Transaction will not be detrimental to carrying out the provisions of Section 11......................33 (i) Integration of Electric Operations..............34 A. Interconnection.............................34 B. Coordination................................35 C. Single Area or Region.......................36 D. Size........................................37 (ii) Integration of Gas Operations...................37 A. Coordination................................38 B. Single Area or Region.......................38 C. Size........................................39 (c) Retention of Combined Gas System......................39 (i) Loss of Economies...............................39 (ii) Same State or Adjoining States..................40 (iii) Size............................................41 (d) Retention of CILCORP's Non-Utility Subsidiaries and Investments...........................................41 (e) Retention of CIGI as Subsidiary of CILCO..............42 b. Section 10(c)(2)...........................................44 3.4 Section 10(f)..................................................45 3.5 Intra-system Transactions......................................45 3.6 Rule 54 Analysis...............................................46 ITEM 4. REGULATORY APPROVALS.................................................46 4.1 Illinois Commerce Commission...................................46 4.2 Federal Energy Regulatory Commission...........................47 4.3 HSR Act........................................................47 4.4 Federal Communications Commission..............................47 ITEM 5. PROCEDURE............................................................48 ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS....................................48 a. Exhibits...................................................48 b. Financial Statements.......................................50 ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS..............................51 4 ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION. ----------------------------------- 1.1 Introduction. Ameren Corporation ("Ameren"), a Missouri corporation and a registered holding company under the Public Utility Holding Company Act of 1935, as amended (the "Act"),(1) Ameren Energy Fuels and Services Company ("Ameren Fuels"), an indirect wholly-owned non-utility subsidiary of Ameren, CILCORP Inc. ("CILCORP"), an exempt holding company under Section 3(a)(1) of the Act,(2) CILCORP's public-utility subsidiary, Central Illinois Light Company ("CILCO"), and Central Illinois Generation, Inc. ("CIGI"), a subsidiary of CILCO that has been determined by the Federal Energy Regulatory Commission ("FERC") to be an "exempt wholesale generator" ("EWG"),(3) are filing this Application/Declaration pursuant to Sections 3(a)(1), 6(a), 7, 8, 9(a), 10, 11(b), 12(b), 12(c), 12(f) and 13(b) of the Act and Rules 26(c), 45, 46, 51, 54, 87 and 90-91 thereunder to request approval for the acquisition by Ameren of all of the issued and outstanding common stock of CILCORP (the "Transaction") and for certain other related proposals, as more fully described below. CILCORP is a wholly-owned subsidiary of The AES Corporation ("AES"), an exempt holding company under Section 3(a)(5) of the Act.(4) Ameren requests that the Commission issue a final order approving the Transaction without an evidentiary hearing, as expeditiously as feasible. Ameren and AES intend to close the Transaction in December 2002 or as early in the first quarter of 2003 as possible. As described in greater detail below, upon receipt of all necessary regulatory approvals, Ameren will purchase the common stock of CILCORP from AES for cash.(5) The Transaction is subject to, among other usual and customary - ------------------- (1) See Ameren Corporation, Holding Co. Act Release No. 26809 (Dec. 30, 1997) (the "1997 Merger Order"). (2) CILCORP is an exempt holding company under Section 3(a)(1) of the Act, pursuant to Rule 2. See Statement on Form U-3A-2 in File No. 69-305, filed February 27, 2002. (3) See Central Illinois Generation, Inc., 100 F.E.R.C.P. 62,011 (July 5, 2002). As explained below, CIGI will relinquish its EWG status on or shortly after Ameren completes its acquisition of the common stock of CILCORP, such that CIGI will become an additional public utility subsidiary of Ameren. Accordingly, for purposes of Sections 9(a) and 10 of the Act, Ameren's acquisition of CILCORP is treated as an indirect acquisition of the securities of two public-utility companies: CILCO and CIGI. (4) The Commission granted AES an exemption under Section 3(a)(5) of the Act in 1999 in connection with AES's acquisition of CILCORP. Subsequently, in 2001, the Commission authorized AES to acquire another utility holding company, IPALCO Enterprises, Inc., and extended AES's exemption under Section 3(a)(5), subject to the condition that AES divest its interest in CILCORP within two years following its acquisition of IPALCO Enterprises, Inc. See The AES Corporation, Holding Co. Act Release Nos. 27063 (Aug. 20, 1999) and 27363 (Mar. 23, 2001). (5) In conjunction with the Transaction, Ameren has also agreed to acquire from AES all of the membership interests in AES Medina Valley (No. 4), L.L.C., which indirectly through intermediate subsidiaries holds all of the membership interests in AES Medina Valley Cogen, L.L.C. ("AES Medina Valley"). AES Medina Valley, which has been determined by FERC to be an EWG, owns a 40 MW gas-fired conditions precedent, receipt by the parties of required state and federal regulatory approvals and filing of pre-merger notification statements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"), and the expiration or termination of the statutory waiting period thereunder. (See Item 4 - Regulatory Approvals, below). The boards of directors of Ameren and AES have each approved the proposed Transaction. The Transaction does not require any approval by the shareholders of Ameren or AES. In addition to authorization of the Transaction, CILCORP, CILCO and CIGI are requesting authorization herein through March 31, 2006 (the "Authorization Period") for a program of long-term and short-term financing, including authorization for CILCO to participate in the existing Ameren System Utility Money Pool (the "Utility Money Pool") and CILCORP and CIGI to participate in the Ameren System Non-Utility Money Pool (the "Non-Utility Money Pool").(6) Ameren Fuels is requesting authorization to enter into a fuel services agreement with CILCO and CIGI on terms that are substantially identical to the terms of a Fuel Services Agreement with AmerenUE and AmerenCIPS that the Commission has previously approved. CILCORP is requesting authorization to issue guarantees and provide other forms of credit support on behalf of its subsidiaries, and to pay dividends out of capital and unearned surplus, subject to certain limitations. Finally, CILCORP and CILCO are requesting an order granting to each of them an exemption under Section 3(a)(1) of the Act. 1.2 Description of Ameren and Its Subsidiaries. ------------------------------------------ Ameren's primary operating subsidiaries are Central Illinois Public Service Company ("AmerenCIPS") and Union Electric Company ("AmerenUE"), which are electric and gas utility companies, and Ameren Energy Generating Company ("Ameren Energy Generating"), which is an EWG.(7) These companies are engaged principally in the generation, transmission, distribution and sale of electric energy and the purchase, distribution, transportation and sale of natural gas. AmerenCIPS, an Illinois corporation, supplies electric and gas utility service in a 20,000 square-mile area in central and southern Illinois having an estimated population of 820,000. AmerenCIPS supplies electric service to about 325,000 customers and natural gas service to about 170,000 customers. - ------------------- cogeneration facility in Mossville, Illinois that produces electricity, steam and chilled water for sale to CILCO. See AES Medina Valley Cogen, L.L.C., 94 F.E.R.C.P. 62,264 (Mar. 30, 2001). Ameren's indirect acquisition of AES Medina Valley is exempt pursuant to Section 32(g) of the Act. AES Medina Valley (No. 4), L.L.C. also owns all of the membership interests in AES Medina Valley Operations, L.L.C., which operates the Mossville facility. (6) The approval of the Illinois Commerce Commission is required in order for CILCO to become a participant in the Utility Money Pool. CILCO intends to seek such approval as part of a separate filing. 7 See Ameren Energy Generating Co., 93 F.E.R.C.P. 62,210 (Dec. 18, 2000). 2 AmerenUE, a Missouri corporation, is the largest electric utility in the State of Missouri. It supplies electric and gas service in territories in a 24,500 square-mile area in Missouri and Illinois having an estimated population of 2,600,000, including the greater St. Louis area. AmerenUE supplies electric service to about 1.2 million customers and natural gas service to about 130,000 customers. Ameren Energy Generating is an indirect wholly-owned electric generating subsidiary of Ameren that was organized in order to facilitate the restructuring of AmerenCIPS in accordance with the Illinois Electric Service Customer Choice and Rate Relief Law of 1997 ("Customer Choice Law"). In May 2000, Ameren Energy Generating acquired all of the existing generating assets of AmerenCIPS. AmerenUE and Ameren Energy Generating together own and operate about 12,600 MW of electric generating capacity, all of which is located in Missouri and Illinois. As of December 31, 2001, AmerenUE and AmerenCIPS owned and operated, or partially owned, a total of approximately 5,400 circuit miles of electric transmission lines and approximately 7,800 miles of natural gas transmission and distribution mains, substantially all of which are located in Missouri and Illinois.(8) AmerenUE and AmerenCIPS are members of the Mid-American Interconnected Network ("MAIN"), which is one of the ten regional electric reliability councils organized for coordinating the planning and operation of the nation's bulk power supply. AmerenUE and AmerenCIPS operate their electric transmission systems as a single control area, subject to a single open access transmission tariff on file with the FERC. On May 28, 2002, Ameren informed the FERC that AmerenUE and AmerenCIPS intend to participate in the Midwest Independent System Operator ("MISO"), either as transmission owners or as members of an independent transmission company that is itself a member of the MISO. Subsequently, on June 20, 2002, Ameren and two other utilities (American Transmission Systems, Inc., a subsidiary of FirstEnergy Corp., and Northern Indiana Public Service Company, a subsidiary of NiSource Inc.) agreed to form a for-profit independent transmission company, called GridAmerica, LLC, as the vehicle through which they would participate in the MISO and filed a letter of intent to that effect with the FERC. On July 3, 2002, definitive agreements establishing GridAmerica, LLC as a participant in the MISO were filed with the FERC. Ameren's direct non-utility subsidiaries are: o CIPSCO Investment Company, which holds various nonregulated and passive investments, including passive investments in low income housing projects and investments in equipment leases; o Ameren Services Company ("Ameren Services"), a service company subsidiary that provides administrative, accounting, legal, engineering, executive, and other corporate support services to Ameren and its associate companies; - ------------------- (8) Ameren owns interconnecting electric transmission facilities in southeastern Iowa but does not serve any customers in Iowa. 3 o Ameren Energy, Inc., an energy-related company under Rule 58 that primarily serves as the short-term energy trading and marketing agent for AmerenUE and Ameren Energy Generating and provides a range of energy and risk management services; o Ameren Development Company, an intermediate non-utility holding company, which directly and indirectly owns all of the outstanding stock of two energy-related companies under Rule 58 (Ameren ERC, Inc., which provides energy management services, and Missouri Central Railroad, a fuel transportation subsidiary) and of an exempt telecommunications company within the meaning of Section 34 of the Act (Ameren Energy Communications, Inc.); o Ameren Energy Resources Company, also an intermediate non-utility holding company, which holds all of the outstanding common stock of Ameren Energy Development Company, an EWG, as well as of two energy-related companies under Rule 58 (Ameren Energy Marketing Company, a power marketer, and Ameren Fuels, which brokers and markets energy commodities and owns and manages fuel procurement and delivery assets). Ameren Energy Generating is a wholly-owned subsidiary of Ameren Energy Development Company. In addition, Ameren indirectly owns 60% of the common stock of Electric Energy, Inc. ("EEI"), an EWG. EEI owns and/or operates electric generation and transmission facilities in Illinois that supply electric power primarily to a uranium enrichment plant located in Paducah, Kentucky.(9) An organizational chart showing the relationship of Ameren and its subsidiaries is filed herewith as Exhibit E-1. For the twelve months ended December 31, 2001, Ameren reported total operating revenues of $4,505,867,000, operating income of $664,987,000, and net income of $468,545,000. On a consolidated basis, approximately 92.2% of Ameren's 2001 operating revenues were derived from sales of electricity, 7.6% from sales of gas and gas transportation service, and .2% from other, unregulated, sources. At December 31, 2001, Ameren had $10,400,575,000 in total assets, including net property, plant and equipment of $7,765,611,000. As of May 10, 2002, Ameren had issued and outstanding 144,347,116 shares of common stock, $.01 par value. Ameren's common stock is listed and traded on the New York Stock Exchange ("NYSE"). 1.3 Description of CILCORP and Its Subsidiaries. ------------------------------------------- CILCORP, an Illinois corporation, owns all of the issued and outstanding common stock of CILCO, its predominant subsidiary. CILCO is engaged in the generation, transmission, distribution and sale of electric energy in an area of approximately 3,700 square miles in central and east-central Illinois, - ------------------- (9) The remaining 40% of the stock of EEI is held equally by two unaffiliated electric utility companies. 4 and the purchase, distribution, transportation and sale of natural gas in an area of approximately 4,500 square miles in central and east-central Illinois. a. CILCO's Electric Utility Operations. ----------------------------------- CILCO furnishes electric service to retail customers in 136 Illinois communities (including Peoria, East Peoria, Pekin, Lincoln and Morton). At December 31, 2001, CILCO had approximately 201,000 retail electric customers. CILCO owns and operates two coal-fired base load generating plants, a natural gas-fired cogeneration plant, two natural gas combustion turbine generators and 16 diesel-fueled power modules and leases 14 diesel-fueled power modules, all of which are located in Illinois. These facilities had an available summer capability of 1,172 MW in 2001 and 1,197 MW in 2002. The natural gas combustion turbine generators and the power modules are typically used for peaking service. The cogeneration plant, which became operational in 1995, produces steam for sale to a large agricultural processing customer and electricity for distribution to CILCO's customers. The major generating facilities of CILCO (representing 92.4% of CILCO's available summer generating capability projected for 2002), all of which are fueled with coal, are as follows: STATION & UNIT INSTALLED AVAILABLE SUMMER CAPABILITY (MW) Duck Creek Unit 1 1976 366 E. D. Edwards Unit 1 1960 117 Unit 2 1968 262 Unit 3 1972 361 CILCO's transmission system (all of which is located in Illinois) includes approximately 285 circuit miles operating at 138 kV, 48 circuit miles operating at 345 kV and 18 principal substations with an installed capacity of approximately 3,724 megavolt-amperes. CILCO's electric distribution system (all of which is located in Illinois) includes approximately 6,516 circuit miles of overhead pole and tower lines and 1,933 miles of underground distribution cables. The distribution system also includes approximately 108 substations with an installed capacity of 1,766 megavolt-amperes. CILCO has a power purchase agreement with AmerenCIPS for 100 MW of capacity and firm energy for the months of June through September through 2003 which, additionally, provides for 100 MW of firm energy for the month of January through 2003. CILCO and Ameren also make short-term sales of power to each other from time to time under market-based rate tariffs as authorized by the FERC. 5 CILCO's service territory is adjacent to AmerenCIPS' service territory. The transmission systems of the two companies are directly interconnected via a 345 kV line that runs approximately 21.3 miles between CILCO's Duck Creek station, which is southwest of Peoria, to a 345/138 kV transformer owned by AmerenCIPS near Ipava, Illinois. AmerenCIPS owns about 9.5 miles of this line, and CILCO owns the rest. CILCO is also directly interconnected with Commonwealth Edison Company, Illinois Power Company and City Water, Light and Power, the municipal utility in the City of Springfield, Illinois ("CWLP"). Like AmerenUE and AmerenCIPS, CILCO is a member of MAIN. CILCO is already a transmission owning member of the MISO, and operates its transmission system under the direction of the MISO pursuant to the terms of the MISO Open Access Transmission Tariff on file with the FERC.(10) Prior to the closing of the Transaction, CILCO intends to transfer substantially all of its generating assets and certain associated transmission facilities, such as step-up transformers and generation tie lines, to CIGI, in the form of a capital contribution of these assets in exchange for all of CIGI's common stock and CIGI's assumption of certain liabilities.(11) The transferred assets will remain subject to the lien of CILCO's Indenture of Mortgage and Deed of Trust, which secures CILCO's first mortgage bonds. This reorganization is being undertaken pursuant to the Customer Choice Law. CILCO will retain all of its other electric transmission and distribution assets and operations. CILCO has obtained the approvals of the Illinois Commerce Commission ("ICC")(12) and the FERC(13) for the transfer of these assets, and CIGI has received a determination by the FERC that it is an EWG.(14) As part of this reorganization, CILCO and CIGI will also enter into a Power Supply Agreement ("PSA") and an Interconnection Agreement pursuant to which CIGI will supply the full requirements of CILCO's customers through December 31, 2004.(15) In light of recently enacted legislation in Illinois, which extends the rate freeze for CILCO through 2006 if Ameren completes the acquisition of CILCORP, Ameren anticipates that CILCO and CIGI will file a request with FERC to extend the PSA, on its existing terms, until December 31, 2006. After December 31, 2006, CILCO will obtain its full requirements from - ------------------- (10) As described in Item 3.2(a) below, Ameren is proposing in its FERC application, as a condition for obtaining FERC approval of the Transaction, to implement certain transmission system upgrades in order to increase import capability into the control areas of Ameren, CILCO and CWLP. (11) CILCO will transfer generating facilities representing 1,136 MW of its total generating capacity. These include the Duck Creek and E.D. Edwards coal-fired units and certain peaking units. CILCO will continue to own and maintain a natural gas-fired cogeneration plant and 26 MW of capacity provided by 16 diesel-fueled power modules located at various substations, which will be managed by CIGI. (12) See Central Illinois Light Company, Docket Nos. 02-0140 (consolidated) and 02-0153 (April 10, 2002), 2002 Ill. PUC LEXIS 414. (13) See Central Illinois Light Company, 99 F.E.R.C.P. 62,143 (May 28, 2002). (14) See note 3, supra. (15) CIGI has filed the PSA with the FERC in a separate proceeding. 6 market sources, which could include CIGI or other affiliates of CILCO and Ameren, if any of such entities offer the most economical and reliable source of power and energy. b. CILCO's Gas Utility Operations. ------------------------------ CILCO provides gas service to customers in 128 Illinois communities (including Peoria, East Peoria, Pekin, Lincoln and Springfield). At December 31, 2001, CILCO had approximately 204,000 gas customers, including 160 industrial, commercial and residential gas transportation customers that purchase gas directly from suppliers for transportation through CILCO's system. CILCO's gas system includes approximately 3,632 miles of transmission and distribution mains (all of which are located in Illinois). CILCO has an underground gas storage facility located about ten miles southwest of Peoria near Glasford, Illinois. The facility has a present working capacity of approximately 3,700,000 Mcf with daily withdrawal capacity of up to approximately 120,000 Mcf, depending on field pressure. An additional storage facility near Lincoln, Illinois, has a present working capacity of approximately 4,200,000 Mcf with a daily withdrawal capacity of up to approximately 65,000 Mcf, depending on field pressure. c. Regulation of CILCO and CIGI. ---------------------------- CILCO is regulated by the ICC with respect to retail electric and gas rates and service, classification of accounts, the issuance of stock and evidence of indebtedness (other than indebtedness with a final maturity of less than one year and renewable for a period of not more than two years), contracts with any affiliated interest, and other matters, and by the FERC with respect to transmission service and wholesale electric rates. CIGI is not a public utility company under the laws of Illinois and is therefore not subject to regulation by the ICC. However, CIGI is subject to regulation by the FERC with respect to wholesale electric rates and other matters. d. CILCORP's Non-Utility Businesses. -------------------------------- CILCORP directly owns all of the common stock of three non-utility subsidiaries: CILCORP Investment Management Inc. ("CIM"), CILCORP Ventures Inc. ("CVI"), and QST Enterprises Inc. ("QST"). CIM manages the Company's investment portfolio. CIM, through subsidiaries, is a lessor in seven leveraged lease transactions covering electric production facilities, warehouses, office buildings, passenger railway equipment and an aircraft that are leased to third parties. CIM's subsidiaries are CILCORP Lease Management Inc., which was formed in 1985, and CIM Leasing Inc. and CIM Air Leasing Inc., which were both formed in 1993. CIM's other wholly-owned subsidiary is CIM Energy Investments Inc., which was formed in 1989 to invest in non-regulated, independent power production facilities. CIM also directly owns limited partnership interests in affordable housing portfolios. CVI primarily invests in ventures in energy-related products and services. CVI has an 80% interest in the Agricultural Research and Development Corporation and has one wholly-owned subsidiary, CILCORP Energy Services Inc. ("CESI"). CESI was formed to pursue energy-related opportunities in the non-regulated market. CESI's primary business is gas management services, including commodity purchasing for gas management customers. QST was organized to provide energy and related services in non-regulated retail and wholesale markets. QST has two active subsidiaries: CILCORP Infraservices Inc., which provides utility operation and maintenance 7 services (predominantly to Caterpillar Inc., CILCO's largest customer); and ESE Land Corporation, which holds interests in environmentally distressed parcels of real estate acquired for resale. As previously noted, CILCO directly engages in making steam sales to a large agricultural processing customer. In addition to CIGI, CILCO owns all of the issued and outstanding common stock of two non-utility subsidiaries. The first, CILCO Exploration and Development Company, engages in the exploration and development of gas, oil, coal and other mineral resources. The second, CILCO Energy Corporation, was formed to research and develop new sources of energy, including the conversion of coal and other minerals into gas. Neither company conducts any significant business at this time. An organizational chart showing the relationship of CILCORP and its subsidiaries is filed herewith as Exhibit E-2. A more complete description of CILCORP's non-utility subsidiaries and investments and an analysis of the legal basis upon which Ameren is entitled to retain such subsidiaries and investments is filed herewith as Exhibit I. Ameren is committing to divest or discontinue certain non-utility businesses and investments of CILCORP. For the twelve months ended December 31, 2001, CILCORP reported consolidated revenues of $814,870,000, of which $391,811,000 (48.1%) were derived from sales of electricity, $271,434,000 (33.3%) from sales of gas and gas transportation service, and $151,625,000 (18.6%) from CILCORP's non-utility operations. At December 31, 2001, CILCORP had $1,811,698,000 in total assets, including total net property, plant and equipment of $857,987,000. e. Capitalization of CILCORP and Subsidiaries. ------------------------------------------ CILCORP currently has issued and outstanding 1,000 shares of common stock, no par value, all held by AES. In addition, CILCORP has outstanding $225 million of 8.7% senior notes, due 2009, and $250 million of 9.375% senior notes, due 2029 (the "CILCORP Senior Notes"), which are secured by a pledge of the common stock of CILCO.(16) The CILCORP Senior Notes are currently rated BB+ by Standard & Poor's ("S&P") and Baa2 by Moody's Investor Service ("Moody's"). CILCORP also had committed bank lines totaling $35 million at December 31, 2001, under which it had outstanding borrowings of $20 million. At March 31, 2002, CILCO had issued and outstanding 13,563,871 shares of common stock, no par value, all of which are held by CILCORP; 191,204 shares of cumulative preferred stock, $100 par value, and 220,000 shares of Class A preferred stock, no par value, totaling $41,120,000; and $242,250,000 of long-term debt, as follows: two series of first mortgage bonds totaling $115,000,000, with maturities of 2007 and 2022; four series of medium term notes totaling $71,350,000, with maturities ranging from 2003 to 2025; four series of - ------------------- (16) As explained in Item 3 below, the pledge of CILCO's shares cannot be eliminated without redeeming the CILCORP Senior Notes. Because of the current high cost of redeeming the CILCORP Senior Notes, Ameren is proposing that the CILCORP Senior Notes and the pledge securing them remain outstanding after the acquisition of CILCORP. 8 pollution control revenue bonds totaling $52,200,000, with maturities ranging from 2010 to 2023; and bank loans totaling $6,100,000. In addition, at December 31, 2001, CILCO had issued and outstanding $43,000,000 of commercial paper, and had in place bank lines totaling $100,000,000 which are used to backstop its commercial paper. CILCO's secured long-term debt is currently rated BBB- by S&P and A2 by Moody's. CILCO's commercial paper is currently rated P-1 by Moody's. Following the announcement of the Transaction, both CILCO and CILCORP were placed on "credit watch" by S&P, with positive implications to their ratings. Moody's currently has CILCORP and CILCO under review for possible downgrade. On a consolidated basis, CILCORP's capitalization at December 31, 2001 was as follows: Common equity $515,112,000 38% Preferred stock $41,120,000 3% Long-term debt $717,730,000 54% Short-term debt (incl. current $64,400,000 5% portion of long term debt) -------------- ----- Total capitalization $1,338,362,000 100% CILCO's capitalization at December 31, 2001 was as follows: Common equity $339,901,000 51% Preferred stock $41,120,000 6% Long-term debt $242,730,000 36% Short-term debt (incl. current $44,400,000 7% portion of long term debt) -------------- ----- Total capitalization $668,151,000 100% 1.4 Principal Terms of Stock Purchase Agreement. ------------------------------------------- The Stock Purchase Agreement provides that, subject to the receipt of all necessary regulatory approvals and the satisfaction of other conditions precedent, Ameren will pay AES, in consideration for all of the issued and outstanding common stock of CILCORP, cash in an amount equal to $1,340,000,000, less the amount of "Assumed Obligations," increased or decreased, as appropriate, by the amount, if any, by which "Working Capital" of CILCORP as of the closing date exceeds or is less than the "Base Working Capital" of CILCORP, and increased or decreased, as appropriate, by the amount of the "CapEx Adjustment," as such terms are defined below, the net amount of the foregoing being the "Purchase Price." The term Assumed Obligations means the amounts required to be included on CILCORP's balance sheet as of the closing date as long-term debt (including the current portion), short-term debt, capital lease obligations, preferred stock of subsidiaries, and other obligations for borrowed money. Working Capital means the current assets of CILCORP less current liabilities (not counting in current liabilities any short-term debt or current maturity of long-term debt 9 that is included in Assumed Obligations) as of the closing date. As agreed to in the Stock Purchase Agreement, Base Working Capital is $75 million. The CapEx Adjustment Amount represents the amount, if any, by which expenditures by CILCORP for certain capital improvements prior to closing are less or greater than the amounts agreed to under the Stock Purchase Agreement. If the closing date under the Stock Purchase Agreement had occurred on March 31, 2002, and assuming no change in the Base Working Capital amount and no CapEx Adjustment Amount, the cash paid by Ameren at closing for the common stock of CILCORP would have been approximately $522 million. The Stock Purchase Agreement further provides that, in the event that the closing date does not occur by the "Trigger Date," as defined below, then the Purchase Price shall be increased by $33,699 per day from the Trigger Date through the closing date, subject to certain limitations. The Trigger Date is the later of (i) December 31, 2002, (ii) the date on which AES is capable (without further action by any third party) of completing performance in all material respects of its obligations required to be performed on or prior to closing, and (iii) the date which is 90 days following the date on which the ICC grants its approval of the Transaction. Subject to certain limitations and exceptions, either party may terminate the Stock Purchase Agreement if closing has not occurred by March 27, 2003. 1.5 Operation of the Combined System Following the Acquisition. ---------------------------------------------------------- Following the acquisition of CILCORP, Ameren proposes to retain CILCORP as a direct subsidiary for the foreseeable future, and CILCORP will continue to own all of the common stock of CILCO. CILCO, in turn, will continue to hold all of the common stock of CIGI for the foreseeable future. CILCO will maintain its headquarters in Peoria for a period of at least five years and will maintain a local management team and adequate staffing levels to operate its utility system. CILCO will continue to operate as a separate control area. CILCO's generating plants (which CILCO intends to transfer to CIGI by the time of the closing) will not be jointly dispatched with the generating plants owned by AmerenUE and Ameren Energy Generating. Nevertheless, CILCO's electric operations, as well as it gas operations, will be integrated with those of AmerenUE and AmerenCIPS. A fuller description of Ameren's plans to integrate CILCO's operations with those of its existing subsidiaries and estimates of merger savings are set out in Item 3.3 below. 1.6 Financing the Purchase Price. ---------------------------- Ameren will finance the cash portion of the Purchase Price, estimated not to exceed $525 million, using cash on hand and/or proceeds of debt and/or equity financings previously authorized in File No. 70-9877.(17) Ameren is not requesting any new or additional financing authority as part of this Application/Declaration. - ------------------- (17) See Ameren Corporation, Holding Co. Act Release No. 27449 (Oct. 5, 2001). 10 1.7 Affiliate Transactions. ---------------------- a. Existing Sales, Service and Construction Contracts. -------------------------------------------------- Historically, CILCO has provided certain administrative, management and technical services at cost to CILCORP and its other associate companies under arrangements that have been approved by the ICC. Although it is expected that Ameren Services will assume the responsibility for providing these services after the Transaction closes pursuant to new service agreements, as described below, there may be a period during the transition in which CILCO will continue to provide some or all of these services to its associate companies. As previously noted (supra, note 5), in conjunction with the Transaction, Ameren has also agreed to purchase from AES all of the membership interests in an entity that indirectly owns AES Medina Valley, an EWG. AES Medina Valley owns a 40 MW gas-fired cogeneration facility in Mossville, Illinois that produces electricity, steam heat and chilled water that is sold to CILCO pursuant to a FERC and ICC-approved Tolling Agreement, dated December 22, 2000, for resale to Caterpillar Inc., CILCO's largest customer. The term of the Tolling Agreement extends until July 2021. As part of the development of the Mossville facility, AES Medina Valley also entered into a 10-year Fuel Supply and Services Agreement with CESI, CILCORP's gas marketing subsidiary, pursuant to which CESI supplies all of AES Medina Valley's gas requirements and also provides certain ancillary services relating to the supply of gas to the Mossville facility. In addition, under the terms of a FERC-approved Interconnection Agreement between CILCO and AES Medina Valley, CILCO provides metering and other ancillary services to AES Medina, at cost. All of these agreements have been collaterally assigned as security for non-recourse debt financing for the Mossville facility and will remain in place following Ameren's indirect purchase of AES Medina Valley. To the extent required, Ameren requests authorization for CILCO, CESI and AES Medina Valley to continue to perform their respective obligations under the foregoing agreements in accordance with their terms.(18) b. Ameren Services. --------------- Under the 1997 Merger Order, the Commission authorized Ameren to organize and capitalize Ameren Services as a service company subsidiary, and authorized Ameren Services to provide AmerenUE, AmerenCIPS and other companies in the Ameren system with administrative, management, engineering, construction, environmental, and other support services pursuant to a General Services Agreement, which Ameren Services has entered into with Ameren, AmerenUE, AmerenCIPS and certain other associate companies. Under the 1997 Merger Order, Ameren Services is required to give written notice to the Commission at least 60 - ------------------- (18) The sale of electricity by AES Medina Valley and natural gas by CESI are not subject to the Act. The sale of steam and chilled water by AES Medina Valley involves "goods produced by the seller" subject to Rules 87(b)(6), 90(d)(2) and 92(b). As indicated, these transactions have been reviewed by both the FERC and the ICC. The ancillary services provided by CESI and CILCO to AES Medina Valley under the Fuel Supply and Services Agreement and the Interconnection Agreement are exempt under Rule 87(b)(1). In any event, these costs are ultimately passed through to Caterpillar, a non-affiliate. 11 days prior to implementing any change in the type and character of the companies receiving services, the methods of allocating costs to associate companies, or the scope or character of services to be rendered. Ameren Services intends to enter into separate service agreements ("Service Agreements") with CILCORP, CILCO, CIGI and certain of CILCORP's other subsidiaries that are identical in all material respects with the General Services Agreement. Thus, Ameren Services will provide to the new client companies the same administrative, management, and technical services that it now provides to Ameren system companies under the General Services Agreement, utilizing the same work order procedures and the same methods of allocating costs that are specified in the General Services Agreement. In connection with the Transaction, certain employees of CILCORP and its subsidiaries may be transferred to and become employees of Ameren Services. c. Ameren Fuels. ------------ By order dated April 5, 2001 in File No. 70-9775,(19) the Commission authorized Ameren Fuels to provide AmerenUE and AmerenCIPS fuel management services pursuant to the terms of a Fuel and Natural Gas Services Agreement ("Fuel Services Agreement").(20) Under the Fuel Services Agreement, Ameren Fuels, as agent for its associate companies, manages all aspects of procurement, storage, transportation and handling of coal, natural gas, and other fuels. Such services include negotiating contracts with third parties, contract administration, regulatory reporting and ash management services, among others. For the services rendered, Ameren Fuels is reimbursed for all costs properly chargeable or allocable thereto, as controlled through a work order procedure. Costs are computed in accordance with Rule 90 and 91. Ameren Fuels is authorized under the Fuel Services Agreement to take title to and resell fuel to its associate companies, but solely in an agency capacity. In conjunction with the Transaction, Ameren Fuels proposes to enter into separate fuel services agreements with CILCO and CIGI that are identical in all material respects to the Fuel Services Agreement, pursuant to which Ameren Fuels will manage gas supply resources for CILCO and manage fuel procurement for CIGI. These services will be provided at cost, in accordance with Rule 90 and 91. 1.8 Financing by CILCORP, CILCO and CIGI ------------------------------------ The existing equity and long-term and short-term debt securities of CILCORP, CILCO and CIGI, as described in Item 1.3 above, will remain outstanding after the Transaction closes. In addition, CILCORP, CILCO and CIGI herein request authority, to the extent such transactions are not exempt, to engage in certain ongoing external and intrasystem financing transactions from time to time during the Authorization Period. Any securities issued by CILCORP, CILCO or - ------------------- (19) See Ameren Energy Fuels and Services Company, Holding Co. Act Release No. 27374. (20) Following the transfer of AmerenCIPS' generating assets to Ameren Energy Generating, Ameren Fuels entered into an identical agreement with Ameren Energy Resources Company, the indirect parent of Ameren Energy Generating. 12 CIGI to third parties (including any securities issued by CILCO pursuant to Rule 52(a)) may be issued directly, or may be issued indirectly through one or more Financing Subsidiaries, as defined and described in Item 1.9 below. CILCORP, CILCO and CIGI will not engage in any financing transactions for which approval is sought herein unless, on a pro forma basis to take into account the amount and types of such financing and the application of the proceeds thereof, common equity as a percentage of capitalization (including short-term debt and current maturities of long-term debt) of each company is at least 30%. a. External Financing Transactions. ------------------------------- (a) CILCORP. After it is acquired by Ameren, CILCORP will not issue any additional equity securities, other than to Ameren. Subject to the limitations set forth below, CILCORP herein requests authorization to issue and sell from time to time during the Authorization Period short-term and long-term debt securities. (i) Short-term Debt. As previously indicated, at December 31, 2001, CILCORP had $35 million of committed bank lines and borrowings thereunder totaling $20 million at an average interest rate of 2.3% per annum. The proceeds of short-term borrowings by CILCORP are used primarily to fund the operations of its non-utility subsidiaries. CILCORP requests authorization to issue and sell commercial paper and/or establish and make unsecured short-term borrowings (i.e., less than one year) under credit lines with banks or other institutional lenders from time to time during the Authorization Period, provided that the aggregate amount of borrowings by CILCORP at any time outstanding under all such credit facilities, when added to the amount of any short-term borrowings by CILCORP under the Non-Utility Money Pool (see Item 1.8.b.(d) below), will not exceed $250 million. Subject to such limitations, CILCORP requests authorization to sell commercial paper, from time to time, in established domestic or foreign commercial paper markets. Such commercial paper would typically be sold to dealers at the discount rate per annum prevailing at the date of issuance for commercial paper of comparable quality and maturities sold to commercial paper dealers generally. It is expected that the dealers acquiring such commercial paper will reoffer it at a discount to corporate, institutional and, with respect to European commercial paper, individual investors. It is anticipated that such commercial paper will be reoffered to investors such as commercial banks, insurance companies, pension funds, investment trusts, foundations, colleges and universities, finance companies and nonfinancial corporations. CILCORP also proposes to continue or to establish and maintain back-up credit lines with banks or other institutional lenders to support its commercial paper programs and other credit arrangements and/or borrowing facilities generally available to borrowers with comparable credit ratings as CILCORP deems appropriate in light of its needs and existing market conditions providing for revolving credit or other loans and having commitment periods not longer than the Authorization Period. Only the amounts drawn and outstanding under these agreements and facilities will be counted against the proposed limit on short-term debt. Subject to the limitations described herein, CILCORP also seeks authorization to engage in other types of short-term financings as it may deem appropriate in light of its needs and market conditions at the time of issuance. The effective cost of money on all external short-term borrowings by CILCORP 13 will not exceed at the time of issuance 300 basis points over the six-month London Interbank Offered Rate ("LIBOR"). (ii) Refinancing of CILCORP Senior Notes. ----------------------------------- CILCORP requests authorization to issue, in one or more transactions from time to time during the Authorization Period, long-term notes for the purpose of refinancing or acquiring the CILCORP Senior Notes at or prior to their scheduled maturity. The principal amount of any new long-term notes issued will not exceed the unpaid principal amount of the CILCORP Senior Notes (currently $475 million), plus any "make whole" premium required to be paid in connection with any prepayment and/or the premium, if any, that is paid in connection with any acquisition of the CILCORP Senior Notes in open market purchases. The maturity date of any new series of long-term notes will be not later than October 15, 2029, which is the maturity date of the longest of the two series of CILCORP Senior Notes. It is proposed that any new notes issued by CILCORP in a refinancing transaction bear interest at a rate not to exceed at the time of issuance 500 basis points over the yield to maturity of a U.S. Treasury security having a remaining term equal to the average life of such new notes, or, if no such Treasury security is outstanding, then the yield to maturity of a 30-year U.S. Treasury Bond. In connection with any refinancing of the CILCORP Senior Notes, CILCORP anticipates that it may be called upon to extend or renew the pledge of the common stock of CILCO in order to be able to obtain an investment grade rating for the new notes that is comparable to the rating of the CILCORP Senior Notes at the time of repayment. Accordingly, CILCORP requests authorization to pledge the stock of CILCO as collateral security for any new notes issued in connection with a refinancing of the CILCORP Senior Notes. In lieu of any renewal or extension of the pledge of the common stock of CILCO, Ameren requests authorization to guaranty any new CILCORP notes issued in a refinancing transaction. In addition, Ameren requests authorization to issue a guarantee of the CILCORP Senior Notes, or of any new notes issued by CILCORP in a refinancing transaction, in order to obtain a termination and release of the pledge of CILCO's common stock or for other corporate purposes.(21) (b) CILCO and CIGI....Rule 52(a) exempts from the prior authorization requirements of the Act securities issued by any public utility company that have been approved by the state commission in the state in which such company is organized and doing business. In general, all securities issued by CILCO must be approved by the ICC, other than indebtedness with a final maturity of less than one year, renewable for a period of not more than two years. In contrast, because CIGI will not be regulated by the ICC as a public utility company under Illinois law, and because CIGI intends to relinquish its EWG status, securities issued by CIGI will generally not be exempt from the provisions of the Act. - ------------------- (21) It is proposed that the amount of any such guarantee not count against the authorized limits on guarantees that may be issued by Ameren pursuant to the Commission's order in File No. 70-9877 (supra, note 17). 14 The authority herein sought by CILCO excludes financings exempt under Rule 52(a). The proceeds of financings by CILCO and CIGI will be used for general corporate purposes, including funding of capital projects, working capital requirements, and, in the case of CILCO, to fund contributions to the Utility Money Pool (see Item 1.8(b), below). These financings may be made under instruments in place at the time of the Transaction or new agreements so long as any such instrument or agreement complies with the limitations described herein. (i) Short-term Debt. CILCO and CIGI request authorization to issue commercial paper and/or establish and make unsecured short-term borrowings (i.e., less than one year) under credit lines with banks or other institutional lenders from time to time during the Authorization Period, provided that the aggregate amount of borrowings by CILCO at any time outstanding under all such credit facilities, when added to the amount of any short-term borrowings by CILCO under the Utility Money Pool (see Item 1.8.b.(c) below), will not exceed $250 million, and that the aggregate amount of borrowings by CIGI at any time outstanding under all such credit facilities, when added to the amount of any short-term borrowings by CIGI under the Non-Utility Money Pool (see Item 1.8.b.(d) below), will not exceed $250 million. Subject to such limitations, CILCO and CIGI request authority to sell commercial paper, from time to time, in established domestic or foreign commercial paper markets. Such commercial paper would typically be sold to dealers at the discount rate per annum prevailing at the date of issuance for commercial paper of comparable quality and maturities sold to commercial paper dealers generally. It is expected that the dealers acquiring such commercial paper will reoffer it at a discount to corporate, institutional and, with respect to European commercial paper, individual investors. It is anticipated that such commercial paper will be reoffered to investors such as commercial banks, insurance companies, pension funds, investment trusts, foundations, colleges and universities, finance companies and nonfinancial corporations. CILCO and CIGI also propose to continue or to establish and maintain back-up credit lines with banks or other institutional lenders to support their commercial paper programs and other credit arrangements and/or borrowing facilities generally available to borrowers with comparable credit ratings as either company deems appropriate in light of its needs and existing market conditions providing for revolving credit or other loans and having commitment periods not longer than the Authorization Period. Only the amounts drawn and outstanding under these agreements and facilities will be counted against the proposed limit on short-term debt. Subject to the limitations described herein, CILCO and CIGI also seek authorization to engage in other types of short-term financings as either company may deem appropriate in light of its needs and market conditions at the time of issuance. The effective cost of money on all external short-term borrowings by CILCO and CIGI will not exceed at the time of issuance 300 basis points over the six-month LIBOR. (ii) Long-term Securities of CIGI. CIGI requests authorization to issue and sell from time to time during the Authorization Period up to $500 million of long-term securities consisting of any combination of preferred stock or other forms of preferred securities and long-term debt ("Long-term Securities"). 15 Preferred stock or other types of preferred securities may be issued in one or more series with such rights, preferences, and priorities as may be designated in the instrument creating each such series. All such securities will be redeemed no later than 50 years after the issuance thereof. The dividend rate on any series of preferred stock or other preferred securities will not exceed at the time of issuance 700 basis points over the yield to maturity of a U.S. Treasury security having a remaining term equal to the term of such securities, or, if no such Treasury security is outstanding, then the yield to maturity of a 30-year U.S. Treasury Bond. Dividends or distributions on preferred stock or other preferred securities will be made periodically and to the extent funds are legally available for such purpose, but may be made subject to terms that allow the issuer to defer dividend payments or distributions for specified periods. Long-term debt of a particular series (a) may be secured or unsecured, (b) will have a maturity ranging from one to 50 years, (c) will bear interest at a rate not to exceed at the time of issuance 600 basis points over the yield to maturity of a U.S. Treasury security having a remaining term equal to the average life of such series, or, if no such U.S. Treasury security is outstanding, then the yield to maturity of a 30-year U.S. Treasury Bond, (d) may be subject to optional and/or mandatory redemption, in whole or in part, at par or at various premiums above the principal amount thereof, (e) may be entitled to mandatory or optional sinking fund provisions, (f) may provide for reset of the coupon pursuant to a remarketing or auction arrangement, and (g) may be called from existing investors by a third party. The maturity dates, interest rates, and redemption and sinking fund provisions, if any, with respect to the long-term debt of a particular series, will be established by negotiation or competitive bidding. Except in accordance with a further order of the Commission in this proceeding, CILCORP and CIGI will not publicly issue any long-term securities unless such securities are rated at the investment grade level as established by at least one nationally recognized statistical rating organization, as that term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the Securities Exchange Act of 1934. It is requested that the Commission reserve jurisdiction over the issuance by CILCORP or CIGI of any such long-term securities that are rated below investment grade. (c) Interest Rate Hedging Transactions. To the extent not exempt under Rule 52(a), CILCORP, CILCO and CIGI request authorization to enter into interest rate hedging transactions with respect to outstanding indebtedness ("Interest Rate Hedges"), subject to certain limitations and restrictions, in order to reduce or manage the effective interest rate cost. Interest Rate Hedges would only be entered into with counterparties ("Approved Counterparties") whose senior debt ratings, or the senior debt ratings of the parent companies of the counterparties, as published by S&P, are equal to or greater than BBB, or an equivalent rating from Moody's or Fitch, Inc. Interest Rate Hedges will involve the use of financial instruments commonly used in today's capital markets, such as interest rate swaps, caps, collars, floors, swaptions and structured notes (i.e., a debt instrument in which the principal and/or interest payments are indirectly linked to the value of an underlying asset or index), or transactions involving the purchase or 16 sale, including short sales, of U.S. Treasury securities. The transactions would be for fixed periods and stated notional amounts. Fees, commissions and other amounts payable to the counterparty or exchange (excluding, however, the swap or option payments) in connection with an Interest Rate Hedge will not exceed those generally obtainable in competitive markets for parties of comparable credit quality. In addition, CILCORP, CILCO and CIGI request authorization to enter into interest rate hedging transactions with respect to anticipated debt offerings (the "Anticipatory Hedges"), subject to certain limitations and restrictions. Such Anticipatory Hedges would only be entered into with Approved Counterparties, and would be utilized to fix the interest rate and/or limit the interest rate risk associated with any new issuance through (i) a forward sale of exchange-traded U.S. Treasury futures contracts, U.S. Treasury securities and/or a forward swap (each a "Forward Sale"), (ii) the purchase of put options on U.S. Treasury securities (a "Put Options Purchase"), (iii) a Put Options Purchase in combination with the sale of call options on U.S. Treasury securities (a "Zero Cost Collar"), (iv) transactions involving the purchase or sale, including short sales, of U.S. Treasury securities, or (v) some combination of a Forward Sale, Put Options Purchase, Zero Cost Collar and/or other derivative or cash transactions, including, but not limited to structured notes, caps and collars, appropriate for the Anticipatory Hedges. Anticipatory Hedges may be executed on-exchange ("On-Exchange Trades") with brokers through the opening of futures and/or options positions traded on the Chicago Board of Trade, Chicago Mercantile Exchange or other financial exchange, the opening of over-the-counter positions with one or more counterparties ("Off-Exchange Trades"), or a combination of On-Exchange Trades and Off-Exchange Trades. CILCORP, CILCO and CIGI will determine the optimal structure of each Anticipatory Hedge transaction at the time of execution. Each Interest Rate Hedge and Anticipatory Hedge will qualify for hedge accounting treatment at the time it is entered into under Generally Accepted Accounting Principles. CILCORP, CILCO and CIGI will also comply with the then existing financial disclosure requirements of the Financial Accounting Standards Board associated with hedging transactions.(22) b. Intrasystem Financing Transactions; Guarantees; Money Pool ---------------------------------------------------------- Transactions. ------------ ----------------------------------------------------------------------- (a) Long-term Securities of CILCORP. Ameren may from time to time during the Authorization Period acquire additional shares of CILCORP's common stock, make additional capital contributions or non-interest bearing cash advances to CILCORP, and/or make loans to CILCORP (and in connection therewith acquire unsecured promissory notes of CILCORP evidencing such loans) in order to enable CILCORP to fund additional investments in CILCO and its other existing subsidiaries, to redeem or retire the CILCORP Senior Notes, and to fund working - ------------------- (22) The authority sought for interest rate hedging transactions in this Application/Declaration is identical to the authorization previously granted to Ameren in File No. 70-9877, supra n. 17. 17 capital.(23) CILCORP will not use the proceeds of any such financing by Ameren to acquire the securities of or other interest in any new company. Accordingly, CILCORP requests authority to issue, and Ameren requests authority to acquire, from time to time during the Authorization Period, up to $1 billion at any time outstanding of additional common stock and/or promissory notes having maturities of one year or more. Any promissory note issued by CILCORP to Ameren evidencing a loan will be unsecured and will bear interest at a rate and have a maturity date designed to parallel the effective cost of capital and maturity date of a similar debt instrument issued by Ameren. (b) Guarantees Issued by CILCORP and Its Subsidiaries. ------------------------------------------------- CILCORP from time to time is called upon to provide guarantees and other forms of credit support with respect to the obligations of its subsidiaries. Currently, CILCORP has outstanding guarantees totaling $4 million with respect to obligations of CESI under two gas marketing contracts. The subsidiaries of CILCO (CIGI, CILCO Exploration and Development Company and CILCO Energy Corporation) have guaranteed borrowings by CILCO under an existing $100 million credit facility. CIM, a direct non-utility subsidiary of CILCORP, and CILCORP Lease Management Inc. ("CLM"), a subsidiary of CIM, have also provided guarantees with respect to certain obligations of their subsidiaries, as lessors, under various equipment and real estate leases. Currently, there are a total of six of these guarantees outstanding. Neither CIM nor CLM has ever been called upon to make a payment under any of these guarantees. The exposure of CIM and CLM under these guarantees is not quantifiable; however, the potential financial impact is considered immaterial in the aggregate. ...... To the extent required, CILCORP and its subsidiaries request authorization to maintain, renew and extend all guarantees and other forms of credit support that are outstanding at the time that the Transaction closes. In addition, CILCORP requests authorization to provide additional guarantees and other forms of credit support from time to time during the Authorization Period on behalf of or for the benefit of any of its subsidiaries, provided that the aggregate amount of all CILCORP guarantees at any time outstanding shall not exceed $500 million. Credit support provided by CILCORP may be in the form of guarantees of indebtedness or of contractual obligations of its subsidiaries, agreements to indemnify, reimburse, or assume joint liability with respect to obligations of subsidiaries, capital maintenance or contribution agreements, or other forms of credit support (collectively, "Guarantees"). Any Guarantee outstanding on March 31, 2006 will expire or terminate in accordance with its terms. In some cases, the obligations of a subsidiary of CILCORP that are guaranteed by CILCORP may not be susceptible of exact quantification. In such cases, CILCORP will determine its exposure under such Guarantee for purposes of measuring compliance with the $500 million limit by appropriate means, including estimation of exposure based on loss experience or projected potential payment - ------------------- (23) By its terms, Rule 52(b) would not exempt any securities issued by CILCORP, and Rule 45(b)(7) would not exempt any guarantee by CILCORP of securities issued by its subsidiaries. In contrast, Rule 45(a)(4) would exempt cash capital contributions and open account advances without interest by Ameren to CILCORP. 18 amounts. Any such estimates will be made in accordance with generally accepted accounting principles and will be reevaluated periodically. (c) Participation by CILCO in Utility Money Pool. By order dated March 22, 1999 (the "Money Pool Order"),(24) Ameren was authorized to establish and fund loans to AmerenUE, AmerenCIPS and Ameren Services through the Utility Money Pool in order to provide for the short-term cash and working capital needs of these companies.(25) Further, to the extent not exempt under Rule 52, AmerenUE, AmerenCIPS, and Ameren Services are authorized to make unsecured short-term borrowings from the Utility Money Pool, to contribute surplus funds to the Utility Money Pool, and to lend and extend credit to (and acquire promissory notes from) one another through the Utility Money Pool.(26) Ameren may not make borrowings under the Utility Money Pool. If surplus funds made available by the participants in the Utility Money Pool (i.e., "Internal Funds") are used to fund loans to eligible borrowers, the interest rate applicable to such loans is equal to the CD yield equivalent of the 30-day Federal Reserve "AA" Non-Financial commercial paper composite rate. If proceeds from external borrowings by any participant in the Utility Money Pool (i.e., "External Funds") are used to fund loans to eligible borrowers, the interest rate is equal to the lending company's cost of borrowing. In cases where both Internal Funds and External Funds are used to fund loans to eligible borrowers, the applicable interest rate is a composite rate equal to the weighted average of the Internal Funds and External Funds. CILCO requests authorization herein to participate in the Utility Money Pool on the same basis as AmerenCIPS and AmerenUE. (d) Participation by CILCORP and CIGI in Ameren Non-Utility Money Pool. Ameren also maintains and funds loans to its non-utility subsidiaries pursuant to the Non-Utility Money Pool, which functions in the same manner as the Utility Money Pool. Borrowings and extensions of credit by Ameren's non-utility subsidiaries under the Non-Utility Money Pool are exempt pursuant to Rule 52(b) and Rule 45(b)(1), as applicable. CILCORP and CIGI propose to become participants in the Non-Utility Money Pool on the same terms as the other participants. As previously indicated, because the issuance of securities by CILCORP and CIGI is not exempt under Rule 52, the approval of the Commission is required in order for CILCORP and CIGI to participate in the Non-Utility Money Pool. CILCORP and CIGI each requests authorization to borrow up to $250 million at any time outstanding under the Non-Utility Money Pool. The interest rate on borrowings under the Non-Utility Money Pool and on any investment of surplus funds by CILCORP or CIGI to the Non-Utility Money Pool will be - ------------------- (24) See Ameren Corporation, et al., Holding Co. Act Release No. 26993 (Mar. 22, 1999). (25) The authorization period under the Money Pool Order extends through February 27, 2003. Ameren and certain of its subsidiaries intend to file a separate application to request a continuation and extension of their current authorization under the Money Pool Order beyond February 27, 2003. (26) Borrowings by AmerenCIPS under the Utility Money Pool must be approved by ICC and are therefore exempt under Rule 52(a). Borrowings by Ameren Services are exempt under Rule 52(b). 19 determined in the same manner described above in connection with the Utility Money Pool. 1.9 Organization and Acquisition of Financing Subsidiaries. ------------------------------------------------------ In connection with the issuance of any securities for which authorization is requested in Item 1.8 above, or (in the case of CILCO) pursuant to Rule 52(a), CILCORP, CILCO and CIGI request authorization to acquire, directly or indirectly, the common stock or other equity securities of one or more entities (each a "Financing Subsidiary") formed exclusively for the purpose of facilitating the issuance of certain types of debt and/or preferred securities and the loan or other transfer of the proceeds thereof to the parent company of a Financing Subsidiary. The proceeds of any financing carried out through a Financing Subsidiary will be counted against the limits proposed in Item 1.8 for the parent company of such Financing Subsidiary, and the terms, conditions and other limitations applicable to any securities issued by a Financing Subsidiary will conform to those proposed in Item 1.8 for the specified type of security (e.g., long-term debt, preferred securities, etc.). In connection with any such financing transactions, CILCORP, CILCO or CIGI, as the case may be, may enter into one or more guarantees or other credit support agreements in favor of the Financing Subsidiary. No Financing Subsidiary shall acquire or dispose of, directly or indirectly, any interest in any "utility asset," as that term is defined under the Act. CILCORP, CILCO and CIGI also request authority to issue and sell to any Financing Subsidiary, at any time or from time to time in one or more series, unsecured debentures, unsecured promissory notes or other unsecured debt instruments (individually, a "Note" and, collectively, the "Notes") governed by an indenture or indentures or other documents, and the Financing Subsidiary will apply the proceeds of any external financing by such Financing Subsidiary plus the amount of any equity contribution made to it from time to time to purchase Notes. The terms (e.g., interest rate, maturity, amortization, prepayment terms, default provisions, etc.) of any such Notes would generally be designed to parallel the terms of the securities issued by the Financing Subsidiary to which the Notes relate. The principal amount of Notes issued to a Financing Subsidiary by its parent will not be counted against the limits proposed in Item 1.8 on securities issued by CILCORP, CILCO or CIGI to third parties or to Ameren. Ameren represents that it has in place sufficient internal controls to enable it to monitor the creation and use of any Financing Subsidiary by CILCORP, CILCO and CIGI. Any Financing Subsidiary organized pursuant to the authority granted by the Commission in this proceeding shall be organized only if, in management's opinion, the creation and utilization of such Financing Subsidiary, will likely result in tax savings, increased access to capital markets and/or lower cost of capital for CILCORP, CILCO or CIGI, as applicable. 1.10 Payment of Dividends by CILCORP Out of Capital and Unearned ----------------------------------------------------------- Surplus. ------- Ameren will use the purchase method of accounting for the Transaction. Under this method of accounting, the Purchase Price will be assigned to the tangible and identifiable intangible assets acquired and liabilities assumed in the Transaction on the basis of their fair values on the date of the 20 acquisition. Any premium (i.e., the excess of the Purchase Price over the fair values of the net assets acquired) will be recorded as goodwill. In this case, Ameren will "push down" the purchase accounting and establish a new basis of accounting for the stand-alone accounts of CILCORP. As a result of the push-down of the purchase accounting to CILCORP, the current retained earnings of CILCORP, the traditional source for dividend payments, will be eliminated (i.e., recharacterized as additional paid-in capital). There will be no goodwill created in the Transaction; however, CILCORP will reduce goodwill that it recorded when it was acquired by AES by approximately $52 million.(27) It is expected that, for accounting purposes, the goodwill on CILCORP's books will generally remain unchanged, but it will be reviewed for potential impairment on a regular basis in accordance with Statements of Financial Accounting Standard Nos. 141 and 142. CILCORP requests authorization to declare and pay dividends on its common stock and/or redeem or repurchase its outstanding shares of common stock from time to time through the Authorization Period out of capital and unearned surplus (including revaluation reserve) to the extent permitted under applicable corporate law and the terms of any applicable covenants in its financing documents (including the CILCORP Indenture).(28) 1.11 Exemption of CILCORP and CILCO as Holding Companies. --------------------------------------------------- In its capacity as a holding company over CILCO and CIGI, CILCORP will continue to be entitled to an exemption pursuant to Section 3(a)(1) of the Act because CILCORP, CILCO and CIGI are all incorporated in Illinois, the state in which all of CILCO's and CIGI's public utility operations are conducted. Likewise, in its capacity as a holding company over CIGI, CILCO will be entitled to an exemption under Section 3(a)(1). Accordingly, CILCORP and CILCO request that the Commission issue an order exempting them from the registration requirements of Section 5 of the Act pursuant to Section 3(a)(1). Ameren, CILCORP and CILCO acknowledge that such order shall have no effect upon the status of CILCORP or CILCO as subsidiary companies of Ameren, a registered holding company. Thus, CILCORP and CILCO will continue to be subject to all provisions of the Act that would apply to them as subsidiary companies of a registered holding company.(29) - ------------------- (27) Although Staff Accounting Bulletin (SAB) Topic 5-J does not require Ameren to "push down" the purchase accounting to CILCORP, because of the existence of substantial amounts of publicly-held debt of CILCORP, Ameren has nevertheless concluded that CILCORP's stand-alone financial statements would be more meaningful to the public debt holders if they reflected a new basis of accounting. However, the purchase accounting will not be pushed down to the stand-alone accounts of CILCO or its subsidiaries for financial reporting purposes to the Commission, for regulatory reporting to the ICC or FERC, or for any other purpose. (28) The Commission granted substantially identical authority in connection with the acquisition of Powergen plc by E.ON AG. See E.ON AG, et al., Holding Co. Act Release No. 27539 (June 14, 2002). (29) The Commission has granted exemptions under Section 3(a)(1) to second- tier holding companies under similar circumstances in several recent merger cases. See, e.g., CP&L Energy, Inc., Holding Co. Act Release No. 27284 (Nov. 27, 21 1.12 Reports Pursuant to Rule 24. --------------------------- CILCORP, CILCO and CIGI propose to file certificates of notification pursuant to Rule 24 that report each of the financing transactions carried out in accordance with the terms and conditions of and for the purposes represented in Item 1.8 of this Application/Declaration. Such certificates of notification would be filed within 60 days after the end of each of the first three calendar quarters, and 90 days after the end of the last calendar quarter, in which transactions occur. The Rule 24 certificates will contain the following information for the reporting period: (a) the type of securities issued (e.g., common stock, long-term debt, short-term debt, etc.); (b) the principal terms thereof (e.g., interest rate, maturity, dividend rate, sinking fund provisions, etc.); (c) the amount of consideration received; (d) the amount and purpose of any Guarantee issued by CILCORP; (e) the notional amount and principal terms of any Interest Rate Hedge or Anticipatory Hedge entered into during the quarter and the identity of the parties to such instruments; (f) the maximum outstanding amount of all borrowings under or investments in the Utility Money Pool by CILCO during the quarter, and the rate or range of rates charged on Utility Money Pool borrowings and paid on Utility Money Pool investments during the quarter; (g) with respect to each Financing Subsidiary that has been formed, a representation that the financial statements of the parent company of the Financing Subsidiary shall account for the Financing Subsidiary in accordance with generally accepted accounting principles and further, with respect to each such entity, (i) the name of the Financing Subsidiary, (ii) the amount invested by the parent company in such Financing Subsidiary; (iii) the balance sheet account where the investment and the cost of the investment are booked; (iv) the form of organization (e.g., corporation, limited partnership, trust, etc.) of such Financing Subsidiary; (v) the percentage owned by the parent company; and (vi) if any equity interests in the Financing Subsidiary are sold in a non-public offering, the identity of the purchasers; and (h) consolidated balance sheets of CILCORP, CILCO and CIGI as of the end of the calendar quarter, which may be incorporated by reference to filings, if any, by such companies under the Securities Act of 1933 or Securities Exchange Act of 1934. ITEM 2. FEES, COMMISSIONS AND EXPENSES. ------------------------------ It is estimated that the fees, commissions and expenses paid or incurred, or to be paid or incurred, directly or indirectly, in connection with the Transaction will not exceed $14 million, assuming that the Transaction closes, as follows - ------------------- 2000); National Grid Group plc, et al., Holding Co. Act Release No. 27490 (Jan. 16, 2002). 22 Investment bankers fees and expenses..................................$8,000,000 Consultants fees and expenses.........................................$1,000,000 Accountants fees......................................................$1,000,000 Legal fees and expenses...............................................$3,500,000 Other...................................................................$500,000 ----------- TOTAL.......................................................$14,000,000 Total fees, commissions and expenses incurred or to be incurred by CILCORP, CILCO or CIGI in connection with the issuance of securities to any non-associate company, including underwriting fees, registration fees under the Securities Act of 1933, dealer discounts, commitment fees, compensating balances, fees for obtaining letters of credit, rating agency fees, and other fees and costs customarily incurred in connection with the issuance of such securities or obtaining third-party credit support, will not exceed 6% of the amount of any specific financing transaction.(30) ITEM 3. APPLICABLE STATUTORY PROVISIONS. ------------------------------- 3.1 General Overview of Applicable Statutory Provisions. The following sections of the Act and the Commission's rules thereunder are or may be directly or indirectly applicable to the proposed Transaction: APPLICABLE SECTIONS OF THE ACT AND RULES. DESCRIPTION OF TRANSACTION. Section 3(a)(1) Exemption of CILCORP and CILCO as holding companies. Sections 6(a) and 7 Issuance of securities, directly or indirectly through a Financing Subsidiary, by CILCORP, CILCO and CIGI after becoming subsidiaries of Ameren; issuance of Notes by CILCORP, CILCO or CIGI to any Financing Subsidiary. Sections 6(a), 7, 9(a), 10, 12(b), and 12(f) Participation of CILCO in Utility Money Pool. Sections 9(a), 10(a), (b), (c) and (f), Acquisition by Ameren of common 11(b)(1); Rule 51 stock of CILCORP. - ------------------- (30) This is the same limitation on fees, commissions and expenses approved by the Commission in File No. 70-9877 in connection the issuance of equity and debt securities by Ameren, supra n. 17. 23 Sections 9(a), 10 and 12(b) Acquisition of common stock or other equity securities of Financing Subsidiaries by CILCORP, CILCO and CIGI. Section 12(b); Rule 45 Issuance of Guarantees by CILCORP; issuance of guarantees and other forms of credit support by CILCORP, CILCO or CIGI in respect of securities issued by any Financing Subsidiary; guarantee of new CILCORP notes by Ameren in lieu of pledge of CILCO stock and/or of CILCORP Senior Notes in order to obtain termination of existing stock pledge. Sections 12(b) and 12(d); Rule 45 Pledge by CILCORP of common stock of CILCO in connection with refinancing CILCORP Senior Notes. Section 12(c); Rules 26(c) and 46 Payment of dividends by CILCORP out of capital and unearned surplus. Sections 8, 9(c)(3), 11(b)(1) Retention by Ameren of the gas utility properties of CILCO as part of additional public utility system; retention of non-utility subsidiaries and investments of CILCORP. Section 11(b)(2) Retention of CIGI as a subsidiary of CILCO. Section 13(b); Rules 87, 90 - 91 Approval of the services to be provided by Ameren Fuel to CILCO and CIGI Section 32(h); Rule 54. Generally applicable to all of the above transactions. As set forth more fully below, the Transaction complies with all of the applicable provisions of Section 10 of the Act and should be approved by the Commission. Specifically, the Commission should find that: o the consideration to be paid in the Transaction is fair and reasonable; o the Transaction will not create detrimental interlocking relations or concentration of control; 24 o the Transaction will not result in an unduly complicated capital structure for the Ameren system; o the Transaction is in the public interest and the interests of investors and consumers; o the Transaction is consistent with Section 8 of the Act and not detrimental to carrying out the provisions of Section 11; o the Transaction will tend toward the economical and efficient development of an integrated electric utility system; and o the Transaction will comply with all applicable state laws. 3.2 Compliance with Section 10(b). ----------------------------- Section 10(b) provides that, if the requirements of Section 10(f) are satisfied, the Commission shall approve an acquisition under Section 9(a) unless the Commission finds that: (1) such acquisition will tend towards interlocking relations or the concentration of control of public-utility companies, of a kind or to an extent detrimental to the public interest or the interests of investors or consumers; (2) in case of the acquisition of securities or utility assets, the consideration, including all fees, commissions, and other remuneration, to whomsoever paid, to be given, directly or indirectly, in connection with such acquisition is not reasonable or does not bear a fair relation to the sums invested in or the earning capacity of the utility assets to be acquired or the utility assets underlying the securities to be acquired; or (3) such acquisition will unduly complicate the capital structure of the holding-company system of the applicant or will be detrimental to the public interest or the interests of investors or consumers or the proper functioning of such holding-company system. a. Section 10(b)(1). ---------------- The standards of Section 10(b)(1) are satisfied because the proposed Transaction will not "tend towards interlocking relations or the concentration of control of public-utility companies, of a kind or to an extent detrimental to the public interest or the interests of investors or consumers." By its nature, any merger results in new links between previously unrelated companies. The Commission has recognized, however, that such interlocking relationships are permissible in the interest of efficiencies and economies. See Northeast Utilities, 50 S.E.C. 427, 443 (1990) ("Northeast Utilities"), as modified, 50 S.E.C. 511 (1991), aff'd sub nom. City of Holyoke v. SEC, 972 F.2d 358 (D.C. Cir. 1992) (finding that interlocking relationships are necessary to integrate the two merging entities). The links that will be established as a 25 result of the Transaction are not the types of interlocking relationships targeted by Section 10(b)(1), which was primarily aimed at preventing utility mergers unrelated to operating economies.(31) As described elsewhere in this Application/Declaration, the Transaction will achieve various operating synergies. Among other things, CILCO and CIGI will enter into contractual arrangements with other Ameren system companies under which various administrative and management services will be provided. Because substantial benefits will accrue to the public, investors and consumers from the affiliation of Ameren and CILCORP, whatever interlocking relationships may arise from the combination are not detrimental. In applying Section 10(b)(1) to a utility acquisition, the Commission must further determine whether such acquisition will result in "the type of structures and combinations at which the Act was specifically directed." Vermont Yankee Nuclear Power Corp., 43 S.E.C. 693, 700 (1968). The Transaction will not create a "huge, complex and irrational system" but, rather, will afford the opportunity to achieve economies of scale and efficiencies for the benefit of investors and consumers. See American Electric Power Company, Inc., 46 S.E.C. 1299, 1307 (1978) ("AEP"). The Transaction will combine the strengths of the companies, enabling them to offer customers a broader array of energy products and services more efficiently and cost-effectively than either could alone, and at the same time create a larger and more diverse asset and customer base with enhanced opportunities for operating efficiencies and risk diversification. CILCO is a relatively small utility company, with only about 201,000 electric and 204,000 retail gas customers. Thus, the indirect acquisition of CILCO will add only modestly to the size of the present Ameren system, which serves 1.5 million electric and 300,000 retail gas customers in two States, Missouri and Illinois. If approved, the Ameren system will serve approximately 1.7 million electric customers and 500,000 retail gas customers in the same two States. The acquisition of CILCORP will add about 1,200 MW of generating capacity to the 12,600 MW of generating capacity that Ameren already owns or controls. On a pro forma basis, as of December 31, 2001, Ameren will have consolidated assets of about $12.5 billion, including net utility plant of approximately $9.7 billion. For the twelve months ended December 31, 2001, pro forma combined operating revenues will total approximately $5.3 billion. The following table compares Ameren after the Transaction to other registered holding company systems that compete with Ameren in the midwest and central U.S. power markets in terms of total assets, operating revenues and electric customers (all data as of and for the year ended December 31, 2001): - ------------------- (31) See Section 1(b)(4) of the Act (finding that the public interest and interests of consumers and investors are adversely affected "when the growth and extension of holding companies bears no relation to the economy of management and operation or the integration and coordination of related operating properties . . .."). 26
System Total Assets Operating Revenues Utility Customers - ($ Millions) ($ Millions) Electric (E)/Gas (G) ------------ -------- -------------------- Exelon Corp. $34,860 $15,140 E - 5.1 million G - .44 million FirstEnergy $37,351 $7,999 E - 4.3 million American $47,281 $61,257 E - 4.9 million Electric Power Co. Xcel Corp. $28,735 $15,028 E - 3.2 million G - 1.7 million Entergy Corp. $25,910 $9,621 E - 2.6 million G - .24 million Cinergy Corp. $12,300 $12,923 E - 1.5 million G - .5 million E - 1.7 million Ameren (pro $12,524 $5,332 G - .5 million forma)
As the foregoing table shows, even after the Transaction, the Ameren system will be substantially smaller than Exelon Corp., which is the largest utility, by far, in Illinois, as well as American Electric Power Company, Xcel Corp., FirstEnergy and Entergy Corp., which operate in adjoining States. In any case, the Commission has rejected an interpretation of Section 10(b)(1) that would impose per se limits on the post-merger size of a registered holding company. Instead, the Commission assesses the size of the resulting system with reference to the economic efficiencies that can be achieved through the integration and coordination of utility operations. In AEP, the Commission noted that, although the framers of the Act were concerned about "the evils of bigness, they were also aware that the combination of isolated local utilities into an integrated system afforded opportunities for economies of scale, the elimination of duplicate facilities and activities, the sharing of production capacity and reserves and generally more efficient operations... [and] [t]hey wished to preserve these opportunities." AEP, 46 S.E.C. at 1309. By virtue of the Transaction, Ameren will be in a position to realize precisely these types of benefits. Among other things, the Transaction is expected to yield operating cost savings, corporate and administrative and purchasing savings, and fuel cost savings, among others. These expected economies and efficiencies from the combined utility operations are described in greater detail in Item 3.3 below. Finally, Section 10(b)(1) also requires the Commission to consider possible anticompetitive effects of a proposed combination. See Municipal Electric Association of Massachusetts v. SEC, 413 F.2d 1052 (D.C. Cir. 1969). As the Commission noted in Northeast Utilities, the "antitrust ramifications of an 27 acquisition must be considered in light of the fact that public utilities are regulated monopolies and that federal and state administrative agencies regulate the rates charged to customers." Northeast Utilities, 50 S.E.C. at 445 (citing AEP, 46 S.E.C. at 1324 - 25). In this case, Ameren and AES will file Notification and Report Forms with the Department of Justice ("DOJ") and the Federal Trade Commission ("FTC") pursuant to the HSR Act describing the effects of the Transaction on competition in the relevant market. The competitive impact of the Transaction on wholesale power markets will also be considered by the FERC, which will include analyses required under the FERC's Order No. 592 (hereinafter, the "Merger Policy Statement")(32) and Order No. 642.(33) Specifically, the FERC will consider the effects of combining Ameren's and CILCORP's generation assets (horizontal market power), the effects of combining generation and transmission assets (one aspect of vertical market power), and the effects of combining electric and natural gas assets. To mitigate concerns about the potential for increased market power that otherwise might be suggested by the analyses used, Ameren is proposing to the FERC, as a condition of merger approval, to implement certain transmission upgrades at a cost of approximately $18 million that will allow increased power flows in an around the area traversed by its transmission system. These include construction of a new 12.5-mile 138 kV line interconnecting with CWLP to increase import capability to CWLP, rebuilding approximately 50 miles of an existing 138 kV line to increase import capability to CILCO, and upgrades/changes to certain substation equipment. The purpose of these transmission improvements is to eliminate transmission congestion in central Illinois and thereby increase the available transfer capability. The Commission has found, and the courts have agreed, that it may appropriately rely upon the FERC with respect to such matters. See City of Holyoke v. SEC, 972 F.2d at 363-64, quoting Wisconsin's Environmental Decade v. SEC, 882 F.2d 523, 527 (D.C. Cir. 1989). For these reasons, the proposed Transaction will not "tend toward interlocking relations or the concentration of control of public-utility companies, of a kind or to the extent detrimental to the public interest or the interests of investors or customers." b. Section 10(b)(2). ---------------- Section 10(b)(2) of the Act precludes approval of an acquisition if the consideration to be paid in connection with the transaction, including all fees, commissions and other remuneration, is "not reasonable or does not bear a fair relation to the sums invested in or the earning capacity of the utility assets to be acquired or the utility assets underlying the securities to be acquired." The Commission has found "persuasive evidence" that the standards of Section 10(b)(2) are satisfied where, as here, the agreed consideration for an acquisition is the result of arms-length negotiations between the managements - -------------------- (32) See Inquiry Concerning Merger Policy under the Federal Power Act: Policy Statement, Order No. 592, III FERC Stats. & Regs.P. 31,044 (1996), reconsideration denied, Order No. 592-A, 79 FERCP. 61,321 (1997) (codified at 18 C.F.R.ss. 2.26). (33) See Revised Filing Requirements Under Part 33 of the Commission's Regulations, Order No. 642, III FERC Stats. & Regs.P. 31,111 (2000), reh'g denied, Order No. 642-A, 94 FERC P. 61,289 (2001). 28 of the companies involved, supported by an opinion of a financial advisor. See Entergy Corp., 51 S.E.C. 869 at 879 (1993); Southern Company, Holding Co. Act Release No. 24579 (Feb. 12, 1988). There is no basis for the Commission to question the fairness of the consideration to be paid to AES for CILCORP's common stock. AES announced its decision to sell CILCORP on November 13, 2001, and thereafter solicited expressions of interest from several potential purchasers. On February 19, 2002, AES disclosed that it had narrowed the list of potential purchasers to seven, including Ameren, and conducted further negotiations with them over price and other terms. Ameren was selected as the successful bidder at the conclusion of this auction process. There is also no basis for the Commission to conclude that the consideration to be paid for CILCORP does not bear a fair relation to the earning capacity of CILCORP's utility assets. In this case, Ameren requested its financial advisor, Goldman, Sachs & Co. ("Goldman Sachs"), to provide an opinion as to the fairness from a financial point of view to Ameren of the consideration to be paid for CILCORP (including the membership interests in AES Medina Valley Cogen, L.L.C.). On April 28, 2002, Goldman Sachs provided its opinion addressed to the Board of Directors of Ameren to the effect that, as of that date and based upon and subject to the matters and assumptions set forth therein, the Consideration (as defined in the opinion) to be paid by Ameren for CILCORP (including the membership interests in AES Medina Valley Cogen, L.L.C.) pursuant to the relevant agreements "is fair from a financial point of view to [Ameren]." Goldman Sachs' fairness opinion is filed herewith as Exhibit J. Another consideration under Section 10(b)(2) is the overall fees, commissions and expenses to be incurred in connection with the Transaction. Ameren believes that the transaction costs are reasonable and fair in light of the size and complexity of the proposed Transaction, and that the anticipated benefits of the Transaction to the public, investors and consumers are consistent with recent precedents and meet the standards of Section 10(b)(2). The total estimated fees and expenses, approximately $14 million (see Item 2 - Fees, Commissions and Expenses), are about 1% of the Purchase Price under the Stock Purchase Agreement. This is consistent with (and in fact generally lower than) percentages previously approved by the Commission. See, e.g., Entergy Corp., 51 S.E.C. at 881, n. 63 (fees and expenses of $38 million, representing approximately 2% of the value of the consideration paid to the shareholders of Gulf States Utilities); Northeast Utilities, Holding Co. Act Release No. 25548 (June 3, 1992) (fees and expenses of approximately 2% of the value of the assets to be acquired); and American Electric Power Company, Inc., et al., Holding Company Act Release No. 27186 (June 14, 2000), n. 40 (total fees, commissions and expenses of approximately $72.7 million, representing 1.1% of the value of the total consideration paid by American Electric Power to the shareholders of Central and South West Corp.). 29 c. Section 10(b)(3). ---------------- Section 10(b)(3) requires the Commission to determine whether the Transaction will "unduly complicate the capital structure" or be "detrimental to the public interest or the interest of investors or consumers or the proper functioning" of the Ameren system. The capital structure of the Ameren system will not change materially as a result of the Transaction. In the Transaction, Ameren will acquire 100% of the outstanding common stock of CILCORP for cash. Hence, the transaction will not create any publicly-held minority stock interest in any public utility company. The existing debt securities and preferred stock of CILCORP and CILCO will remain outstanding as obligations of those companies. The continued existence of CILCORP as a secondary holding company following the Transaction will not unduly complicate Ameren's capital structure. In this regard, the Commission has permitted other registered holding companies to retain secondary holding companies in order to preserve tax advantages and/or existing structural and financial benefits. See e.g., American Electric Power Company, Inc., Holding Co. Act Release No. 27186, June 14, 2000); Energy East Corp., Holding Co. Act Release No. 27224 (August 31, 2000); NiSource Inc., Holding Co. Act Release No. 27263 (Oct. 30, 2000); and CP&L Energy, Inc., et al., Holding Co. Act Release No. 27284 (Nov. 27, 2000). There are significant financial disincentives to eliminating CILCORP as a secondary holding company at this time. Specifically, in order to eliminate CILCORP as a subsidiary, Ameren would either have to prepay the CILCORP Senior Notes, or, alternatively, assume the CILCORP Senior Notes by means of a merger or otherwise. As previously indicated, any prepayment or redemption of the CILCORP Senior Notes would require payment of a yield maintenance, or "make whole," premium which, at current interest rates, would approximate $175 million. If, on the other hand, CILCORP were to be merged into Ameren, the CILCORP Senior Notes would not have to be prepaid but would, by operation of law, become the direct obligations of Ameren. In this regard, however, the indenture under which the CILCORP Senior Notes were issued (the "CILCORP Indenture") includes limitations on future activities and other covenants that are far more onerous and restrictive than those in Ameren's existing debt instruments. For example, the CILCORP Indenture provides (in section 10.04 thereof) that future indebtedness of CILCORP and any subsidiary cannot be secured without the same property also securing the CILCORP Senior Notes, with certain exceptions. If CILCORP were merged into Ameren, this limitation would apply to future secured debt issued not only by Ameren, but AmerenUE and AmerenCIPS as well. This would be unacceptable from a business perspective. Under section 10.06, CILCORP and its subsidiaries cannot incur certain new debt unless CILCORP receives the written confirmation from certain ratings agencies that the issuance of such debt would not result in a ratings downgrade from the then-existing rating on the CILCORP Senior Notes. If CILCORP were merged into Ameren, this ratings affirmation covenant would apply to any debt issued by Ameren or any subsidiary of Ameren. Further, if the current rating for the CILCORP Senior Notes is raised as a result of the Transaction, then the higher rating becomes the "floor" for purposes of future ratings affirmations. Under section 10.07 of the CILCORP Indenture, CILCORP can only engage in businesses in addition to (i) those businesses in which it and its subsidiaries were engaged 30 at the time the CILCORP Senior Notes were issued and (ii) other businesses that are deemed to be necessary, useful or desirable in connection with such existing businesses, if, prior to entering into any such additional business, CILCORP obtains the written confirmation of the ratings agencies that a ratings downgrade will not result. There are other limitations and restrictions under the CILCORP Indenture that Ameren would find unacceptable if they were to apply to Ameren and its subsidiaries. In this regard, it should be kept in mind that the CILCORP Senior Notes were issued as part of a highly leveraged transaction in which CILCORP became a wholly-owned subsidiary of AES, and consequently the covenants in the CILCORP Indenture reflect that status. In contrast, Ameren is a publicly-held company that has a substantially higher credit rating than either AES or CILCORP. Thus, while the limitations under the CILCORP Indenture may have been appropriate for CILCORP at the time the CILCORP Senior Notes were issued, they would not be appropriate for Ameren. In any event, leaving the CILCORP Senior Notes in place will not negatively affect CILCO's capital structure or be detrimental to investors. CILCO's common equity ratio has averaged around a minimum of 45% both before and after the issuance of the CILCORP Senior Notes. Also, CILCO's operating cash flow has been sufficient to cover the debt service requirements on the CILCORP Senior Notes, a trend that Ameren expects to continue. By becoming part of the Ameren system, CILCO's credit ratings may improve, thus providing CILCO with better access to capital. Further, CILCORP and CILCO will have additional access to short-term funding through participation in the Ameren system money pool arrangements. Set forth below are summaries of the capital structures of Ameren and CILCORP as of December 31, 2001, and the pro forma consolidated capital structure of Ameren (assuming the Transaction and acquisition of AES Medina Valley (No. 4) L.L.C. had been consummated on December 31, 2001: 31 Ameren and CILCORP Historical Consolidated Capital Structures (dollars in millions) Ameren CILCORP ------ ------- Common stock equity $3,349 47% $515 38% Preferred securities 235 3% 41 3% Long-term debt 2,835 39% 718 54% Short-term debt, 780 11% 6 5% incl. current portion -------- ------- -------- ------- Total $7,199 100% $1,338 100% Ameren Pro Forma Consolidated Capital Structure (dollars in millions) (unaudited) Common stock equity $3,889 45% Preferred securities 276 3% Long-term debt 3,655 42% Short-term debt, incl. current portion 845 10% --- --- Total $8,665 100.0% As the foregoing shows, Ameren's pro forma consolidated common equity to total capitalization ratio of 45% will comfortably exceed the "traditionally acceptable 30% level."(34) See Northeast Utilities, 50 S.E.C. at 440, n. 47. Moreover, the Transaction will have no effect on the capitalization of AmerenUE, AmerenCIPS, CILCO or CIGI. Common equity as a percentage of capitalization of each of these companies is and will remain well over 30%. Section 10(b)(3) also requires the Commission to determine whether the proposed combination will be detrimental to the public interest, the interests of investors or consumers or the proper functioning of the combined Ameren system. The proposed transaction between Ameren and CILCORP is entirely - -------------------- (34) Under section 7(d)(1) of the Act, the Commission generally has required a registered holding company system and its public-utility subsidiaries to maintain a 65/30 debt/common equity ratio, the balance generally being preferred equity. Such debt/equity capitalization requirement was included in Rule 52, as originally adopted, as applied to securities issued by public-utility subsidiaries, but was eliminated in 1992. 32 consistent with the proper functioning of a registered holding company system. Ameren's and CILCORP's utility operations are contiguous and interconnected. The Transaction will result in substantial, otherwise unavailable, savings and benefits to the public and to consumers and investors of both companies. Moreover, the Transaction is subject to approval by the ICC and the FERC, which will ensure that the interests of customers will be adequately protected. The FERC approval will also confirm that the Transaction will have no adverse effect on competition. For these reasons, Ameren believes that the Transaction will be in the public interest and the interest of investors and consumers and will not be detrimental to the proper functioning of the resulting holding company system. 3.3 Section 10(c). ------------- Section 10(c) of the Act provides that, notwithstanding the provisions of Section 10(b), the Commission shall not approve: (1) an acquisition of securities or utility assets, or of any other interest, which is unlawful under the provisions of section 8 or is detrimental to the carrying out of the provisions of section 11; or (2) the acquisition of securities or utility assets of a public utility or holding company unless the Commission finds that such acquisition will serve the public interest by tending towards the economical and the efficient development of an integrated public utility system. a. Section 10(c)(1). ---------------- (a) The Transaction will be lawful under Section 8. ----------------------------------------------- Section 10(c)(1) first requires that the Transaction be lawful under Section 8. That section was intended to prevent holding companies, by the use of separate subsidiaries, from circumventing state restrictions on common ownership of gas and electric operations. The Transaction will not result in any new situation of common ownership of so-called "combination" systems within a given state. CILCO already provides electric and gas service in overlapping areas of Illinois. Moreover, the ICC has jurisdiction over the Transaction. Accordingly, the Transaction does not raise any issue under Section 8. (b) The Transaction will not be detrimental to carrying out the provisions of Section 11. ---------------------------------------------------------- Section 10(c)(1) also requires that the Transaction not be "detrimental to the carrying out of the provisions of section 11." Section 11(b)(1), in turn, directs the Commission generally to limit a registered holding company "to a single integrated public-utility system," either electric or gas. An exception to this requirement, as discussed below, is provided in Section 11(b)(1)(A) - (C) (the "ABC clauses"), which permits a registered holding company to retain one or more additional (i.e., secondary) integrated public-utility systems if the system satisfies the criteria of the ABC clauses. In the 1997 Merger Order, the Commission determined that Ameren's primary 33 system, comprised of the electric utility facilities of AmerenUE and AmerenCIPS, constitutes an integrated electric utility system; and that the gas utility properties of AmerenUE and AmerenCIPS together constitute an integrated gas utility system that is retainable under the standards of Section 11(b)(1). At issue in this proceeding is whether Ameren's acquisition of CILCORP, whose principal subsidiary (CILCO) currently operates as both an electric and gas utility in substantially the same area of Illinois, will result in a system that is "detrimental to the carrying out of the provisions of section 11." As explained more fully below, the combination of the electric utility operations of AmerenUE, AmerenCIPS, and CILCO (including CIGI following the transfer of CILCO's generation assets to that company) will result in a single, integrated electric utility system. In addition, the combination of CILCO's gas utility properties with those of AmerenUE and AmerenCIPS will comprise an integrated gas utility system that may be retained by Ameren as an additional system under the ABC clauses of Section 11(b)(1). These standards are addressed below. (i) Integration of Electric Operations. ---------------------------------- The threshold question is whether the electric utility properties of CILCO can be combined with those of AmerenUE and AmerenCIPS to form a single "integrated public-utility system," which, as applied to electric utility companies, is defined in Section 2(a)(29)(A) to mean: a system consisting of one or more units of generating plants and/or transmission lines and/or distributing facilities, whose utility assets, whether owned by one or more electric utility companies, are physically interconnected or capable of physical interconnection and which under normal conditions may be economically operated as a single interconnected and coordinated system confined in its operations to a single area or region, in one or more States, not so large as to impair (considering the state of the art and the area or region affected) the advantages of localized management, efficient operation, and the effectiveness of regulation. Reading the statutory definition closely, there are four distinct and separate components of integration, as applied to an electric system: physical interconnection; coordination; limitation to a single area or region; and no impairment of localized management, efficient operation, and the effectiveness of regulation. See National Rural Electric Cooperative Ass'n v. Securities and Exchange Commission, 276 F.3d 609 at (D.C. Cir. 2002). The Transaction satisfies each of these tests. A. Interconnection...The first requirement for an integrated electric utility system is that the electric generation and/or transmission and/or distribution facilities comprising the system be "physically interconnected or capable of physical interconnection." As previously noted, the electric service areas of AmerenCIPS and CILCO in Illinois are adjacent and physically interconnected by a 345 kV line. Under traditional analysis, this 34 fact alone satisfies the interconnection requirement. See e.g., Energy East, et al., Holding Company Act Release No. 27546 (June 27, 2002). B. Coordination. Historically, the Commission has interpreted the requirement that an integrated electric system be economically operated under normal conditions as a single interconnected and coordinated system "to refer to the physical operation of utility assets as a system in which, among other things, the generation and/or flow of current within the system may be centrally controlled and allocated as need or economy directs." See, e.g., Conectiv, Inc., Holding Co. Act Release No. 26832 (Feb. 25, 1998), citing The North American Company, 11 S.E.C. 194, 242 (1942), aff'd, 133 F.2d 148 (2d Cir. 1943), aff'd on constitutional issues, 327 U.S. 686 (1946). The Commission has noted that, through this standard, "Congress intended that the utility properties be so connected and operated that there is coordination among all parts, and that those parts bear an integral operating relationship to one another." See Cities Service Co., 14 S.E.C. 28 at 55 (1943). Traditionally, the most obvious indicia of "coordinated operations" was the ability to jointly dispatch all system generating units automatically on an economic basis in order to achieve the lowest overall cost of electricity. However, in recent cases, the Commission has recognized that joint economic dispatch is not per se a requirement for a finding of coordinated operations. See e.g., American Electric Power Company, Inc., Holding Co. Act Release No. 27186 (June 14, 2000); Exelon Corporation, Holding Co. Act Release No. 27256 (Oct. 19, 2000); and CP&L Energy, Inc., Holding Co. Act Release No. 27284 (Nov. 27, 2000). In connection with the formation of Ameren in 1997, AmerenUE and AmerenCIPS entered into a Joint Dispatch Agreement ("JDA"), which was amended in 2000 in order to add Ameren Energy Generating upon the transfer of AmerenCIPS' generating units to Ameren Energy Generating. Under the JDA, the existing generation resources in the Ameren system are jointly dispatched on a single-system basis, without regard to ownership. The applicants in this proceeding, however, do not intend to make CILCO a party to the JDA or otherwise dispatch CILCO's plants and Ameren's plants on a single-system basis. CILCO is currently "short" of generating capacity, meaning that, for the foreseeable future, it will continue to require all of the capacity and associated energy from its existing generating units in order to serve its own load. Under these circumstances, it is clear that no advantage would be gained by making CILCO's generation subject to the JDA. Also, to expedite the state and federal regulatory approval process, Ameren and CILCO desire to keep the existing operating structure in place as much as possible, consistent with the requirements of the Act. Moreover, it is clear that the transfer of CILCO's generating assets to CIGI will not, at least for the foreseeable future, eliminate the need for close coordination between CILCO's transmission and distribution operations and CIGI's generation operations. As explained in Item 1, in connection with the restructuring of CILCO, CIGI will provide the full requirements of CILCO's retail customers pursuant to the PSA through December 31, 2004. Ameren anticipates that CILCO and CIGI will file a request with FERC to extend the PSA, 35 on its existing terms, until December 31, 2006. Thus, at least through 2006, there will be a high degree of coordination between CIGI and CILCO.(35) Notwithstanding the foregoing, AmerenUE and CIGI (and, as well, Ameren Energy Generating, even though it is an EWG) will have opportunities to coordinate their generating resources through joint planning, operation and maintenance programs, and through joint management of fuel resources by Ameren Fuels. Ameren Services' Energy Supply Operations Department, for example, will have overall responsibility for dispatching CIGI's plants as well as Ameren's other plants. They will also have opportunities to coordinate their generating facilities through power sales under their FERC-authorized market based tariffs. Further, because AmerenUE, AmerenCIPS and CILCO are, or will become, directly or indirectly, members of MISO, their transmission assets will be under common day-to-day control and management. Thus, in terms of both generation and transmission facilities, there will be high degree of coordination. Under Section 2(a)(29)(A), the Commission must also find that the resulting interconnected and coordinated system may be "economically operated." This calls for a determination that coordinated operation of the combined company's facilities is likely to produce economies and efficiencies. The question of whether a combined system will be economically operated under Section 10(c)(2) and Section 2(a)(29)(A) was recently addressed by the U.S. Court of Appeals in Madison Gas and Electric Company v. SEC, 168 F.3d 1337 (D.C. Cir. 1999). In that case, the court determined that in analyzing whether a system will be economically coordinated, the focus must be on whether the acquisition "as a whole" will "tend toward efficiency and economy." Id. at 1341. As discussed in Item 3.3 below, the Transaction will meet this standard. In short, all aspects of the combined system will be centrally and efficiently planned and coordinated. As with other merger applications approved by the Commission, the combined system will be capable of being economically operated as a single interconnected and coordinated system as demonstrated by the variety of means through which its operations will be coordinated and the efficiencies and economies expected to be realized by the proposed transaction. C. Single Area or Region. As required by Section 2(a)(29)(A), the operations of Ameren following the Transaction will be confined to a "single area or region in one or more States." The retail service area of the Ameren system will continue to be confined to the two adjoining states (Missouri and Illinois) in which Ameren already operates. Moreover, as - -------------------- (35) Contrast Reliant Energy, Inc., et al., Holding Co. Act Release No. 27548 (July 5, 2002), where the Commission concluded that, following the separation of Reliant's generation assets and "wires" business into separate subsidiaries, in accordance with Texas' restructuring law, coordination between the two would cease. Under Texas restructuring law, however, Reliant's transmission and distribution subsidiary will no longer purchase or sell any electricity and will not have any responsibility to be a provider of last resort, and Reliant's generating subsidiary will sell all of its output into the wholesale market. 36 indicated, AmerenUE, AmerenCIPS and CILCO are all members of MAIN, one of the ten regional electric reliability councils in the United States. D. Size. The final clause of Section 2(a)(29)(A) requires the Commission to look to the size of the combined system (considering the state of the art and the area or region affected) and its effect upon localized management, efficient operation, and the effectiveness of regulation. In the instant matter, these standards are easily met. The size of the Ameren electric system will not impair the advantages of localized management, efficient operation or the effectiveness of regulation. Instead, the proposed Transaction will actually increase the efficiency of operations. Localized Management -- Although CILCO will necessarily come under new management as a result of the Transaction, it will continue to exist as a separate legal entity and will continue to operate through regional offices with local service centers and line crews available to respond to customers' needs. Ameren will preserve the well-established delegations of authority -- currently in place at AmerenUE and AmerenCIPS -- which permit the local, district and regional management teams to budget for, operate and maintain the electric distribution system, and to schedule work forces in order to provide the same (or better) quality of service to customers of CILCO.36 In short, CILCO will continue to be managed on a day-to-day basis at a local level, particularly in areas that must be responsive to local needs. Accordingly, the advantages of localized management will not be impaired. Efficient Operation -- As discussed above in the analysis of Section 10(c)(2), the Transaction will result in significant economies and efficiencies. Operations will be more efficiently performed on a centralized basis because of economies of scale, standardized operating and maintenance practices and closer coordination of system-wide matters. Effective Regulation -- The Transaction will not impair the effectiveness of regulation at either the state or federal level. CILCO will continue to be regulated by the ICC with respect to retail rates, service, securities issuances and other matters, and by FERC with respect to interstate electric sales for resale and transmission services. (ii) Integration of Gas Operations. ----------------------------- The gas utility properties of CILCO, when added to those owned by AmerenUE and AmerenCIPS, will form an "integrated gas-utility system," which is defined in Section 2(a)(29)(B) to mean: - -------------------- (36) In their application to the ICC (Exh. D-1 hereto), CILCO and Ameren committed, among other things, to maintain CILCO's headquarters in Peoria for at least five years after the Transaction closes, to continue to employ at least 800 full-time employees of CILCO and its affiliates in the CILCO service area at least through 2005, and to maintain a management presence in the Peoria region by having two vice presidents (or higher level business leaders) work out of the Peoria region. 37 a system consisting of one or more gas utility companies which are so located and related that substantial economies may be effectuated by being operated as a single coordinated system confined in its operations to a single area or region, in one or more States, not so large as to impair (considering the state of the art and the area or region affected) the advantages of localized management, efficient operation, and the effectiveness of regulation: Provided, That gas utility companies deriving natural gas from a common source of supply may be deemed to be included in a single area or region. Thus, the definition of an integrated gas-utility system has three distinct parts, each of which will be satisfied in this case. A. Coordination. In order to find coordination among the gas-utility companies in the same holding company system, the Commission has historically focused primarily on the operating economies that may be effectuated through coordinated management of gas supply portfolios, i.e., gas purchase arrangements, transportation agreements, and storage assets, the access of the gas-utility companies in the same holding company system to common market and supply-area hubs, the functional merger of separate gas supply departments under common management, and sharing of data management software systems. See NIPSCO Industries, Inc., 53 S.E.C. 1296 at 1306 - 1309 (1999); New Century Enterprises, Inc., Holding Co. Act Release No. 27212 (Aug. 16, 2000). The Commission has also recognized that substantial operating economies can be achieved through access to the resources of an affiliated gas marketer. See Sempra Energy, 53 S.E.C. 1242 at 1251 - 1252 (1999). AmerenUE, AmerenCIPS and CILCO currently manage similar physical properties and contractual assets: natural gas supply, interstate pipeline transportation contracts, and storage contracts of varying types and duration. Following the acquisition of CILCO, Ameren Fuels will enter into a fuel services agreement with CILCO that is substantially identical to the existing Fuel Services Agreement between Ameren Fuels and AmerenUE and AmerenCIPS. Under these agreements, personnel of Ameren Fuels will manage all of the natural gas supply, transportation and storage activities on behalf of the three companies. This will include procuring natural gas supply, transportation services and storage capacity, negotiating agreements, nominating and scheduling gas deliveries, balancing system demand and supply, and performing state and federal regulatory responsibilities, in each case as agent for the three companies. B. Single Area or Region. The combined gas system of AmerenUE, AmerenCIPS and CILCO will also be confined to Missouri and Illinois. The areas served in Illinois are mostly contiguous. CILCO takes delivery of gas on five interstate pipelines: Panhandle Eastern Pipe Line Company, Natural Gas Pipeline Company of America, Trunkline Gas Company, Midwestern Gas Transmission Company, and ANR Pipeline Company. Ameren is currently served by all of these interstate pipelines with the exception of ANR Pipeline Company. The common pipelines give both companies access to gas supplies produced in the Mid-Continent region (Kansas and the Texas/Oklahoma Panhandle) and Gulf Coast onshore and offshore (Louisiana and Texas) producing areas and, to a lesser 38 extent, the Rocky Mountain and western Canada producing basins. Thus, the companies share a "common source of supply." C. Size. For the same reasons given above in connection with the discussion of impacts of the Transaction on the combined electric system, localized management, efficient operation, and the effectiveness of regulation will not be impaired by the resulting size of the integrated gas utility system. (c) Retention of Combined Gas System. -------------------------------- As indicated, under the "ABC clauses" of Section 11(b)(1), a registered holding company can own "one or more" additional integrated systems if certain conditions are met. Specifically, the Commission must find that (A) the additional system "cannot be operated as an independent system without the loss of substantial economies which can be secured by the retention of control by such holding company of such system," (B) the additional system is located in one state or adjoining states, and (C) the combination of systems under the control of a single holding company is "not so large ... as to impair the advantages of localized management, efficient operation, or the effectiveness of regulation." (i) Loss of Economies. ----------------- Clause A requires a showing that each additional integrated system (in this case, the integrated gas utility system formed by combining the operations of AmerenUE, AmerenCIPS and CILCO) cannot be operated as an independent system without the loss of substantial economies which can be secured by the retention of control by a holding company of such system. Historically, the Commission considered four ratios as a "guide" to determining whether lost economies would be "substantial" under Section 11(b)(1)(A). Specifically, the Commission considered the estimated loss of economies expressed in terms of the ratio of increased expenses to the system's total operating revenues, operating revenue deductions, gross income and net income. See Engineers Public Service Co., 12 SEC 41 (1942), rev'd on other grounds and remanded, 138 F. 2d 936 (DC Cir. 1943), vacated as moot, 332 US 788 (1947) ("Engineers"), and New England Electric System, 41 S.E.C. 888, 893 - 899 (1964). In Engineers, the Commission suggested that cost increases resulting in a 6.78% loss of operating revenues, a 9.72% increase in operating revenue deductions, a 25.44% loss of gross income, and 42.46% loss of net income would afford an "impressive basis for finding a loss of substantial economies" associated with a divestiture. 12 SEC at 59. More recently, the Commission has indicated that it will no longer require a comparison of resulting loss ratios to those of earlier precedent. See CP&L Energy, Inc., Holding Co. Act Release No. 27284 (Nov. 27, 2000), fn. 40. In its early decisions, the Commission also considered the increases in operational expenses that were anticipated upon divestiture, but also took into account, as offsetting benefits, the significant competitive advantages that were perceived to flow from a separation of gas and electric operations. The Commission's assumption was that a combination of gas and electric operations is typically disadvantageous to the gas operations and, hence, the public interest and the interests of investors and consumers would be benefited by a separation of gas from the electric operations. In more recent cases, however, the 39 Commission has recognized that these assumptions are outdated and that the historical ratios do not provide an adequate indication of the substantial loss of economies that may occur by forcing a separation of electric and gas. Specifically, beginning with its decision in New Century Energies, Inc., 53 S.E.C. 54 (1997), the Commission took notice of the changing circumstances in today's electric and gas industries, notably the increasing convergence of the electric and gas industries. The Commission concluded that, "in these circumstances, separation of gas and electric businesses may cause the separated entities to be weaker competitors than they would be together. This factor adds to the quantifiable loss of economies caused by increased costs." 53 S.E.C. at 76. This view was repeated in subsequent cases, including the 1997 Merger Order and WPL Holdings, Inc., 53 S.E.C. 501 (1997). The Commission has also recognized that revenue enhancement opportunities and other benefits likely to be realized from a "convergence" merger would be diminished or lost if the Commission forced a divestiture of the additional system. See SCANA Corp., Holding Co. Act Release No. 27133 (Feb. 9, 2000); and Northeast Utilities, Holding Co. Act Release No. 27127 (Jan. 31, 2000). Ameren intends to prepare and file a Severance Study that will quantify the economic impact of a divestiture of the gas assets of AmerenUE, AmerenCIPS and CILCO into a new, stand-alone company. The Severance Study will be filed by amendment as Exhibit H hereto. The study will include estimates of the increase in annual operating costs that would result if the gas properties were divested. These increased operating costs would result primarily from additional capital costs and annual operating and maintenance costs in several categories (e.g., establishing new service centers), including one-time transition costs associated with establishing the gas department as a separate company. The study will also include an estimate of the offsetting economies that would be derived from combining CILCO's gas operations with AmerenUE and AmerenCIPS' gas operations. Finally, in its analysis of clause A, the Commission has also taken into account the historical association of the electric and gas operations and the views of the interested state commissions. New Century Energies, 53 S.E.C. at 78. As in that case, the electric and gas assets of both CILCO and Ameren's subsidiaries have been under common control for many years, and the Transaction will not alter the status quo. Further, the Missouri Public Service Commission, which has jurisdiction over AmerenUE, and the ICC, which has jurisdiction over both AmerenUE and AmerenCIPS, did not object at the time that the Ameren system was formed to the continued ownership of both electric and gas utility operations in a single system. The ICC has jurisdiction over the Transaction and will have another opportunity to consider this issue. (ii) Same State or Adjoining States. ------------------------------ The proposed Transaction does not raise any issue under Section 11(b)(1)(B) of the Act, as the gas utility properties of AmerenUE, AmerenCIPS and CILCO are located and operate exclusively in Illinois and Missouri, the same two States in which they operate as electric utilities. Thus, the requirement that each additional system be located in one State or adjoining States is satisfied. 40 (iii) Size. ---- Further, retention of the combined gas utility business does not raise any issues under Section 11(b)(1)(C) of the Act. The combination of both electric and gas utility systems under the control of a single holding company will be "not so large ... as to impair the advantages of localized management, efficient operation, or the effectiveness of regulation." As the Commission has recognized, the determinative consideration is not size alone or size in an absolute sense, either big or small, but size in relation to its effect, if any, on localized management, efficient operation and effective regulation. From these perspectives, it is clear that the continued ownership of the combined gas system by Ameren is not too large. As of December 31, 2001, and giving effect to the Transaction, the combined gas operations of AmerenUE, AmerenCIPS, and CILCO would represent only about 12% of Ameren's post-Transaction net utility plant, and only about 5% of Ameren's post-Transaction net operating revenues. As indicated, the gas procurement functions of CILCO, AmerenUE and AmerenCIPS will be centralized in Ameren Fuels. Ameren Fuels will administer the combined portfolios of natural gas supply, transportation and storage contracts as agent for the three companies. In most other respects, the local operations of CILCO will continue to be handled from CILCO's headquarters in Peoria. Management will therefore remain geographically close to the gas operations, thereby preserving the advantages of localized management. (d) Retention of CILCORP's Non-Utility Subsidiaries and Investments. --------------------------------------------------- Section 11(b)(1) permits a registered holding company to retain "such other businesses as are reasonably incidental, or economically necessary or appropriate, to the operations of [an] integrated public utility system." The Commission has historically interpreted this provision to require an operating or "functional" relationship between the non-utility activity and the system's core utility business. See, e.g. Michigan Consolidated Gas Co., 44 S.E.C. 361 (1970), aff'd, 444 F.2d 913 (D.C. Cir. 1971); United Light and Railways Co., 35 S.E.C. 516 (1954); CSW Credit, Inc., 51 S.E.C. 984 (Mar. 2, 1994); and Jersey Central Power and Light Co., Holding Co. Act Release No. 24348 (Mar. 18, 1987). In addition, the Commission has permitted new registered holding companies to retain passive investments which, although not meeting the functional relationship test, could nevertheless be acquired under the standards of Section 9(c)(3) of the Act. In 1997, the Commission adopted Rule 58,(37) which conditionally exempts from the pre-approval requirements of Sections 9(a) and 10 of the Act the acquisition by a registered holding company of securities of companies engaged in certain specified categories of "energy-related" businesses which the - -------------------- (37) "Exemption of Acquisition by Registered Public-utility Holding Companies of Securities of Non-utility Companies Engaged in Certain Energy-related and Gas-related Activities," Holding Co. Act Release No. 26667 (Feb. 14, 1997) ("Rule 58 Release"). 41 Commission has determined, on the basis of experience, are so closely related to the business of a public-utility company as to be considered in the ordinary course of a public utility business. In adopting Rule 58, the Commission "has sought to respond to developments in the industry by expanding its concept of a functional relationship." Rule 58 Release at 11. Importantly, Rule 58 does not require that non-utility businesses of the type covered by the rule be "functionally" related to a holding company's utility operations at all. As set forth more fully in Exhibit I, the direct and indirect non-utility subsidiaries and investments of CILCORP meet the Commission's standards for retention under Section 11(b)(1) or Section 9(c)(3), as applicable, with certain exceptions that are noted in Exhibit I. Certain of CILCORP's non-utility subsidiaries fit within the definition of "energy-related company" under Rule 58. Rule 58 provides in section (a)(1)(ii) thereof that investments in non-utility activities that are exempt under Rule 58 cannot exceed 15% of the consolidated capitalization of the registered holding company. In its statement supporting the adoption of the Rule, the Commission stated: The Commission believes that all amounts that have actually been invested in energy-related companies pursuant to commission order prior to the date of effectiveness of the Rule should be excluded from the calculation of aggregate investment under Rule 58. The Commission also believes it is appropriate to exclude from the calculation all investments made prior to that date pursuant to available exemptions. (Rule 58 Release at 50-51). Moreover, in recent merger orders, the Commission has also excluded from the Rule 58 investment limit investments in "energy-related companies" acquired and held by exempt holding companies prior to the time they registered or were acquired by a registered holding company, on the ground that the restrictions of Section 11(b)(1) are applicable to registered holding companies and not to exempt holding companies. Because CILCORP is an exempt holding company, none of the investments it has heretofore made in non-utility businesses was pursuant to Commission order. Accordingly, investments made by CILCORP in "energy-related companies" prior to the effective date of the Transaction should not be counted in the calculation of the 15% investment limitation.(38) (e) Retention of CIGI as Subsidiary of CILCO. ---------------------------------------- Section 11(b)(2) of the Act requires the Commission to ensure that "the corporate structure or continued existence of any company in the holding company system does not unduly or unnecessarily complicate the structure, or unfairly or inequitably distribute voting power among security holders, of the holding company system." Section 11(b)(2) also directs the Commission to require each registered holding company "to take such steps as the Commission shall find necessary in order that such holding company shall cease to be a holding company with respect to each of its subsidiary companies which itself has a subsidiary company which is a holding company," in other words, to eliminate so-called "great-grandfather" holding companies. As a result of the Transaction, and assuming the continued interposition of CILCORP as an - -------------------- (38) See, e.g., New Century Energies, Inc., 53 S.E.C. 54 at 82 (1997). 42 intermediate holding company, Ameren will become a "great-grandfather" holding company with respect to CIGI. If CILCORP were eliminated as an intermediate holding company, or if CIGI is again determined to be an EWG, the "great-grandfather" relationship between Ameren and CIGI would no longer exist. However, as discussed above in Item 3.2, Ameren is proposing to retain CILCORP as an intermediate holding company for the indefinite future and is also proposing to acquire CIGI as an additional public utility subsidiary (by causing CIGI to relinquish its EWG status).(39) Ameren could also eliminate the "great-grandfather" relationship with CIGI by causing CILCO to distribute the common stock of CIGI to CILCORP or otherwise transfer the stock of CIGI to another company in the Ameren system. In this connection, it is Ameren's intention ultimately to move CIGI out from under CILCO in order to achieve a clearer delineation between CILCO's regulated utility business and CIGI's unregulated business. However, such action would necessitate obtaining a release from the lien under CILCO's mortgage on CIGI's generating assets,(40) and may require further regulatory approvals. Ameren is also examining whether such a change in corporate structure would result in any adverse federal and/or state tax consequences. After the Transaction is completed, Ameren will seek the appropriate regulatory approvals and endeavor to obtain a release under CILCO's mortgage with a view to transferring the stock of CIGI to CILCORP or another Ameren entity. However, these actions may be beyond Ameren's control. Accordingly, Ameren proposes that CIGI remain as a subsidiary of CILCO for the indefinite future. In any event, the continued ownership of CIGI by CILCO does not implicate any of the abuses that Section 11(b)(2) of the Act was intended to prevent. These abuses, facilitated by the pyramiding of holding company groups, involved the diffusion of control and the creation of different classes of debt or stock with unusual voting rights. These abuses are not present in this case. CIGI is wholly-owned by CILCO; it does not have any other class of equity securities or any third-party debt outstanding. In fact, for the time being at least, its assets will continue to secure first mortgage bonds issued by CILCO. Moreover, at least through the end of 2004 (as is likely to be extended through the end of 2006), all of CIGI's generating capacity will be dedicated under the PSA to serving the needs of CILCO; it will not have any retail customers who are subject to cost of service rates. The continued ownership of CIGI by CILCO will therefore enhance operational efficiency and coordination. Compare Energy East Corp., et al., Holding Co. Act Release No. 27224 (Aug. 31, 2000) (permitting Central Maine Power Company, a third tier subsidiary of Energy East, to retain ownership of certain single purpose utility subsidiaries whose assets are directly related to the utility operations of their parent); and Exelon - -------------------- (39) Although the acquisition of CIGI as an EWG would be exempt under Section 32(g) of the Act, it could result in Ameren exceeding the limitation under Rule 53(a)(1) on use of proceeds of authorized financing to acquire interests in EWGs. After the Transaction closes, Ameren may file a separate application to request relief from the investment limitation under Rule 53(a)(1), and, assuming that such relief is obtained, may then choose to seek a new determination from the FERC that CIGI is an EWG. (40) At this time, CILCO does not have sufficient previously unfunded bondable additions that could be pledged in order to obtain a release of the lien under its mortgage on the generating assets to be transferred to CIGI. 43 Corporation, Holding Co. Act Release No. 27256 (Oct. 19, 2000) (permitting retention of third tier generating utility subsidiary that was created as part of implementation of state restructuring plans and certain other fourth and lower tier generating companies that had been in existence for a long period of time). b. Section 10(c)(2). ---------------- The Transaction will "serve the public interest by tending toward the economical and efficient development of an integrated public utility system." It will therefore satisfy the requirements of Section 10(c)(2) of the Act. The Transaction will produce economies and efficiencies that are sufficient (given the size of the Transaction) to satisfy the standards of Section 10(c)(2) of the Act. Although some of the anticipated economies and efficiencies will be fully realized only in the longer term, they are properly considered in determining whether the standards of Section 10(c)(2) have been met. See AEP, 46 S.E.C. at 1320 - 1321. Some potential benefits cannot be precisely estimated; nevertheless, they too are entitled to be considered. As the Commission has observed, "[s]pecific dollar forecasts of future savings are not necessarily required; a demonstrated potential for economies will suffice even when these are not precisely quantifiable." Centerior Energy Corp., 49 S.E.C. at 480. Because of its size, with more than 1.5 million electric customers and more than 300,000 gas customers, Ameren has greater purchasing power for equipment, materials, supplies, services and fuels than CILCO. Ameren believes that its size advantage will help to stabilize CILCO's cost of operations during a period of service improvements. Likewise, AmerenUE's and AmerenCIPS' customers will benefit from the Transaction. Such benefits will be derived from greater economies of scale and the ability to maximize the utilization of existing systems and infrastructure. Specifically, the Transaction will produce savings in the energy delivery business through purchasing economies, elimination of duplicate energy delivery services and limited staff reductions. Ameren estimates that ongoing pre-tax net savings associated with the energy delivery function will range from $500,000 to $3.2 million per year in the first four years (2003 through 2006). Ameren also believes that there will be opportunities to achieve substantial savings in power supply through the integration of CIGI's and Ameren's generation functions in such areas as fuel purchasing, transportation and handling, joint planning, joint plant maintenance programs, and spare parts inventory management. Ameren also believes that additional savings can be achieved through administrative and corporate purchasing economies, elimination of duplicate administrative and corporate services, and limited staff reductions. Ameren estimates that, in order to achieve the projected level of savings, approximately $25 million in one-time transition expenses, along with approximately $14 million of capital expenditures will be incurred. These expenditures are required principally to enable CILCO to utilize Ameren's systems and to pay for relocation and severance costs and facilities integration. 44 Although these quantifiable savings are modest in relation to savings that have been projected in other recent merger cases approved by the Commission, they are nevertheless meaningful in relation to the overall Transaction size. The Transaction should also have a beneficial effect on CILCO's ability to raise capital on reasonable terms and on the cost of future debt capital since Ameren has a higher credit rating than AES.(41) It is expected, for example, that CILCO will achieve savings in the cost of short-term debt through participation in the Utility Money Pool, which should enable CILCO to terminate or reduce the size of its existing external credit facilities, with a reduction in associated facility fees. CILCO's existing ratings for senior secured debt, preferred stock and commercial paper are not expected to be adversely affected as a result of the Transaction.(42) 3.4 Section 10(f). ------------- Section 10(f) provides that: The Commission shall not approve any acquisition as to which an application is made under this section unless it appears to the satisfaction of the Commission that such State laws as may apply in respect of such acquisition have been complied with, except where the Commission finds that compliance with such State laws would be detrimental to the carrying out of the provisions of section 11. As previously stated, the Transaction is subject to the approval of the ICC. In addition, closing conditions under the Stock Purchase Agreement are designed to assure compliance with all other applicable State laws. 3.5 Intra-system Transactions. ------------------------- The sale of goods and services to CILCORP and its subsidiaries following the effective date of the Transaction will be carried out in accordance with the requirements and provisions of Section 13(b) of the Act and Rules 87, 90 and 91 unless otherwise authorized by the Commission by order or by rule. These include the Service Agreements and the Fuel Services Agreement. The acquisition of CILCORP will not necessitate any change in the organization of Ameren Services, the type and character of the companies to be served, the methods of allocating costs to associate companies, or the scope or character of the services to be rendered. However, it is contemplated that certain employees of CILCORP and its subsidiaries may be transferred to and become employees of Ameren Services after the Transaction closes. - -------------------- (41) As previously noted, Ameren's senior unsecured debt is rated A2 by Moody's and A by S&P. AES's senior unsecured debt is rated Ba3 by Moody's and BB- by S&P. (42) Following the announcement of the Transaction in April 2002, S&P and FitchRatings both indicated in press releases that the Transaction is viewed as a positive influence on CILCO's credit worthiness. 45 3.6 Rule 54 Analysis. ---------------- Rule 54 provides that the Commission shall not consider the effect of the capitalization or earnings of any EWG or "foreign utility company" ("FUCO"), as defined in Sections 32 and 33, respectively, in which a registered holding company holds an interest in determining whether to approve any transaction unrelated to any EWG or FUCO if the requirements of Rule 53 (a), (b) and (c) are satisfied. These standards are met. Rule 53(a)(1): Ameren's "aggregate investment" (as defined in Rule 53(a)(1)) in EWGs is currently $535,939,525, or approximately 31.5% of Ameren's "consolidated retained earnings" (also as defined in Rule 53(a)(1)) for the four quarters ended March 31, 2002 ($1,699,880,250). On a pro forma basis, to take into account Ameren's investment in AES Medina Valley, Ameren's "aggregate investment" would be $558,139,525, or about 32.8% of "consolidated retained earnings" for the four quarters ended March 31, 2002. Ameren does not currently hold an interest in any FUCO. Rule 53(a)(2): Ameren will maintain books and records enabling it to identify investments in and earnings from each such EWG and FUCO in which it directly or indirectly acquires and holds an interest. Ameren will cause each domestic EWG in which it acquires and holds an interest, and each foreign EWG and FUCO that is a majority-owned subsidiary, to maintain its books and records and prepare its financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"). All of such books and records and financial statements will be made available to the Commission, in English, upon request. Rule 53(a)(3): No more than 2% of the employees of Ameren's domestic public utility subsidiaries (including CILCO and CIGI) will, at any one time, directly or indirectly, render services to EWGs and FUCOs. Rule 53(a) (4): Ameren will submit a copy of each Application or Declaration, and each amendment thereto, relating to any EWG or FUCO, and will submit copies of any Rule 24 certificates required thereunder, as well as a copy of the relevant portions of Ameren's Form U5S, to each of the public service commissions having jurisdiction over the retail rates of Ameren's domestic public utility subsidiaries. In addition, Ameren states that the provisions of Rule 53(a) are not made inapplicable to the authorization herein requested by reason of the occurrence or continuance of any of the circumstances specified in Rule 53(b). Rule 53(c) is inapplicable by its terms. ITEM 4. REGULATORY APPROVALS. 4.1 Illinois Commerce Commission. ---------------------------- The Transaction requires approval by the ICC. Under the applicable provisions of Illinois law, in order to approve the Transaction, the ICC must find that: the Transaction will not diminish CILCO's ability to provide adequate, reliable, efficient, safe and least-cost public utility service; the Transaction will not result in the unjustified subsidization of non-utility 46 activities by CILCO or its customers; the costs and facilities of CILCO are fairly and reasonably allocated between utility and non-utility activities in such a manner that the ICC may identify those costs and facilities which are properly included by the utility for ratemaking purposes; the Transaction will not significantly impair CILCO's ability to raise necessary capital on reasonable terms or to maintain a reasonable capital structure; CILCO will remain subject to all applicable laws, regulations, rules, decisions and policies governing the regulation of Illinois public utilities; the Transaction is not likely to have a significant adverse effect on competition in those markets over which the ICC has jurisdiction; and the Transaction is not likely to result in any adverse rate impacts on retail customers. In addition, the authorization of the ICC is required for CILCO to enter into the Services Agreement and the Fuel Services Agreement. A copy of the application filed with the ICC, including the Proposed Acquisition Conditions, is filed herewith as Exhibit D-1. The approval of the ICC is also required in order for CILCO to become a participant in the Utility Money Pool. CILCO intends to file a separate application with the ICC in order to request such approval. 4.2 Federal Energy Regulatory Commission. ------------------------------------ Under Section 203 of the Federal Power Act, the FERC is directed to approve a merger if it finds such merger consistent with the public interest. In reviewing transactions under the standards of Section 203, the FERC generally evaluates: whether the merger will adversely affect competition; whether the merger will adversely affect rates; and whether the merger will impair the effectiveness of regulation. A copy of the application filed by Ameren and CILCO(43) with the FERC requesting approval of the Transaction under the Federal Power Act is filed herewith as Exhibit D-3. 4.3 HSR Act. ------- Under the HSR Act, and the rules promulgated thereunder by the FTC, the Transaction may not be consummated until Ameren and AES file notifications and provide certain information to the FTC and the DOJ and specified waiting period requirements are satisfied. Even after the HSR Act waiting period expires or terminates, the FTC or the DOJ may later challenge the transaction on antitrust grounds. If the transaction is not completed within 12 months after the expiration or earlier termination of the initial HSR Act waiting period, the parties would be required to submit new information under the HSR Act and a new waiting period would begin. 4.4 Federal Communications Commission. --------------------------------- In connection with the Transaction, CILCO will file an application with the Federal Communications Commission to request the transfer of various communications licenses that it holds to Ameren Services. - -------------------- (43) AES Medina Valley is also an applicant on the joint application filed with FERC since the transfer of its facilities is also subject to Section 203 of the Federal Power Act. 47 Except as described above, no other state or federal commission, other than this Commission, has jurisdiction over the proposed Transaction.(44) ITEM 5. PROCEDURE. The Applicants request that the Commission publish a notice under Rule 23 with respect to the filing of this Application/Declaration as soon as practicable, and issue an order approving the Application/Declaration as soon as its rules permit after the end of the required notice period. The Applicants request that there should not be a 30-day waiting period between issuance of the Commission's order and the date on which the order is to become effective; waive a recommended decision by a hearing officer or other responsible officer of the Commission; and consent to the participation by the Division of Investment Management in the preparation of the Commission's decision and/or order, unless the Division of Investment Management opposes the matters proposed herein. ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS. a. Exhibits. -------- A-1 Articles of Incorporation of CILCORP Inc. as amended effective November 15, 1999. (Incorporated by reference to Exhibit 3 to Annual Report of Form 10-K for the year ended December 31, 1999, File No. 1-8946). A-2 Bylaws of CILCORP Inc. as amended and restated effective October 18, 1999. (Incorporated by reference to Exhibit (3)a to Annual Report of Form 10-K for the year ended December 31, 1999, File No. 1-8946). A-3 Articles of Incorporation of Central Illinois Light Company, as amended April 28, 1998. (Incorporated by reference to Exhibit (3) to Annual Report of Form 10-K for the year ended December 31, 1998, File No. 1-8946). A-4 Bylaws of Central Illinois Light Company, as amended effective April 1, 1999. (Incorporated by reference to Exhibit (3)a to Annual Report of Form 10-K for the year ended December 31, 1999, File No. 1-8946). A-5 Articles of Incorporation of Central Illinois Generation, Inc. A-6 Bylaws of Central Illinois Generation, Inc. - -------------------- (44) By order made effective June 23, 2002, the Missouri Public Service Commission ruled that it does not have jurisdiction over the Transaction. In the Matter of the Proposed Acquisition of Cilcorp, Inc. by Ameren Corporation, Case No. EO-2002-1082 48 A-7 Indenture, dated as of October 18, 1999, between Midwest Energy, Inc. and The Bank of New York, as Trustee, and First Supplemental Indenture, dated as of October 18, 1999, between CILCORP Inc. and The Bank of New York. (Incorporated by reference to exhibits 4.1 and 4.2 of Registration Statement on Form S-4 filed by CILCORP on November 5, 1999 in File No. 333-90373). B-1 Stock Purchase Agreement, dated as of April 28, 2002, by and between The AES Corporation and Ameren Corporation. B-2 Fuel Services Agreement between Ameren Fuels and CILCO and CIGI. C Registration Statement on Form S-4 with respect to CILCORP Senior Notes, filed by CILCORP on November 5, 1999. (Incorporated by reference to File No. 333-90373). D-1 Application to the Illinois Commerce Commission for Approval of Transaction. (Form SE - Continuing hardship exemption). D-2 Order of the Illinois Commerce Commission Approving Transaction. (To be filed by amendment). D-3 Joint Application to the Federal Energy Regulatory Commission for Approval of Transaction. (Form SE - Continuing hardship exemption). D-4 Order of the Federal Energy Regulatory Commission. (To be filed by amendment). D-5 Application to Illinois Commerce Commission for Authorization to Participate in Utility Money Pool. (To be filed by amendment). D-6 Order of the Illinois Commerce Commission Approving Participation in Utility Money Pool. (To be filed by amendment). E-1 Organizational Chart of Ameren and its Subsidiaries. (Form SE - Required paper format filing). E-2 Organizational Chart of CILCORP and its Subsidiaries. (Form SE - Required paper format filing). E-3 Electric Service Territory Map. (Form SE - Required paper format filing). E-4 Gas Service Territory Map. (Form SE - Required paper format filing). 49 E-5 Electric Transmission Facilities Maps. (Included in Exhibit D-3 hereto as Exhibit K). F Opinion of counsel to Ameren Corporation. (To be filed by amendment). G Proposed form of Federal Register notice. H Severance Study: Loss of Economies from Divestiture of Combined Ameren/CILCORP Gas Utility Business into a Stand-Alone Company. (To be filed by amendment). I Description of and Legal Basis for Retention of Non-Utility Subsidiaries and Investments of CILCORP. J Fairness Opinion of Goldman, Sachs & Co. b. Financial Statements. -------------------- FS-1 Consolidated Balance Sheet and Statement of Income of Ameren Corporation as of and for the year ended December 31, 2001. (Incorporated by reference to the Annual Report on Form 10-K of Ameren Corporation for the year ended December 31, 2001, in File No. 1-14756). FS-2 Consolidated Balance Sheet and Statement of Income of Ameren Corporation as of and for the three months ended March 31, 2002. (Incorporated by reference to the Quarterly Report on Form 10-Q of Ameren Corporation for the period ended March 31, 2002, in File No. 1-14756). FS-3 Consolidated Balance Sheet and Statement of Income of CILCORP Inc. as of and for the year ended December 31, 2001. (Incorporated by reference to the Annual Report on Form 10-K of CILCORP Inc. for the year ended December 31, 2001, in File No. 1-8946). FS-4 Consolidated Balance Sheet and Statement of Income of CILCORP Inc. as of and for the three months ended March 31, 2002. (Incorporated by reference to the Quarterly Report on Form 10-Q of CILCORP Inc. for the period ended March 31, 2002, in File No. 1-8946). FS-5 Consolidated Balance Sheet and Statement of Income of Central Illinois Light Company as of and for the year ended December 31, 2001. (Incorporated by reference to the Annual Report on Form 10-K of Central Illinois Light Company for the year ended December 31, 2001, in File No. 1-2732). 50 FS-6 Consolidated Balance Sheet and Statement of Income of Central Illinois Light Company as of and for the three months ended March 31, 2002. (Incorporated by reference to the Quarterly Report on Form 10-Q of Central Illinois Light Company for the period ended March 31, 2002, in File No. 1-2732). FS-7 Balance Sheet of Central Illinois Generation, Inc. (To be filed by amendment). FS-8 Unaudited Pro Forma Combined Condensed Balance Sheet of Ameren Corporation as of December 31, 2001. (To be filed by amendment). FS-9 Unaudited Pro Forma Combined Condensed Statement of Income for Ameren Corporation for the year ended December 31, 2001. (To be filed by amendment). ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS. --------------------------------------- The Transaction does not involve a "major federal action" nor will it "significantly affect the quality of the human environment" as those terms are used in section 102(2)(C) of the National Environmental Policy Act. The Transaction will not result in changes in the operation of the applicant or its subsidiaries that will have an impact on the environment. The applicant is not aware of any federal agency that has prepared or is preparing an environmental impact statement with respect to the Transaction. 51 SIGNATURES Pursuant to the requirements of the Public Utility Holding Company Act of 1935, as amended, the undersigned companies have duly caused this Application/Declaration to be signed on their behalf by the undersigned thereunto duly authorized. AMEREN CORPORATION AMEREN ENERGY FUELS AND SERVICES COMPANY By: /s/ Steven R. Sullivan Name: Steven R. Sullivan Title: Vice President, General Counsel, and Secretary CILCORP INC. CENTRAL ILLINOIS GENERATION, INC. By: /s/ Leonard M. Lee Name: Leonard M. Lee Title: President CENTRAL ILLINOIS LIGHT COMPANY By: /s/ Leonard M. Lee Name: Leonard M. Lee Title: Chairman of the Board and Chief Executive Officer Date: August 2, 2002 52 EX-99 3 dce125745ex_a5.txt EX. A-5 - CERTIFICATE OF ILLINOIS SECRETARY File Number 6191-041-7 Exhibit A-5 State of Illinois Office of The Secretary of State Whereas, ARTICLES OF INCORPORATION OF CENTRAL ILLINOIS GENERATION, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF ILLINOIS, IN FORCE JULY 1 A.D. 1984. Now Therefore, I, Jesse White, Secretary of State of the State of Illinois, by virtue of the powers vested in me by law, do hereby issue this certificate and attach hereto a copy of the Application of the aforesaid corporation. In Testimony Whereof, I hereto set my hand and cause to be affixed the Great Seal of the State of Illinois, at the City of Springfield, this 15th day of November A.D. 2001 and of the Independence of the United States the two hundred and 26th. SEAL /s/ Bessie White Secretary of State 1. CORPORATE NAME: Central Illinois Generation, Inc. 2. Initial Registered Agent: Craig Stensland Initial Registered Office: 300 Liberty Street Peoria, IL Peoria (County) 61602 3. Purpose or purposes for which the corporation is organized: The transaction of any and all lawful business for which corporations may be incorporated under the Illinois Business Corporations Act of 1983 (as amended). 4. Paragraph 1: Authorized Shares, Issued Shares and Consideration Received:
Class Par Value Number of Shares Number of Shares Consideration to be Per Share Authorized Proposed to be Issued Received Therefor ----- --------- ------------------ --------------------- ----------------- Common $ None 10,000 1,000 $1,000.00 TOTAL = $1,000.00
Paragraph 2: The preferences, qualifications, limitations, restrictions and special or relative rights in respect of the shares of each class are: None. 5. OPTIONAL: (a) Number of directors constituting the initial board of directors of the corporation: (b) Names and addresses of the persons who are to serve as directors until the first annual meeting of shareholders or until their successors are elected and qualify: 6. OPTIONAL: (a) It is estimated that the value of all property to be owned by the corporation for the following year wherever located will be: (b) It is estimated that the value of the property to be located within the State of Illinois during the following year will be: (c) It is estimated that the gross amount of business that will be transacted by the corporation during the following year will be: (d) It is estimated that the gross amount of business that will be transacted from places of business in the State of Illinois during the following year will be: 7. OPTIONAL: OTHER PROVISIONS 2 8. NAME(S) & ADDRESS(ES) OF INCORPORATOR(S) The undersigned incorporator(s) hereby declare(s), under penalties of perjury, that the statements made in the foregoing Articles of Incorporation are true. Dated November 14, 2001 Signature and Name Address /s/Angela C. Raines One IBM Plaza Angela C. Raines Chicago, IL 60611 3 EX-3 4 dce645288ex_a6.txt EX. A-6 - BY-LAWS OF CENTRAL ILLINOIS GENERATION Exhibit A-6 CENTRAL ILLINOIS GENERATION, INC. * * * * * B Y - L A W S * * * * * ARTICLE I OFFICES Section 1. The registered office shall be located in Peoria, Illinois. Section 2. The corporation may also have offices at such other places both within and without the State of Illinois as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II ANNUAL MEETINGS OF SHAREHOLDERS Section 1. All meetings of shareholders for the election of directors shall be held in Peoria, State of Illinois, at such place as may be fixed from time to time by the board of directors. Section 2. Annual meetings of shareholders, commencing with the year 2002, shall be held on the second Tuesday of November, at which they shall elect by a plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. Section 3. Written or printed notice of the annual meeting stating the place, day and hour of the meeting shall be delivered not less than ten nor more than sixty days before the date of the meeting, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets not less than twenty days nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the president, or the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. ARTICLE III SPECIAL MEETINGS OF SHAREHOLDERS Section 1. Special meetings of shareholders for any purpose other than the election of directors may be held at such time and place within or without the State of Illinois as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by law or by the articles of incorporation, may be called by the president, the board of directors, or the holders of not less than one-fifth of all the shares entitled to vote at the meeting. Section 3. Written or printed notice of a special meeting stating the place, day and hour of the meeting and the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets not less than twenty days nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the president, or the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. Section 4. The business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice. ARTICLE IV QUORUM AND VOTING OF STOCK Section 1. The holders of a majority of the shares of stock issued and outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by law or by the articles of incorporation. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. Section 2. If a quorum is present, the affirmative vote of a majority of the shares of stock represented at the meeting and entitled to vote on the matter shall be the act of the shareholders unless the vote of a greater number of shares of stock is required by law or the articles of incorporation. Section 3. Each outstanding share of stock, having voting power, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. A shareholder may vote either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Section 4. Unless otherwise provided in the articles of incorporation or bylaw, any action required to be taken at any annual or special meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting and without a vote, if a consent in writing, setting forth the action so taken, shall be signed (i) if five days prior notice of the proposed action is given in writing to all of the shareholders entitled to vote with respect to the subject matter thereof, by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which 2 all shares entitled to vote thereon were present and voting or (ii) by all of the shareholders entitled to vote with respect to the subject matter thereof. ARTICLE V DIRECTORS Section 1. The number of directors which shall constitute the whole board shall be not less than 3 nor more than 7. Thereafter, within the limits above specified, the number of directors shall be determined by a resolution of the board of directors or by the shareholders. The directors, other than the first board of directors, shall be elected at the annual meeting of shareholders, and each director elected shall serve until the next succeeding annual meeting and until his successor shall have been elected and qualified. The first board of directors shall hold office until the first annual meeting of shareholders. Section 2. Vacancies and newly created directorships resulting from any increase in the number of directors may be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose. A majority of directors then in office, though less than a quorum, may fill one or more vacancies in the board of directors arising between meetings of shareholders by reason of an increase in the number of directors or otherwise. A director appointed to fill a vacancy, or a newly created directorship, shall hold office until the next succeeding annual meeting of shareholders and until his successor shall have been elected and qualified. Section 3. The business affairs of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by law or by the articles of incorporation or by these by-laws directed or required to be exercised or done by the shareholders. Section 4. The directors may keep the books of the corporation, except such as are required by law to be kept within the state, outside of the State of Illinois, at such place or places as the directors may from time to time determine. Section 5. The board of directors, by the affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise. ARTICLE VI MEETINGS OF THE BOARD OF DIRECTORS Section 1. Meetings of the board of directors, regular or special, may be held either within or without the State of Illinois. 3 Section 2. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the shareholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, or it may convene at such place and time as shall be fixed by the consent in writing of all the directors. Section 3. Regular meetings of the board of directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the board. Section 4. Special meetings of the board of directors may be called by the president on 10 days notice to each director, either personally or by mail or by facsimile telecommunication; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors. Section 5. Attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting. Section 6. A majority of the directors shall constitute a quorum for the transaction of business unless a greater number is required by the articles of incorporation. The act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by the articles of incorporation. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 7. Unless specifically prohibited by the articles of incorporation or these by-laws, any action required to be taken at a meeting of the board of directors, or any other action which may be taken at a meeting of the board of directors or a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter thereof, or by all the members of such committee, as the case may be. ARTICLE VII COMMITTEES OF DIRECTORS Section 1. The board of directors, by resolution adopted by a majority of the number of directors may create one or more committees and appoint members of the board to serve on the committee or committees. To the extent provided in such resolution or the articles of incorporation, each committee shall have and exercise all of the authority of the board of directors in the management of the corporation, except as otherwise required by law. Each committee shall have one or more members, who serve at the pleasure of the board. The committees shall 4 keep regular minutes of its proceedings and report the same to the board when required. ARTICLE VIII NOTICES Section 1. Whenever, by law or under the provisions of the articles of incorporation or of these by-laws, notice is required to be given to any director or shareholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or shareholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by facsimile telecommunication. Section 2. Whenever any notice whatever is required to be given by law or under the provisions of the articles of incorporation or these by-laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance at any meeting shall constitute waiver of notice thereof unless the person at the meeting objects to the holding of the meeting because proper notice was not given. ARTICLE IX OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a president, a vice-president, a secretary and a treasurer. The board of directors may also choose additional vice-presidents, and one or more assistant secretaries and assistant treasurers. Section 2. The board of directors at its first meeting after each annual meeting of shareholders shall choose a president, one or more vice-presidents, a secretary and a treasurer, none of whom need be a member of the board. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board of directors. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. 5 THE PRESIDENT Section 6. The president shall be the chief executive officer of the corporation, shall preside at all meetings of the shareholders and the board of directors, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. Section 7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. THE VICE-PRESIDENTS Section 8. The vice-president, or if there shall be more than one, the vice-presidents in the order determined by the board of directors, shall, in the absence or disability of the president, perform the duties and exercise the powers of the president and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARIES Section 9. The secretary shall attend all meetings of the board of directors and all meetings of the shareholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 10. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS Section 11. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. 6 Section 12. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 13. If required by the board of directors, he shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 14. The assistant treasurer, or, if there shall be more than one, the assistant treasurers in the order determined by the board of directors, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE X CERTIFICATES FOR SHARES Section 1. The shares of the corporation shall be represented by a certificate or shall be uncertificated. Certificates shall be signed by the president or a vice-president and the secretary or an assistant secretary of the corporation, and may be sealed with the seal of the corporation or a facsimile thereof. When the corporation is authorized to issue shares of more than one class there shall be set forth upon the face or back of the certificate, or the certificate shall have a statement that the corporation will furnish to any shareholder upon request and without charge, a full summary or statement of the designations, preferences, limitations, and relative rights of the shares of each class authorized to be issued and, if the corporation is authorized to issue any preferred or special class in series, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined and the authority of the board of directors to fix and determine the relative rights and preferences of subsequent series. Within a reasonable time after the issuance or transfer of uncertificated shares, the corporation shall send to the registered owner thereof a written notice containing the information required by law to be set forth or stated on certificates. Section 2. The signatures of the officers of the corporation upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, registrar, other than the corporation itself or an employee of the corporation. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issue. 7 LOST CERTIFICATES Section 3. The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost or destroyed. When authorizing such issue of a new certificate, the board of directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such indemnities as it deems adequate, to protect the corporation from any claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed. TRANSFERS OF SHARES Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto, and the old certificate cancelled and the transaction recorded upon the books of the corporation. CLOSING OF TRANSFER BOOKS Section 5. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors of a corporation may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty days and, for a meeting of shareholders, not less than ten days, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty days, immediately preceding such meeting. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as herein provided, such determination shall apply to any adjournment thereof. REGISTERED SHAREHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Illinois. LIST OF SHAREHOLDERS 8 Section 7. The officer or agent having charge of the transfer books for shares shall make, within twenty days after the record date for a meeting of shareholders or ten days before such meeting, whichever is earlier, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of each and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office of the corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of the shareholders. ARTICLE XI GENERAL PROVISIONS DIVIDENDS Section 1. Subject to the provisions of the articles of incorporation relating thereto, if any, dividends may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock, subject to any provisions of the articles of incorporation. However, no dividend shall be declared if, after giving it effect, the corporation would be insolvent; or the net assets of the corporation would be less than zero or less than the maximum amount payable at the time of distribution to shareholders having preferential rights in liquidation if the corporation were then to be liquidated. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. CHECKS Section 3. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 4. The fiscal year of the corporation shall be fixed by resolution of the board of directors. SEAL 9 Section 5. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Illinois". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. ARTICLE XII AMENDMENTS Section 1. These by-laws may be altered, amended or repealed by the shareholders or the board of directors, but no by-law adopted by the shareholders may be altered, amended or repealed by the board of directors if the by-laws so provide. ARTICLE XIII INDEMNIFICATION Section 1. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in may be entitled under any by-law, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such a person, a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation or, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. Section 2. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, 10 if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation, unless, and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. Section 3. To the extent that a director, officer, employee or agent of the corporation has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. Section 4. Any indemnification under Sections 1 and 2 of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 1 or 2 of this Article. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the shareholders. Section 5. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding, as authorized by the Board of Directors in the specific case, upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he or she is entitled to be indemnified by the corporation as authorized in this Article. Section 6. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled in these by-laws, the articles of incorporation, other agreements, or the laws of the State of Illinois. Section 7. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Article. Section 8. If the corporation has paid indemnity or has advanced expenses to a director, officer, employee or agent, the corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders meeting. 11 Section 9. For purposes of this Article, references to "the corporation" shall include, in addition to the surviving corporation, any merging corporation (including any corporation having merged with a merging corporation) absorbed in a merger which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers and employees or agents, so that any person who was a director, officer, employee or agent of such merging corporation, or was serving at the request of such merging corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the surviving corporation as such person would have with respect to such merging corporation if its separate existence had continued. Section 10. For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner he or she reasonably believed to be in the best interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article. I HEREBY CERTIFY that the foregoing is a full, true, and correct copy of the by-laws of CENTRAL ILLINOIS GENERATION, INC., a corporation of the State of Illinois, as in effect on the date hereof. WITNESS my hand and the seal of the corporation. Dated: November 20, 2001 /s/ Craig W. Stensland ---------------------- Craig W. Stensland, Secretary Central Illinois Generation, Inc. EX-10 5 dce120541exb1.txt EX. B-1 - STOCK PURCHASE AGREEMENT Exhibit B-1 EXECUTION COPY STOCK PURCHASE AGREEMENT BY AND BETWEEN THE AES CORPORATION AND AMEREN CORPORATION DATED AS OF APRIL 28, 2002 TABLE OF CONTENTS ARTICLE I PURCHASE AND SALE OF SHARES........................................7 Section 1.1 Sale and Transfer of Shares................................7 Section 1.2 The Purchase Price.........................................7 Section 1.3 Additional Purchase Price Adjustment......................10 ARTICLE II THE CLOSING......................................................10 Section 2.1 Closing...................................................10 Section 2.2 Deliveries by the Seller..................................10 Section 2.3 Deliveries by the Purchaser...............................11 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER....................11 Section 3.1 Organization and Qualification............................11 Section 3.2 Subsidiaries; Capitalization..............................12 Section 3.3 Authority; Non-Contravention; Statutory Approvals; Compliance..........................................................13 Section 3.4 Company SEC Reports; Financial Statements.................15 Section 3.5 Absence of Certain Changes or Events; Absence of Undisclosed Liabilities.............................................16 Section 3.6 Litigation................................................16 Section 3.7 Tax Matters...............................................17 Section 3.8 Employee Benefits; ERISA..................................17 Section 3.9 Labor and Employee Relations..............................20 Section 3.10 Environmental Protection.................................20 Section 3.11 Regulation as a Utility..................................21 Section 3.12 Insurance................................................22 Section 3.13 Real Property............................................22 Section 3.14 Affiliate Contracts......................................22 Section 3.15 Brokers or Finders.......................................22 Section 3.16 Contracts................................................22 Section 3.17 Regulatory Proceedings...................................23 Section 3.18 Limitation on Representations and Warranties.............23 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................23 Section 4.1 Organization and Qualification............................24 Section 4.2 Authority; Non-Contravention; Statutory Approvals; Compliance..........................................................24 Section 4.3 Purchaser SEC Reports; Financial Statements...............26 Section 4.4 Litigation................................................26 Section 4.5 Investigation by the Purchaser; the Seller's Liability....26 Section 4.6 Acquisition of Shares for Investment; Ability to Evaluate and Bear Risk..............................................27 Section 4.7 Financing.................................................28 Section 4.8 Brokers or Finders........................................28 ARTICLE V CONDUCT OF BUSINESS PENDING THE CLOSING...........................28 i Section 5.1 Covenants of the Seller...................................28 Section 5.2 No Solicitation and Confidentiality.......................31 ARTICLE VI ADDITIONAL AGREEMENTS............................................32 Section 6.1 Access to Company Information.............................32 Section 6.2 Regulatory Matters........................................33 Section 6.3 Consents..................................................34 Section 6.4 Directors' and Officers' Indemnification..................34 Section 6.5 Public Announcements......................................36 Section 6.6 Workforce Matters.........................................36 Section 6.7 Tax Matters...............................................36 Section 6.8 Financial Information.....................................45 Section 6.9 Termination of Affiliate Contracts........................45 Section 6.10 Local Presence; Charitable Giving........................45 Section 6.11 Seller's Name............................................45 Section 6.12 Cooperation..............................................46 Section 6.13 Further Assurances.......................................46 ARTICLE VII CONDITIONS......................................................46 Section 7.1 Conditions to Each Party's Obligation to Effect the Closing.............................................................46 Section 7.2 Conditions to Obligation of the Purchaser to Effect the Closing.............................................................46 Section 7.3 Conditions to Obligation of the Seller to Effect the Closing.............................................................47 ARTICLE VIII TERMINATION....................................................48 Section 8.1 Termination...............................................48 Section 8.2 Effect of Termination.....................................49 ARTICLE IX GENERAL PROVISIONS...............................................50 Section 9.1 Survival of Obligations...................................50 Section 9.2 Amendment and Modification................................50 Section 9.3 Extension; Waiver.........................................50 Section 9.4 Expenses..................................................50 Section 9.5 Notices...................................................50 Section 9.6 Entire Agreement; No Third Party Beneficiaries............51 Section 9.7 Severability..............................................52 Section 9.8 Governing Law.............................................52 Section 9.9 Venue.....................................................52 Section 9.10 Waiver of Jury Trial and Certain Damages.................52 Section 9.11 Specific Performance.....................................52 Section 9.12 Assignment...............................................52 Section 9.13 Interpretation...........................................53 Section 9.14 Counterparts; Effect.....................................53 ii INDEX OF DEFINED TERMS Term Page - ---- ---- 4.50% Series Preferred.......................................................7 4.64% Series Preferred.......................................................7 5.85% Series Class A Preferred...............................................7 Action......................................................................29 Affected Employee...........................................................30 Affiliate Contracts.........................................................16 Agreement....................................................................1 Assumed Obligations..........................................................2 Audit.......................................................................12 Base Working Capital.........................................................2 CapEx Adjustment Amount.....................................................23 CILCO........................................................................1 CILCO Class A Preferred Stock................................................7 CILCO Preference Stock.......................................................7 CILCO Preferred Stock........................................................7 CILCORP Inc..................................................................1 Closing......................................................................4 Closing Date.................................................................4 COBRA.......................................................................30 Code.........................................................................5 Common Stock.................................................................1 Company......................................................................1 Company Financial Statements................................................10 Company Material Adverse Effect..............................................6 Company Plans...............................................................12 Company Properties..........................................................16 Company SEC Reports..........................................................5 Company Subsidiary...........................................................7 Confidentiality Agreement...................................................27 Encumbrances.................................................................6 Environmental Laws..........................................................15 ERISA ......................................................................12 ERISA Affiliate.............................................................12 Estimated Purchase Price.....................................................3 Exchange Act................................................................10 FCC..........................................................................9 FERC.........................................................................9 Final Order.................................................................40 Final Purchase Price.........................................................3 iii Flexible Auction Rate Series Class A Preferred...............................7 GAAP ......................................................................10 Governmental Authority.......................................................9 Hazardous Substances........................................................16 HSR Act.....................................................................27 IBEW Local 51...............................................................30 ICC..........................................................................4 Indemnified Parties.........................................................28 Indemnified Party...........................................................28 Initial Termination Date....................................................42 Material Contracts..........................................................17 Objection Letter.............................................................3 PBGC........................................................................13 Permits......................................................................9 Person......................................................................15 Proposed Acquisition Transaction............................................26 Proposed Final Purchase Price Statement......................................3 PUHCA........................................................................7 Purchaser....................................................................1 Purchaser Disclosure Schedule...............................................18 Purchaser Material Adverse Effect...........................................18 Purchaser Required Consents.................................................19 Purchaser Required Statutory Approvals......................................19 Purchaser SEC Reports.......................................................18 Purchaser Subsidiary........................................................18 Representatives.............................................................26 Restraints..................................................................40 SEC..........................................................................9 Securities Act..............................................................10 Seller.......................................................................1 Seller Disclosure Schedule...................................................5 Seller Required Consents.....................................................8 Seller Required Statutory Approvals..........................................9 Shares.......................................................................1 Straddle Period.............................................................31 Subsidiary...................................................................6 Tax.........................................................................11 Tax Benefit.................................................................33 Tax Indemnitee..............................................................37 Tax Indemnitor..............................................................37 Tax Return..................................................................12 iv Termination Date............................................................42 Title IV Company Plan.......................................................13 Transaction Price............................................................2 Trigger Date.................................................................4 Undesignated Series Class A Preferred........................................7 Undesignated Series Preferred................................................7 Violation....................................................................8 WARN Act....................................................................30 Working Capital..............................................................2 v STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT, dated as of April 28, 2002 (this "Agreement"), is entered into by and between The AES Corporation, a Delaware corporation (the "Seller"), and Ameren Corporation, a Missouri corporation (the "Purchaser"). W I T N E S S E T H : WHEREAS, the Seller owns all of the issued and outstanding shares (the "Shares") of common stock, without par value (the "Common Stock"), of CILCORP Inc. (the "Company"), an Illinois corporation and the parent company of Central Illinois Light Company, an Illinois corporation ("CILCO"); and WHEREAS, each of the Boards of Directors of the Purchaser and the Seller has approved the acquisition of the Company by the Purchaser, which acquisition is to be effected by the purchase of all the Shares by the Purchaser upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I PURCHASE AND SALE OF SHARES Section 1.1 Sale and Transfer of Shares. Subject to the terms and conditions of this Agreement, at the Closing (as defined below), the Seller agrees to sell, convey, assign, transfer and deliver to the Purchaser, and the Purchaser agrees to purchase and accept from the Seller, all of the Seller's rights, title and interest in and to the Shares. Subject to the terms and conditions of this Agreement, the Purchaser agrees to deliver to the Seller, and the Seller agrees to accept, the Purchase Price (as defined below), in cash, without deduction or setoff of any kind (other than any transfer Taxes described in Section 6.7(m)), which delivery will be made by wire transfer in immediately available funds to the bank account or accounts designated by the Seller, in writing, prior to the Closing. Section 1.2 The Purchase Price. (a) Subject to the terms and conditions of this Agreement, in consideration of the aforesaid sale, conveyance, assignment, transfer and delivery to the Purchaser of the Shares, the Purchaser shall pay to the Seller in cash the sum of (v) $1,340,000,000 (the "Transaction Price"); (w) less an amount equal to Assumed Obligations (as defined below); (x) increased by the amount, if any, by which Working Capital (as defined below) as of the Closing Date exceeds the Base Working Capital (as defined below), (y) decreased by the amount, if any, by which Working Capital as of the Closing Date is less than the 1 Base Working Capital, and (z) increased by the amount of the CapEx Adjustment Amount (as defined in Section 5.1(e)) under Section 5.1(e)(i) of this Agreement or decreased by the amount of the CapEx Adjustment Amount under Section 5.1(e)(ii) of this Agreement (the net of such amounts (v) through (z) being, the "Purchase Price"). An example of the Purchase Price calculation is set forth in Section 1.2(a) of the Seller Disclosure Schedule (as defined below). (b) The term "Assumed Obligations" as used herein shall mean amounts required to be included on the consolidated balance sheets of the Company in accordance with GAAP (as defined in Section 3.4) as of the Closing Date for long-term indebtedness (including current portion), short-term indebtedness, capital lease obligations, preferred stock of subsidiaries and any other obligation for borrowed money. Assumed Obligations shall be determined on a basis consistent with past practice and consistent with the items outstanding as of December 31, 2001 set forth on Section 1.2(a) of the Seller Disclosure Schedule but including any other outstanding obligation meeting the definition of the preceding sentence at the applicable date set forth herein. (c) The term "Working Capital" as used herein shall mean current assets less current liabilities (not counting in current liabilities any short-term indebtedness or current maturity of long-term debt included in Assumed Obligations) of the Company as of the applicable date set forth herein determined in accordance with GAAP on a basis consistent with past practice and consistent with the calculation on Section 1.2(a) of the Seller Disclosure Schedule, provided, however, that for the purposes of this definition, current liabilities as of any date shall not include any Income Taxes payable, and current assets shall not include receivables from any Income Tax assets. "Income Taxes" shall mean any federal, state, local, or foreign Tax (as defined below) determined by reference to net income, net worth, or any Tax imposed in lieu of such a Tax. All intercompany (between the Company and its Subsidiaries on one hand, and the Seller and its Subsidiaries, other than the Company and its Subsidiaries, on the other hand) payables and all intercompany receivables shall be paid down to zero prior to the date the Estimated Purchase Price is calculated and shall be zero as of the Closing Date. (d) The term "Base Working Capital" as used herein means the amount shown on Section 1.2(a) of the Seller Disclosure Schedule. The Working Capital as of the Closing Date shall be calculated in the same manner as the Working Capital was calculated as set out on Section 1.2(a) of the Seller Disclosure Schedule. (e) At the Closing, the Purchaser shall pay to the Seller a cash amount (the "Estimated Purchase Price") consisting of the sum of (i) the Transaction Price, (ii) less the estimated Assumed Obligations, (iii) increased by the amount, if any, by which the estimated Working Capital exceeds the Base Working Capital, (iv) decreased by the amount, if any, by which estimated Working Capital is less than the Base Working Capital and (v) increased or decreased by the CapEx Adjustment Amount, all determined in good faith by the Seller on the basis hereinabove set forth using the unaudited consolidated balance sheets of the Company as of the last day of the month which precedes the month of the Closing Date by no more than 45 days. The Seller shall provide to 2 the Purchaser a written calculation in reasonable detail of the Estimated Purchase Price on or prior to the fifth business day preceding the Closing Date. (f) As promptly as practical, but in no event more than sixty (60) days after the Closing, the Purchaser shall cause the Company to prepare and deliver to the Seller and the Purchaser a draft of a statement prepared in good faith setting forth the relevant calculations resulting in the final Purchase Price (the "Proposed Final Purchase Price Statement") which shall show, as of the Closing Date, the actual Assumed Obligations and variance, if any, from the Base Working Capital. During the thirty (30) day period following the delivery by the Company of the Proposed Final Purchase Price Statement, the Seller and its auditors may review such statement and the working papers of the Company's auditors relating to the Proposed Final Purchase Price Statement and shall have such access to the Purchaser's and the Company's personnel as may be reasonably necessary to permit the Seller and its auditors to review in detail the manner in which the Proposed Final Purchase Price Statement was prepared. The Purchaser shall and shall cause the Company, as well as their advisors, to cooperate with the Seller and the Seller's auditors in facilitating such review. Upon completion of such review, the Seller shall give any comments or objections it has with respect to the Proposed Final Purchase Price Statement to the Purchaser and the Company in writing within such thirty (30) day period (the "Objection Letter"). The Purchaser and the Seller shall attempt in good faith to resolve any differences and issues as set forth in the Objection Letter. If no Objection Letter is delivered or the matters set forth in the Objection Letter are so resolved, then the Proposed Final Purchase Price Statement, as adjusted for any changes as are agreed upon by the Seller and the Purchaser, shall be final and binding upon the Seller and the Purchaser and shall constitute the final Purchase Price (the "Final Purchase Price"). If the matters raised by the Seller in the Objection Letter cannot be resolved between the Purchaser and the Seller within ten (10) days of the date of the Objection Letter, the question or questions in dispute shall then be promptly submitted to any "big five" accounting firm mutually agreeable to the Seller and the Purchaser (other than the Seller's auditors, the Purchaser's auditors and Arthur Andersen LLP), or if such accounting firm cannot or refuses to serve in such capacity, a mutually acceptable firm of independent public accountants of recognized standing, the decision of which as to such question or questions in dispute shall be final and binding upon the Seller and the Purchaser and the determination of the purchase price pursuant thereto shall be considered to be the Final Purchase Price. The accounting firm shall be instructed to resolve solely the question or questions in dispute within twenty (20) days of submission. (g) In the event the Final Purchase Price is greater than the Estimated Purchase Price paid at the Closing by the Purchaser, then the Purchaser shall promptly (within five (5) business days of the determination of the Final Purchase Price) pay to the Seller an amount equal to the difference between the Final Purchase Price and the Estimated Purchase Price. In the event the Final Purchase Price is less than the Estimated Purchase Price paid at the Closing by the Purchaser, then the Seller shall promptly (within five (5) business days of the determination of the Final Purchase Price) pay to the Purchaser an amount equal to the difference between the Estimated Purchase Price and the Final Purchase Price. 3 (h) The fees of the Company's auditors incurred in connection with the preparation of the Proposed Final Purchase Price Statement shall be borne by the Purchaser, and the fees of the Seller's auditors incurred in connection with their review of the Proposed Final Purchase Price Statement shall be borne by the Seller. The fees of any independent accounting firm appointed pursuant to this Section shall be borne equally by the Seller and the Purchaser. Section 1.3 Additional Purchase Price Adjustment. In the event the Closing occurs after the Trigger Date (as defined below), then the Purchase Price shall be increased by $33,699 per day from the Trigger Date through the Closing Date; provided, however, no amount shall be due and payable under this Section 1.3 with respect to any day that is more than 365 days following the Trigger Date or if this Agreement is terminated under Section 8.1 hereof. For purposes of this Agreement, the "Trigger Date" shall be the later of (i) December 31, 2002, (ii) the date on which Seller is capable (without further action by any third party) of completing performance in all material respects of its agreements and covenants contained in or contemplated by this Agreement which are required to be performed by it at or prior to the Closing and (iii) the date which is ninety (90) days following the date on which the Illinois Commerce Commission ("ICC") grants its approval of the transaction contemplated by this Agreement. ARTICLE II THE CLOSING Section 2.1 Closing. The consummation of the sale and transfer of the Shares by the Seller to the Purchaser (the "Closing") shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 1440 New York Avenue, NW, Washington, DC 20005 at 10:00 a.m., local time, on the second business day immediately following the date on which the last of the conditions set forth in Article VII hereof is fulfilled or waived (except for those conditions which by their nature can only be fulfilled at the Closing), or at such other time, date and place as the Seller and the Purchaser shall mutually agree (the "Closing Date"). Section 2.2 Deliveries by the Seller. At the Closing, the Seller shall deliver to the Purchaser: (a) A certificate or certificates representing the Shares, duly and validly endorsed in favor of the Purchaser or accompanied by a separate stock power duly and validly executed by the Seller and otherwise sufficient to vest in the Purchaser good title to the Shares; (b) The resignations of the members of the Board of Directors of the Company and each Company Subsidiary (as hereinafter defined); (c) The stock books, stock ledgers, minute books, corporate seal or their functional equivalent of the Company and each Company Subsidiary; provided, that any of the foregoing items shall be deemed to have been delivered pursuant to this Section 2.2(c) if such item has been delivered to, or is otherwise located at, the offices of the Company; 4 (d) A certificate of the Seller's non-foreign status for purposes of Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code"); and (e) Any other documents, instruments and writings required to be delivered by the Seller to the Purchaser pursuant to this Agreement. Section 2.3 Deliveries by the Purchaser. At the Closing, the Purchaser shall deliver to the Seller: (a) The Estimated Purchase Price, in cash, which will be made by wire transfer in immediately available funds to the bank account or accounts designated by the Seller, in writing, prior to the Closing; and (b) Any other documents, instruments and writings required to be delivered by the Purchaser to the Seller pursuant to this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER The Seller represents and warrants to the Purchaser that except as set forth in the reports, schedules, registration statements and definitive proxy statements and all amendments thereto filed publicly not earlier than January 1, 2001 and not later than the close of business on the day prior to the date of this Agreement with the SEC by the Company or any Company Subsidiary (or their predecessors) pursuant to the requirements of the Securities Act or the Exchange Act (each as defined in Section 3.4) (as such documents have since the time of their filing been amended publicly not earlier than January 1, 2001 and not later than the close of business on the day prior to the date of this Agreement, the "Company SEC Reports") or as set forth in the schedule delivered by the Seller on the date hereof (the "Seller Disclosure Schedule"): Section 3.1 Organization and Qualification. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company and each Company Subsidiary (as defined in Section 3.2) is a corporation or other entity duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has all requisite power and authority to own, lease and operate its assets and properties to the extent owned, leased and operated and to carry on its business as it is now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its assets and properties makes such qualification necessary other than in such jurisdictions where the failure to be so qualified or in good standing would not have a Company Material Adverse Effect (as defined below). As used in this Agreement, the term "Company Material Adverse Effect" shall mean any material adverse effect on the business, assets, financial condition or results of operations of the Company and the Company Subsidiaries, taken as a whole; provided, however, that the term "Company Material Adverse Effect" shall not include effects that result from or are 5 consequences of (i) any such effect resulting from any change in law, rule, or regulation of any Governmental Authority (as defined in Section 3.3(c)) that applies generally to similarly situated Persons (as defined in Section 3.10(a)(ii)), (ii) changes or developments in international, national, regional, state or local wholesale or retail markets for electric power or fuel or related products, including those due to actions by competitors, (iii) changes or developments in national, regional, state or local electric transmission or distribution systems, (iv) changes or developments in financial or securities markets or the economy in general or effects of weather or meteorological events, (v) events or changes that are consequences of terrorist activity, acts of war or acts of public enemies (other than any such event or consequence affecting only the Company or a Company Subsidiary) or (vi) the negotiation, announcement, execution, delivery, consummation or anticipation of the transactions contemplated by, or in compliance with, this Agreement. As used in this Agreement, the term "knowledge" (i) when referring to the knowledge of the Seller shall mean the actual knowledge of an executive officer of the Seller, and (ii) when referring to the knowledge of the Company or CILCO shall mean the actual knowledge after reasonable due inquiry of an executive officer of the Company or CILCO, as the case may be. Section 3.2 Subsidiaries; Capitalization. (a) Section 3.2 of the Seller Disclosure Schedule sets forth a complete list, as of the date hereof, of all of the Company Subsidiaries and their respective jurisdictions of incorporation or organization. All of the issued and outstanding shares of capital stock of each Company Subsidiary have been duly authorized and are validly issued, fully paid and nonassessable, and are owned, directly or indirectly, by the Company free and clear of any liens, claims, security interests and other encumbrances of any nature whatsoever ("Encumbrances"). As used in this Agreement, the term "Subsidiary" of a Person shall mean any corporation or other entity (including partnerships and other business associations and joint ventures) of which at least a majority of the voting power represented by the outstanding capital stock or other voting securities or interests having voting power under ordinary circumstances to elect directors or similar members of the governing body of such corporation or entity (or, if there are no such voting interests, 50% or more of the equity interests in such corporation or entity) shall at the time be held, directly or indirectly, by such Person. The term "Company Subsidiary" shall mean a Subsidiary of the Company. The Company is an exempt "public utility holding company" (as defined in the Public Utility Holding Company Act of 1935, as amended ("PUHCA")). CILCO is a public utility company within the meaning of Section 2(a)(5) of PUHCA. With the exception of the Company and CILCO, no Company Subsidiary is a "holding company" or a "public utility company" within the meaning of Sections 2(a)(7) and 2(a)(5) of PUHCA, respectively. (b) The authorized capital stock of the Company consists of 10,000 shares of Common Stock, of which 1,000 Shares are issued and outstanding. As of the date hereof, all Shares have been duly authorized and are validly issued, fully paid and nonassessable and free of preemptive rights, and are owned, directly or indirectly, by the Seller free and clear of any Encumbrances, 6 except for any Encumbrances created by this Agreement, and there are no options, warrants, calls, rights, commitments or agreements of any character to which the Seller is a party or by which it is bound obligating the Seller to issue, deliver or sell, pledge, grant a security interest or encumber or cause to be issued, delivered or sold, pledged or encumbered or a security interest to be granted on, any shares of capital stock of the Company or obligating the Seller to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. (c) The authorized capital stock of CILCO consists as of the date hereof of 20,000,000 shares of common stock, no par value; 1,500,000 shares of preferred stock, par value $100 per share ("CILCO Preferred Stock"), consisting of 111,264 shares of 4.50 percent Series CILCO Preferred Stock ("4.50% Series Preferred"), 79,940 shares of 4.64 percent Series CILCO Preferred Stock ("4.64% Series Preferred"), and 1,308,796 shares of Undesignated Series CILCO Preferred Stock ("Undesignated Series Preferred"); 3,500,000 shares of Class A preferred stock, no par value ("CILCO Class A Preferred Stock"), consisting of 220,000 shares of 5.85 percent Series CILCO Class A Preferred Stock ("5.85% Series Class A Preferred"), 250,000 shares of Flexible Auction Rate Series CILCO Class A Preferred Stock ("Flexible Auction Rate Series Class A Preferred"), and 3,030,000 shares of Undesignated Series CILCO Class A Preferred Stock ("Undesignated Series Class A Preferred"); and 2,000,000 shares of Undesignated Series CILCO Preference Stock, no par value ("CILCO Preference Stock"). With respect to the capital stock of CILCO, (i) 13,563,871 shares of CILCO Common Stock are issued and outstanding, all of which are owned by the Company free and clear of any Encumbrances and (ii) 111,264 shares of 4.50% Series Preferred, 79,940 shares of 4.64% Series Preferred, no shares of Undesignated Series Preferred, 220,000 shares of 5.85% Class A Series Preferred, no shares of Flexible Auction Rate Series Class A Preferred, no shares of Undesignated Series Class A Preferred and no shares of CILCO Preference Stock are issued and outstanding. All of the issued and outstanding shares of CILCO capital stock are validly issued, fully paid, nonassessable and free of preemptive rights. There are no options, warrants, calls, rights, commitments or agreements of any character to which the Company or any Company Subsidiary is a party or by which it is bound obligating the Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of the Company or any Company Subsidiary or obligating the Company to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. Section 3.3 Authority; Non-Contravention; Statutory Approvals; Compliance. (a) Authority. The Seller has all requisite corporate power and authority to enter into this Agreement and, subject to the receipt of the applicable Seller Required Statutory Approvals (as defined in Section 3.3(c)), to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation by the Seller of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Seller. No vote of, or consent by, the holders of any class or series of stock issued by the Seller is necessary to authorize the execution and delivery by the Seller of this Agreement or the consummation by it of the 7 transactions contemplated hereby. This Agreement has been duly executed and delivered by the Seller and, assuming the due authorization, execution and delivery hereof by the Purchaser, constitutes the valid and binding obligation of the Seller enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (b) Non-Contravention. The execution and delivery of this Agreement by the Seller does not, and the consummation of the transactions contemplated hereby will not, violate or result in a breach of any provision of, constitute a default (with or without notice or lapse of time or both) under, result in the termination or modification of, accelerate the performance required by, result in a right of termination, cancellation or acceleration of any obligation or the loss of a benefit under, or result in the creation of any Encumbrance upon any of the properties or assets of the Company or any Company Subsidiary (any such violation, breach, default, right of termination, modification, cancellation or acceleration, loss or creation, is referred to herein as a "Violation" with respect to the Seller and the Company and such term when used in Article IV has a correlative meaning with respect to the Purchaser) pursuant to any provisions of (i) the articles of incorporation, by-laws or similar governing documents of the Seller, the Company or any Company Subsidiary, (ii) subject to obtaining the Seller Required Statutory Approvals, any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any Governmental Authority (as defined in Section 3.3(c)) applicable to the Seller, the Company or any Company Subsidiary or any of their respective properties or assets, or (iii) subject to obtaining the third-party consents set forth in Section 3.3(b)(iii) of the Seller Disclosure Schedule (the "Seller Required Consents"), any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which the Seller, the Company or any Company Subsidiary is a party or by which they or any of their respective properties or assets may be bound or affected, except in the case of clause (ii) or (iii) for any such Violation which would not have a Company Material Adverse Effect or prevent, materially delay or materially impair the Seller's ability to consummate the transactions contemplated by this Agreement. (c) Statutory Approvals. Except for (i) the filings by the Seller, the Company and/or the Purchaser, as applicable, required under the HSR Act (as defined in Section 6.2(a)), (ii) the applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder, (iii) any filings with or approvals from (v) the Federal Energy Regulatory Commission (the "FERC"), (w) the Securities and Exchange Commission (the "SEC") under PUHCA, (x) the ICC, (y) the Federal Communications Commission (the "FCC"), and (z) the other Governmental Authorities set forth on Section 3.3(c) of the Seller Disclosure Schedule (the filings and approvals referred to in clauses (i) through (iii) collectively referred to as the "Seller Required Statutory Approvals"), no declaration, filing or registration with, or notice to or authorization, consent or approval of, any court, federal, state, local or foreign governmental or regulatory body (including a national securities exchange or other self-regulatory body) or authority (each, a "Governmental Authority") is necessary for the execution and delivery of this Agreement by the 8 Seller or the consummation by the Seller of the transactions contemplated hereby, except those which the failure to obtain would not result in a Company Material Adverse Effect or would not prevent, materially delay or materially impair the Seller's ability to consummate the transactions contemplated by this Agreement (it being understood that references in this Agreement to "obtaining" such Seller Required Statutory Approvals shall mean making such declarations, filings or registrations; giving such notices; obtaining such authorizations, consents or approvals; and having such waiting periods expire as are necessary to avoid a violation of law). (d) Compliance. To the knowledge of the Seller or the Company, neither the Company nor any Company Subsidiary is in violation of, is under investigation with respect to any violation of, or has been given notice of or been charged with any violation of, any law, statute, order, rule, regulation, ordinance or judgment of any Governmental Authority, except for possible violations which would not have a Company Material Adverse Effect or would not prevent, materially delay or materially impair the ability of the Seller to consummate the transactions contemplated by this Agreement. To the knowledge of the Seller and the Company, the Company and each Company Subsidiary have all material permits, licenses, franchises and other governmental authorizations, consents and approvals (collectively, "Permits") necessary to conduct their businesses as presently conducted except those that the absence of which would not have a Company Material Adverse Effect or would not prevent, materially delay or materially impair the ability of the Seller to consummate the transactions contemplated by this Agreement. Except as would not have a Company Material Adverse Effect, (i) each Permit is in full force and effect in accordance with its terms, (ii) there is no outstanding written notice, or to the knowledge of the Seller or the Company, any other notice of revocation, and there are no proceedings pending or, to the knowledge of the Seller or the Company, threatened that seek the revocation, cancellation or termination of any Permit. Neither the Company nor any Company Subsidiary is in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, could result in a default by the Company or any Company Subsidiary under, (i) their respective articles of incorporation or by-laws or (ii) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which it is a party or by which it is bound or to which any of its property is subject, except in the case of clause (ii) for possible violations, breaches or defaults which would not have a Company Material Adverse Effect or would not prevent, materially delay or materially impair the ability of the Seller to consummate the transactions contemplated by this Agreement. Section 3.4 Company SEC Reports; Financial Statements. The filings required to be made by the Company and the Company Subsidiaries under the Securities Act of 1933, as amended (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), PUHCA, the Federal Power Act and applicable state municipal, local and other laws, including franchise and public utility laws and regulations, have been filed with the SEC, the FERC, the ICC or any other applicable Governmental Authority, as the case may be, and 9 complied, as of their respective dates, in all material respects with all applicable requirements of the appropriate statutes and the rules and regulations thereunder. As of their respective dates, the Company SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim financial statements of the Company and CILCO included in the Company SEC Reports (collectively, the "Company Financial Statements") have been prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis during the period involved (except as may be stated in the notes thereto) and fairly present the consolidated financial position and the consolidated results of operations and cash flows (and changes in financial position, if any) of the Company and the Company Subsidiaries as of the time and for the period referred to therein, subject, in the case of unaudited interim financial statements, to normal, recurring audit adjustments. Section 3.5 Absence of Certain Changes or Events; Absence of Undisclosed Liabilities. (a) Since December 31, 2001 through the date hereof, the Company and each of the Company Subsidiaries has conducted its businesses only in the ordinary course of business consistent with past practice and there has not been any development or combination of developments affecting the Company or any Company Subsidiary, of which the Seller or the Company has knowledge, that would have a Company Material Adverse Effect. (b) Neither the Company nor any of the Company Subsidiaries has any liabilities or obligations (whether absolute, accrued, contingent or otherwise) of any nature, except those which (i) are accrued or reserved against in the most recent audited financial statements or reflected in the notes thereto, (ii) were incurred in the ordinary course of business and would not have a Company Material Adverse Effect, (iii) have been discharged or paid in full prior to the date hereof, or (iv) are of a nature not required to be reflected in the consolidated financial statements of the Company and its Subsidiaries prepared in accordance with GAAP consistently applied. Section 3.6 Litigation. There are no claims, suits, actions or proceedings before any court, governmental department, commission, agency, instrumentality or authority or any arbitrator pending or, to the knowledge of the Seller or the Company, threatened against, relating to or affecting the Company or any Company Subsidiary which would have a Company Material Adverse Effect or would prevent, materially delay or materially impair the Purchaser's ability to consummate the transactions contemplated by this Agreement. There are no judgments, decrees, injunctions, rules or orders of any court, governmental department, commission, agency, instrumentality or authority or any arbitrator applicable to the Company or any Company Subsidiary except for such that would not have a Company Material Adverse Effect or would prevent, materially delay or materially impair the Purchaser's ability to consummate the transactions contemplated by this Agreement. 10 Section 3.7 Tax Matters. (a) (i) Each of the Seller, the Company and each Company Subsidiary has timely filed (or has had filed on its behalf) with appropriate taxing authorities all material Tax Returns required to be filed by it, such Tax Returns are correct, complete and accurate in all material respects, and all Taxes shown as due on such Tax Returns have been paid; (ii) all material Tax withholding and deposit requirements imposed on or with respect to the Seller, the Company and each Company Subsidiary (including any withholding with respect to wages or other amounts paid to employees) have been satisfied in full; (iii) there are no outstanding requests, agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment or collection of any material Taxes or deficiencies against the Seller, the Company or any Company Subsidiary; (iv) no federal, state, local, or foreign Audits for which the Seller, the Company, or any Company Subsidiary has received written notification are presently pending with regard to any material Taxes or material Tax Returns filed by or on behalf of the Seller, the Company or any Company Subsidiary; (v) neither the Company nor any Company Subsidiary is a party to any agreement providing for the allocation or sharing of Taxes; and (vi) none of the Seller, the Company or any Company Subsidiary has been a member of any affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which is the Seller or the Company). (b) As used in this Agreement: (i) the term "Tax" means all federal, state, local and foreign income, profits, franchise, gross receipts, environmental, customs duty, capital stock, severance, stamp, payroll, sales, employment, unemployment, disability, use, property, withholding, excise, production, value added, occupancy and other taxes, duties or assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect thereto; (ii) the term "Tax Return" means all returns and reports (including elections, declarations, disclosures, schedules, estimates, information returns, and amended returns and reports) required to be supplied to a Tax authority relating to Taxes; and (iii) the term "Audit" means any audit, assessment of Taxes, reassessment of Taxes, or other examination by any Governmental Authority or any judicial or administrative proceedings or appeal of such proceedings. Section 3.8 Employee Benefits; ERISA. (a) Company Plans. Section 3.8(a) of the Seller Disclosure Schedule contains a true and complete list of each deferred compensation and each bonus or other incentive compensation, stock purchase, stock option and other equity compensation plan, program, agreement or arrangement; each severance or termination pay, medical, surgical, hospitalization, life insurance and other "welfare" plan, fund or program (within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")); each profit-sharing, stock bonus or other "pension" plan, fund or program (within the meaning of Section 3(2) of ERISA); each employment, termination, change-of- control, or severance agreement; and each other employee benefit plan, fund, program, agreement or arrangement, in each case, that is sponsored, maintained 11 or contributed to or required to be contributed to by the Company, a Company Subsidiary, or by any trade or business, whether or not incorporated, that together with the Company, or a Company Subsidiary, would be deemed a "single employer" within the meaning of Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate"), or to which the Company, a Company Subsidiary or an ERISA Affiliate is a party in each case for the benefit of any current or former employee, officer or director of the Company or a Company Subsidiary (the "Company Plans"). (b) Deliveries. With respect to each Company Plan, the Seller has heretofore delivered or made available to the Purchaser true and complete copies of, as applicable, (i) the Company Plan and any amendments thereto; (ii) if the Company Plan is funded through a trust or any third party funding vehicle, a copy of the trust or other funding agreement; and (iii) the most recent determination letter received from the Internal Revenue Service with respect to each Company Plan intended to qualify under Section 401 of the Code, and the most recent letter of recognition of exemption with respect to any Company Plan or related trust that is intended to meet the requirements of Section 501(c)(9) of the Code; (iv) the most recent summary plan description and subsequent summaries of material modifications; (v) the most recently filed Form 5500; and (vi) the most recently prepared actuarial valuation report. (c) Absence of Liability. No material liability under Title IV of ERISA has arisen with respect to the Company, a Company Subsidiary or any ERISA Affiliate that has not been satisfied in full and which would cause the Company or any Company Subsidiary to incur any material liability, and, to the knowledge of the Seller or the Company, no condition exists that presents a material risk to the Company or any Company Subsidiary of incurring any such liability, other than liability for premiums due the Pension Benefit Guaranty Corporation ("PBGC") (which premiums have been paid when due). (d) Funding. No Company Plan subject to Title IV of ERISA (a "Title IV Company Plan"), Section 302 of ERISA or Section 412 of the Code, or any trust established thereunder and no other plan subject to Title IV of ERISA, Section 302 of ERISA or Section 412 of the Code maintained or contributed to by any ERISA Affiliate has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the most recent fiscal year of such plan ended prior to the Closing Date which deficiency could cause the Company or any Company Subsidiary to incur any material liability. All contributions or payments required to be made by the Company, any Company Subsidiary or any ERISA Affiliate with respect to any Company Plan have been timely made. The aggregate accumulated benefit obligations of each Title IV Company Plan (as of the most recent actuarial valuation date) do not exceed the fair market value of the assets of such plan (as of the date of such valuation). (e) Multiemployer Plan. No Title IV Company Plan is a "multiemployer plan," as defined in Section 4001(a)(3) of ERISA, nor is any Title IV Company Plan a plan described in Section 4063(a) of ERISA. 12 (f) No Violations. Each Company Plan has been operated and administered in all material respects in accordance with its terms and applicable law, including but not limited to ERISA and the Code. No investigation, audit or dispute relating to any Company Plan is pending or, to the knowledge of the Seller and the Company, threatened before any governmental agency. None of the Seller, the Company, the Company Subsidiaries nor, to the knowledge of the Seller or the Company, any other "disqualified person" (within the meaning of Section 4975 of the Code) or "party in interest" (within the meaning of Section 3(14) of ERISA) has taken or omitted to take any action with respect to any Company Plan which would subject any such plan (or its related trust), the Company or any Company Subsidiary or any officer, director or employee of any of the foregoing to any penalty or tax under Section 502(i) of ERISA or Section 4975 of the Code or material liability for breach of fiduciary responsibility under ERISA. Neither the Company nor any Company Subsidiary has agreed to indemnify any other party for any liabilities or expenses which have been or may in the future be incurred by or asserted against such person with respect to any Company Plan, which indemnification would have a Company Material Adverse Effect. (g) Section 401(a) Qualification; Exemption. Each Company Plan intended to be "qualified" within the meaning of Section 401(a) of the Code is so qualified except where the failure to be so qualified would not have a Company Material Adverse Effect and has received a determination letter from the Internal Revenue Service to the effect that it is so qualified. To the knowledge of the Seller and the Company, nothing has occurred since the issuance of such letter which would affect such Company Plan's qualification. Each Company Plan or related trust intended to meet the requirements of Section 501(c)(9) of the Code meets such requirements and has received a letter of recognition of exemption from the Internal Revenue Service to that effect. To the knowledge of the Seller and the Company, nothing has occurred since the issuance of such letter which could affect such Company Plan's or related trust's exemption under Section 501(a) of the Code by reason of Section 501(c)(9) of the Code. (h) Post-Employment Benefits. No Company Plan provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees or former employees of the Company or any Company Subsidiary for periods extending beyond their respective dates of retirement or other termination of service, other than (i) coverage mandated by applicable law, (ii) death benefits under any "pension plan," or (iii) benefits the full cost of which is borne by the current or former employee (or his beneficiary). (i) Deductibility. No amounts payable under the Company Plans will fail to be deductible for federal income tax purposes by virtue of Section 280G of the Code. (j) Effect of Change of Control. The consummation of the transactions contemplated by this Agreement will not, either alone or in combination with another related event, (i) entitle any current or former employee, officer or director of the Company to severance pay, unemployment compensation or any other payment, except as expressly provided in this 13 Agreement, or (ii) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee, officer or director. (k) Claims. There are no pending or, to the knowledge of the Seller or the Company, threatened claims by or on behalf of any Company Plan, by any current or former employee, officer or director or beneficiary thereof covered under any such Company Plan, or otherwise involving any such Company Plan (other than routine claims for benefits), and neither the Seller nor the Company has knowledge of facts which would form a reasonable basis for any such claim. Section 3.9 Labor and Employee Relations. Neither the Company nor the Company Subsidiaries are party to any collective bargaining agreement or other labor agreement with any union or labor organization. Except to the extent as would not have a Company Material Adverse Effect, as of the date hereof, there is no strike, lockout, slowdown or work stoppage pending or, to the knowledge of the Seller or the Company, threatened against the Company or any of the Company Subsidiaries. Section 3.10 Environmental Protection. (a) To the knowledge of the Seller or the Company, the Company and each Company Subsidiary are in compliance with all applicable Environmental Laws, including, but not limited to, possessing all permits and other governmental authorizations required for their operations under applicable Environmental Laws, except for such noncompliance that would not have a Company Material Adverse Effect. (i) To the knowledge of the Seller or the Company, there is no pending or threatened written claim, lawsuit, or administrative proceeding against the Company or any Company Subsidiary under or pursuant to any Environmental Law that would have a Company Material Adverse Effect. Neither the Company nor any Company Subsidiary is subject to any administrative or judicial consent order or decree in connection with any Environmental Laws or the release of Hazardous Substances that is having or would have a Company Material Adverse Effect. Neither the Company nor any Company Subsidiary has received written notice from any Person, including but not limited to any Governmental Authority, alleging that the Company or any Company Subsidiary is in violation or potentially in violation of any applicable Environmental Law or otherwise may be liable under any applicable Environmental Law, which violation or liability is unresolved and which would have a Company Material Adverse Effect. As used in this Agreement, the term "Person" shall mean any natural person, corporation, general or limited partnership, limited liability company, joint venture, trust, association or entity of any kind. (ii) To the knowledge of the Seller or the Company, with respect to the real property that was formerly or is currently owned or leased by the Company or any Company Subsidiary, there have been no spills 14 or discharges of Hazardous Substances on or underneath any of such real property that would result in a Company Material Adverse Effect. (iii) Notwithstanding anything else to the contrary in this Agreement, including, without limitation, Sections 3.10(a)(i) and (ii) of this Agreement, the Seller expressly makes no representation and warranty with respect to compliance by the Company and the Company Subsidiaries with Environmental Laws relating to the construction of new, or modification of existing, sources of air emissions, except that, the Company and the Company Subsidiaries are not subject to any judicial or administrative proceeding or the subject of any state or Federal information request relating to the construction of new, or modification of existing, sources of air emissions, other than such proceedings or information requests as would not have a Company Material Adverse Effect. (b) For purposes of this Agreement: (i) "Environmental Laws" shall mean all foreign, federal, state and local laws, regulations, rules and ordinances relating to pollution or protection of the environment, including, without limitation, laws relating to releases or threatened releases of Hazardous Substances into the environment (including, without limitation, ambient air, surface water, groundwater, land, surface and subsurface strata). Such laws include the common law to the extent that it relates to injuries caused by the release or presence of Hazardous Substances. (ii) "Hazardous Substances" shall mean any chemicals, materials or substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "hazardous constituents", "restricted hazardous materials", "extremely hazardous substances", "toxic substances", "contaminants", "pollutants", "toxic pollutants", or words of similar meaning and regulatory effect under any applicable Environmental Law including, without limitation, petroleum and asbestos. (c) The representations and warranties set forth in this Section 3.10 are the sole and exclusive representations and warranties relating to environmental matters made by the Seller in this Agreement. Section 3.11 Regulation as a Utility. CILCO is regulated as a public utility by the FERC and in the State of Illinois and in no other state. Except as set forth in the preceding sentence, as of the date hereof, neither the Company nor any "subsidiary company" or "affiliate" (as each such term is defined in PUHCA) of the Company (other than CILCO and Central Illinois Generation, Inc.) is subject to regulation as a public utility or public service 15 company (or similar designation) by the FERC or any municipality, locality or state in the United States or any foreign country. Section 3.12 Insurance. Each of the Company and the Company Subsidiaries is insured and has been continuously insured since January 1, 1997 with financially responsible or nationally recognized insurers in such amounts and against such types of risks as is customary and appropriate in its industry or otherwise deemed reasonable by the Seller. The Seller has not received any written notice of cancellation or termination with respect to any insurance policy of the Company or the Company Subsidiaries except as would not have a Company Material Adverse Effect. Section 3.13 Real Property. Except as would not have a Company Material Adverse Effect: (a) the Company or a Company Subsidiary has good and valid title to, or a valid leasehold interest in, all of the real property used by the Company or the Company Subsidiaries or otherwise reflected in the Company SEC Reports or financial statements (collectively, the "Company Properties"), in each case free and clear of any Encumbrances and (b) the Company Properties (taking into account, without limitation, all Encumbrances related thereto, all zoning and other restrictions applicable thereto and the condition thereof) are suitable and adequate for the conduct of the businesses of the Company and the Company Subsidiaries as currently conducted. Section 3.14 Affiliate Contracts. Section 3.14 of the Seller Disclosure Schedule contains a true and complete list of each agreement or contract as of the date hereof between (i) the Company and its Subsidiaries, on one hand, and (ii) the Seller and any affiliate thereof (other than the Company and its Subsidiaries) on the other (collectively, the "Affiliate Contracts"). Section 3.15 Brokers or Finders. Neither the Seller nor the Company has entered into any agreement or arrangement entitling any agent, broker, investment banker, financial advisor or other firm or Person to any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement, except Lehman Brothers Inc., whose fees and expenses will be paid by the Seller in accordance with the Seller's agreements with such firm. Section 3.16 Contracts. (a) Section 3.16(a) of the Seller Disclosure Schedule contains a complete and correct list of all contracts relating to the business of the Company and the Company Subsidiaries as of the date hereof which (i) have a term in excess of one year and (ii) provide for aggregate consideration in an amount in excess of $10 million (the "Material Contracts"). There are no defaults under any Material Contracts which have or would have a Company Material Adverse Effect. As of the date hereof, the Seller has not received any written notice of cancellation relating to a Material Contract and has no knowledge of facts that a Material Contract is likely to be cancelled, except for such cancellations which would not have a Company Material Adverse Effect. The Seller has provided or made available to the Purchaser true, correct and complete copies by their 16 terms of all Material Contracts, including all amendments thereto except for such contracts that by their terms prohibit disclosure to third parties. The Seller shall cause CILCO to arrange and maintain an adequate supply for meeting CILCO's native electric load and off-system retail sales load. (b) Each Material Contract is a valid and binding agreement and is in full force and effect except to the extent such contract has expired by its own terms without penalty, and enforceable by the Company or any of the Company Subsidiaries in accordance with its terms, and none of the Company and the Company Subsidiaries or, to the knowledge of the Seller or the Company, any other party thereto is in default or breach under the terms of any such contracts and, to the knowledge of the Seller or the Company, no event or circumstance has occurred that, with notice or lapse of time or both, would constitute any event of default thereunder, other than in each case defaults or breaches that would not have a Company Material Adverse Effect. Section 3.17 Regulatory Proceedings. Neither the Company nor any of the Company Subsidiaries all or part of whose rates or services are regulated by a Governmental Authority (a) has rates that have been or are being collected subject to refund (other than purchase gas adjustment provisions, fuel adjustment clauses and purchase fuel adjustment provisions), pending final resolution of any rate proceeding pending before a Governmental Authority or on appeal to the courts, or (b) is a party to any rate proceeding before a Governmental Authority that in each case would result in orders having a Company Material Adverse Effect. Section 3.18 Limitation on Representations and Warranties. Except for the representations and warranties contained in this Article III, neither the Seller nor any other Person or entity acting on behalf of the Seller makes any representation or warranty, express or implied, concerning the Shares or the business, finances, operations, assets, liabilities, prospects or any other aspect of the Company and the Company Subsidiaries. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Seller that except as set forth in the reports, schedules, registration statements and definitive proxy statements and all amendments thereto filed publicly not earlier than January 1, 2001 and not later than the close of business on the day prior to the date of this Agreement with the SEC by the Purchaser or any Purchaser Subsidiary (or their predecessors) pursuant to the requirements of the Securities Act or the Exchange Act (as such documents have since the time of their filing been amended publicly not earlier than January 1, 2001 and not later than the close of business on the day prior to the date of this Agreement, the "Purchaser SEC Reports") or in the schedule delivered by the Purchaser on the date hereof (the "Purchaser Disclosure Schedule"): 17 Section 4.1 Organization and Qualification. The Purchaser and each of the Purchaser Subsidiaries (as defined below) is a corporation or other entity duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has all requisite power and authority to own, lease and operate its assets and properties to the extent owned, leased and operated and to carry on its business as it is now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its assets and properties makes such qualification necessary other than in such jurisdictions where the failure to be so qualified or in good standing would not have a Purchaser Material Adverse Effect (as defined below) or prevent, materially delay or materially impair the Purchaser's ability to consummate the transactions contemplated by this Agreement. As used in this Agreement, the term "Purchaser Material Adverse Effect" shall mean any material adverse effect on the business, assets, financial condition or results of operations of the Purchaser and the Purchaser Subsidiaries, taken as a whole; provided, however, that the term "Purchaser Material Adverse Effect" shall not include effects that result from or are consequences of (i) any such effect resulting from any change in law, rule, or regulation of any Governmental Authority (as defined in Section 3.3(c)) that applies generally to similarly situated Persons (as defined in Section 3.10(a)(ii)), (ii) changes or developments in international, national, regional, state or local wholesale or retail markets for electric power or fuel or related products, including those due to actions by competitors, (iii) changes or developments in national, regional, state or local electric transmission or distribution systems, (iv) changes or developments in financial or securities markets or the economy in general or effects of weather or meteorological events, (v) events or changes that are consequences of terrorist activity, acts of war or acts of public enemies (other than any such event or consequence affecting only the Purchaser or a Purchaser Subsidiary) or (vi) the negotiation, announcement, execution, delivery, consummation or anticipation of the transactions contemplated by, or in compliance with, this Agreement. The term "Purchaser Subsidiary" shall mean a Subsidiary of the Purchaser. Section 4.2 Authority; Non-Contravention; Statutory Approvals; Compliance. (a) Authority. The Purchaser has all requisite corporate power and authority to enter into this Agreement and, subject to the receipt of the applicable Purchaser Required Statutory Approvals (as defined in Section 4.2(c)), to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation by the Purchaser of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Purchaser. No vote of, or consent by, the holders of any class or series of stock issued by the Purchaser is necessary to authorize the execution and delivery by the Purchaser of this Agreement or the consummation by it of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Purchaser and, assuming the due authorization, execution and delivery hereof by the Seller, constitutes the valid and binding obligation of the Purchaser enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 18 (b) Non-Contravention. The execution and delivery of this Agreement by the Purchaser does not, and the consummation of the transactions contemplated hereby will not, result in a Violation pursuant to any provisions of (i) the certificate of incorporation, by-laws or similar governing documents of the Purchaser or any of the Purchaser Subsidiaries, (ii) subject to obtaining the Purchaser Required Statutory Approvals, any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any Governmental Authority applicable to the Purchaser or any of the Purchaser Subsidiaries or any of their respective properties or assets, or (iii) subject to obtaining the third-party consents set forth in Section 4.2(b)(iii) of the Purchaser Disclosure Schedule (the "Purchaser Required Consents"), any material note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which the Purchaser or any of the Purchaser Subsidiaries is a party or by which they or any of their respective properties or assets may be bound or affected, except in the case of clause (ii) or (iii) for any such Violation which would not prevent, materially delay or materially impair the Purchaser's ability to consummate the transactions contemplated by this Agreement. (c) Statutory Approvals. Except for (i) the filings by the Seller, the Company and/or the Purchaser, as applicable, required under the HSR Act (as defined below), (ii) the applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder, and (iii) any filings with or approvals from (v) the FERC, (w) the SEC under PUHCA, (x) the ICC, (y) the FCC and (z) the other Governmental Authorities set forth on Section 4.2(c) of the Purchaser Disclosure Schedule (the filings and approvals referred to in clauses (i) through (iii) collectively referred to as the "Purchaser Required Statutory Approvals"), no declaration, filing or registration with, or notice to or authorization, consent or approval of, any Governmental Authority is necessary for the execution and delivery of this Agreement by the Purchaser or the consummation by the Purchaser of the transactions contemplated hereby, except those which the failure to obtain would not prevent, materially delay or materially impair the Purchaser's ability to consummate the transactions contemplated by this Agreement (it being understood that references in this Agreement to "obtaining" such Purchaser Required Statutory Approvals shall mean making such declarations, filings or registrations; giving such notices; obtaining such authorizations, consents or approvals; and having such waiting periods expire as are necessary to avoid a violation of law). (d) Compliance. Neither the Purchaser nor any of the Purchaser Subsidiaries is under investigation with respect to any violation of, or has been given notice of or been charged with any violation of, any law, statute, order, rule, regulation, ordinance or judgment of any Governmental Authority, except for possible violations which would not prevent, materially delay or materially impair the Purchaser's ability to consummate the transactions contemplated by this Agreement. The Purchaser and the Purchaser Subsidiaries have all permits, licenses, franchises and other governmental authorizations, consents and approvals necessary to conduct their businesses as presently conducted except those that the absence of which would not prevent, materially delay or materially impair the Purchaser's ability to consummate the transactions contemplated by this Agreement. Neither the Purchaser nor any of 19 the Purchaser Subsidiaries is in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, could result in a default by the Purchaser or any Purchaser Subsidiary under (i) their respective certificates of incorporation or by-laws or (ii) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which they are a party or by which the Purchaser or any Purchaser Subsidiary is bound or to which any of their property is subject, except for possible violations, breaches or defaults which would not prevent, materially delay or materially impair the Purchaser's ability to consummate the transactions contemplated by this Agreement. Section 4.3 Purchaser SEC Reports; Financial Statements. The filings required to be made by the Purchaser under the Securities Act and the Exchange Act have been filed with the SEC and complied, as of their respective dates, in all material respects with all applicable requirements of the appropriate statutes and the rules and regulations thereunder. As of their respective dates, none of the Purchaser SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim financial statements of the Purchaser included in the Purchaser SEC Reports have been prepared in accordance with GAAP applied on a consistent basis during the period involved (except as may be stated in the notes thereto) and fairly present the consolidated financial position and the consolidated results of operations and cash flows (and changes in financial position, if any) of the Purchaser as of the time and for the period referred to therein, subject, in the case of unaudited interim financial statements, to normal, recurring audit adjustments. Section 4.4 Litigation. There are no claims, suits, actions or proceedings by any court, governmental department, commission, agency, instrumentality or authority or any arbitrator, pending or, to the knowledge of the Purchaser, threatened against, relating to or affecting the Purchaser or any Purchaser Subsidiaries which would prevent, materially delay or materially impair the Purchaser's ability to consummate the transactions contemplated by this Agreement. There are no judgments, decrees, injunctions, rules or orders of any court, governmental department, commission, agency, instrumentality or authority or any arbitrator applicable to the Purchaser or any Purchaser Subsidiaries except for such that would not prevent, materially delay or materially impair the Purchaser's ability to consummate the transactions contemplated by this Agreement. Section 4.5 Investigation by the Purchaser; the Seller's Liability. The Purchaser has conducted its own independent investigation, review and analysis of the business, operations, assets, liabilities, results of operations, financial condition, software, technology and prospects of the Company and the Company Subsidiaries, which investigation, review and analysis was done by the Purchaser and its affiliates and, to the extent the Purchaser deemed appropriate, by the Purchaser's representatives. The Purchaser acknowledges that it and its representatives have been provided adequate access to the personnel, properties, premises and records of the Company and the 20 Company Subsidiaries for such purpose. In entering into this Agreement, the Purchaser acknowledges that it has relied solely upon the aforementioned investigation, review and analysis and not on any factual representations of the Seller or its representatives (except the specific representations and warranties of the Seller set forth in Article III of this Agreement), and the Purchaser: (a) acknowledges that none of the Seller or any of its directors, officers, shareholders, employees, affiliates, controlling Persons, agents, advisors or representatives makes or has made any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information (including materials furnished in the Company's data room, presentations by the Company's management, financial projections or otherwise) provided or made available to the Purchaser or its directors, officers, employees, affiliates, controlling Persons, agents or representatives, and (b) agrees, to the fullest extent permitted by law, that none of the Seller, the Company, the Company Subsidiaries or any of their respective directors, officers, employees, shareholders, affiliates, controlling Persons, agents, advisors or representatives shall have any liability or responsibility whatsoever to the Purchaser or its directors, officers, employees, affiliates, controlling Persons, agents or representatives on any basis (including in contract or tort, under federal or state securities laws or otherwise) based upon any information provided or made available, or statements made (including materials furnished in the Company's data room, presentations by the Company's management, financial projections or otherwise) to the Purchaser or its directors, officers, employees, affiliates, controlling Persons, advisors, agents or representatives (or any omissions therefrom), including in respect of the specific representations and warranties of the Seller set forth in this Agreement, except that the foregoing limitations shall not apply to the Seller insofar as the Seller makes the specific representations and warranties set forth in Article III of this Agreement, but always subject to the limitations and restrictions contained in Article IX. Section 4.6 Acquisition of Shares for Investment; Ability to Evaluate and Bear Risk. (a) The Purchaser is an "accredited investor" as such term is defined in Regulation D promulgated under the Securities Act. The Purchaser is acquiring the Shares for investment and not with a view toward, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the Shares. The Purchaser agrees that the Shares may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act and any applicable state securities laws, except pursuant to an exemption from such registration under such Act and such laws. (b) The Purchaser is able to bear the economic risk of holding the Shares for an indefinite period, and has knowledge and experience in financial and business matters such that it is capable of evaluating the risks of the investment in the Shares. 21 (c) The Purchaser acknowledges that the By-Laws of the Company contain certain provisions relating to the separateness of the Company from its parent company, including, without limitation, certain provisions in Articles III and VII thereof. Section 4.7 Financing. The Purchaser will have as of the Closing sufficient cash in immediately available funds to pay the Estimated Purchase Price pursuant to Article I hereof and to consummate the transactions contemplated hereby. Section 4.8 Brokers or Finders. The Purchaser has not entered into any agreement or arrangement entitling any agent, broker, investment banker, financial advisor or other firm or Person to any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement, except Goldman, Sachs & Co., whose fees and expenses will be paid by the Purchaser in accordance with the Purchaser's agreement with such firm. ARTICLE V CONDUCT OF BUSINESS PENDING THE CLOSING Section 5.1 Covenants of the Seller. After the date hereof and prior to the Closing or earlier termination of this Agreement, the Seller agrees that, except as set forth in Section 5.1 of the Seller Disclosure Schedule and except (i) as contemplated in or permitted by this Agreement, (ii) as provided for in the annual budgets or capital budgets (copies of which, in their current form, have been made available to the Purchaser and included in the Seller Disclosure Schedules) for the Company and each Company Subsidiary, (iii) in connection with necessary repairs due to breakdown or casualty, or other actions taken in response to a business emergency or other unforeseen operational matters, (iv) as required by law, rule or regulation, or (v) to the extent the Purchaser shall otherwise consent, which decision regarding consent shall be made promptly and which consent shall not be unreasonably withheld, conditioned or delayed: (a) the business of the Company and each Company Subsidiary shall be conducted in the ordinary and usual course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, the Company and each Company Subsidiary shall use its respective commercially reasonable efforts to preserve its business organization intact and maintain its existing relations and goodwill with customers, suppliers, creditors, lessors and business associates; (b) the Company shall not, nor shall the Company permit any of the Company Subsidiaries to, (i) amend their articles of incorporation or by-laws other than amendments which are ministerial in nature or otherwise immaterial; (ii) split, combine or reclassify their outstanding shares of capital stock; (iii) declare, set aside or pay any dividend payable in cash, stock or property in respect of any capital stock other than (A) dividends paid to the Company or its wholly-owned Subsidiaries, (B) dividends required to be paid on any CILCO Preferred Stock, CILCO Class A Preferred Stock or CILCO Preference Stock in accordance with the terms thereof, or (C) dividends in respect of earnings of the Company for the period between December 31, 2001 and 22 the Closing Date to the extent permitted by applicable loan agreements and indentures of the Company; or (iv) repurchase, redeem or otherwise acquire any shares of its capital stock or any securities convertible into or exchangeable or exercisable for any shares of its capital stock, other than redemptions, purchases or acquisitions required by the respective terms of any series of CILCO Preferred Stock or CILCO Class A Preferred Stock; (c) neither the Company nor any Company Subsidiary shall issue, sell, or dispose of any shares of, or securities convertible into or exchangeable or exercisable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of its capital stock of any class or any other property or assets; (d) neither the Company nor any Company Subsidiary shall incur any indebtedness except for indebtedness that is incurred in the ordinary and usual course of business and complies with the restrictions of Section 5.1(d) of the Seller Disclosure Schedule; (e) the Company shall not make in the aggregate more than 110% of its capital expenditures budgeted for the year 2002 and the year 2003 in accordance with and at the approximate times as provided in the capital expenditures budgets for those years provided in Section 5.1(e) of the Seller Disclosure Schedule and shall use best efforts to meet the milestones related to the selective catalytic reduction technology at the times and in the manner set forth in Section 5.1(e) of the Seller Disclosure Schedule; (i) to the extent that the Company does not make expenditures up to the amounts and by the dates set forth in Section 5.1(e) of the Seller Disclosure Schedule, the difference shall be referred to as the "CapEx Adjustment Amount" for purposes of this Agreement and shall result in reduction in Purchase Price for purposes of Section 1.2(a); and (ii) to the extent the Company, with the consent of the Purchaser, accelerates the scheduled capital expenditures related to selective catalytic reduction technology or incurs capital expenditures related to plant outages that were unforeseen and such expenditures are considered by the Purchaser to be advisable or appropriate, the CapEx Adjustment Amount shall be reduced by such accelerated amount and shall result in an increase in Purchase Price for purposes of Section 1.2(a); (f) neither the Company nor any Company Subsidiary shall make any acquisition of, or investment in, assets or stock of any other Person or entity, other than in the ordinary and usual course of business and not to exceed singularly or in the aggregate $10 million in any calendar year and no acquisition or investment shall be of any public utility company (as defined in PUHCA) or in a business or any interest in a business which would not be retainable by the Purchaser under PUHCA following the Closing; (g) neither the Company nor any Company Subsidiary shall sell, lease, license, encumber or otherwise dispose of any of its assets, other than in the ordinary and usual course of business, and in an amount not to exceed singularly or in the aggregate $10 million in any calendar year; 23 (h) neither the Company nor any Company Subsidiary shall terminate, establish, adopt, enter into, make any new grants or awards of stock-based compensation or other benefits under, amend or otherwise materially modify any Company Plan or increase the salary, wage, bonus or other compensation of any directors, officers or employees except (i) for grants or awards to directors, officers and employees under existing Company Plans in such amounts and on such terms as are consistent with past practice, (ii) in the normal and usual course of business (which shall include normal periodic performance reviews and related plans and the provision of individual Company Plans consistent with past practice for newly hired, appointed or promoted officers and employees), or (iii) for actions necessary to satisfy existing contractual obligations under Company Plans existing as of the date hereof or to comply with applicable law; (i) the Company and each Company Subsidiary shall maintain insurance with financially responsible or nationally recognized insurers in such amounts and against such risks and losses as are consistent with the insurance maintained by the Company and each Company Subsidiary, respectively, in the ordinary and usual course of business; (j) the Company shall not, nor shall it permit any of the Company Subsidiaries to, change any material financial or Tax accounting method, policies, practices or election, except as required by GAAP or SEC accounting regulations or guidelines or applicable law; (k) the Seller and the Company shall promptly provide the Purchaser with copies of all filings made by the Seller, the Company or any Company Subsidiary with, and inform the Purchaser of any communications received from, any state or federal court, administrative agency, commission or other Governmental Authority in connection with this Agreement and the transactions contemplated hereby; (l) the Seller, the Company and each Company Subsidiary shall use their respective best efforts to promptly obtain all of the Seller Required Consents and the Seller Required Statutory Approvals. The Seller shall promptly notify the Purchaser of any failure or prospective failure to obtain any such consents or approvals and, if requested by the Purchaser, shall provide copies of all of the Seller Required Consents and the Seller Required Statutory Approvals obtained by the Seller, the Company and each Company Subsidiary to the Purchaser; (m) the Company shall not, nor shall it permit any of the Company Subsidiaries to, enter into any material agreement or arrangement with any other person that, directly or indirectly, controls or is under common control with or is controlled by the Seller, or any of its respective subsidiaries on terms to the Company or the Company Subsidiaries materially less favorable than could be reasonably expected to have been obtained with an unaffiliated third party on an arm's-length basis; (n) the Company shall not, nor shall it permit any Company Subsidiary to, take any action that would likely jeopardize the exclusion from gross income, for purposes of federal income taxation, of the interest on the 24 outstanding revenue bonds issued for the benefit of the Company or any Company Subsidiary, which qualify on the date hereof under Code ss. 142(a) as "exempt facility bonds" or as tax-exempt industrial development bonds under Section 103(b)(4) of the Code; (o) the Company shall, and shall cause the Company Subsidiaries to, use commercially reasonable efforts to maintain in effect or renew all existing material governmental franchises or Permits pursuant to which the Company or any of the Company Subsidiaries operate; (p) the Company shall, or shall cause CILCO to, provide the Purchaser with information reasonably requested by the Purchaser from time to time regarding the contracts entered into, progress of work on, material problems encountered with, projected completion date of, expected operational levels of, or any other relevant information requested, with respect to the installation and operation of the selective catalytic reduction technology described in Section 5.1(e) of the Seller's Disclosure Schedule; (q) the Company shall not, nor shall it permit any Company Subsidiary to, (i) engage in any sale, transfer, trading, sale of options, calls or other derivatives, or disposition of emission allowances for sulfur dioxide or nitrogen oxide which has the result of reducing available emission allowances of the Company and the Company Subsidiaries, except as required by law, (ii) enter into or commit to any new or material amendment to any fuel supply contract except for those spot and short-term coal purchases made in the ordinary course of business which are less than six (6) months in term or (iii) enter into any new or material amendment to any power purchase or gas supply transactions with a term greater than six months; (r) the Seller shall not, nor shall it permit any Subsidiary of the Seller to, directly or indirectly, solicit for employment by such persons any of the current officers, managers or employees of the Company or any Company Subsidiary except for those persons specified on Section 5.1(r) of the Seller Disclosure Schedule; provided that the Seller and the Subsidiaries of the Seller shall not be prohibited from employing any such person who contacts the Seller or any Subsidiary of the Seller on his or her own initiative or who responds to a general solicitation through the use of media advertisements, the Internet or professional search firms; (s) the Company shall not, nor shall it permit any Company Subsidiary to, enter into any agreement with any party involving power line carrier or other communications technology involving CILCO's utility assets. Section 5.2 No Solicitation and Confidentiality. (a) From the date hereof through the Closing, none of the parties nor their representatives (including, without limitation, investment bankers, attorneys and accountants) shall, directly or indirectly, enter into, solicit, 25 initiate or continue any discussions or negotiations with, or encourage or respond to any inquiries or proposals by, or participate in any negotiations with, or provide any information to, or otherwise cooperate in any other way with, any person or other entity or group, concerning any sale of all or a portion of the Company, or of any shares of capital stock of the Company or any Company Subsidiary or any merger, consolidation, liquidation, dissolution or similar transaction involving the Company or any Company Subsidiary (each such transaction being referred to herein as a "Proposed Acquisition Transaction") other than with (i) the Purchaser and its representatives, or (ii) as required by law. Neither the Seller nor the Company shall, directly or indirectly, through any officer, director, employee, representative, agent or otherwise, solicit, initiate or encourage the submission of any proposal or offer from any person (including, without limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act) or entity relating to any Proposed Acquisition Transaction. The Seller and the Company represent that they are not now engaged in discussions or negotiations with any party other than the Purchaser with respect to any of the foregoing. (b) Notification. The Seller and the Company shall promptly notify the Purchaser if any discussions or negotiations are sought to be initiated, any inquiry or proposal is made, or any information is requested with respect to any Proposed Acquisition Transaction and notify the Purchaser of the identity of the prospective purchaser or soliciting party and any other information relating to such inquiry or proposal known to the Seller, the Company or any Company Subsidiary. ARTICLE VI ADDITIONAL AGREEMENTS Section 6.1 Access to Company Information. Upon reasonable notice, the Seller shall, and shall cause the Company and each Company Subsidiary to, afford to the officers, directors, employees, accountants, counsel, investment bankers, financial advisors and other representatives (collectively, "Representatives") of the Purchaser reasonable access, during normal business hours throughout the period prior to the Closing Date, to all of the Company's and the Company Subsidiaries' properties, books, contracts, commitments and records and, during such period, the Seller shall, and shall cause the Company and each Company Subsidiary to, furnish promptly to the Purchaser and its Representatives, (i) access to each report, schedule and other document filed or received by the Company, each Company Subsidiary pursuant to the requirements of federal or state securities laws or filed with or sent to any federal or state regulatory agency or commission and (ii) access to all information concerning the Company, each Company Subsidiary and its respective directors and officers and such other matters as may be reasonably requested by the Purchaser or its Representatives in connection with any filings, applications or approvals required or contemplated by this Agreement or for any other reason related to the transactions contemplated by this Agreement. The Purchaser agrees to indemnify and hold the Seller, the Company and the Company Subsidiaries harmless from any and all claims and liabilities, including costs and expenses for loss, injury to or death of any Representative of the Purchaser, and any loss, damage to or destruction of any property owned by the Seller, the Company or the Company 26 Subsidiaries or others (including claims or liabilities for loss of use of any property) resulting directly or indirectly from the action or inaction of any of the Representatives of the Purchaser during any visit to the business or property sites of the Company or the Company Subsidiaries prior to the Closing Date, whether pursuant to this Section 6.1 or otherwise. None of the Purchaser nor any of its Representatives shall conduct any environmental testing or sampling on any of the business or property sites of the Company or the Company Subsidiaries prior to the Closing Date. Each party shall, and shall cause its Subsidiaries and Representatives to, hold in strict confidence all documents and information concerning the other furnished to it in connection with the transactions contemplated by this Agreement in accordance with the Confidentiality Agreement, dated November 15, 2001, as amended, entered into by and between the Seller and the Purchaser (the "Confidentiality Agreement"). Section 6.2 Regulatory Matters. (a) HSR Filings. Each party hereto shall, as soon as practicable as mutually agreed by the parties, file or cause to be filed with the Federal Trade Commission and the Department of Justice any notifications required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. Such parties shall use all best efforts to respond on a timely basis to any requests for additional information made by either of such agencies. (b) Other Regulatory Approvals. Each party hereto shall cooperate and use best efforts to prepare and file as soon as practicable all necessary documentation, to effect all necessary applications, notices, petitions, filings and other documents, and to use best efforts to obtain all necessary permits, consents, approvals and authorizations of all Governmental Authorities necessary or advisable to obtain the Seller Required Statutory Approvals and the Purchaser Required Statutory Approvals. The parties further agree to use best efforts (i) to take any act, make any undertaking or receive any clearance or approval required by any Governmental Authority or applicable law and (ii) to satisfy any conditions imposed by any Governmental Authority in all Final Orders (as defined in and for purposes of Section 7.1(b)). Each of the parties shall (i) respond as promptly as practicable to any inquiries or requests received from any Governmental Authority for additional information or documentation, and (ii) not enter into any agreement with any Governmental Authority not to consummate the transactions contemplated by this Agreement, except with the prior consent of the other party hereto (which shall not be unreasonably withheld or delayed). Each of the parties shall make best efforts to avoid or eliminate each and every impediment under any antitrust, competition, or trade or energy regulation law (including the Federal Power Act, as amended, and the FERC's regulations thereunder) that may be asserted by any Governmental Authority with respect to the transactions contemplated hereby so as to enable the Closing Date to occur as soon as reasonably possible. The steps involved in the preceding sentence shall include proposing, negotiating, committing to and effecting, by consent decree, hold separate order or otherwise, the sale, divestiture or disposition 27 of such assets or businesses of the Purchaser or its affiliates (including their respective Subsidiaries) or agreeing to such limitations on its or their conduct or actions as may be required in order to obtain the Seller Required Statutory Approvals and the Purchaser Required Statutory Approvals as soon as reasonably possible, to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order in any suit or proceeding, which would otherwise have the effect of preventing or delaying the Closing Date, and defending through litigation on the merits, including appeals, any claim asserted in any court by any party. (c) Exception. Notwithstanding anything to the contrary in Section 6.2, neither party shall be required to take any actions that would have a Company Material Adverse Effect or a Purchaser Material Adverse Effect, and, further, any terms or conditions imposed by the FERC, the Federal Trade Commission or the Antitrust Division of the United States Department of Justice relating to market power, including but not limited to, divestiture of generation or transmission improvements, shall not constitute a Company Material Adverse Effect or a Purchaser Material Adverse Effect. (d) Responsibilities. The Seller and the Purchaser agree that (i) the Purchaser shall have primary responsibility for the preparation and filing of any applications with or notifications to the FERC, the FTC and/or the DOJ and the SEC under PUHCA and (ii) the Seller and the Purchaser shall have joint responsibility for the preparation and filing of any applications with or notifications to the ICC. Each party shall have the right to review and approve in advance drafts of all such necessary applications, notices, petitions, filings and other documents made or prepared in connection with the transactions contemplated by this Agreement, which approval shall not be unreasonably withheld or delayed. Section 6.3 Consents. The Seller and the Purchaser agree to use reasonable best efforts to obtain the Seller Required Consents and the Purchaser Required Consents, respectively, and to cooperate with each other in connection with the foregoing. Section 6.4 Directors' and Officers' Indemnification. (a) Indemnification. From and after the Closing Date, the Purchaser shall cause the Company, to the fullest extent permitted under applicable law, to indemnify and hold harmless (and advance funds in respect of each of the foregoing) each present and former employee, agent, director or officer of the Company and the Company Subsidiaries (each, together with such person's heirs, executors or administrators, an "Indemnified Party" and collectively, the "Indemnified Parties") against any costs or expenses (including advancing attorneys' fees and expenses in advance of the final disposition of any claim, suit, proceeding or investigation to each Indemnified Party to the fullest extent permitted by law), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (an "Action"), arising out of, relating to or in connection with any action or omission by such Indemnified 28 Party in his or her capacity as an employee, agent, director or officer occurring or alleged to have occurred whether before or after the Closing Date (including acts or omissions in connection with such person's service as an officer, director or other fiduciary in any entity if such service was at the request or for the benefit of the Company or any of the Company Subsidiaries) or this Agreement or the transactions contemplated hereby. In the event of any such Action, the Purchaser shall cooperate with the Indemnified Party in the defense of any such Action. (b) Survival of Indemnification. To the fullest extent not prohibited by law, from and after the Closing Date, all rights to indemnification now existing in favor of the Company Indemnified Parties with respect to their activities as such prior to or on the Closing Date, as provided in the Company's and each Company Subsidiary's respective articles of incorporation, by-laws, other organizational documents or indemnification agreements in effect on the date of such activities or otherwise in effect on the date hereof, shall survive the Closing and shall continue in full force and effect for a period of not less than six years from the Closing Date, provided that, in the event any claim or claims are asserted or made within such six-year period, all such rights to indemnification in respect of any claim or claims shall continue until final disposition of such claim or claims. (c) Insurance. For a period of six years after the Closing Date, the Purchaser shall or the Purchaser shall cause the Company to maintain in effect policies of directors' and officers' liability insurance equivalent to those maintained by the Seller on behalf of the Company prior to the Closing Date for the benefit of those persons who are currently covered by such policies on terms no less favorable than the terms of such current insurance coverage; provided, however, that the Purchaser will not be required to expend in any year an amount in excess of 200% of the annual aggregate premiums currently paid by the Seller or the Company, as the case may be, for such insurance; provided, further, that if the annual premiums of such insurance coverage exceed such amount, the Purchaser shall cause the Company to obtain a policy with the best coverage available, in the reasonable judgment of the board of directors of the Purchaser for a cost not exceeding such amount. (d) Successors. In the event that, after the Closing Date, the Company or the Purchaser or any of their respective successors or assigns (i) consolidates with or merges into any other Person or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or a substantial portion of its properties and assets to any Person or entity, then and in either such case, proper provisions shall be made so that the successors and assigns of the Company or the Purchaser, as the case may be, shall assume the obligations set forth in this Section 6.4. (e) Benefit. The provisions of this Section 6.4 are intended to be for the benefit of, and shall be enforceable by, each Company Indemnified Party, his or her heirs, executors or administrators and his or her other representatives. 29 Section 6.5 Public Announcements. Except as may be required by law or by obligations pursuant to any listing agreement with or rules of any national securities exchange, the Seller and the Purchaser shall use reasonable efforts to consult with each other prior to issuing any press releases or otherwise making public announcements with respect to this Agreement and the transactions contemplated hereby and the parties shall consult with each other regarding any press releases initially announcing the execution of this Agreement. Section 6.6 Workforce Matters. (a) If any employee of the Company or any Company Subsidiary who was an employee immediately prior to the Closing (an "Affected Employee") is discharged by the Company or any Company Subsidiary as of or after the Closing, then the Purchaser shall be responsible for any and all severance costs for such Affected Employee, including payments owing under those agreements, plans or arrangements listed in Section 3.8(a) of the Seller Disclosure Schedule. The Purchaser shall be responsible for providing any continuation coverage required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") in respect of Affected Employees who experience or have experienced a qualifying event (within the meaning of COBRA) prior to, on or after the Closing Date including, without limitation, all other employees of the Company or any Company Subsidiary who experience such a qualifying event before the Closing Date but who do not provide notice of the qualifying event until on or after the Closing Date. The Purchaser shall be responsible and assume all liability for all notices or payments due to any Affected Employees under the Worker Adjustment and Retraining Notification Act and regulations promulgated thereunder (the "WARN Act") or to any employee of the Company or any Company Subsidiary who becomes entitled to receive notice as required under the WARN Act on account of the aggregation of "employment losses" in accordance with the WARN Act, and all notices, payments, fines or assessments due to any Governmental Authority, pursuant to any applicable foreign, federal, state or local law, common law, statute, rule or regulation with respect to the employment, discharge or layoff of employees by the Company or any Company Subsidiary after the Closing Date, including the WARN Act, and any comparable state or local law. (b) Following the Closing, the Purchaser shall cause CILCO to honor its collective bargaining agreement with Local Union 51 of the International Brotherhood of Electrical Workers ("IBEW Local 51") in effect immediately prior to the Closing, as well as the Letter Agreement dated as of February 11, 2001 between CILCO and IBEW Local 51. Section 6.7 Tax Matters. (a) Tax Returns. (i) The Seller shall file or cause to be filed when due all Tax Returns that are required to be filed by or with respect to the Company and each Company Subsidiary for taxable years or periods ending on or before the Closing Date. The Seller shall include the income of the Company and each Company Subsidiary (including any deferred intercompany income 30 triggered under Treasury Regulation Section 1.1502-13 or its predecessors and any excess loss account taken into income under Treasury Regulation Section 1.1502-19) on the AES consolidated U.S. federal Tax Returns for all periods ending on or before the Closing Date. (ii) The Purchaser shall file or cause to be filed when due all Tax Returns that are required to be filed by or with respect to the Company and each Company Subsidiary for taxable years or periods ending after the Closing Date. (iii) Any Tax Return required to be filed by the Purchaser relating to any taxable year or period that includes but does not end on the Closing Date (a "Straddle Period") shall be prepared in accordance with past practice (to the extent permitted under applicable law) and submitted (with copies of any relevant schedules, work papers and other documentation then available) to the Seller for the Seller's approval not less than forty-five (45) days prior to the due date (including extensions) for the filing of such Tax Return. The Seller's approval shall not be unreasonably withheld. (iv) Upon the written request of the Purchaser setting forth in detail the computation of the amount owed, the Seller shall pay to the Purchaser, no later than two (2) days prior to the due date for the applicable Tax Return, the Taxes for which the Seller is liable pursuant to Section 6.7(b) and that are payable with any Tax Return to be filed by the Purchaser with respect to any Straddle Period. (v) Within thirty (30) days after the Closing Date (and from time to time thereafter if the Seller reasonably requests), the Seller shall provide to the Purchaser a list of the specific Tax information materials required to enable Seller to prepare and file all Tax Returns required to be prepared and filed by Seller pursuant to Section 6.7(a)(i). Within sixty (60) days after receiving any such list, the Purchaser shall cause the Company and each Company Subsidiary to prepare and provide to the Seller a package containing the Tax information materials identified in any such list. The Purchaser shall prepare such package in good faith in a manner substantially consistent with the Seller's past practice. (b) Liability for Taxes. (i) The Seller shall be liable for all Taxes with respect to Tax Returns described in Section 6.7(a)(i), for all Taxes apportioned to the Seller under Section 6.7(b)(iii), and for 50% of the Taxes described in Section 6.7(m). Notwithstanding the foregoing, the Seller shall not be liable for Taxes that are not Income Taxes ("Non-Income Taxes") with 31 respect to Tax Returns described in Section 6.7(a)(i) and for all Non-Income Taxes apportioned to the Seller under Section 6.7(b)(iii) to the extent that Non-Income Taxes reduce Working Capital. (ii) The Purchaser shall be liable for all Taxes with respect to Tax Returns described in Section 6.7(a)(ii), for all Taxes apportioned to the Purchaser under Section 6.7(b)(iii), for 50% of the Taxes described in Section 6.7(m) and for Non-Income Taxes to the extent that Non-Income Taxes reduce Working Capital. (iii) For purposes of this Section 6.7, where it is necessary to apportion between the Seller and the Purchaser the Tax liability of an entity for a Straddle Period (which is not treated under Treasury Regulation Section 1.1502-76(b) or similar provisions of state, local, or other law as closing on the Closing Date), such liability shall be apportioned between the period deemed to end at the close of the Closing Date, and the period deemed to begin at the beginning of the day following the Closing Date on the basis of an interim closing of the books, except that Taxes (such as real property Taxes) imposed on a periodic basis shall be allocated on a daily basis. (iv) In determining the Seller's liability for Taxes pursuant to this Agreement, the Seller shall be credited with the amount of estimated Taxes and any Taxes under the United States Federal Unemployment Tax Act or the United States Federal Insurance Contributions Act that are paid by or on behalf of the Company or any Company Subsidiary prior to the Closing. To the extent that the Seller's liability for Taxes for a taxable year or period is less than the amount of such Taxes previously paid by or on behalf of the Company or any Company Subsidiary with respect to all or a portion of such taxable year or period, the Purchaser shall pay the Seller the difference within two (2) days of filing the Tax Return relating to such Taxes. To the extent that Non-Income Taxes paid by the Company or any Company Subsidiary with respect to any pre-Closing period are less than the amount of such Non-Income Taxes that reduce Working Capital, the Purchaser shall pay the Seller the difference within two (2) days of filing each Tax Return relating to such Non-Income Taxes. (c) Refunds. (i) Any Tax refund (including any interest in respect thereof) received by the Purchaser, the Company, or any Company Subsidiary, and any amounts credited against Taxes to which the Purchaser or a Purchaser Subsidiary (including the Company, or any Company Subsidiary) becomes entitled (including by way of any amended Tax Returns but excluding Tax Returns from a carryback filing), that relate to any taxable period, or 32 portion thereof of the Company or a Company Subsidiary ending on or before the Closing Date, shall be for the account of the Seller, and the Purchaser shall pay over to the Seller any such refund or the amount of any such credit within fifteen (15) days after receipt of such refund or utilization of such credit. Any Tax refund from a carryback filing not prohibited under Section 6.7(e)(iii) shall be for the account of the Purchaser. (ii) The Purchaser shall pay the Seller interest at the rate prescribed under Section 6621(a)(1) of the Code, compounded daily, on any amount not paid when due under this Section 6.7(c). For purposes of this Section 6.7(c), where it is necessary to apportion a refund or credit between the Purchaser and the Seller for a Straddle Period, such refund or credit shall be apportioned between the period deemed to end at the close of the Closing Date and the period deemed to begin at the beginning of the day following the Closing Date on the basis of an interim closing of the books of the Company and any Company Subsidiary, except that Taxes (such as real property Taxes) imposed on a periodic basis shall be allocated on a daily basis. (iii) The Purchaser shall cooperate, and shall cause the Company and any Company Subsidiary to cooperate, in obtaining, at the Seller's expense, any Tax refund (other than a refund based on a carryback from a taxable year or period beginning after the Closing Date) that the Seller reasonably believes is available based on substantial authority, including through filing appropriate forms with the applicable Tax authority. (d) Certain Post-Closing Settlement Payments. (i) If the examination of any federal, state, local or other Tax Return of the Seller for any taxable period ending on or before the Closing Date shall result (by settlement or otherwise) in any adjustment that permits the Purchaser, the Company, or any Company Subsidiary to increase deductions, losses or tax credits or decrease the income, gains or recapture of tax credits which would otherwise (but for such adjustments) have been reported or taken into account (including by way of any increase in basis) by the Purchaser, the Company, or any Company Subsidiary for one or more periods beginning and ending within ten (10) years after the Closing Date, the Seller shall notify the Purchaser and provide it with adequate information so that the Purchaser can reflect on its, the Company's, or Company Subsidiary's Tax Returns such increases in deductions, losses or tax credits or decreases in income, gains or recapture of tax credits. The Purchaser shall pay to the Seller, within thirty (30) days of the filing of the Tax Returns for the taxable year in which the Tax Benefit was realized, the amount of any resulting Tax Benefit. "Tax Benefit" shall mean the amount of any refund, credit or reduction in otherwise required Tax payments, including any interest 33 payable thereon, actually realized, provided, that, for these purposes, Tax items shall be taken into account in accordance with the ordering principles of the Code or other applicable law. For purposes of this Section 6.7(d)(i), estimated Tax payments shall not be considered Tax Returns and Tax Benefits shall be based on Tax Returns as filed. (ii) If the examination of any federal, state, local or other Tax Return of the Purchaser, the Company, or any Company Subsidiary for any taxable period ending after the Closing Date shall result (by settlement or otherwise) in any adjustment that permits the Seller to increase deductions, losses or tax credits or decrease the income, gains or recapture of tax credits which would otherwise (but for such adjustments) have been reported or taken into account (including by way of any increase in basis) by the Seller for one or more periods ending on or before the Closing Date, the Purchaser shall notify the Seller and provide it with adequate information so that the Seller can reflect on its Tax Returns such increases in deductions, losses or tax credits or decreases in income, gains or recapture of tax credits. The Seller shall pay to the Purchaser, within thirty (30) days of the receipt of such information, fifty percent (50%) of the amount of any resulting Tax Benefits. (e) Post-Closing Actions that Affect the Seller's Liability for Taxes. (i) The Purchaser shall not take, or cause or permit the Company or any Company Subsidiary (or any of their affiliates) to take, any action, with respect to the taxable year or period of the Purchaser, the Company, any Company Subsidiary, or affiliate, as applicable, which includes the Closing Date, which would be reasonably likely to increase the Seller's or any of its affiliates' liability for Taxes (including any liability of the Seller to indemnify the Purchaser for Taxes pursuant to this Agreement) including, for example, any action that would be reasonably likely to, result in, or change the character of, any income or gain that the Seller or any Seller affiliate must report on any Tax Return. (ii) None of the Purchaser or any affiliate of the Purchaser shall (or shall cause or permit the Company or any of the Company Subsidiaries to) amend, refile or otherwise modify any Tax Return relating in whole or in part to the Company or any of the Company Subsidiaries with respect to any taxable year or period ending on or before the Closing Date (or with respect to any Straddle Period) without the prior written consent of the Seller, which consent may be withheld in the sole discretion of the Seller; provided, that the Seller's consent shall not be required for modifications that relate exclusively to the post-Closing Date portion of a Straddle Period and that would not be reasonably likely to increase the Seller's liability for Taxes under Section 6.7(i) of this Agreement. 34 (iii) Except to the extent otherwise required by law, none of the Purchaser or any affiliate of the Purchaser shall (or shall cause or permit the Company or any of the Company Subsidiaries to) carry back for federal, state, local or foreign tax purposes to any taxable period, or portion thereof, of the Company or any of the Company Subsidiaries or the Seller or any affiliate of the Seller ending on or before, or which includes, the Closing Date any operating losses, net operating losses, capital losses, tax credits or similar items arising in, resulting from, or generated in connection with a taxable year of the Purchaser or any affiliate of the Purchaser, or portion thereof, ending after the Closing Date. (f) Tax Payments. The Purchaser agrees that, pursuant to any Tax sharing, Tax allocation, or Tax indemnity agreements between the Seller or any Seller affiliate on the one hand, and the Company or any Company Subsidiary on the other hand, the Company or any Company Subsidiary may make tax sharing payments to the Seller on any date or dates up to and including the Closing Date. Any payment made pursuant to this Section 6.7(f) shall comply with the terms of the agreement to which it relates (other than terms requiring payment on a specified date or dates). Payments to the Seller pursuant to this Section 6.7(f) shall reduce the cash component of Working Capital as of the Closing Date. (g) Assistance and Cooperation. After the Closing Date, each of the Seller and the Purchaser shall, and shall cause their respective affiliates to, execute any forms necessary to filing a Tax Return and provide information to the other party regarding the Company or any Company Subsidiary in connection with (i) the other party preparing any Tax Returns that such other party is responsible for preparing and filing, and (ii) the other party preparing for any audits of, or disputes with any Tax authority regarding, any Tax Returns of the Company or any Company Subsidiary. In connection therewith, the Seller and the Purchaser shall not dispose of any Tax work papers, books or records relating to the Company or any Company Subsidiary during the six-year period following the Closing Date, and thereafter shall give the other parties reasonable written notice before disposing of such items. (h) Section 338 Elections. Neither the Seller nor the Purchaser shall make or file any election under Section 338 of the Code (or any similar provision of the law of any state or other taxing jurisdiction) with respect to the Company or any Company Subsidiary in connection with the transactions contemplated by this Agreement. For purposes of all Tax Returns and other applicable filings, the Purchaser and the Seller shall each report the stock purchase as a purchase and sale, respectively, of the Shares. (i) Indemnification by the Seller. Notwithstanding any other provision of this Agreement other than Section 6.7(b)(iv), the Seller shall indemnify the Purchaser from and against and in respect of: (i) any liability for Taxes imposed on the Company or any Company Subsidiary as members of the "affiliated group" (within the meaning 35 of Section 1504(a) of the Code) of which the Seller (or any predecessor or successor) is the common parent that arises under Treasury Regulation Section 1.1502-6(a) or any comparable provision of foreign, state or local law; (ii) any liability for Taxes imposed on the Company or any Company Subsidiary for any taxable year or period that ends on or before the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period deemed to end on and include the Closing Date; provided, that any indemnification for Non-Income Tax liabilities under this Section 6.7(i)(ii) shall apply only to the extent such Non-Income Tax liabilities exceed the amount by which Non-Income Taxes reduce Working Capital; (iii) any liability for Taxes for which the Seller is responsible under Section 6.7(m); and (iv) and for payments made to satisfy the indemnity to MACTEC, Inc. under the agreement described in Section 3.7(a)(v) of the Seller Disclosure Schedule; provided that any indemnification for such MACTEC, Inc. payments that are accrued as Non-Income Taxes for purposes of determining Working Capital shall apply only to the extent that such payments exceed the amount by which Non-Income Taxes reduce Working Capital; provided, further that any payments received from MACTEC, Inc. under the agreement described in Section 3.7(a)(v) of the Seller Disclosure Schedule shall be for the Seller's account. Any indemnification under this Section 6.7(i) shall give effect to any related Tax Benefit and be net of any reserves and amounts recovered from third parties, including amounts recovered through utility rate increases. The indemnification pursuant to this Section 6.7(i) shall be the sole and exclusive remedy of the Purchaser against the Seller with respect to any liability for Taxes in connection with this Agreement. (j) Indemnification by the Purchaser. Notwithstanding any other provision of this Agreement, the Purchaser shall indemnify the Seller from and against and in respect of: (i) any liability for Taxes imposed on any of the Company or any Company Subsidiary for any taxable year or period that begins after the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period beginning the day after the Closing Date; and (ii) any liability for Taxes for which the Purchaser is responsible under Section 6.7(m). 36 Any indemnification under this Section 6.7(j) shall give effect to any related Tax Benefit and be net of any reserves and amounts recovered from third parties, including amounts recovered through utility rate increases. The indemnification pursuant to this Section 6.7(j) shall be the sole and exclusive remedy of the Seller against the Purchaser with respect to any liability for Taxes in connection with this Agreement. (k) Contests. (i) Notice. After the Closing Date, the Seller and the Purchaser each shall notify the other party in writing within fifteen (15) days of the commencement of any Tax audit or administrative or judicial proceeding affecting the Taxes of any of the Company or any Company Subsidiary that, if determined adversely to the taxpayer ( the "Tax Indemnitee") or after the lapse of time would be grounds for indemnification under this Section 6.7 by the other party (the "Tax Indemnitor"). Such notice shall contain factual information describing any asserted Tax liability in reasonable detail and shall include copies of any notice or other document received from any Tax authority in respect of any such asserted Tax liability. If either the Seller or the Purchaser fails to give the other party prompt notice of an asserted Tax liability as required under this Agreement, then (A) if the Tax Indemnitor is precluded by the failure to give prompt notice from contesting the asserted Tax liability in any judicial forum, then such party shall not have any obligation to indemnify the other party for any Losses arising out of such asserted Tax liability and (B) if the Tax Indemnitor is not so precluded from contesting, if such failure to give prompt notice results in a detriment to the Tax Indemnitor, then any amount which the Tax Indemnitor is otherwise required to pay pursuant to this Section 6.7 with respect to such liability shall be reduced by the amount of such detriment. (ii) Control of Contests Involving Pre-Closing Periods or Straddle Periods. In the case of an audit or administrative or judicial proceeding involving any asserted liability for Taxes relating to any taxable years or periods ending on or before the Closing Date or any Straddle Period of the Company or any Company Subsidiary, the Seller shall have the right, at its expense, to control the conduct of such audit or proceeding; provided, however, that (i) the Seller shall keep the Purchaser reasonably informed with respect to the status of such audit or proceeding and provide the Purchaser with copies of all written correspondence with respect to such audit or proceeding in a timely manner and (ii) if such audit or proceeding would be reasonably expected to result in a material increase in Tax liability of the Company or any Company Subsidiary for which the Purchaser would be liable under this Section 6.7, (A) the Purchaser may participate in the conduct of such audit or proceeding at its own expense and (B) the Seller shall not settle any such audit or proceeding without the consent of Purchaser, which consent shall not be unreasonably withheld. 37 (iii) Control of Contests Involving Post-Closing Periods. In the case of an audit or administrative or judicial proceeding involving any asserted liability for Taxes relating to any taxable years or periods beginning after the Closing Date, the Purchaser shall have the right, at its expense, to control the conduct of such audit or proceeding; provided, however, that if such audit or proceeding would be reasonably expected to result in a material increase in Tax liability of the Company or any Company Subsidiary for which the Seller would be liable under this Section 6.7, (A) the Seller may participate in the conduct of such audit or proceeding at its own expense and (B) the Purchaser shall not settle any such audit or proceeding without the consent of the Seller, which consent shall not be unreasonably withheld. (l) Termination Tax Sharing Agreements. On or before the Closing Date, the Seller shall cause all Tax sharing, Tax allocation, or Tax indemnity agreements between the Seller or any Seller affiliate on the one hand, and the Company or any Company Subsidiary on the other hand, to be terminated as of the Closing Date (or an earlier date) and the agreements will have no further effect for any taxable year (current, future, or past). (m) Transfer Taxes. Notwithstanding any other provision of this Agreement to the contrary, the Purchaser and the Seller shall each pay 50% of (i) all transfer (including real property transfer and documentary transfer) Taxes and fees imposed with respect to the sale and transfer of Shares contemplated hereby and (ii) all sales, use, gains (including state and local transfer gains), excise and other transfer or similar Taxes imposed with respect to the sale and transfer of Shares contemplated hereby. The Seller shall execute and deliver to the Purchaser at the Closing any certificates or other documents as the Purchaser may reasonably request to perfect any exemption from any such transfer, documentary, sales, use, gains, excise or other Taxes, or to otherwise comply with any applicable reporting requirements with respect to any such Taxes. (n) Retention of Tax Attributes. The Seller may elect to retain the Tax attributes of the Company or any Company Subsidiary, including net operating losses and capital loss carryovers of such entities, to the extent permitted under the Code, Treasury Regulations, other pronouncements of the Internal Revenue Service, or other applicable law. At the Seller's request, the Purchaser will, and will cause any Purchaser Subsidiary, the Company, and any Company Subsidiary to, take any actions necessary to effect such elections of the Seller. (o) Treatment of Purchase Price. The Seller, the Purchaser and their respective Subsidiaries shall treat the Final Purchase Price as the purchase price for the sale, conveyance, assignment, transfer and delivery to the Purchaser of the Shares in preparing and filing their Tax Returns and shall take no position inconsistent therewith in any proceeding before any taxing authority or otherwise unless otherwise required pursuant to a final resolution of any Tax for a taxable year that, under applicable law, is not subject to further appeal, review or modification through proceedings or otherwise. 38 Section 6.8 Financial Information. (a) After the Closing, upon reasonable written notice, the Purchaser and the Seller shall furnish or cause to be furnished to each other and their respective accountants, counsel and other representatives, during normal business hours, such information (including records pertinent to the Company) as is reasonably necessary for financial reporting and accounting matters. (b) The Purchaser shall retain all of the books and records of the Company and the Company Subsidiaries after the Closing Date for so long as required by law. After the end of such period, before disposing of such books or records, the Purchaser shall give notice to such effect to the Seller and give the Seller an opportunity to remove and retain all or any part of such books or records as the Seller may select. Section 6.9 Termination of Affiliate Contracts. Except as set forth on Section 6.9 of the Seller Disclosure Schedule and except as agreed to in writing by the Seller and the Purchaser, all Affiliate Contracts, including any agreements or understandings (written or oral) with respect thereto, shall terminate simultaneously with the Closing without any further action or liability on the part of the parties thereto. Notwithstanding the foregoing, in the absence of a written agreement, the provision of any services (similar to those contemplated by the preceding sentence) by the Seller to the Company or any Company Subsidiary from and after the Closing, which services may be provided by the Seller in its sole discretion, shall be for the convenience, and at the expense, of the Purchaser, upon mutually agreed terms. Section 6.10 Local Presence; Charitable Giving. (a) After the Closing, the Purchaser shall cause the Company and CILCO to maintain for a period of at least three (3) years following the Closing (i) CILCO's corporate headquarters in Peoria, Illinois or other significant local presence, and (ii) the name of CILCO; provided that CILCO may be referred to as "AmerenCILCO" or as an "Ameren Company". (b) After the Closing, the Purchaser shall cause the Company and CILCO to maintain, for a period of at least three (3) years following the Closing, a commitment to local social responsibility, community involvement and charitable giving at its current levels in accordance with its current practices. Section 6.11 Seller's Name. The Purchaser shall not acquire, nor shall the Company and its Subsidiaries retain, any rights to the name "AES" (or any derivation thereof) or any trademark, trade name or symbol related thereto. As soon as reasonably practicable after the Closing but not later than sixty (60) days after the Closing Date, the Purchaser shall cause the Company and its Subsidiaries to remove the name "AES" (or any derivation thereof) and all trademarks, trade names or symbols related thereto from the properties and assets of the Company and its Subsidiaries. 39 Section 6.12 Cooperation. The Seller shall, and shall cause the Company and each Company Subsidiary to, cooperate with the Purchaser in integration opportunities and in planning for the integration of the Company and the Company Subsidiaries into the Purchaser's corporate family and systems and in preparation for Closing and the period thereafter. Section 6.13 Further Assurances. Each party shall, and shall cause its Subsidiaries to, execute such further documents or instruments and take such further actions as may reasonably be requested by the other party in order to consummate the transaction in accordance with the terms hereof. ARTICLE VII CONDITIONS Section 7.1 Conditions to Each Party's Obligation to Effect the Closing. The respective obligations of each party to effect the Closing shall be subject to the satisfaction on or prior to the Closing Date of the following conditions, except, to the extent permitted by applicable law, that such conditions may be waived in writing pursuant to Section 9.3 by the joint action of the parties hereto: (a) No Injunction. No temporary restraining order or preliminary or permanent injunction or other order by any federal or state court preventing consummation of the transactions contemplated hereby shall have been issued and be continuing in effect, and the transactions contemplated hereby shall not have been prohibited under any applicable federal or state law or regulation (collectively, "Restraints"); provided, however, that each of the parties shall have used all reasonable efforts to prevent the entry of any such Restraints and to appeal as promptly as possible any such Restraints that may be entered. (b) Statutory Approvals. The Seller Required Statutory Approvals and the Purchaser Required Statutory Approvals shall have been obtained at or prior to the Closing Date by a Final Order. A "Final Order" shall mean action by the relevant regulatory authority which has not been reversed, stayed, enjoined, set aside, annulled or suspended, with respect to which any waiting period prescribed by law before the transactions contemplated thereby may be consummated has expired (but without the requirement for expiration of any applicable rehearing or appeal period), and as to which all conditions to the consummation of such transactions prescribed by law, regulation or order have been satisfied. (c) HSR Act. All applicable waiting periods under the HSR Act shall have expired or been terminated. Section 7.2 Conditions to Obligation of the Purchaser to Effect the Closing. The obligation of the Purchaser to effect the Closing shall be further subject to the satisfaction, on or prior to the Closing Date, of the following conditions, except as may be waived by the Purchaser in writing pursuant to Section 9.3: 40 (a) Performance of Obligations of the Seller. The Seller will have performed in all material respects its agreements and covenants contained in or contemplated by this Agreement which are required to be performed by it at or prior to the Closing. (b) Representations and Warranties. The representations and warranties of the Seller set forth in this Agreement shall be true and correct (i) on and as of the date hereof and (ii) on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for representations and warranties that expressly speak only as of a specific date or time which need only be true and correct as of such date or time) except in each of cases (i) and (ii) for such failures of representations or warranties to be true and correct (without giving effect to any materiality qualification or standard contained in any such representations and warranties) which would not result in a Company Material Adverse Effect. (c) Closing Certificates. The Purchaser shall have received a certificate signed by the Seller, dated the Closing Date, to the effect that the conditions set forth in Section 7.2(a) and Section 7.2(b) have been satisfied and to the further effect that, as of the respective dates of reports filed with the SEC by the Company and Company Subsidiaries under the Securities Act and Exchange Act since January 1, 2001, and as of the Closing Date, such reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and that as of the Closing Date there has not been any development or combination of developments affecting the Company or any Company Subsidiary, of which the Seller or the Company has knowledge, that would have a Company Material Adverse Effect. (d) Seller Required Consents. The Seller Required Consents, the failure of which to obtain would have a Company Material Adverse Effect, shall have been obtained. (e) Regulatory Approvals. The Final Orders of any Governmental Authority having authority over the transactions contemplated by this Agreement shall have been received and shall not impose terms or conditions (which are in addition to terms and conditions due to existing laws, rules or regulations), which would have a Company Material Adverse Effect or a Purchaser Material Adverse Effect, provided, however, that any terms or conditions imposed by the FERC, the Federal Trade Commission or the Antitrust Division of the United States Department of Justice relating to market power, including but not limited to, divestiture of generation or transmission improvements, will not constitute a Company Material Adverse Effect or a Purchaser Material Adverse Effect. Section 7.3 Conditions to Obligation of the Seller to Effect the Closing. The obligation of the Seller to effect the Closing shall be further subject to the satisfaction, on or prior to the Closing Date, of the following conditions, except as may be waived by the Seller in writing pursuant to Section 9.3: 41 (a) Performance of Obligations of the Purchaser. The Purchaser (and/or its appropriate Subsidiaries) will have performed in all material respects its agreements and covenants contained in or contemplated by this Agreement which are required to be performed by it at or prior to the Closing Date. (b) Representations and Warranties. The representations and warranties of the Purchaser set forth in this Agreement shall be true and correct (i) on and as of the date hereof and (ii) on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the Closing Date (except for representations and warranties that expressly speak only as of a specific date or time which need only be true and correct as of such date or time) except in each of cases (i) and (ii) for such failures of representations or warranties to be true and correct (without giving effect to any materiality qualification or standard contained in any such representations and warranties) which would not prevent, materially delay or materially impair the Purchaser's ability to consummate the transaction contemplated by this Agreement. (c) Closing Certificates. The Seller shall have received a certificate signed by the Purchaser, dated the Closing Date, to the effect that the conditions set forth in Section 7.3(a) and Section 7.3(b) have been satisfied and to the further effect that, as of the respective dates of reports filed with the SEC by the Purchaser under the Securities Act and Exchange Act since January 1, 2001, and as of the Closing Date, such reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) Purchaser Required Consents. The Purchaser Required Consents, the failure of which to obtain would prevent, materially delay or materially impair the Purchaser's ability to consummate the transactions contemplated by this Agreement, shall have been obtained. ARTICLE VIII TERMINATION Section 8.1 Termination. This Agreement may be terminated at any time prior to the Closing Date (the "Termination Date"): (a) by mutual written consent of the Seller and the Purchaser; (b) by the Purchaser or the Seller, if any state or federal law, order, rule or regulation is adopted or issued, which has the effect, as supported by the written opinion of outside counsel for such party, of prohibiting the Closing, or by any party hereto if any court of competent jurisdiction in the United States or any state shall have issued an order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Closing, and such order, judgment or decree shall have become final and nonappealable; 42 (c) by the Purchaser or the Seller, by written notice to the other party, if the Closing Date shall not have occurred on or before March 27, 2003 (the "Initial Termination Date"); provided, however, that the right to terminate the Agreement under this Section 8.1(c) shall not be available to any party whose failure to fulfill any obligation under this Agreement shall have proximately contributed to the failure of the Closing Date to occur on or before such date; and provided, further, that if on the Initial Termination Date the conditions to the Closing set forth in Sections 7.1(b), 7.1(c) and/or 7.2(e) shall not have been fulfilled but all other conditions to the Closing shall be fulfilled or shall be capable of being fulfilled, then the Initial Termination Date shall be extended for a twelve-month period; (d) by the Purchaser, by written notice to the Seller, if there shall have been a material breach of any representation or warranty, or a material breach of any covenant or agreement of the Seller hereunder, which breaches would result in a Company Material Adverse Effect, and such breach shall not have been remedied within thirty (30) days after receipt by the Seller of notice in writing from the Purchaser, specifying the nature of such breach and requesting that it be remedied or the Purchaser shall not have received adequate assurance of a cure of such breach within such thirty (30) day period or the Seller shall not have made a capital contribution to the Company in an amount equal to the expected damages from such breach; (e) by the Seller, by written notice to the Purchaser, if there shall have been a material breach of any representation or warranty, or a material breach of any covenant or agreement of the Purchaser hereunder, which breaches would prevent, materially delay or materially impair the Purchaser's ability to consummate the transactions contemplated by this Agreement, and such breach shall not have been remedied within thirty (30) days after receipt by the Purchaser of notice in writing from the Seller, specifying the nature of such breach and requesting that it be remedied or the Seller shall not have received adequate assurance of a cure of such breach within such thirty (30) day period; or (f) by the Purchaser, by written notice to the Seller, to the extent the Purchaser is not in breach of this Agreement, if the condition to the Purchaser's obligation to effect the Closing contained in Section 7.2(e) cannot be met in spite of the Purchaser's use of its best efforts to obtain such Seller Required Regulatory Approvals and Purchaser Required Regulatory Approvals, including seeking to exhaust any rehearing or refiling opportunities relating to such approvals. Section 8.2 Effect of Termination. In the event of termination of this Agreement by either the Seller or the Purchaser pursuant to Section 8.1, there shall be no liability on the part of either the Seller or the Purchaser or their respective officers or directors hereunder, except (a) that nothing herein shall relieve any party from liability for any breach of any representation, warranty, covenant or agreement of such party contained in this Agreement and (b) that Sections 8.2, 9.2, 9.4, 9.6, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13, and the agreement contained in the last sentence of Section 6.1 shall survive the termination. 43 ARTICLE IX GENERAL PROVISIONS Section 9.1 Survival of Obligations. All representations, warranties, covenants, obligations and agreements of the parties contained in this Agreement or in any instrument, certificate, opinion or other writing provided for herein, shall not survive the Closing; provided, however, that the representation and warranty of the Seller contained in Section 3.2(b), the representation and warranty of the Purchaser contained in Section 4.6(c) and the covenants of the Seller and the Purchaser contained in Sections 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11 and the second sentence of Section 6.1 shall survive the Closing and provided further, that the prohibition on solicitation for employment contained in Section 5.1(r) shall continue in full force and effect for 12 months following the Closing Date. Section 9.2 Amendment and Modification. This Agreement may be amended, modified and supplemented in any and all respects, but only by a written instrument signed by each of the parties hereto expressly stating that such instrument is intended to amend, modify or supplement this Agreement. Section 9.3 Extension; Waiver. At any time prior to the Closing Date, a party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other party hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein, to the extent permitted by applicable law. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. Section 9.4 Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses except that the fee payable in connection with the filing required by the HSR Act shall be shared one-half by Seller and one-half by Purchaser. Notwithstanding the foregoing, in any action or proceeding brought to enforce any provisions of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees and disbursements in addition to its costs and expenses and any other available remedy. Section 9.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (a) when delivered personally, (b) when sent by reputable overnight courier service, or (c) when telecopied (which is confirmed by copy sent within one business day by a reputable overnight courier service) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) If to the Seller, to 44 The AES Corporation 1001 N. 19th Street Arlington, VA 22209 Attn: General Counsel Telecopy: (703) 528-4510 Telephone: (703) 522-1315 with a copy to Skadden, Arps, Slate, Meagher & Flom LLP 1440 New York Avenue, N.W. Washington, D.C. 20005 Attn: Pankaj K. Sinha, Esq. Telecopy: (202) 393-5760 Telephone: (202) 371-7000 and (ii) if to the Purchaser, to Ameren Corporation One Ameren Plaza 1901 Chouteau Avenue St. Louis, MO 63103 Attn: Steven R. Sullivan, Esq. Vice President/General Counsel and Secretary Telecopy: (314) 554-4014 Telephone: (314) 554-2098 with a copy to: Jones, Day, Reavis & Pogue 77 West Wacker Drive Chicago, Illinois 60601-1692 Attn: William J. Harmon, Esq. Telecopy: (312) 782-8585 Telephone: (312) 782-3939 Section 9.6 Entire Agreement; No Third Party Beneficiaries. This Agreement, the Confidentiality Agreement, the Side Agreement Relating To CILCO/ENRON Contract of even date herewith among the Seller, the Company and the Purchaser, and the Membership Interest Purchase Agreement between the Seller and the Purchaser of even date herewith (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among 45 the parties with respect to the subject matter hereof and thereof and (b) are not intended to confer, and shall not confer, upon any Person other than the parties hereto and thereto and Company Indemnified Parties as set forth in Section 6.4 any remedies, claims of liability or reimbursement, causes of action or any other rights whatsoever. Section 9.7 Severability. Any term or provision of this Agreement that is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction or other authority declares that any term or provision hereof is invalid, void or unenforceable, the parties agree that the court making such determination shall have the power to reduce the scope, duration, area or applicability of the term or provision, to delete specific words or phrases, or to replace any invalid, void or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. Section 9.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflicts of law thereof. Section 9.9 Venue. Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any federal court located in the State of Delaware or any Delaware state court in the event any dispute arises out of this Agreement, (b) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (c) agrees that it shall not bring any action relating to this Agreement in any court other than a federal or state court sitting in the State of Delaware. Section 9.10 Waiver of Jury Trial and Certain Damages. Each party to this Agreement waives, to the fullest extent permitted by applicable law, (a) any right it may have to a trial by jury in respect of any action, suit or proceeding arising out of or relating to this Agreement and (b) any right it may have to receive damages from any other party based on any theory of liability for any special, indirect, consequential (including lost profits) or punitive damages. Section 9.11 Specific Performance. The parties hereto agree that irreparable damage would occur in the event any of the provisions of this Agreement were not to be performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof in addition to any other remedies at law or in equity. Section 9.12 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto (whether by operation of law or otherwise) without the prior written consent of the other party; provided, however, that the Seller may transfer the Shares to a wholly owned Subsidiary of the Seller as long as such Subsidiary agrees in 46 writing to be bound by the applicable terms of this Agreement and no such assignment shall relieve the Seller from its obligations hereunder. Section 9.13 Interpretation. When a reference is made in this Agreement to Sections, such reference shall be to a Section of this Agreement, respectively, unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Any item or other matter referenced or disclosed in one section of the Seller Disclosure Schedule or the Purchaser Disclosure Schedule, as the case may be, shall be deemed to have been referenced or disclosed in all sections of such Disclosure Schedule where such reference or disclosure is required. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. Section 9.14 Counterparts; Effect. This Agreement may be executed and delivered (including via facsimile) in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 47 IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. THE AES CORPORATION By: /s/ Lenny M. Lee -------------------------------- Name: Lenny M. Lee Title: Vice President AMEREN CORPORATION By: /s/ Steven R. Sullivan -------------------------------- Name: Steven R. Sullivan Title: Vice President & General Counsel 48 EX-10 6 exb_2.txt EX. B-2 - FUEL AND NATURAL GAS SERVICES AGREEMENT Exhibit B-2 FUEL AND NATURAL GAS SERVICES AGREEMENT BETWEEN AMEREN ENERGY FUELS AND SERVICES COMPANY AND CENTRAL ILLINOIS LIGHT COMPANY, D/B/A AMERENCILCO THIS FUEL AND NATURAL GAS SERVICES AGREEMENT, made and entered into as of ______________ by and between AMEREN ENERGY FUELS AND SERVICES COMPANY ("AFS"), an Illinois corporation; and CENTRAL ILLINOIS LIGHT COMPANY, d/b/a AmerenCILCO ("AmerenCILCO"), an Illinois corporation, and its subsidiaries ("Client Company") (AFS and Client Company hereinafter sometimes referred to individually as a "Party" and collectively as the "Parties"); W I T N E S S E T H: WHEREAS, AFS and Client Company are subsidiaries of Ameren Corporation ("Ameren"), a registered holding company under the Public Utility Holding Company Act of 1935 ("the Act"), and, together with Ameren's other direct and indirect subsidiaries, form the Ameren System; and WHEREAS, AFS is engaged in services relating to the procurement and management of a variety of energy related commodities, including coal, petroleum coke, alternative fuels, propane, limestone, natural gas, oil, ash, weather contracts, and emissions contracts; and WHEREAS, AFS has assembled a highly-trained staff and developed and acquired various capabilities, programs, systems and other resources in order to provide the aforementioned services to Client Company, to other Ameren affiliates, and to non-affiliates as requested; and WHEREAS, Client Company desires to obtain services from AFS in the areas of fuel and natural gas procurement and management, emissions management, ash management, and other services relating to the Client Company's electric and gas utility operating functions, and to the businesses of any subsidiaries of Client Company; and WHEREAS, economies and increased efficiencies will result from the performance by AFS of certain support services for Client Company that would enable Client Company to operate more efficiently; and WHEREAS, subject to the terms and conditions herein described, AFS will render such services and provide such resources to Client Company at cost, determined in accordance with applicable rules, regulations and orders of the Securities and Exchange Commission ("the Commission"); NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein, the Parties hereto agree as follows: SECTION 1. AGREEMENT TO FURNISH SERVICES ----------------------------- AFS agrees to furnish to Client Company and its subsidiaries, if any, upon the terms and conditions herein provided, the services hereinafter referred to and described in Section 2, at such times, for such period and in such manner as Client Company may from time to time request. AFS will keep itself and its personnel available and competent to render to Client Company such services so long as it is authorized to do so by the appropriate federal and state regulatory agencies. SECTION 2. SERVICES TO BE PERFORMED ------------------------ AFS agrees to provide to the Client Company the following services: 1) to provide resources necessary to procure coal and other fuel and related transportation, and to manage such items and assets, including resale and risk 2 management activities, for the power plants of AmerenCILCO's subsidiary, Central Illinois Generation, Inc. ("CIGI"); 2) to provide resources necessary to procure natural gas supply, storage and pipeline transportation capacity, and to manage such items and assets, including resale and risk management activities for the Client Company; 3) to provide and manage other energy related commodities, including but not limited to petroleum coke, alternative fuels, propane, limestone, oil, ash, emissions contracts, and weather contracts; 4) to provide planning and budgeting, business reporting, transaction administration, rail car and other fuel related asset management, operational coordination, contract and counter-party administration, regulatory reporting, support and compliance, ash management activities, management of emissions accounts, and the negotiation, execution and administration of contracts between the Client Company and third parties necessary to facilitate the above; and 5) to provide other related activities as requested. In addition to the services set forth above, AFS shall render advice and assistance in connection with such other matters as Client Company may request and AFS determines it is able to perform with respect to Client Company's business and operations. SECTION 3. COMPENSATION OF AFS ------------------- As compensation for services requested by Client Company and rendered to them by AFS, Client Company hereby agrees to reimburse AFS for all costs properly chargeable or allocable thereto, as controlled through a work order procedure. Costs shall be computed in accordance with applicable rules and regulations (including, but not limited to, Rules 90 and 91) under the Act and appropriate accounting standards. SECTION 4. WORK ORDERS ----------- 3 Services will be performed and billed in accordance with a work order system established to capture the various types of costs incurred by AFS. Costs will be charged to the appropriate work orders, which will then be the basis for the billing of costs to Client Company. SECTION 5. PAYMENT ------- Payment shall be by making remittance of the amount billed or by making appropriate accounting entries on the books of the applicable companies. Payment shall be accomplished on a monthly basis, and remittance or accounting entries shall be completed within 60 days of billing. SECTION 6. APPOINTMENT OF AFS AS AGENT --------------------------- Client Company hereby appoints AFS as Agent to represent the Client Company in performing the services described in Section 2 above. Client Company also authorizes AFS to purchase (i.e. take title to) fuel, natural gas, and other energy related commodities and goods, and to resell (i.e. convey title to) such commodities and goods to Client Company in the course of performing the services described in Section 2. Any resale of fuel, natural gas, and other energy related commodities and goods by AFS to the Client Company shall be at the costs incurred by AFS for its purchase of such items. AFS shall be accountable for all funds advanced or collected on behalf of a Client Company in connection with any transaction in respect of which AFS provides services. The provision of services by AFS pursuant to this Agreement shall in all cases and notwithstanding anything herein contained to the contrary be subject to any limitations contained in authorizations, rules or regulations of those governmental agencies, if any, having jurisdiction over AFS or such provision of services. SECTION 7. THIRD PARTY RELIANCE ON AGENCY AGREEMENT ---------------------------------------- The Client Company has duly and properly appointed AFS as its Agent. AFS has the full power and authority to transact business on behalf of the Client Company, and, in particular, to transact for the purchase and sale of the 4 commodities and services discussed above on behalf of the Client Company. In furtherance of the authority referred to above, AFS has the right and power, whether or not under seal, to execute and deliver on behalf of the Client Company such documents and agreements as may be required in such business transactions without delivering proof to any person of its authority to do so. The Client Company will be legally bound by the terms of any agreement or contract entered into by AFS and the obligations under such contract or agreement, including any payment or financial obligations, will be the obligations of the Client Company, and enforceable against it. SECTION 8. EFFECTIVE DATE AND TERMINATION ------------------------------ This Agreement is subject to the consent and approval of all applicable regulatory agencies, and if so approved in its entirety, shall become effective as of the date of such approvals, and shall remain in effect from said date unless terminated by mutual agreement or by any Party giving at least six months written notice to the other Parties, each Party fully reserving the right to so terminate the Agreement. SECTION 9. ASSIGNMENT ---------- This Agreement and the rights hereunder may not be assigned without the mutual written consent of all Parties hereto. SECTION 10. MISCELLANEOUS ------------- This Agreement shall be binding upon the successors and assigns of the Parties hereto, provided that AFS shall not be entitled to assign or subcontract out any of its obligations under this Agreement without the prior written approval of Client Company. This Agreement may not be modified or amended in any respect except in writing executed by the Parties hereto. This Agreement shall be construed and enforced under and in accordance with the laws of the State of Missouri. This Agreement may be executed in counterparts, each one of which when 5 fully executed shall be deemed to have the same dignity, force and effect as if the original. No provision of this Agreement shall be deemed waived nor breach of this Agreement consented to unless such waiver or consent is set forth in writing and executed by the Party hereto making such waiver or consent. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. AMEREN ENERGY FUELS AND SERVICES COMPANY By: ________________________________ Title:______________________________ CENTRAL ILLINOIS LIGHT COMPANY, D/B/A AMERENCILCO By: ____________________________ Title:______________________________ 6 EX-99 7 ex_g.txt EX. G - PROPOSED FORM OF FED. REG. NOTICE Exhibit G PROPOSED FORM OF FEDERAL REGISTER NOTICE SECURITIES AND EXCHANGE COMMISSION (Release No. 35-_____) Filings under the Public Utility Holding Company Act of 1935, as amended ("Act") August __, 2002 Notice is hereby given that the following filing(s) has/have been made with the Commission pursuant to provisions of the Act and rules promulgated thereunder. All interested persons are referred to the application(s) and/or declaration(s) for complete statements of the proposed transaction(s) summarized below. The application(s) and/or declaration(s) and any amendments thereto is/are available for public inspection through the Commission's Office of Public Reference. Interested persons wishing to comment or request a hearing on the application(s) and/or declaration(s) should submit their views in writing by September __, 2002 to the Secretary, Securities and Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549, and serve a copy on the relevant applicant(s) and/or declarant(s) at the address(es) as specified below. Proof of service (by affidavit or, in case of an attorney at law, by certificate) should be filed with the request. Any request for hearing shall identify specifically the issues of fact or law that are disputed. A person who so requests will be notified of any hearing, if ordered, and will receive a copy of any notice or order issued in the matter. After September __, 2002, the application(s) and/or declaration(s), as filed or as amended, may be granted and/or permitted to become effective. * * * * * * AMEREN CORPORATION, ET AL. (70-[___]) -------------------------- Ameren Corporation ("Ameren"), a registered holding company whose principal executive offices are at 1901 Chouteau Avenue, St. Louis, Missouri 63103, its indirect wholly-owned non-utility subsidiary, Ameren Energy Fuels and Services Company ("Ameren Fuels"), of the same address, and CILCORP Inc. ("CILCORP"), an exempt holding company, its direct wholly-owned public-utility subsidiary, Central Illinois Light Company ("CILCO"), and CILCO's wholly-owned subsidiary, Central Illinois Generation, Inc. ("CIGI"), each of which maintains its principal executive offices at 300 Liberty Street, Peoria, Illinois 61602, have filed an application-declaration in this proceeding designating Sections 3(a)(1), 6(a), 7, 8, 9(a), 9(c)(3), 10, 11(b), 12(b), 12(c), 12(d), 1 12(f), 13(b) and 32 of the Public Utility Holding Company Act of 1935, as amended (the "Act") as applicable to the proposed transactions. Ameren has entered into a Stock Purchase Agreement with The AES Corporation ("AES"), CILCORP's parent company, pursuant to which Ameren has agreed to purchase, for cash, all of the issued and outstanding shares of common stock of CILCORP (the "Transaction"). As a result of the Transaction, Ameren will indirectly acquire all of the common stock of CILCO and CIGI, which will become additional public utility subsidiaries of Ameren,(1) and the non-utility subsidiaries and investments held directly and indirectly by CILCORP. The Transaction is subject to, among other usual and customary conditions precedent, receipt by the parties of approvals by the Federal Energy Regulatory Commission ("FERC") and the Illinois Commerce Commission ("ICC") and filing of pre-merger notification statements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the expiration or termination of the statutory waiting period thereunder. In conjunction with the Transaction, Ameren states that it has also agreed to purchase from AES all of the membership interests in a company that indirectly holds the membership interest of AES Medina Valley Cogen, L.L.C. ("AES Medina Valley"), an EWG. AES Medina Valley owns a 40 MW gas-fired cogeneration facility in Mossville, Illinois that produces electricity, steam and chilled water that is sold to CILCO for resale to CILCO's largest customer (Caterpillar Inc.). In addition to authorization of the Transaction, CILCORP, CILCO and CIGI are requesting authorization herein through March 31, 2006 (the "Authorization Period") for a program of long-term and short-term financing, including authorization for CILCO to participate in the existing Ameren System Utility Money Pool (the "Utility Money Pool") and CILCORP and CIGI to participate in the Ameren System Non-Utility Money Pool (the "Non-Utility Money Pool"). Ameren Fuels is requesting authorization to enter into a fuel services agreement with CILCO and CIGI on terms that are substantially identical to the terms of a Fuel Services Agreement with AmerenUE and AmerenCIPS that the Commission has previously approved. CILCORP is requesting authorization to issue guarantees and provide other forms of credit support on behalf of its subsidiaries, and to pay dividends out of capital and unearned surplus, subject to certain limitations. Finally, CILCORP and CILCO are requesting an order granting to each of them an exemption under Section 3(a)(1) of the Act. - ------------------- (1) Ameren explains that CIGI, which has been determined by the Federal Energy Regulatory Commission to be an "exempt wholesale generator" under Section 32 of the Act, will relinquish such status upon completion of Ameren's acquisition of CILCORP. Accordingly, in the application/declaration, Ameren is treating CIGI as a public-utility company for all purposes under the Act. 2 Description of Parties to the Transaction. ----------------------------------------- Ameren's primary operating subsidiaries are Central Illinois Public Service Company ("AmerenCIPS") and Union Electric Company ("AmerenUE"), which are electric and gas utility companies, and Ameren Energy Generating Company ("Ameren Energy Generating"), which is an "exempt wholesale generator" ("EWG") under Section 32 of the Act. Together, AmerenCIPS and AmerenUE provide electric service to approximately 1.5 million customers in Missouri and Illinois and natural gas service to approximately 300 customers, also in Missouri and Illinois. Ameren Energy Generating, an indirect wholly-owned subsidiary of Ameren, was organized in order to facilitate the restructuring of AmerenCIPS in accordance with the Illinois Electric Service Customer Choice and Rate Relief Law of 1997 ("Customer Choice Law"). In May 2000, Ameren Energy Generating acquired all of the existing generating assets of AmerenCIPS. AmerenUE and Ameren Energy Generating together own and operate about 12,600 MW of electric generating capacity, all of which is located in Missouri and Illinois. As of December 31, 2001, AmerenUE and AmerenCIPS owned and operated, or partially owned, a total of approximately 5,400 circuit miles of electric transmission lines and approximately 7,800 miles of natural gas transmission and distribution mains, substantially all of which are located in Missouri and Illinois. Ameren also directly holds all of the outstanding common stock of Ameren Services Company ("Ameren Services"), a service company subsidiary that provides administrative, accounting, legal, engineering, executive, and other corporate support services to Ameren and its associate companies, and indirectly owns all of the common stock of Ameren Fuels, an "energy-related company" under Rule 58 that brokers and markets energy commodities and owns and manages fuel procurement and delivery assets. For the twelve months ended December 31, 2001, Ameren reported total operating revenues of $4,505,867,000, operating income of $664,987,000, and net income of $468,545,000. On a consolidated basis, approximately 92.2% of Ameren's 2001 operating revenues were derived from sales of electricity, 7.6% from sales of gas and gas transportation service, and .2% from other, unregulated, sources. At December 31, 2001, Ameren had $10,400,575,000 in total assets, including net property, plant and equipment of $7,765,611,000. CILCORP, an Illinois corporation, directly owns all of the issued and outstanding common stock of CILCO, its predominant subsidiary. CILCO is engaged in the generation, transmission, distribution and sale of electric energy in an area of approximately 3,700 square miles in central and east-central Illinois, and the purchase, distribution, transportation and sale of natural gas in an area of approximately 4,500 square miles in central and east-central Illinois. CILCO furnishes electric service to approximately 201,000 retail customers in 136 Illinois communities (including Peoria, East Peoria, Pekin, Lincoln and Morton). CILCO owns and operates two coal-fired base load generating plants, a natural gas-fired cogeneration plant, two natural gas combustion turbine generators and 16 diesel-fueled power modules and leases 14 diesel-fueled power 3 modules, all of which are located in Illinois. These facilities had an available summer capability of 1,172 MW in 2001 and 1,197 MW in 2002. CILCO's transmission system (all of which is located in Illinois) includes approximately 285 circuit miles operating at 138 kV, 48 circuit miles operating at 345 kV and 18 principal substations with an installed capacity of approximately 3,724 megavolt-amperes. CILCO's electric distribution system (all of which is located in Illinois) includes approximately 6,516 circuit miles of overhead pole and tower lines and 1,933 miles of underground distribution cables. The distribution system also includes approximately 108 substations with an installed capacity of 1,766 megavolt-amperes. It is stated that, prior to the closing of the Transaction, CILCO intends to transfer substantially all of its generating assets and certain associated transmission facilities to CIGI in exchange for all of CIGI's common stock and CIGI's assumption of certain liabilities. The transferred assets will remain subject to the lien of CILCO's Indenture of Mortgage and Deed of Trust, which secures CILCO's first mortgage bonds. This reorganization is being undertaken pursuant to the Customer Choice Law. CILCO will retain all of its other electric transmission and distribution assets and operations. As part of this reorganization, CILCO and CIGI will also enter into a Power Supply Agreement ("PSA") and an Interconnection Agreement pursuant to which CIGI will supply the full requirements of CILCO's customers through at least December 31, 2004. CILCO's electric service territory is adjacent to AmerenCIPS' service territory. The transmission systems of the two companies are directly interconnected via a 345 kV line that runs approximately 21.3 miles between CILCO's Duck Creek station, which is southwest of Peoria, to a 345/138 kV transformer owned by AmerenCIPS near Ipava, Illinois. CILCO also provides gas service to approximately 204,000 customers in 128 Illinois communities (including Peoria, East Peoria, Pekin, Lincoln and Springfield). CILCO's gas system includes approximately 3,632 miles of transmission and distribution mains (all of which are located in Illinois) and associated gas storage facilities. CILCO IS REGULATED BY THE ICC WITH RESPECT TO RETAIL ELECTRIC AND GAS RATES AND OTHER MATTERS AND BY THE FERC WITH RESPECT TO TRANSMISSION SERVICE AND WHOLESALE ELECTRIC RATES. CILCORP directly owns all of the common stock of three non-utility subsidiaries: CILCORP Investment Management Inc., CILCORP Ventures Inc., and QST Enterprises Inc. The assets of these companies consist primarily of investments in affordable housing projects that qualify for federal tax credits and in leveraged leases of equipment and commercial real estate. Other direct and indirect subsidiaries of CILCORP provide energy-related services. CILCO's non-utility subsidiaries engage in the exploration and development of gas, oil, coal and other mineral resources and research and development activities relating to new sources of energy, including the conversion of coal and other minerals into gas. With certain exceptions, Ameren is requesting approval to retain CILCORP's non-utility subsidiaries and investments. 4 For the twelve months ended December 31, 2001, CILCORP reported consolidated revenues of $814,870,000, of which $391,811,000 (48.1%) were derived from sales of electricity, $271,434,000 (33.3%) from sales of gas and gas transportation service, and $151,625,000 (18.6%) from CILCORP's non-utility operations. At December 31, 2001, CILCORP had $1,811,698,000 in total assets, including total net property, plant and equipment of $857,987,000. Description of Proposed Transaction. ----------------------------------- Under the Stock Purchase Agreement, subject to the receipt of all necessary regulatory approvals and the satisfaction of other conditions precedent, Ameren will pay AES, in consideration for all of the issued and outstanding common stock of CILCORP, cash in an amount equal to $1,340,000,000, less certain "Assumed Obligations" (which includes long-term debt, short-term debt and preferred stock of CILCORP and its subsidiaries), increased or decreased, as appropriate, by the amount, if any, by which "Working Capital" of CILCORP as of the closing date exceeds or is less than the "Base Working Capital" of CILCORP, and increased or decreased, as appropriate, by the amount of the "CapEx Adjustment," as such terms are defined below, the net amount of the foregoing being the "Purchase Price." It is stated that, if the closing date under the Stock Purchase Agreement had occurred on March 31, 2002, and assuming no change in the Base Working Capital amount and no CapEx Adjustment Amount, the cash paid by Ameren at closing for the common stock of CILCORP would have been approximately $522 million. Ameren states that it will finance the cash portion of the Purchase Price using cash on hand and/or proceeds of debt and/or equity financings previously authorized in File No. 70-9877.(2) Agreements for Sale of Goods and Services. ----------------------------------------- To the extent required, the applicants are requesting authorization to maintain in place certain existing contracts between CILCO and its affiliates, including a Tolling Agreement pursuant to which AES Medina Valley sells electricity, steam and chilled water to CILCO, a Fuel Supply and Services Agreement between a gas marketing subsidiary of CILCORP and AES Medina Valley, pursuant to which AES Medina Valley purchases gas and certain ancillary services relating to the supply of gas to the Mossville facility, and a FERC-approved Interconnection Agreement between CILCO and AES Medina Valley, pursuant to which CILCO provides metering and other ancillary services to AES Medina, at cost. In addition, Ameren Fuels proposes to enter into separate fuel services agreements with CILCO and CIGI pursuant to which Ameren Fuels will manage gas - ------------------- (2) See Ameren Corporation, Holding Co. Act Release No. 27449 (Oct. 5, 2001). 5 supply resources for CILCO and manage fuel procurement for CIGI. These services will be provided at cost, in accordance with Rule 90 and 91.(3) Financing by CILCORP, CILCO and CIGI ------------------------------------ The existing equity and long-term and short-term debt securities of CILCORP, CILCO and CIGI will remain outstanding after the Transaction closes. In addition, CILCORP, CILCO and CIGI are requesting authority, to the extent such transactions are not exempt, to engage in certain ongoing external and intrasystem financing transactions from time to time during the Authorization Period. Any securities issued by CILCORP, CILCO or CIGI to third parties (including any securities issued by CILCO pursuant to Rule 52(a)) may be issued directly, or may be issued indirectly through one or more special purpose entities formed solely for such purpose ("Financing Subsidiaries"). CILCORP, CILCO and CIGI state that they will not engage in any financing transactions for which approval is sought unless, on a pro forma basis to take into account the amount and types of such financing and the application of the proceeds thereof, common equity as a percentage of capitalization (including short-term debt and current maturities of long-term debt) of each company is at least 30%. CILCORP requests authorization to issue and sell commercial paper and/or establish and make unsecured short-term borrowings (i.e., less than one year) under credit facilities with banks or other institutional lenders on terms that are generally available to borrowers with a comparable credit rating as CILCORP as CILCORP deems appropriate in light of its needs and existing market conditions, provided that the aggregate amount of borrowings by CILCORP at any time outstanding under all such credit facilities, when added to the amount of any short-term borrowings by CILCORP under the Non-Utility Money Pool (see below), will not exceed $250 million. The effective cost of money on all external short-term borrowings by CILCORP will not exceed at the time of issuance 300 basis points over the six-month London Interbank Offered Rate ("LIBOR"). CILCORP also requests authorization to issue, in one or more transactions from time to time during the Authorization Period, long-term notes for the purpose of refinancing or acquiring $475 million principal amount of Senior Notes that are currently outstanding at or prior to their scheduled maturity. The principal amount of any new long-term notes issued will not exceed the unpaid principal amount of the Senior Notes, plus any "make whole" premium required to be paid in connection with any prepayment and/or the premium, if any, that is paid in connection with any acquisition of the Senior Notes in open market purchases. The maturity date of any new series of long-term notes will be - ------------------- (3) By order dated April 5, 2001 in File No. 70-9775 (Holding Co. Act Release No. 27374), the Commission authorized Ameren Fuels to provide AmerenUE and AmerenCIPS with the same fuel management services that Ameren Fuels is now proposing to provide to CILCO and CIGI. 6 not later than October 15, 2029, which is the maturity date of the longest of the two series of outstanding Senior Notes. It is proposed that any new notes issued by CILCORP in a refinancing transaction bear interest at a rate not to exceed at the time of issuance 500 basis points over the yield to maturity of a U.S. Treasury security having a remaining term equal to the average life of such new notes, or, if no such Treasury security is outstanding, then the yield to maturity of a 30-year U.S. Treasury Bond. In connection with any such issuance, CILCORP also requests authorization to extend or renew the existing pledge of the common stock of CILCO that secures the Senior Notes in order to be able to obtain an investment grade rating for the new notes that is comparable to the rating of the Senior Notes at the time of repayment. In lieu of any renewal or extension of the pledge of the common stock of CILCO, Ameren requests authorization to guaranty any new CILCORP notes issued in a refinancing transaction. In addition, Ameren requests authorization to guarantee the Senior Notes, or any new notes issued by CILCORP in a refinancing transaction, in order to obtain a termination and release of the existing pledge of CILCO's common stock or for other corporate purposes. CILCO and CIGI are requesting authorization to issue commercial paper and establish and make unsecured short-term borrowings (i.e., less than one year) under credit lines from time to time during the Authorization Period, provided that the aggregate amount of external short-term borrowings by CILCO at any time outstanding, when added to the amount of any short-term borrowings by CILCO under the Utility Money Pool (see below), will not exceed $250 million, and that the aggregate amount of external short-term borrowings by CIGI at any one time, when added to the amount of any short-term borrowings by CIGI under the Non-Utility Money Pool (see below), will not exceed $250 million. The effective cost of money on all external short-term borrowings by CILCO and CIGI will not exceed at the time of issuance 300 basis points over the six-month LIBOR. CIGI is also requesting authorization to issue and sell from time to time during the Authorization Period up to $500 million of long-term securities consisting of any combination of preferred stock or other forms of preferred securities and long-term debt ("Long-term Securities"). Preferred stock or other types of preferred securities may be issued in one or more series with such rights, preferences, and priorities as may be designated in the instrument creating each such series. All such securities will be redeemed no later than 50 years after the issuance thereof. The dividend rate on any series of preferred stock or other preferred securities will not exceed at the time of issuance 700 basis points over the yield to maturity of a U.S. Treasury security having a remaining term equal to the term of such securities, or, if no such Treasury security is outstanding, then the yield to maturity of a 30-year U.S. Treasury Bond. Long-term debt of a particular series (a) may be secured or unsecured, (b) will have a maturity ranging from one to 50 years, (c) will bear interest at a rate not to exceed at the time of issuance 600 basis points over the yield to maturity of a U.S. Treasury security having a remaining term equal to the average life of such series, or, if no such U.S. Treasury security is outstanding, then the yield to maturity of a 30-year U.S. Treasury Bond, (d) may be subject to optional and/or mandatory redemption, in whole or in part, at par or at various premiums above the principal amount thereof, (e) may be entitled to mandatory or optional sinking fund provisions, (f) may provide for reset of 7 the coupon pursuant to a remarketing or auction arrangement, and (g) may be called from existing investors by a third party. Except in accordance with a further order of the Commission in this proceeding, CILCORP and CIGI will not publicly issue any long-term securities unless such securities are rated at the investment grade level as established by at least one nationally recognized statistical rating organization, as that term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the Securities Exchange Act of 1934. It is requested that the Commission reserve jurisdiction over the issuance by CILCORP or CIGI of any such long-term securities that are rated below investment grade. To the extent not exempt under Rule 52, CILCORP, CILCO and CIGI also request authorization to enter into interest rate hedging transactions with respect to outstanding indebtedness ("Interest Rate Hedges"), subject to certain limitations and restrictions, in order to reduce or manage the effective interest rate cost. Interest Rate Hedges would only be entered into with counterparties ("Approved Counterparties") whose senior debt ratings, or the senior debt ratings of the parent companies of the counterparties, as published by S&P, are equal to or greater than BBB, or an equivalent rating from Moody's or Fitch, Inc. In addition, CILCORP, CILCO and CIGI request authorization to enter into interest rate hedging transactions with respect to anticipated debt offerings (the "Anticipatory Hedges"), subject to certain limitations and restrictions. It is stated that each Interest Rate Hedge and Anticipatory Hedge will qualify for hedge accounting treatment at the time it is entered into under Generally Accepted Accounting Principles. CILCORP, CILCO and CIGI will also comply with the then existing financial disclosure requirements of the Financial Accounting Standards Board associated with hedging transactions. Ameren may from time to time during the Authorization Period acquire additional shares of CILCORP's common stock, make additional capital contributions or non-interest bearing cash advances to CILCORP, and/or make loans to CILCORP (and in connection therewith acquire unsecured promissory notes of CILCORP evidencing such loans) in order to enable CILCORP to fund additional investments in CILCO and its other existing subsidiaries, to redeem or retire the outstanding Senior Notes, and to fund working capital. Accordingly, CILCORP requests authority to issue, and Ameren requests authority to acquire, from time to time during the Authorization Period, up to $1 billion at any time outstanding of additional common stock and/or promissory notes having maturities of one year or more. Any promissory note issued by CILCORP to Ameren evidencing a loan will be unsecured and will bear interest at a rate and have a maturity date designed to parallel the effective cost of capital and maturity date of a similar debt instrument issued by Ameren. CILCORP and certain of its non-utility subsidiaries are requesting authorization to maintain, renew and extend all guarantees and other forms of credit support that they have issued and which are outstanding at the time that the Transaction closes. In addition, CILCORP requests authorization to provide additional guarantees and other forms of credit ("Guarantees") support from time to time during the Authorization Period on behalf of or for the benefit of any of its subsidiaries, provided that the aggregate amount of all CILCORP 8 guarantees at any time outstanding shall not exceed $500 million. Any Guarantee outstanding on March 31, 2006 will expire or terminate in accordance with its terms. The Commission has heretofore authorized Ameren to establish and fund short-term loans to its utility subsidiaries and Ameren Services through a Utility Money Pool in order to provide for the short-term cash and working capital needs of these companies.(4) Ameren has also established and funds loans to its non-utility subsidiaries through a separate Non-Utility Money Pool. CILCO requests authorization to participate in the Utility Money Pool and CILCORP and CIGI request authorization to participate in the Non-Utility Money Pool, in each case on the same terms and subject to the same limitations that apply to the other participants. It is stated that borrowings under the Utility Money Pool by CILCO will be exempt under Rule 52(a). CILCORP and CIGI each requests authorization to borrow up to $250 million at any time outstanding under the Non-Utility Money Pool. In connection with the issuance of any securities for which authorization is requested in the application/declaration, or (in the case of CILCO) pursuant to Rule 52(a), CILCORP, CILCO and CIGI request authorization to acquire, directly or indirectly, the common stock or other equity securities of one or more entities (each a "Financing Subsidiary") formed exclusively for the purpose of facilitating the issuance of certain types of debt and/or preferred securities and the loan or other transfer of the proceeds thereof to the parent company of a Financing Subsidiary. The proceeds of any financing carried out through a Financing Subsidiary will be counted against the limits proposed in the application/declaration for the parent company of such Financing Subsidiary, and the terms, conditions and other limitations applicable to any securities issued by a Financing Subsidiary will conform to those proposed for the specified type of security (e.g., long-term debt, preferred securities, etc.). In connection with any such financing transactions, CILCORP, CILCO or CIGI, as the case may be, may enter into one or more guarantees or other credit support agreements in favor of the Financing Subsidiary. In addition, CILCORP, CILCO and CIGI also request authority to issue and sell to any Financing Subsidiary, at any time or from time to time in one or more series, unsecured debentures, unsecured promissory notes or other unsecured debt instruments (individually, a "Note" and, collectively, the "Notes") governed by an indenture or indentures or other documents, and the Financing Subsidiary will apply the proceeds of any external financing by such Financing Subsidiary plus the amount of any equity contribution made to it from time to time to purchase Notes. The terms (e.g., interest rate, maturity, amortization, prepayment terms, default provisions, etc.) of any such Notes would generally be designed to parallel the terms of the securities issued by the Financing Subsidiary to which the Notes relate. It is - ------------------- (4) See Ameren Corporation, et al., Holding Co. Act Release No. 26993 (Mar. 22, 1999). 9 stated that any Financing Subsidiary organized pursuant to the authority granted by the Commission in this proceeding shall be organized only if, in management's opinion, the creation and utilization of such Financing Subsidiary will likely result in tax savings, increased access to capital markets and/or lower cost of capital for CILCORP, CILCO or CIGI, as applicable. CILCORP requests authorization to declare and pay dividends on its common stock and/or redeem or repurchase its outstanding shares of common stock from time to time through the Authorization Period out of capital and unearned surplus (including revaluation reserve) to the extent permitted under applicable corporate law and the terms of any applicable covenants in its financing documents. Finally, in its capacity as a holding company over CILCO and CIGI, CILCORP states that it will continue to be entitled to an exemption pursuant to Section 3(a)(1) of the Act because CILCORP, CILCO and CIGI are all incorporated in Illinois, the state in which all of CILCO's and CIGI's public utility operations are conducted. Likewise, in its capacity as a holding company over CIGI, CILCO will be entitled to an exemption under Section 3(a)(1). Accordingly, CILCORP and CILCO request that the Commission issue an order exempting them from the registration requirements of Section 5 of the Act pursuant to Section 3(a)(1). 10 EX-99 8 ex_i.txt EX. I - DESCRIPTION, LEGAL BASIS FOR RETENTION Exhibit I DESCRIPTION OF AND LEGAL BASIS FOR RETENTION OF NON-UTILITY SUBSIDIARIES AND INVESTMENTS OF CILCORP INC. A. DIRECT NONUTILITY SUBSIDIARIES OF CILCORP INC. --------------------------------------------- CILCORP has three wholly-owned direct non-utility subsidiaries, as follows: 1. CILCORP INVESTMENT MANAGEMENT INC. ("CIM") - CIM, an Illinois corporation, is an intermediate non-utility subsidiary that was organized to administer CILCORP's investment policy and to manage its investment portfolio.1 At December 31, 2001, CIM had total consolidated assets of $146,920,000, consisting primarily of investments in affordable housing funds and leveraged leases. CIM directly holds limited partnership interests ranging from approximately 3.4% to 9.9% in seven affordable housing funds. Each fund holds a portfolio of investments in affordable housing projects that qualify for income tax credits under section 42 of the Internal Revenue Code. Most of the projects are located in Illinois. The names of these funds, CIM's percentage interest, and the location of affordable housing projects held by each fund are as follows: Illinois Equity Fund 1992 Limited Partnership (6.428571%) - holds investments in two separate housing projects, all in Illinois. Illinois Equity Fund 1994 Limited Partnership (3.716216%) - holds investments in four separate housing projects, all in Illinois. Illinois Equity Fund 1996 Limited Partnership (3.666671%) - holds investments in five separate housing projects, all in Illinois. Illinois Equity Fund 1998 Limited Partnership (5.5%) - holds investments in five separate housing projects, all in Illinois. House Investments - Midwest Corporate Tax Credit Fund, L.P. (3.3975%) - holds investments in 21 separate housing projects located in Illinois and other Midwestern states. House Investments - Midwest Corporate Tax Credit Fund II, L.P. (8.005504%) - holds investments in 26 separate housing projects located in Illinois and other Midwestern states. - ------------------- (1) The Commission has authorized registered holding companies to acquire the securities of intermediate non-utility subsidiaries formed exclusively for the purpose of acquiring, financing and holding investments in other exempt and authorized non-utility subsidiaries. See e.g., Ameren Corporation, et al., Holding Co. Act Release No. 27053 (July 23, 1999). Provident Tax Credit Fund III, L. P. (9.9%) - holds investments in 16 separate housing projects located in Illinois and other Midwestern states. At December 31, 2001, CIM's investment in the above funds was approximately $9,740,000. CIM has made commitments to invest an additional $526,000 in these funds. CIM made these investments for the purpose of obtaining the tax credits that are available. CIM's ownership interest in each fund is passive. In each case, responsibility for the day-to-day management of the fund and the underlying affordable housing projects in which the fund invests (including leasing activities, rent collection and property maintenance) resides in the general partner or in an independent management company.(2) In addition, CIM owns 100% of the stock of four subsidiaries, as follows: (a) CIM ENERGY INVESTMENTS INC., an intermediate subsidiary,(3) holds a 2.5% limited partnership interest in the Energy Investors Fund, L.P., which invests in power generation projects within the United States that are either "exempt wholesale generators" under Section 32 of the Act or "qualifying facilities" under the Public Utility Regulatory Policies Act of 1978, as amended.(4) (b) CIM LEASING INC., an intermediate subsidiary,(5) holds a passive interest in passenger railcars that are leased to an unaffiliated third party pursuant to leveraged leases,(6) and a limited partnership interest in SunAmerica Affordable Housing Partners 51, which invests in affordable housing projects that qualify for federal tax credits.(7) - ------------------- (2) The Commission has previously permitted registered holding companies (including Ameren) to retain passive interests in affordable housing projects that qualify for tax credits. See e.g., Ameren Corporation, Holding Co. Act Release No. 26809 (Dec. 30, 1997) ("1997 Merger Order"); WPL Holdings, Inc., 53 S.E.C. 501 (1998); Exelon Corporation, Holding Co. Act Release No. 27256 (Oct. 19, 2000); and CP&L Energy, Inc., Holding Co. Act Release No. 27284 (Nov. 27, 2000). The Commission also recently authorized Ameren to make new investments in such entities pursuant to Section 9(c)(3) of the Act. See Ameren Corporation, et al., Holding Co. Act Release No. 27536 (June 3, 2002) (authorizing new investments of up to $125 million in tax credit projects through December 31, 2005). (3) See note 1, above. (4) Section 32 (exempt wholesale generators); and Rule 58(b)(viii) (qualifying facilities and certain other integrated facilities). (5) See note 1, above. (6) The Commission has previously permitted registered holding companies, including Ameren, to retain passive equity investments in leveraged leases of equipment. See 1997 Merger Order (authorizing Ameren to retain CIPSCO Leasing Company, which holds passive investments in leveraged leases of commercial jet aircraft, a natural gas liquids plant, natural gas processing equipment, and retail department store properties). The Commission, citing Central and South West Corp., Holding Co. Act Release No. 23578 (Jan. 22, 1985), noted that Section 9(c)(3) exempts from Section 9(a) of the Act investments "in the ordinary course of business" for the purpose of reducing federal taxes. (7) See note 2, above. 2 (c) CIM AIR LEASING INC., an intermediate subsidiary,(8) holds a partnership interest in a leveraged lease investment in a commercial aircraft.(9) (d) CILCORP LEASE MANAGEMENT INC. ("CLM"), a Delaware corporation, was organized to enter into leveraged lease transactions. CLM directly holds an interest as an owner participant in an owner-trust that leases Unit No. 1 of the Springerville Power Plant to Tucson Electric Power Company.(10) In addition, CLM has the following wholly-owned subsidiaries which own passive interests in leveraged leases: CLM INC., IV (holds a partnership interest in a leveraged lease investment in an office building in California); CLM X, INC. (which, through two wholly-owned subsidiaries, CLM XI, INC. and CLM INC., VI, holds interests in leveraged leases of an office building in Delaware and a waste-to-energy electric generating facility in the Netherlands); and CLM INC. - VII and CLM INC. VIII (which own passive interests in commercial real estate in eight states (Walmart-Sam's Club retail facilities)).(11) At December 31, 2001, CIM's net investment in leveraged leases was $29,979,000; its net investment in Energy Investors Fund, L.P. was $658,000. 2. CILCORP VENTURES INC. ("CVI") - CVI, an intermediate subsidiary,(12) has one wholly-owned subsidiary, CILCORP ENERGY SERVICES INC., an Illinois corporation, which provides energy management services, including gas purchasing and management services for large gas customers.(13) CVI also holds an 80% interest in Agricultural Research and Development Corporation ("ARDC"), an Illinois corporation that pursues commercialization of agricultural research in central Illinois as part of a combined private/government effort to boost the local economy and create jobs in the region.(14) Furthermore, CILCORP, as a good corporate citizen of Peoria, through CVI holds a 2% interest in Peoria Chiefs Community Baseball club, a minor league baseball team, and a 4.2% interest in Peoria Medical Research Corporation, the general partner of a limited partnership engaged in clinical research.(15) At December 31, 2001, CVI had total consolidated assets of $11,051,000. - ------------------- (8) See note 1, above. (9) See note 6, above. (10) This transaction and the status of CLM and the other owner participants in the Springerville lease have been reviewed by the Commission staff. See Tucson Electric Power Company/Springerville, SEC No-Act. LEXIS 1145, dated November 10, 1992. The Commission staff concurred that, on the facts and circumstances presented, CLM and the other owner participants would not be deemed to not "own" an interest in the leased facility, and therefore would not be considered "electric utility companies." (11) See note 6, above (permitting retention of passive investments held by CIPSCO Leasing Company, now an indirect subsidiary of Ameren, in leases of retail department store properties). (12) See note 1, above. (13) Rule 58(b)(1)(i) (energy management services); Rule 58(b)(1)(v) (brokering and marketing of energy commodities); and Rule 58(b)(1)(vii) (sale of technical, operating, management and other services in various areas, including fuel procurement, delivery and management). (14) EDC, Inc., the Economic Development Council for the Peoria Area, holds the remaining 20% interest in ARDC. (15) These investments, which were made to encourage local economic develop activity, are passive and/or de minimis and thus, under Commission precedent retainable. See Exelon Corporation, Holding Co. Act Release No. 27256 3 3. QST ENTERPRISES INC. ("QST") - QST, an intermediate subsidiary,(16) provides energy and related products and services in non-regulated retail and wholesale energy markets through the following direct or indirect wholly-owned subsidiaries: CILCORP INFRASERVICES INC., an Illinois corporation, which provides utility operation and maintenance services to large industrial companies (predominantly Caterpillar Inc., CILCO's largest customer)(17); and ESE LAND CORPORATION ("ESE"), also an Illinois corporation, which, directly and through special purpose subsidiaries of its own, maintains interests in environmentally distressed parcels of real estate acquired for resale. ESE has two wholly-owned subsidiaries, ESE PLACENTIA DEVELOPMENT CORPORATION, which is currently inactive, and SAVANNAH RESOURCES CORP., which holds 15% of the common units and 100% of the junior preferred units of MCCADDEN DEVELOPMENT, LLC ("McCadden"), a Delaware limited liability company. McCadden owns approximately 590 acres of environmentally distressed real estate in Santa Barbara County, California, which it acquired in 1997 to develop into a master planned residential project. In addition, ESE holds 15% of the common units and 100% of the junior preferred units of CALIFORNIA/NEVADA DEVELOPMENTS, LLC, a Delaware limited liability company that owns environmentally distressed real estate acquired for resale. ESE's investments are not in the CILCO service territory and, to the extent not already discontinued and being divested, will be discontinued. Ameren commits to discontinue or divest all of ESE's investments within three years following an order approving this Application-Declaration. The following direct and indirect subsidiaries of QST are inactive: QST ENERGY INC., which previously provided energy and related products and services to retail energy customers, and QST ENERGY TRADING INC., which previously engaged in wholesale energy marketing. In the event that Ameren seeks to reactivate any of these inactive subsidiaries, Ameren will file a post-effective amendment in this proceeding seeking authorization to engage in the new activities, if such authorization is required under the Act or rules thereunder, or, if applicable, inform the Commission of the reactivation of any of these inactive companies on Form U-9C-3 or other applicable form or report.(18) At December 31, 2001, QST had total consolidated assets of $9,036,000. - ------------------- (continued) (Oct. 19, 2000) (investments in minority businesses, low and moderate income housing funds and venture capital small business funds retainable because passive and/or de minimis); WPL Holdings, Inc., 53 S.E.C. 501 (1998) (authorizing retention of investments of IES Investments as for the most part passive and/or de minimis); 1997 Merger Order (St. Louis Equity Fund retainable because passive). (16) See note 1, above. (17) Rule 58(b)(1)(vii). (18) See Energy East Corporation, et al., Holding Co. Act Release No. 27546 (June 27, 2002). 4 B. DIRECT NONUTILITY SUBSIDIARIES OF CILCO. CILCO directly sells steam to an agricultural processing customer.(19) In addition, CILCO has two direct non-utility subsidiaries, both of which are Illinois corporations, as follows: 1. CILCO EXPLORATION AND DEVELOPMENT COMPANY, which engages with others in joint ventures for the exploration and development of new or additional sources or supplies of natural gas or supplemental gas.(20) 2. CILCO ENERGY CORPORATION, which engages with others in a joint venture for research and development of new sources of energy, including conversion of coal and other minerals into gas.(21) - ------------------- (19) See 1997 Merger Order (AmerenUE engages directly in steam sales). (20) The Commission has authorized registered electric utility holding companies, including Ameren, to acquire various types of non-utility energy assets, including natural gas production properties. See Ameren Corporation, Holding Co. Act Release No. 27053 (July 23, 1999). (21) Rule 58(b)(1)(vi) (production, conversion, sale and distribution of, among other things, alternative fuels and renewable energy resources). Also, Rule 58(b)(1)(x) (development and commercialization of technologies or processes that utilize coal waste products). 5 EX-99 9 dce125828ex_j.txt EX. J - OPINION OF GOLDMAN, SACHS & CO. EXHIBIT J --------- PERSONAL AND CONFIDENTIAL - ------------------------- April 28, 2002 Board of Directors Ameren Corporation 1901 Chouteau Avenue St. Louis, MO 63103 Ladies and Gentlemen: You have requested our opinion as to the fairness from a financial point of view to Ameren Corporation (the "Company") of the $1,400,000,000 in cash less an amount equal to the Assumed Obligations (the "Consideration") to be paid by the Company for all of the outstanding shares of Common Stock, without par value, of CILCORP, Inc. ("CILCORP") and all of the outstanding units of membership interest of AES Medina Valley (No. 4), L.L.C. ("AES Medina"; together with CILCORP, the "Businesses") pursuant to the Stock Purchase Agreement, dated as of April 28, 2002 (the "Stock Purchase Agreement"), between the Company and The AES Corporation ("AES"), and the Membership Interest Purchase Agreement, dated as of April 28, 2002 (the "Membership Purchase Agreement"; together with the Stock Purchase Agreement, the "Agreements"; each, an "Agreement"), between the Company and AES. Pursuant to the Agreements, at the Closing, the Estimated Purchase Price will be adjusted as provided for in Section 1.2(e) of the Stock Purchase Agreement and Section 1.2(g) of the Membership Purchase Agreement and, following the Closing, the Final Purchase Price will be adjusted as provided for in Section 1.2(g) of the Stock Purchase Agreement and Section 1.2(i) of the Membership Purchase Agreement. Capitalized terms not defined herein shall have the meanings set forth in the Agreements. Goldman, Sachs & Co., as part of its investment banking business, is continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities and private placements as well as for estate, corporate and other purposes. We are familiar with the Company having provided certain investment banking services to the Company from time to time, including having acted as joint lead manager of a private offering of $150,000,000 aggregate principal amount of the Company's Floating Rate Notes due 2003 in December 2001, having acted as lead manager of a private offering of $100,000,000 aggregate principal amount of the Company's 5.70% Medium-Term Notes due 2007 in January 2002, having acted as lead manager of a concurrent public offering of 5,750,000 shares of Common Stock, par value $0.01 per share, of the Company and 13,800,000 of the Company's 9.75% adjustable conversion-rate equity security units in Board of Directors Ameren Corporation April 28, 2002 Page Two February 2002, and having acted as its financial advisor in connection with, and having participated in certain of the negotiations leading to, the Agreement. We also have provided certain investment banking services to AES from time to time, including having acted as co-lead manager of a concurrent public offering of 14,000,000 shares of the Common Stock, par value $0.01 per share (the "AES Common Stock"), of AES and 9,000,000 of AES' $3.375 Trust Convertible Preferred Shares in October 1999, having acted as co-lead manager of a public offering of $250,000,000 aggregate principal amount of AES' 9.50% Senior Notes due 2009 in November 1999, having acted as lead manager of a concurrent public offering of 9,725,000 shares of AES Common Stock and 9,200,000 of AES' $3.00 Trust Convertible Preferred Shares in May 2000, having acted as lead manager of a public offering of $203,634,000 aggregate principal amount of AES' 11.25% Senior Secured Notes due 2010 in August 2000 and having acted as lead manager of a public offering of $200,000,000 aggregate principal amount of AES' 11.50% Senior Secured Notes due 2010 in August 2000. Goldman, Sachs & Co. also may provide investment banking services to AES and its subsidiaries in the future. Goldman, Sachs & Co. provides a full range of financial advisory and securities services and, in the course of its normal trading activities, may from time to time effect transactions and hold positions in securities, including derivative securities, of the Company, AES or CILCORP for its own account and for the account of customers. In connection with this opinion, we have reviewed, among other things, the Agreements; Annual Reports to Stockholders and Annual Reports on Form 10-K of the Company, AES and CILCORP for the five years ended December 31, 2001; certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company, AES and CILCORP; unaudited financial statements of AES Medina for the year ended December 31, 2001; audited financial statements of AES Medina Valley Cogen, L.L.C., a wholly owned subsidiary of AES Medina, for the year ended December 31, 2001; the Federal Energy Regulatory Commission Form No. 1 of CILCORP for the year ended December 31, 2000; certain other communications from the Company, AES and CILCORP to their respective stockholders; certain internal financial analyses and forecasts for the Company prepared by management of the Company; certain internal financial analyses and forecasts for the Businesses prepared by managements of AES and CILCORP; and certain financial analyses and forecasts for the Businesses prepared by management of the Company (the "Forecasts"), including certain cost savings and operating synergies projected by the management of the Company to result from the transactions contemplated by the Agreements (the "Synergies"). We also have held discussions with members of the senior management of the Company regarding their assessment of the strategic rationale for, and the potential benefits of, the transactions contemplated by the Agreements and with members of the senior management of the Company and the Businesses (including members of the senior management of AES) regarding their assessment of the past and current business operations, financial condition and future prospects of the Businesses. In addition, we have compared certain financial information for the Businesses with similar financial and stock market information for certain other companies the securities of which are publicly Board of Directors Ameren Corporation April 28, 2002 Page Three traded, reviewed the financial terms of certain recent business combinations in the integrated utility industry specifically and in other industries generally and performed such other studies and analyses as we considered appropriate. We have relied upon the accuracy and completeness of all of the financial, accounting and other information discussed with or reviewed by us and have assumed such accuracy and completeness for purposes of rendering this opinion. In that regard, we have assumed with your consent that the Forecasts, including the Synergies, have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the Company, and that such Forecasts and Synergies will be realized. In addition, we have not made an independent evaluation or appraisal of the assets and liabilities (including any derivative or off-balance sheet assets or liabilities) of the Company or the Businesses or any of their respective subsidiaries and we have not been furnished with any such evaluation or appraisal. We also have assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the transactions contemplated by the Agreements will be obtained without any adverse effect on the Company or the Businesses or on the expected benefits of the transactions contemplated by the Agreements. We have relied upon the advice the Company has received from its legal counsel and tax advisors as to all legal and tax matters in connection with the Agreements. Our advisory services and the opinion expressed herein are provided for the information and assistance of the Board of Directors of the Company in connection with its consideration of the transactions contemplated by the Agreements. Based upon and subject to the foregoing and based upon such other matters as we consider relevant, it is our opinion that as of the date hereof the Consideration to be paid by the Company pursuant to the Agreements is fair from a financial point of view to the Company. Very truly yours, (GOLDMAN, SACHS & CO.) -----END PRIVACY-ENHANCED MESSAGE-----