-----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, UEIeeUxFLxkTfy7rAjO6PgINrMPHPe2W+ibxkNUh5M+x0uTawf8iBcX1m8CPQSIR BJcRkIofGB+UNwNdEqMFVw== 0000040779-99-000015.txt : 19990402 0000040779-99-000015.hdr.sgml : 19990402 ACCESSION NUMBER: 0000040779-99-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 38 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GPU INC /PA/ CENTRAL INDEX KEY: 0000040779 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 135516989 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06047 FILM NUMBER: 99579847 BUSINESS ADDRESS: STREET 1: C/O GPU SERVICE INC STREET 2: 300 MADISON AVE CITY: MORRISTOWN STATE: NJ ZIP: 079621911 BUSINESS PHONE: 9734558200 MAIL ADDRESS: STREET 1: C/O GPU SERVICE INC STREET 2: 300 MADISON AVE CITY: MORRISTOWN STATE: NJ ZIP: 07962 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JERSEY CENTRAL POWER & LIGHT CO CENTRAL INDEX KEY: 0000053456 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 210485010 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-03141 FILM NUMBER: 99579848 BUSINESS ADDRESS: STREET 1: 300 MADISON AVE CITY: MORRISTOWN STATE: NJ ZIP: 079621911 BUSINESS PHONE: 2014558200 MAIL ADDRESS: STREET 1: C/O GPU ENERGY STREET 2: 2800 POTTSVILLE PIKE CITY: READING STATE: PA ZIP: 19640-0001 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROPOLITAN EDISON CO CENTRAL INDEX KEY: 0000065350 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 230870160 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-51001 FILM NUMBER: 99579849 BUSINESS ADDRESS: STREET 1: 2800 POTTSVILLE PIKE STREET 2: MUHLENBERG TOWNSHIP CITY: READING STATE: PA ZIP: 19640-0001 BUSINESS PHONE: 2159293601 MAIL ADDRESS: STREET 1: C/O ENERGY GPU ENERGY STREET 2: 2800 POTTERVILLE CITY: READING STATE: PA ZIP: 19640-0001 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNSYLVANIA ELECTRIC CO CENTRAL INDEX KEY: 0000077227 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 250718085 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-03522 FILM NUMBER: 99579850 BUSINESS ADDRESS: STREET 1: 2800 POTTSVILLE PIKE READING STREET 2: MUHLENBERG TOWNSHIP CITY: BERKS COUNTY STATE: PA ZIP: 19640-0001 BUSINESS PHONE: 6109293601 MAIL ADDRESS: STREET 1: C/O GPU ENERGY STREET 2: 2800 POTTSVILLE PIKE CITY: READING STATE: PA ZIP: 19605-2459 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 For the fiscal year ended December 31, 1998 OR - --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from --------- to-------- Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 1-6047 GPU, Inc. 13-5516989 (a Pennsylvania corporation) 300 Madison Avenue Morristown, New Jersey 07962-1911 Telephone (973) 455-8200 1-3141 Jersey Central Power & Light Company 21-0485010 (a New Jersey corporation) 2800 Pottsville Pike Reading, Pennsylvania 19640-0001 Telephone (610) 929-3601 1-446 Metropolitan Edison Company 23-0870160 (a Pennsylvania corporation) 2800 Pottsville Pike Reading, Pennsylvania 19640-0001 Telephone (610) 929-3601 1-3522 Pennsylvania Electric Company 25-0718085 (a Pennsylvania corporation) 2800 Pottsville Pike Reading, Pennsylvania 19640-0001 Telephone (610) 929-3601 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Registrant Title of each class which registered - ---------- ------------------- ---------------- GPU, Inc. Common Stock, par value $2.50 per share New York Stock Exchange Jersey Central Power & Cumulative Preferred Light Company Stock, $100 stated value 4% Series New York Stock Exchange 7.88% Series E New York Stock Exchange Name of each exchange Registrant Title of each class which registered - ---------- ------------------- ---------------- Jersey Central Power & First Mortgage Bonds: Light Company (cont.) 6 3/8% Series due 2003 New York Stock Exchange 7 1/8% Series due 2004 New York Stock Exchange 7 1/2% Series due 2023 New York Stock Exchange 6 3/4% Series due 2025 New York Stock Exchange Monthly Income Preferred Securities, 8.56% Series A, $25 stated Value (a) New York Stock Exchange Metropolitan Edison Monthly Income Preferred Company Securities, 9% Series A, $25 stated value (b) New York Stock Exchange Pennsylvania Electric Cumulative Preferred Company Stock, $100 stated value: 4.40% Series B Philadelphia Stock Exchange 3.70% Series C Philadelphia Stock Exchange 4.05% Series D Philadelphia Stock Exchange 4.70% Series E Philadelphia Stock Exchange 4.50% Series F Philadelphia Stock Exchange 4.60% Series G Philadelphia Stock Exchange Monthly Income Preferred Securities, 8 3/4% Series A, $25 stated value (c) New York Stock Exchange (a) Issued by JCP&L Capital, L.P., and unconditionally guaranteed by Jersey Central Power & Light Company. (b) Issued by Met-Ed Capital, L.P., and unconditionally guaranteed by Metropolitan Edison Company. (c) Issued by Penelec Capital, L.P., and unconditionally guaranteed by Pennsylvania Electric Company. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of each registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrants' voting stock held by non-affiliates based on the closing price of $42.125 on February 3, 1999 was: Registrant Amount ---------- ------ GPU, Inc. $5,383,065,371 The number of shares outstanding of each of the registrants' classes of voting stock as of February 3, 1999 was as follows: Shares Registrant Title Outstanding - ---------- ----- ----------- GPU, Inc. Common Stock, $2.50 par value 127,787,902 Jersey Central Power & Light Company Common Stock, $10 par value 15,371,270 Metropolitan Edison Company Common Stock, no par value 859,500 Pennsylvania Electric Company Common Stock, $20 par value 5,290,596 DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for 1999 Annual Meeting of Stockholders of GPU, Inc. (Part III) - ----------------------------------------------------------------------------- This combined Form 10-K is separately filed by GPU, Inc., Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. TABLE OF CONTENTS Page Number ------ Part I Item 1. Business 1 Item 2. Properties 46 Item 3. Legal Proceedings 49 Item 4. Submission of Matters to a Vote of Security Holders 49 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 50 Item 6. Selected Financial Data 50 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 51 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 51 Item 8. Financial Statements and Supplementary Data 51 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 51 Part III Item 10. Directors and Executive Officers of the Registrant 52 Item 11. Executive Compensation 56 Item 12. Security Ownership of Certain Beneficial Owners and Management 61 Item 13. Certain Relationships and Related Transactions 62 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 62 Signatures 76 PART I ITEM 1. BUSINESS. GPU, Inc., a Pennsylvania corporation, is a holding company registered under the Public Utility Holding Company Act of 1935 (1935 Act). GPU, Inc. does not directly operate any utility properties, but owns all the outstanding common stock of three domestic electric utilities serving customers in New Jersey -- Jersey Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer service, transmission and distribution operations of these electric utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU Energy companies." The generation operations of the GPU Energy companies are conducted by GPU Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). The "GPUI Group," as referred to in this report, develops, owns, operates and funds the acquisition of generation, transmission and distribution facilities worldwide through GPU International, Inc., GPU Power, Inc., GPU Capital, Inc. and GPU Electric, Inc., a subsidiary of GPU Capital, Inc. (Hereafter, GPU International, Inc. and GPU Power, Inc. and their subsidiaries, which will develop, own, operate and fund the acquisition of generation facilities worldwide, will be referred to as the "GPUI Group" and GPU Capital, Inc. and GPU Electric, Inc. and their subsidiaries, which will develop, own, operate and fund the acquisition of transmission and distribution systems outside the United States, will be referred to as "GPU Electric.") Other subsidiaries of GPU, Inc. include GPU Advanced Resources, Inc. (GPU AR), which is involved in retail energy sales; GPU Telcom Services, Inc. (GPU Telcom), which is engaged in telecommunications-related businesses; and GPU Service, Inc. (GPUS), which provides legal, accounting, financial and other services to the GPU companies. All of these companies considered together are referred to as "GPU." GPU is subject to regulation by the Securities and Exchange Commission (SEC) under the 1935 Act. The GPU Energy companies' retail rates, conditions of service, and issuance of securities are subject to regulation in the state in which each utility operates - in New Jersey by the New Jersey Board of Public Utilities (NJBPU) and in Pennsylvania by the Pennsylvania Public Utility Commission (PaPUC). The Nuclear Regulatory Commission (NRC) regulates the construction, ownership and operation of nuclear generating stations. The GPU Energy companies are also subject to wholesale rate and other regulation by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act. In addition, certain foreign subsidiaries and affiliates are subject to limited rate and other regulation (see REGULATION section). Financial information with respect to the business segments of GPU is provided in Note 15, Segment Information, of the Combined Notes to the Consolidated Financial Statements. This Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements made that are not historical facts are forward-looking and, accordingly, involve risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Although such forward-looking statements have been based on reasonable assumptions, there is no assurance that the expected results will be achieved. 1 Some of the factors that could cause actual results to differ materially include, but are not limited to: the effects of regulatory decisions; changes in law and other governmental actions and initiatives; the impact of deregulation and increased competition in the industry; industry restructuring; expected outcomes of legal proceedings; the completion of generation asset divestiture; fuel prices and availability; the effects of the Year 2000 issue (see LIQUIDITY AND CAPITAL RESOURCES section of Management's Discussion and Analysis); and uncertainties involved with foreign operations including political risks and foreign currency fluctuations. SIGNIFICANT DEVELOPMENTS The following are significant developments which have had, or will continue to have, an impact on GPU: Pennsylvania Restructuring In 1996, Pennsylvania adopted comprehensive legislation (Customer Choice Act) which provides for the restructuring of the electric utility industry. In June 1997, Met-Ed and Penelec filed with the PaPUC their restructuring plans to implement competition and customer choice in Pennsylvania. In October 1998, the PaPUC adopted Restructuring Orders approving Settlement Agreements entered into by Met-Ed, Penelec, the PaPUC and all but two of the intervenors in the restructuring proceeding who appealed the Restructuring Orders. One of these appeals remains pending and is scheduled to be heard in April 1999. For additional information, see Note 5, Accounting for Extraordinary and Non-recurring Items, of the Combined Notes to the Consolidated Financial Statements. The major elements of the Restructuring Orders are as follows: - A transmission and distribution tariff rate which provides adequate funding for maintaining the reliability of Met-Ed and Penelec's electric distribution systems; - A rate reduction from January 1, 1999 through December 31, 1999, for all customers, whether they choose an alternate supplier or not, reflecting Met-Ed and Penelec's obligation to make refunds to customers from 1998 revenues (2.5% for Met-Ed customers and 3% for Penelec customers from December 1996 levels); - The ability of all customers to participate in electric choice on January 1, 1999 - two years sooner than called for in Pennsylvania's Customer Choice Act; - Customers will receive a "shopping credit" that will result in savings if they buy electricity from an alternate supplier that charges less than the shopping credit. The average shopping credit in 1999 will be 4.350 cents per KWH for Met-Ed and 4.404 cents per KWH for Penelec. Actual prices will vary by customer rate class; - Assurance of full recovery of the above-market costs of government-mandated contracts to buy electricity from nonutility generators (NUGs) (Beginning in 2005, the amount collected will be adjusted every five years over the life of each contract); 2 - A rate cap for the cost of delivering electricity (transmission and distribution) until 2004; - A rate cap for electricity purchased from Met-Ed and Penelec, as providers of last resort, until 2010; - PaPUC approval for Met-Ed and Penelec to sell all of their generating stations, including Three Mile Island Unit 1 (TMI-1); - Recovery of $658 million in stranded costs for Met-Ed over 12 years and $332 million for Penelec over 11 years, primarily for NUGs. Future NUG operating costs for which rate recovery has been assured may be adjusted every five years over the life of each NUG contract. (These amounts reflect the effects of using the estimated net proceeds from selling Met-Ed and Penelec's generating plants to reduce stranded costs and will be adjusted based on actual net sale proceeds); - $2.7 million and $3.4 million for assistance in 1999 to low-income customers of Met-Ed and Penelec, respectively; increasing to $6.4 million and $6.9 million, respectively, in 2002; - A sustainable energy fund to promote the development and use of renewable energy and clean energy technologies with one-time payments in 1998 of $5.7 million from Met-Ed and of $6.4 million from Penelec; - The ability of some customers to choose another licensed supplier to provide metering services beginning January 1, 1999, and billing services beginning January 1, 2000; - A phase-in of competitive bidding beginning no later than June 1, 2000, for other suppliers to be the "provider of last resort" for customers who do not shop; and - The dismissal of all pending litigation regarding restructuring in accordance with the Settlement Agreements. New Jersey Restructuring In January 1999, New Jersey enacted legislation to deregulate the state's electricity market. The legislation generally provides for, among other things, the following: - Customer choice of electric generation supplier for all consumers beginning no later than August 1, 1999; - A 5% rate reduction for all customers beginning August 1, 1999, with another 5% rate reduction to be phased in over the next three years. The rate reduction must be maintained for one year after the end of the three year phase-in; - - the aggregation of electric generation service by a government or private aggregator; 3 - the unbundling of customer bills; - the ability to recover stranded costs; and - the ability to securitize stranded costs. In April 1997, the NJBPU issued its final Findings and Recommendations for Restructuring the Electric Power Industry in New Jersey (Findings and Recommendations), which formed the basis for the legislation enacted in 1999. As required by the Findings and Recommendations, in July 1997 JCP&L filed with the NJBPU a proposed restructuring plan, including stranded cost, unbundled rate and restructuring filings. Highlights of the plan include: - The ability of electric retail customers to choose their supplier in accordance with the schedule initially proposed by the NJBPU in the Findings and Recommendations. - Unbundled rates which would apply to all distribution customers, with the exception of a Production Charge payable by customers who do not choose an alternative energy supplier. The proposed unbundled rate structure would include: -- a fixed monthly Customer Charge for the costs associated with metering, billing and customer account administration. -- a Delivery Charge consisting of, among other things, capital and O&M costs associated with the transmission and distribution system. -- a Market Energy and Capacity Charge for electricity provided to customers for whom JCP&L continues to act as their electric generation supplier. JCP&L would be the supplier of last resort for customers who cannot or do not wish to purchase energy from an alternative supplier. -- a Societal Benefits Charge to recover demand-side management costs, manufactured gas plant remediation costs, and nuclear decommissioning costs. -- a Market Transition Charge to recover non-NUG stranded generation costs. -- a NUG Transition Charge (NTC) to recover ongoing above-market NUG costs over the life of the contracts and provide a mechanism to flow through to customers the benefits of future NUG mitigation efforts. - - The unbundling plan also called for an estimated 10% rate reduction, which included certain components that are not recognized as rate reductions by the 1999 legislation or are otherwise no longer available. In addition to this rate reduction, JCP&L customers would receive an additional rate reduction of approximately 6% to be phased in over the next five years as a result of energy tax legislation signed into law in July 1997. 4 - In addition to the sale or continued operation of the Oyster Creek Nuclear Generating Station (Oyster Creek), JCP&L is exploring the early retirement of the plant to mitigate costs associated with its continued operation. A final decision on the plant's future will not be made until the NJBPU rules on JCP&L's restructuring filing. Nevertheless, JCP&L had proposed that the NJBPU approve an early retirement of Oyster Creek in September 2000, for ratemaking purposes, with the following ratemaking treatment: -- The market value of Oyster Creek's generation output would be recovered in the Production Charge. -- The above-market operating costs would be recovered as a component of the Delivery Charge through September 2000. If the plant is operated beyond that date, these costs would not be included in customer rates. -- Existing Oyster Creek regulatory assets would, like other regulatory assets, continue to be recovered. -- Oyster Creek decommissioning costs would, like TMI-1 decommissioning costs, be recovered as a component of the Societal Benefits Charge. -- JCP&L's net investment in Oyster Creek would be recovered as a levelized annuity, effective with the commencement of retail choice through its original expected operating life in 2009. - Stranded costs at the time originally proposed by the NJBPU for initial customer choice, on a present value basis, were estimated at $1.6 billion, of which $1.5 billion was for above-market NUG contracts. The $1.6 billion excludes above-market generation costs related to Oyster Creek. Numerous parties have intervened in this proceeding and have contested various aspects of JCP&L's filings, including, among other things, recovery by JCP&L of plant capital additions since its last base rate case in 1992, projections of future electricity prices on which stranded cost recovery calculations are based, the appropriate level of return and the appropriateness of earning a return on stranded investment. Consultants retained by the NJBPU Staff, the Division of Ratepayer Advocate and other parties have proposed that JCP&L's stranded cost recoveries should be substantially lower than the levels JCP&L is seeking. Certain of these issues may be impacted by the 1999 legislation and the results of the sale by JCP&L of its generating facilities (see Generation Divestiture below). In addition, in a February 1998 order, the NJBPU substantially affirmed an Administrative Law Judge (ALJ) ruling which required that rates be unbundled based on the 1992 cost of service levels which were the basis for JCP&L's last base rate case, but clarified that (1) JCP&L could update its 1992 cost of service study to reflect adjustments consistent with the 1997 NJBPU approved Stipulation of Final Settlement which, among other things, recognized certain increased expense levels and reductions to base rates and 5 (2) all of the other updated post-1992 cost information that JCP&L had submitted in the proceeding should remain in the record, which the NJBPU will utilize after issuance of the ALJ's initial decision to establish a reasonable level of rates going forward. Furthermore, the NJBPU emphasized in its order that the final unbundled rates established as a result of this proceeding will be lower than the current bundled rates. This directive has been recognized in JCP&L's July 1997 restructuring plan which proposed annual revenue reductions totaling approximately $185 million. The NJBPU will render final and comprehensive decisions on the precise level of aggregate rate reductions required in order to accomplish its primary goals of introducing retail competition and lowering electricity costs for consumers. If the NJBPU were to accept the positions of various parties or their consultants, or were ultimately to deny JCP&L's request to recover post-1992 capital additions and increased expenses, it would have a material adverse impact on JCP&L's stranded cost recovery, restructuring proceeding and future earnings. Hearings with respect to the stranded cost and unbundled rate filings have been completed. In September 1998, the ALJ issued a recommended decision containing the following major elements: - The ALJ did not consider current cost levels as the basis for unbundling rates, but instead used 1992 costs. With the exception of JCP&L's investment in a new combustion turbine plant, the ALJ denied recovery of post-1992 rate case capital additions but recommended that the NJBPU reconsider these matters. - The ALJ recommended that the Oyster Creek investment be recovered over a period of between four and eleven years, but once the plant is retired for ratemaking purposes, no return should be provided on the unamortized investment. - The ALJ recommended that the 2.1% rate reduction implemented in April 1997 as part of JCP&L's Stipulation of Final Settlement, as approved by the NJBPU in 1997, should not be part of the rate reduction mandated by the NJBPU. - The ALJ endorsed a market line higher than that proposed by JCP&L. - The ALJ approved recovery of actual NUG costs through a NUG Transition Charge, over the lives of the contracts. - The ALJ accepted JCP&L's proposal for recovery of nuclear decommissioning costs through a Societal Benefits Charge, but disallowed the inclusion of fossil decommissioning costs in the calculation of stranded costs. - - The ALJ accepted JCP&L's generation asset divestiture plan and the position that the net proceeds be applied to reduce other stranded costs. 6 The NJBPU has stated that it intends to issue a final order with respect to the stranded cost and unbundled rate filings of JCP&L by April 14, 1999. Evidentiary hearings before the NJBPU with respect to the separate restructuring filings were held jointly with the other New Jersey utilities, and briefing has been completed. The NJBPU has stated that it intends to issue a generic final order with respect to the restructuring filings for all New Jersey utilities in the second quarter of 1999. Generation Divestiture In October 1997, GPU announced its intention to begin a process to sell, through a competitive bid process, up to all of the fossil-fuel and hydroelectric generating facilities owned by the GPU Energy companies. These facilities, comprised of 26 operating stations, support organizations and development sites, total approximately 5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300 MW; Penelec 2,100 MW) of capacity and have a net book value of approximately $1.1 billion (JCP&L $272 million; Met-Ed $283 million; Penelec $508 million) at December 31, 1998. In August 1998, after the completion of an auction process, Penelec and New York State Electric & Gas Corporation (NYSEG) entered into definitive agreements with Edison Mission Energy (Edison) to sell the Homer City Station for a total purchase price of approximately $1.8 billion. The Homer City Station is a 1,884 MW three unit coal-fired generation station located in Indiana County, Pennsylvania. In March 1999, the sale of Homer City to EME Homer City Generation, L.P., a subsidiary of Edison, was completed. Penelec and NYSEG each owned a 50% interest in the station and shared equally in the net sale proceeds. In November 1998, the GPU Energy companies entered into definitive agreements with Sithe Energies and FirstEnergy Corporation to sell all their remaining fossil-fuel and hydroelectric generating facilities other than JCP&L's 50% interest in the Yards Creek Pumped Storage Facility (Yards Creek) for a total purchase price of approximately $1.7 billion (JCP&L $442 million; Met-Ed $677 million; Penelec $604 million). Penelec's 20% undivided ownership interest in the Seneca Pumped Storage Facility (Seneca) is being sold to FirstEnergy for $43 million, which is included in this amount. The sales are expected to be completed by mid-1999, subject to the timely receipt of the necessary regulatory and other approvals. Sithe has agreed to assume the collective bargaining agreements covering union employees and to fill bargaining positions on the basis of seniority. Sithe has also agreed to use reasonable efforts to offer positions to Genco non-bargaining employees. The GPU Energy companies have agreed to assume up to $20 million (JCP&L $7 million; Met-Ed $9 million; Penelec $4 million) of employee severance costs for employees not hired by Sithe. In October 1998, the GPU Energy companies entered into definitive agreements to sell TMI-1 to AmerGen Energy Company, LLC (AmerGen), which is a joint venture between PECO Energy and British Energy. Terms of the purchase agreements are summarized as follows: - - The total cash purchase price is approximately $100 million, which represents $23 million to be paid at closing, and $77 million for the nuclear fuel in the reactor to be paid in five equal annual installments beginning one year after the closing. The purchase price and closing payment are subject to certain adjustments for capital expenditures and other items. 7 - AmerGen will make contingent payments of up to $80 million for the period January 1, 2002 through December 31, 2010 depending on the actual energy market clearing prices through 2010. - GPU will purchase the energy and capacity from TMI-1 from the closing through December 31, 2001, at predetermined rates. - At closing, GPU will make additional deposits into the TMI-1 decommissioning trusts to bring the trust totals up to $320 million and AmerGen will then assume all liability and obligation for decommissioning TMI-1. - GPU will continue to own and hold the license for Three Mile Island Unit 2 (TMI-2). No liability for TMI-2 or its decommissioning will be assumed by AmerGen. AmerGen will, however, maintain TMI-2 under contract with GPU. - AmerGen will employ all employees located at TMI-1 at closing, and will also have the opportunity to offer positions to GPUN's headquarters staff. GPU will be responsible for all severance payments associated with these employees for a one-year period following closing. AmerGen will assume the current collective bargaining agreement covering TMI-1 union employees. The sale is subject to various conditions, including the receipt of satisfactory federal and state regulatory approvals. NRC approval of the TMI-1 license transfer to AmerGen, as well as certain rulings from the Internal Revenue Service, will be necessary with respect to the maintenance or transfer of the decommissioning trusts. There can be no assurance as to the outcome of these matters. The net proceeds from these generation asset sales will be used to reduce the capitalization of the respective GPU Energy companies, repurchase GPU, Inc. common stock, fund previously incurred liabilities in accordance with the Pennsylvania settlement, and may also be applied to reduce short-term debt, finance further acquisitions, and reduce acquisition debt of the GPUI Group. In addition to the continued operation of Oyster Creek, JCP&L has been exploring the sale or early retirement of the plant to mitigate costs associated with its continued operation. GPU does not anticipate making a final decision on the plant before the NJBPU rules on JCP&L's restructuring filing. GPUI Group In January 1998, following its acquisition of PowerNet Victoria (PowerNet) in late 1997, GPU Electric sold its 50% share in Solaris Power (Solaris) to The Australian Gas Light Company for A$208 million (approximately U.S. $135.2 million) and 10.36% of the outstanding common stock of Allgas Energy Limited (Allgas, the natural gas distributor in Queensland, Australia), in order to comply with cross-ownership restrictions in the Australian State of Victoria. The Allgas shares had a market value of A$14.6 million (approximately U.S. $9.5 million) at the date of sale. As a result of the Solaris sale, GPU recorded an after-tax gain of $18.3 million. In July 1998, GPU Electric sold its Allgas shares for A$25.8 million (approximately U.S. $16 million). 8 In February 1998, GPU International sold a one-half interest in the Mid-Georgia cogeneration project (Mid-Georgia, a 300 MW facility located in Kathleen, Georgia) to Sonat Energy Services Company. As a result, GPU recorded an after-tax gain on the sale of $5.8 million in the first quarter of 1998. In June 1998, Mid-Georgia began commercial operation under a 30-year power purchase agreement to sell capacity and energy on a dispatchable basis to Georgia Power. In November 1998, Midlands Electricity plc (Midlands) announced the sale of its electric supply business to National Power plc. GPU and Cinergy Corp. jointly acquired Midlands in 1996. National Power will acquire all the assets of Midlands' supply business and assume its liabilities, including obligations under all Midlands' power purchase agreements, for $300 million ($150 million for GPU's share) plus an adjustment for working capital at financial closing, which is expected in the second quarter of 1999. Midlands will continue to own its distribution business, as well as interests in various generation stations. In March 1999, GPU Electric acquired Emdersa, an Argentine holding company that owns three electric distribution companies, for $435 million. The three companies serve approximately 335,000 customers throughout a territory of approximately 124,300 square miles in northwest Argentina. Common Stock Repurchase In January 1999, the GPU, Inc. Board of Directors authorized the repurchase of up to $350 million of GPU, Inc. common stock. The repurchases will initially be funded with borrowings. Through March 1, 1999, GPU, Inc. has repurchased 614,300 shares of common stock at an average price of $41.62 per share. INDUSTRY DEVELOPMENTS Electric utility customers have traditionally been served by vertically integrated regulated monopolies. The electric utility industry is moving away from a traditional rate regulated environment based on cost recovery to some combination of a competitive marketplace and modified regulation. The enactment of the Public Utility Regulatory Policies Act of 1978 (PURPA) facilitated the entry of competitors into the electric generation business. The Energy Policy Act of 1992 (EPAct) furthered competition among utilities and NUGs in the wholesale electric generation market, accelerating industry restructuring. The FERC, in its Order 888 and related proceedings, has required utilities to provide open access and comparable transmission service to third parties. Pennsylvania and New Jersey have now adopted comprehensive legislation which provides for the restructuring of the electric utility industry. Operating in a competitive environment places pressures on utility profit margins and credit quality. Utilities with significantly higher cost structures than are supportable in the marketplace will experience reduced earnings as they attempt to meet their customers' demands for lower-priced electricity. Competitive forces continue to influence some retail pricing. 9 In light of restructuring in New Jersey and Pennsylvania, customers are pursuing competitively priced electricity from other providers. This increasing competition in the electric utility industry has already led the major credit rating agencies to apply more stringent guidelines in making credit rating determinations. The current market price of electricity being below the cost of some utility-owned generation and power purchase commitments, combined with the ability of some customers to choose their energy suppliers, has created stranded costs in the electric utility industry. These stranded costs, while generally recoverable in a regulated environment, are at risk in a deregulated and competitive environment. The PaPUC's Restructuring Orders issued in 1998 granted Met-Ed and Penelec recovery of a substantial portion of their stranded costs. New Jersey legislation passed in January 1999 also provides a mechanism for the recovery of stranded costs. See COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion and Analysis. As part of its strategy of achieving earnings growth, GPU is continuing to investigate investment opportunities in various domestic and foreign power projects and foreign utility systems, and intends to make additional investments and/or acquisitions which would be financed with new debt or new equity. GPU has identified the following strategic objectives to guide it over the next several years: (1) reposition GPU based on changing industry risks; (2) build upon GPU's core competency in regulated infrastructure (mainly the transmission and distribution of electricity); (3) divest the merchant generation business; (4) seek growth through the acquisition of domestic and international regulated infrastructure assets (i.e. electric, natural gas, water, telecommunications); (5) continue to develop the contract generation business (generation for which contracts to sell power to third parties have been executed) through the GPUI Group; and (6) continue to participate in the retail energy and supply business to determine if a viable economic opportunity exists through GPU AR. GPU's strategies may include business combinations with other companies, internal restructurings involving the complete or partial separation of its wholesale and retail businesses and acquisitions of other businesses. No assurances can be given as to whether any potential transactions of the type described above may actually occur, or as to the ultimate effect thereof on the financial condition or competitive position of GPU. GPU expects to be in a regulated business (the transmission and distribution of electricity). In the future, GPU's ability to seek rate increases will be more limited than it has been in the past and, notwithstanding increases in costs, rates may be capped for varying periods. Since GPU intends, to a large extent, to exit the merchant generation business, it will need to meet capacity obligations and supply energy largely from contracted purchases and purchases in the open market. In addition, inflation may have various effects on GPU since it will be a factor in revenue calculations in some jurisdictions, but may cause increased operating costs with GPU having a limited ability to pass these costs to its customers because of capped rates in other areas. Management is in the process of identifying and addressing these market risks, however, there can be no assurance that GPU will be able to recover through these capped rates all of the costs of the electricity required to be purchased for customers. 10 GPU has been active both on the federal and state levels in helping to shape electric industry restructuring while seeking to protect the interests of its shareholders and customers, and is attempting to assess the impact that these competitive pressures and other changes will have on its financial condition and results of operations. OTHER DEVELOPMENTS YEAR 2000 ISSUE GPU is addressing the Year 2000 issue by undertaking a comprehensive review of its computers, software and equipment with embedded systems such as microcontrollers (together, "Year 2000 Components"), and of its business relationships with third parties, including key customers, lenders, trading partners, vendors, suppliers and service providers. Remediation plans and corrective actions are in progress. The remediation plans include, among other things, the modification or replacement of Year 2000 Components which are not ready for use beyond 1999. In addition, GPU has begun to develop contingency plans for mission-critical systems. GPU's Year 2000 project is not expected to cause any material delay in the completion of other planned projects by information technology services. In January 1999, an independent consultant retained by GPU to review the adequacy of GPU's Year 2000 plans favorably rated the GPU Energy companies in their progress toward achieving Year 2000 readiness as measured against the consultant's "best practices" model. The consultant also identified certain weaknesses that GPU is currently addressing. The PaPUC has entered an Order mandating that Pennsylvania jurisdictional utilities have their mission-critical systems Year 2000 compliant by March 31, 1999. In November 1998, an ALJ assigned to the proceeding conducted hearings to support recommendations demanding that the PaPUC relax its March 31, 1999 mandate in certain cases. Met-Ed and Penelec have jointly submitted testimony to the proceeding and participated in the hearings. While there can be no assurance as to the outcome of this matter, including if the PaPUC will modify its March 31, 1999 compliance date, GPU believes that its current Year 2000 plans are adequate relative to its mission-critical systems. In addition to the PaPUC mandate, inquiries concerning GPU's Year 2000 readiness have been made by the NJBPU, the NRC, the U.S. Department of Energy (DOE), and by numerous third parties with which GPU has business relationships. Costs The GPU Energy companies currently estimate that they will spend approximately $43.3 million (JCP&L $18.6 million; Met-Ed $12 million; Penelec $12.7 million) on the Year 2000 issue, which includes $8.1 million (JCP&L $2.7 million; Met-Ed $2.7 million; Penelec $2.7 million) that is being spent as a part of the purchase and implementation of a new integrated information system (Project Enterprise), as described below. The $43.3 million also includes $7.4 million (JCP&L $3.4 million; Met-Ed $1.9 million; Penelec $2.1 million) 11 that would have been spent in any event for maintenance and cyclical replacement plans. Approximately 55% of the expected costs involve the modification or replacement of Year 2000 Components; and 45% are for labor (including contract labor) and other project expenses. These costs are being funded by the GPU Energy companies from their operations. Through December 31, 1998, the GPU Energy companies have spent a total of approximately $20.6 million (JCP&L $8.6 million; Met-Ed $6 million; Penelec $6 million) (of the $43.3 million) in connection with the Year 2000 issue, of which $15.9 million (JCP&L $6.5 million; Met-Ed $4.7 million; Penelec $4.7 million) was spent in 1998. The GPUI Group currently expects to spend approximately $9 million to address the Year 2000 issue, primarily to replace or modify equipment at Midlands. Through December 31, 1998, a total of approximately $2.5 million has been spent, substantially all of which was spent in 1998. The Project Enterprise system, referenced above, is designed to help the GPU Energy companies manage business growth and meet the mandates of electric utility deregulation. The system is scheduled to be substantially operational for the GPU Energy companies and GPUS by March 1999 and fully operational for these companies by June 1999. GPUN and Genco are not installing Project Enterprise before the year 2000, but rather are making modifications to their systems to achieve Year 2000 readiness. For critical systems, these modifications are expected to be completed by March 31, 1999, and for remaining systems by July 31, 1999. Milestones GPU has established Inventory, Assessment, Remediation, Testing and Monitoring as the primary phases for its Year 2000 program. The Inventory phase of the program has been completed. The milestones for Assessment, Remediation, Testing and Monitoring are as follows: Assessment Remediation Testing Monitoring GPU Energy and GPUS Completed 03/31/1999 03/31/1999 03/31/2000 Genco Completed 11/15/1999 11/15/1999 05/31/2000 GPUN 03/31/1999 10/31/1999 10/31/1999 03/31/2000 GPUI Group 06/30/1999 09/30/1999 09/30/1999 03/31/2000 Genco expects to complete modifications and testing of Year 2000 Components involved in 90% of its generation capacity by May 31, 1999. Modifications and testing of the remaining components, primarily for two generating units, will be completed during maintenance outages scheduled in the fall of 1999. GPUN expects to complete modifications and testing for most of its systems and components by July 1, 1999. Modifications and testing of the remaining components at TMI-1, which is scheduled for a refueling outage in September 1999, are not expected to be completed until late October 1999. 12 Third Party Qualification Due to the interdependence of computer systems and the reliance on other organizations for supplies, materials or services, GPU is addressing the Year 2000 issue as it relates to the readiness of third parties. As part of its Year 2000 strategy, GPU is contacting key customers, lenders, trading partners, vendors, suppliers and service providers to assess whether they are adequately addressing the Year 2000 issue. With respect to computer software and equipment with embedded systems, GPU has analyzed where it is dependent upon third party data and has identified several critical areas: (1) the Pennsylvania-New Jersey-Maryland (PJM) Interconnection; (2) electric generation suppliers, such as cogeneration operators and NUGs; (3) Electronic Data Interchange (EDI) with trading partners; (4) Electronic Funds Transfer (EFT) with financial institutions; (5) vendors; and (6) customers. The following summarizes the actions that have taken place with critical third parties: - - PJM - Data link testing has been completed. Major testing of system upgrades is scheduled for completion during the first quarter of 1999. - - Electric generation suppliers - GPU has contacted all critical electric generation suppliers and information concerning their readiness has been received from approximately 81%. Those that have responded have readiness dates that extend into September 1999. - - EDI/EFT - GPU has sent readiness questionnaires to all critical organizations with which it exchanges data electronically and conducts electronic funds transfers. GPU has received responses from approximately 23% of those contacted. Testing with critical trading partners is scheduled for completion during the first quarter of 1999. - - Vendors - GPU has contacted all critical vendors and approximately 61% have responded as to their readiness. - - Customers - A customer readiness assessment was initiated during the fourth quarter of 1998 and approximately 64% of critical customers have been contacted. GPU has received responses from 20% of those contacted. Scenarios and Contingencies If GPU, or critical third parties upon whom GPU relies, are unable to successfully address their Year 2000 issues on a timely basis, certain computers, equipment, systems and applications may not function properly, which could have a material adverse effect on GPU's operations and financial condition. While GPU cannot predict what effect, if any, the Year 2000 issue will have on its operations, one possible scenario could include, among other things, interruptions in delivering electric service, and a temporary inability to process transactions, provide bills or operate electric generating stations. GPU currently has no loss estimates related to Year 2000 risks that could potentially result from any such scenario. While there can be no assurance as to the outcome of this matter, GPU believes that its Year 2000 preparations will be successful relative to its 13 mission-critical Year 2000 Components. In addition, GPU is developing contingency plans in accordance with the contingency planning schedule proposed by the North American Electric Reliability Council. These plans, which are currently expected to be finalized in mid- to late-1999, will include supplementing present general emergency procedures with specific measures for Year 2000 problems and the placing of troubleshooting teams at sites where critical components are located. THE GPU ENERGY COMPANIES' SUPPLY PLAN Under traditional retail regulation, supply planning in the electric utility industry is directly related to projected sales growth in a utility's franchise service territory. In light of retail access legislation enacted in Pennsylvania and New Jersey, the extent to which competition will affect the GPU Energy companies' supply plan remains uncertain (see COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion and Analysis). As the GPU Energy companies prepare to operate in a competitive environment, their supply planning strategy will focus on providing for the needs of existing retail customers who do not choose a competitive supplier and continue to receive energy supplied by the GPU Energy companies and whom the GPU Energy companies continue to have an obligation to serve. The GPU Energy companies' capacity (in megawatts) and sources of energy (in gigawatt-hours) for 1998 are as follows: Capacity Sources of Energy MW % GWH % Coal 3,024 27 19,675 38 Nuclear 1,405 13 11,358 22 Gas, hydro & oil 2,322 21 888 2 Nonutility generation 1,687 15 10,952 21 Utility contracts 2,638 24 5,177 10 Spot market & interchange purchases - - 3,605 7 ------ --- ------ --- Total 11,076 100 51,655 100 ====== === ====== === After the sale of the GPU Energy companies' generating facilities has been completed, GPU will have 819 MW of capacity and related energy from Oyster Creek and Yards Creek remaining to meet customer needs (see the Oyster Creek section of NUCLEAR FACILITIES for a discussion of the possible sale or early retirement of Oyster Creek). The GPU Energy companies also have contracts with NUG facilities totaling 1,687 MW and JCP&L has agreements with other utilities to provide for up to 629 MW of capacity and related energy (see Note 13, Commitments and Contingencies, of the Combined Notes to the Consolidated Financial Statements). The GPU Energy companies have agreed to purchase all of the capacity and energy from TMI-1 through December 31, 2001. In addition, the GPU Energy companies have the right to call the capacity of the Homer City station (942 MW) for two years and the capacity of the generating stations sold to Sithe (4,117 MW) for three years, from the dates of sale. The GPU Energy companies' remaining capacity and energy needs will focus on short- to intermediate-term commitments (one month to three years) during periods of expected high energy price volatility and reliance on spot market purchases during other periods. Management is in the process of identifying and addressing the GPU Energy companies' future capacity and energy needs, and the impact of customer shopping and changes in demand (see the Managing the Transition section of COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion and Analysis). 14 Provider of Last Resort Under the PaPUC Restructuring Orders, Met-Ed and Penelec customers may shop for their generation supplier beginning January 1, 1999. A PaPUC approved competitive bid process will assign provider of last resort (PLR) service for 20% of Met-Ed and Penelec's retail customers on June 1, 2000, 40% on June 1, 2001, 60% on June 1, 2002, and 80% on June 1, 2003, to licensed generation suppliers referred to as Competitive Default Service (CDS). If no qualified bids for CDS are received at or below their generation rate caps, Met-Ed and Penelec will continue to provide PLR service at the rate cap levels until 2010 unless modified by the PaPUC. Any retail customers assigned to CDS may return to Met-Ed and Penelec as the default PLR at no additional charge. Met-Ed and Penelec may meet any remaining PLR obligation at rates not less than the lowest rate charged by the winning CDS provider, but no higher than Met-Ed and Penelec's rate cap. The restructuring legislation enacted in New Jersey requires that JCP&L be the PLR for at least three years starting with the implementation of customer choice on August 1, 1999. JCP&L is entitled to recover reasonable and prudently incurred costs for PLR service. Within the three-year period, the NJBPU is to determine whether to make PLR service available on a competitive basis. THE GPU ENERGY COMPANIES The electric generation and transmission facilities of the GPU Energy companies are physically interconnected and are operated as a single integrated and coordinated system serving a population of approximately five million in New Jersey and Pennsylvania. For the year 1998, the GPU Energy companies' revenues were about equally divided between Pennsylvania customers and New Jersey customers. During 1998, sales to customers by customer class were as follows: % Operating Revenues % KWH Sales -------------------- ----------- Total JCP&L Met-Ed Penelec Total JCP&L Met-Ed Penelec ----- ---- ------- ------- ----- ----- ------ ------- Residential 42 45 41 35 35 41 35 27 Commercial 35 39 30 33 34 40 28 31 Industrial 21 15 28 28 29 19 36 37 Other* 2 1 1 4 2 - 1 5 --- --- --- --- --- --- --- --- 100 100 100 100 100 100 100 100 === === === === === === === === * Rural electric cooperatives, municipalities, street and highway lighting, and others. The GPU Energy companies also make interchange and spot market sales of electricity to other utilities. Reference is made to GPU Energy Companies' Statistics and Company Statistics on pages F-3, F-120, F-130, and F-140, for additional information concerning sales and revenues. Revenues of JCP&L, Met-Ed and Penelec derived from their largest single customers accounted for less than 2%, 2% and 1%, respectively, of their electric operating revenues for the year and their 25 largest customers, in the aggregate, accounted for approximately 9%, 12% and 12%, respectively, of such revenues. The area served by the GPU Energy companies extends from the Atlantic Ocean to Lake Erie, is generally comprised of small communities, rural and suburban areas and includes a wide diversity of industrial enterprises, as 15 well as substantial farming areas. JCP&L provides retail service in northern, western and east central New Jersey, having an estimated population of approximately 2.6 million. Met-Ed provides retail electric service in all or portions of 14 counties, in the eastern and south central parts of Pennsylvania, having an estimated population of almost one million. Met-Ed also sells electricity at wholesale to four municipalities having an estimated population of over 11,400. Penelec provides retail and wholesale electric service within a territory located in western, northern and south central Pennsylvania extending from the Maryland state line northerly to the New York state line, with a population of about 1.2 million, approximately 28% of which is concentrated in 23 cities and boroughs, all with populations over 5,000. Penelec also provides wholesale service to six municipalities in Pennsylvania, five municipalities in New Jersey, and the Allegheny Electric Cooperative, Inc., which serves 13 rural electric cooperatives in Pennsylvania and one in New Jersey. Penelec, as lessee of the property of the Waverly Electric Light & Power Company, also serves a population of about 13,400 in Waverly, New York and vicinity. The GPU Energy companies' transmission facilities are physically interconnected with neighboring nonaffiliated utilities in Pennsylvania, New Jersey, Maryland, New York and Ohio. The interconnection facilities are used for substantial capacity and energy interchange and purchased power transactions, as well as emergency assistance. The GPU Energy companies are members of the PJM Power Pool and the Mid-Atlantic Area Council, an organization providing coordinated review of the planning by utilities in the PJM area. In 1997, the PJM Power Pool converted to a limited liability company governed by an independent board of managers and the FERC approved the supporting PJM companies' proposal to permit the PJM Power Pool to be recognized as an Independent System Operator. Also in 1997, the FERC directed the GPU Energy companies to implement a single-system transmission rate, effective April 1, 1998. The implementation of a single-system rate is not expected to affect total transmission revenues. It would, however, increase the pricing for transmission service in Met-Ed and Penelec's service territories and reduce the pricing for transmission service in JCP&L's service territory. The GPU Energy companies have requested the FERC to reconsider its ruling requiring a single-system transmission rate. The Restructuring Orders for Met-Ed and Penelec provide for a transmission and distribution rate cap exception to recover the increase in the transmission rate from Met-Ed and Penelec's retail customers in the event the FERC denies this request. The FERC's ruling will also have the effect of reducing JCP&L's transmission rates. There can be no assurance as to the outcome of this matter. GPUI GROUP The GPUI Group owns, operates, develops and invests in electric power generation, transmission and distribution facilities throughout the world. It has also made investments in certain advanced technologies related to the electric power industry. The GPUI Group has ownership interests in transmission and distribution businesses in England and Australia. It also has ownership interests in nine operating cogeneration plants in the U.S. totaling 1,147 megawatts (MW) (of which the GPUI Group's equity interest represents 498 MW) of capacity, and ten operating generating facilities 16 located in foreign countries totaling 3,879 MW (of which the GPUI Group's equity interest represents 730 MW) of capacity. It also has investments in four generating facilities under construction totaling 1,698 MW (of which the GPUI Group's equity interest represents 301 MW) of capacity. When appropriate, the GPUI Group also engages in the purchase or sale of interests in particular businesses. At December 31, 1998, GPU, Inc.'s aggregate investment in the GPUI Group was $590 million; GPU, Inc. has also guaranteed up to an additional $761 million of outstanding GPUI Group obligations. GPU, Inc. has SEC authorization to finance investments in foreign utility companies (FUCOs) and exempt wholesale generators (EWGs) up to an aggregate amount equal to 100% of GPU's average consolidated retained earnings, or approximately $2.2 billion as of December 31, 1998. At December 31, 1998, GPU, Inc. has remaining authorization to finance approximately $979 million of additional investments in FUCOs and EWGs, of which approximately $435 million has been committed to the purchase of Emdersa. Management expects that the GPUI Group will provide a substantial portion of GPU's future earnings growth and intends to make additional investments in its business activities. The timing and amount of these investments, however, will depend upon the availability of appropriate opportunities and financing capabilities. NONUTILITY AND OTHER POWER PURCHASES Pursuant to the mandates of PURPA and state regulatory directives, the GPU Energy companies have been required to enter into power purchase agreements with NUGs for the purchase of energy and capacity for remaining periods of up to 22 years. The following table shows actual payments from 1996 through 1998, and estimated payments from 1999 through 2003. Payments Under NUG Agreements (in millions) Total JCP&L Met-Ed Penelec * 1996 $730 $370 $168 $192 * 1997 759 384 172 203 * 1998 788 403 174 211 1999 798 399 170 229 2000 816 404 169 243 2001 805 413 166 226 2002 819 425 169 225 2003 827 422 173 232 * Actual. As of December 31, 1998, NUG facilities covered by agreements having 1,687 MW (JCP&L 918 MW; Met-Ed 364 MW; Penelec 405 MW) of capacity were in service. While a few of these NUG facilities are dispatchable, most are must-run and generally obligate the GPU Energy companies to purchase, at the contract price, the output up to the contract limits. 17 The emerging competitive generation market has created uncertainty regarding the forecasting of the GPU Energy companies' energy supply needs, which has caused the GPU Energy companies to change their supply strategy to seek shorter-term agreements offering more flexibility. The GPU Energy companies' future supply plan will likely focus on short- to intermediate-term commitments (one month to three years) during periods of expected high energy price volatility and reliance on spot market purchases during other periods. The projected cost of energy from new generation supply sources has also decreased due to improvements in power plant technologies and lower forecasted fuel prices. As a result of these developments, the rates under virtually all of the GPU Energy companies' NUG agreements are substantially in excess of current and projected prices from alternative sources. The 1998 PaPUC Restructuring Orders and the legislation in New Jersey provide for full recovery of the above-market costs of NUG agreements. The GPU Energy companies will continue efforts to reduce the above-market costs of these agreements and will, where beneficial, attempt to renegotiate the prices of the agreements, offer contract buyouts and attempt to convert must-run agreements to dispatchable agreements. There can be no assurance as to the extent to which these efforts will be successful. In 1997, the NJBPU approved a Stipulation of Final Settlement which, among other things, provides for the recovery of costs associated with the buyout of the Freehold Cogeneration project. The Stipulation of Final Settlement provides for recovery through the levelized energy adjustment clause of: (1) buyout costs up to $130 million, and (2) 50% of any costs from $130 million to $140 million, over a seven-year period for the termination of the Freehold power purchase agreement. The NJBPU approved the cost recovery on an interim basis subject to refund, pending further review by the NJBPU. There can be no assurance as to the outcome of this matter. In 1998, Met-Ed and Penelec entered into definitive buyout agreements with two NUG project developers. These agreements are contingent upon Met-Ed and Penelec obtaining a final and non-appealable PaPUC order allowing for the full recovery of the buyout payments through retail rates. The Restructuring Orders established terms and conditions that would enable the buyout agreements to proceed; however, until the pending appeal of the Restructuring Orders is resolved, there can be no assurance as to the outcome of these matters. The GPU Energy companies are recovering certain of their NUG costs (including certain buyout costs) from customers. The Restructuring Orders provide assurance of full recovery of these costs for Met-Ed and Penelec. Met-Ed and Penelec recorded a liability of $1.8 billion for their above-market NUG costs, which is fully offset by Regulatory assets, net on the Consolidated Balance Sheets. The restructuring legislation in New Jersey includes provisions for the recovery of costs under NUG agreements and NUG buyout costs. (See COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion and Analysis for additional discussion.) 18 CAPITAL PROGRAMS GPU Energy Companies During 1998, the GPU Energy companies' capital spending was $328 million (JCP&L $155 million; Met-Ed $75 million; Penelec $89 million; Other $9 million), and was used primarily for new customer connections and to expand and improve existing transmission and distribution (T&D) facilities. In 1998, expenditures for maturing obligations were $43 million (JCP&L $13 million; Penelec $30 million). Expenditures for maturing obligations are expected to total $83 million (JCP&L $3 million; Met-Ed $30 million; Penelec $50 million) in 1999. In 1999, capital expenditures are estimated to be $397 million, primarily for ongoing system development and to implement an integrated information system. Management estimates that a substantial portion of the GPU Energy companies' 1999 capital outlays will be satisfied through internally generated funds. The GPU Energy companies' principal categories of estimated capital expenditures for 1999 are as follows: (in millions) Total JCP&L Met-Ed Penelec Other Generation - Nuclear $ 26 $ 10 $11 $ 5 $ - Non-nuclear 11 2 2 7 - --- --- -- -- -- Total Generation 37 12 13 12 - Transmission & Distribution 271 142 66 63 - Other 89 29 18 23 19 --- --- -- -- -- Total $397 $183 $97 $98 $19 === === == == == Capital expenditures for the GPU Energy companies are estimated to be $365 million in 2000 (JCP&L $184 million; Met-Ed $81 million; Penelec $81 million; Other $19 million). Expenditures for maturing obligations are expected to total $131 million (JCP&L $51 million; Met-Ed $50 million; Penelec $30 million) in 2000. The GPU Energy companies estimate that a substantial portion of their anticipated total capital needs in 2000 will be satisfied through internally generated funds. The GPU Energy companies' bond indentures and articles of incorporation include provisions that limit the amount of long-term debt, preferred stock and short-term debt the companies may issue (see LIMITATIONS ON ISSUING ADDITIONAL SECURITIES section). The GPU Energy companies' 1998 capital expenditures exclude nuclear fuel additions provided under capital leases that amounted to $38 million (JCP&L $33 million; Met-Ed $3 million; Penelec $2 million). When consumed, the presently leased material, which amounted to $126 million (JCP&L $85 million; Met-Ed $27 million; Penelec $14 million) at December 31, 1998, is expected to be replaced by additional leased material at an annual rate of approximately $36 million (JCP&L $9 million; Met-Ed $18 million; Penelec $9 million). In the event the needed nuclear fuel cannot be leased, the associated capital requirements would have to be met by other means. Upon closing of the sale of TMI-1 to AmerGen, the GPU Energy companies will terminate the related fuel lease and pay all outstanding amounts due under the related credit facility (see Managing the Transition section of COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion and Analysis). 19 GPUI Group The GPUI Group's capital spending was $140 million in 1998, which was used primarily to improve PowerNet's facilities and to make additional investments in EWGs and FUCOs. For 1999, capital expenditures are forecasted to be $39 million, primarily for ongoing development of PowerNet's transmission system and to make additional investments in EWGs and FUCOs. In 1998, expenditures for maturing obligations were $538 million, and are expected to total $481 million in 1999, and $534 million in 2000. Management estimates that the GPUI Group's 1999 capital outlays will be satisfied through both internally generated funds and external financings. In addition, during 1999 and 2000, GPU, Inc. may make additional capital contributions and provide credit support (in amounts which may be substantial) to the GPUI Group as investment opportunities arise. FINANCING ARRANGEMENTS GPU, Inc. In February 1998, GPU, Inc. sold seven million shares of common stock. The net proceeds of $269 million were used primarily to reduce indebtedness associated with the PowerNet and Midlands acquisitions, and the balance was used for other corporate purposes. Further significant investments by the GPUI Group, or otherwise, may require GPU, Inc. to issue additional debt and/or common stock (see GPUI GROUP section for a discussion of GPU, Inc.'s remaining investment authorization). GPU has $1.8 billion of committed credit facilities, which include various committed lines of credit totaling $207 million, an unsecured Revolving Credit Agreement, and three other Credit Agreements, as discussed below. GPU Capital has entered into a $1 billion 364-day senior revolving credit facility to support the issuance of commercial paper. GPU Capital is the largest of three issuers ($1 billion) in a $1.45 billion commercial paper program. The other issuers are GPU Australia Holdings, Inc. ($350 million) and GPU, Inc. which has requested SEC authorization to issue and sell up to $100 million under this program. GPU Capital, along with GPU Australia Holdings, will use the proceeds from the sale of commercial paper to finance up to $1.35 billion of investments in FUCOs and EWGs. The facility fee of .15 of 1% on the GPU Capital credit facility is based on GPU's current senior debt ratings and is payable annually. A separate $360 million credit facility serves as the backstop for the GPU Australia Holdings commercial paper program. GPU International has a separate Credit Agreement providing for borrowings through December 1999 of up to $30 million outstanding at any time. Up to $15 million may be utilized to provide letters of credit. An annual facility fee ranging from .085% to .4% on the total amount of the Credit Agreement and a letter of credit fee ranging from .265% to 1.6% on the outstanding letters of credit are payable by GPU International. The Revolving Credit Agreement between GPU, Inc., the GPU Energy companies and a consortium of banks is subject to various covenants. The agreement expires May 6, 2001. A facility fee of .125 of 1% is payable 20 annually. Borrowing rates and the facility fee are based on the long-term debt ratings of GPU, Inc. and the GPU Energy companies. GPU, Inc. has requested SEC authorization to issue and sell up to $100 million of commercial paper through December 2003. GPU, Inc. expects that the proceeds from the issuance of the commercial paper will be used for general corporate purposes and to make additional investments in EWGs and FUCOs. GPU, Inc. also has received SEC approval to issue and sell up to $300 million of unsecured debentures through 2001. In January 1999, the GPU, Inc. Board of Directors authorized the repurchase of up to $350 million of GPU, Inc. common stock. The repurchases will initially be funded with borrowings. GPU Energy Companies Met-Ed and Penelec have obtained regulatory approval through December 31, 2000 to issue senior notes (both secured by FMBs and unsecured) and preferred securities in aggregate amounts of $250 million and $725 million, respectively, of which up to $125 million for each company may consist of preferred securities. JCP&L is seeking similar regulatory approval through December 31, 2000 to issue senior notes and preferred securities in the aggregate amount of $300 million, of which up to $200 million may consist of preferred securities. Current plans call for the GPU Energy companies to issue senior notes and preferred securities during the next three years to fund the redemption of maturing senior securities, refinance outstanding senior securities and finance construction activities. Following the initial issuance of senior notes, the GPU Energy companies would not issue any additional FMBs other than as collateral for the senior notes. The senior notes will provide that, when the note trustee holds 80% or more of all FMBs, the FMBs held by the note trustee will be cancelled and all future senior notes would be issued on an unsecured basis. The senior note indentures will prohibit the GPU Energy companies from issuing any debt which is senior to the senior notes. JCP&L and Penelec also have authorization to issue first mortgage bonds (FMBs), including secured medium-term notes, and preferred stock through June 1999. Met-Ed has similar authority through December 1999. Aggregate amounts available for issuance under the JCP&L, Met-Ed and Penelec programs are $145 million, $190 million and $70 million, respectively, of which $100 million for JCP&L and Met-Ed and $70 million for Penelec may consist of preferred stock. The GPU Energy companies do not, however, expect to issue any additional senior securities under these existing authorizations, but rather expect to issue senior notes. The GPU Energy companies' bond indentures and/or articles of incorporation include provisions that limit the amount of long-term debt, preferred stock and short-term debt the companies may issue. The GPU Energy companies' interest and preferred dividend coverage ratios are currently in excess of indenture and charter restrictions. The amount of FMBs that the GPU Energy companies could issue based on the bondable value of property additions is in excess of amounts currently authorized. The GPU Energy companies have regulatory authority to incur short-term debt, a portion of which may be through the issuance of commercial paper. 21 In 1998, Penelec redeemed $30 million principal amount of FMBs and JCP&L redeemed $15 million stated value of cumulative preferred stock pursuant to mandatory and optional sinking fund provisions. In March 1999, Penelec called for redemption $600 million of its FMBs. The redemption will be funded with proceeds from the sale of the Homer City Station. In January 1999, Met-Ed and Penelec called for redemption all of their outstanding shares of cumulative preferred stock. The shares were redeemed on February 19, 1999 at a price of $12.6 million and $17.6 million for Met-Ed and Penelec, respectively. The GPU Energy companies' cost of capital and ability to obtain external financing are affected by their security ratings, which are periodically reviewed by the credit rating agencies. The GPU Energy companies' FMBs are currently rated at an equivalent of "BBB+" or higher by the major credit rating agencies, while the preferred stock and mandatorily redeemable preferred securities have been assigned an equivalent of "BBB" or higher. In addition, the GPU Energy companies' commercial paper is rated as having good credit quality. GPUI Group In 1998, GPU Capital entered into a commercial paper credit facility (guaranteed by GPU, Inc.) to finance up to $1 billion of investments in FUCOs and EWGs. GPU expects that the proceeds from the sale of commercial paper will be used to repay a portion of the outstanding foreign acquisition debt and to finance future investments in FUCOs and EWGs. In January 1999, GPU Capital issued $375 million of commercial paper which was used primarily to reduce Midlands acquisition debt. In March 1999, GPU Capital issued an additional $375 million of commercial paper to fund a portion of the $435 million acquisition cost for Emdersa. Also in 1998, Austran Holdings, Inc. (Austran), a wholly owned subsidiary of GPU Electric, entered into a A$500 million (approximately U.S. $306 million) commercial paper program. PowerNet has guaranteed Austran's obligations under this program. As of December 31, 1998, Austran had outstanding approximately A$458 million (approximately U.S. $280 million) under the commercial paper program, the proceeds which will be used to refinance the maturing portion of the senior debt credit facility used to finance the PowerNet acquisition. The Austran borrowings are classified as noncurrent on the Consolidated Balance Sheet since it is management's intent to reissue the commercial paper on a long-term basis. In 1998, GPU Electric sold its 50% stake in Solaris, the net sales proceeds of which were used to reduce by $112 million the Solaris and PowerNet acquisition debt. The balance of the proceeds was applied for other corporate purposes. In 1998, PowerNet and Midlands acquisition debt was reduced by an additional $40 million and $189 million, respectively, from proceeds provided by the sale of GPU, Inc. common stock. GPU may further reduce Midlands and PowerNet acquisition debt with a portion of the proceeds from the sale of the GPU Energy companies' generating facilities (see Managing the Transition section of COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion and Analysis). 22 LIMITATIONS ON ISSUING ADDITIONAL SECURITIES The GPU Energy companies' FMB indentures and/or charters contain provisions which limit the total amount of securities evidencing secured indebtedness and/or unsecured indebtedness which the GPU Energy companies may issue, the more restrictive of which are discussed below. The GPU Energy companies' FMB indentures require that, for a period of any twelve consecutive months out of the fifteen calendar months immediately preceding the issuance of additional FMBs, net earnings (before income taxes, with other income limited to 5% of operating income before income taxes for JCP&L and Met-Ed and 10% for Penelec) available for interest on FMBs shall have been at least twice the annual interest requirements on all FMBs to be outstanding immediately after such issuance. They also restrict the ratio of the principal amount of FMBs which may be issued to not more than 60% of available bondable value of property additions, but in general, permit the GPU Energy companies to issue additional FMBs against a like principal amount of previously issued and retired FMBs. At December 31, 1998, these net earnings requirements would have permitted JCP&L, Met-Ed and Penelec to issue $2.3 billion, $544 million and $606 million, respectively, principal amount of additional FMBs at an assumed 6 1/2% interest rate. However, the GPU Energy companies had bondable value of property additions sufficient to permit JCP&L, Met-Ed and Penelec to issue only approximately $361 million, $345 million and $215 million, respectively, principal amount of additional FMBs. In addition, JCP&L, Met-Ed and Penelec could issue approximately $361 million, $100 million and $198 million, respectively, of FMBs against retired FMBs. In general, the FMB indentures permit the GPU Energy companies to direct the trustee to utilize cash on deposit to purchase callable or maturing bonds and to purchase bonds in the market at not more than 105% of their principal amount, plus accrued interest. Penelec's FMB indenture, however, authorizes Penelec to direct the trustee to redeem bonds (on a pro-rata basis for all bonds outstanding) at par. Among other restrictions, JCP&L's charter provides that without the consent of the holders of two-thirds of the outstanding preferred stock, no additional shares of preferred stock may be issued unless, for a period of any twelve consecutive months out of the fifteen calendar months immediately preceding such issuance, the after-tax net earnings available for the payment of interest on indebtedness shall have been at least one and one-half times the aggregate of (a) the annual interest charges on indebtedness and (b) the annual dividend requirements on all shares of preferred stock to be outstanding immediately after such issuance. At December 31, 1998, these provisions would have permitted JCP&L to issue $1.5 billion stated value of cumulative preferred stock at an assumed 7.25% dividend rate. JCP&L's charter also provides that, without the consent of the holders of a majority of the total voting power of JCP&L's outstanding preferred stock, JCP&L may not issue or assume any securities representing short-term unsecured indebtedness, except to refund certain outstanding unsecured securities issued or assumed by JCP&L or to redeem all outstanding preferred stock, if immediately thereafter the total principal amount of all outstanding unsecured debt securities having an initial maturity of less than ten years (or within 23 three years of maturity for all unsecured indebtedness having original maturities in excess of ten years) would exceed 10% of the aggregate of (a) the total principal amount of all outstanding secured indebtedness issued or assumed by JCP&L and (b) the capital and surplus of JCP&L. At December 31, 1998, these restrictions would have permitted JCP&L to have approximately $285 million of unsecured indebtedness outstanding. JCP&L has obtained authorization from the SEC to incur short-term debt (including indebtedness under the Credit Agreement and commercial paper program) up to its charter limitation. In February 1999, Met-Ed and Penelec redeemed all their cumulative preferred stock. As a result, their charters no longer restrict the amount of preferred stock or unsecured indebtedness Met-Ed and Penelec may have outstanding. Met-Ed and Penelec have each applied to the SEC for authorization to incur short-term debt of up to $150 million. REGULATION As a registered holding company, GPU, Inc. is subject to regulation by the SEC under the 1935 Act. GPU is also subject to regulation under the 1935 Act with respect to accounting, the issuance of securities, the acquisition and sale of utility assets, securities or any other interest in any business, the entering into, and performance of, service, sales and construction contracts, and certain other matters. The SEC has determined that the electric facilities of the GPU Energy companies constitute a single integrated public utility system under the standards of the 1935 Act. The 1935 Act also limits the extent to which GPU may engage in nonutility businesses or acquire additional utility businesses. Each of the GPU Energy companies' retail rates, conditions of service, issuance of securities and other matters are subject to regulation in the state in which each operates in New Jersey by the NJBPU and in Pennsylvania by the PaPUC. Additionally, Penelec, as lessee, operates the facilities serving the village of Waverly, New York. Penelec's retail rates for New York customers, as well as Penelec's New York operations and property, are subject to regulation by the New York Public Service Commission. Although Penelec does not render electric service in Maryland, the Public Service Commission of Maryland has jurisdiction over the portion of Penelec's property located in that state. Moreover, with respect to wholesale rates, the transmission of electric energy, accounting, the construction and maintenance of hydroelectric projects and certain other matters, the GPU Energy companies are subject to regulation by the FERC under the Federal Power Act. The NRC regulates the construction, ownership and operation of nuclear generating stations and other related matters. JCP&L is also subject, in certain respects, to regulation by the PaPUC in connection with its participation in the ownership and operation of certain facilities located in Pennsylvania. See Electric Generation and Environmental Matters for additional information. Midlands, the GPUI Group's electric distribution affiliate in England, is subject to regulation by the Office of Electricity Regulation. Midlands' network charges are subject to regulatory review at intervals of up to five years as determined by the regulator. The results of the next regulatory 24 review are expected to be effective on April 1, 2000. The supply business franchise license currently relates only to customers having an annual maximum demand of less than 100 KW. Customers with a higher maximum demand are able to buy their electricity from any electricity supplier. This option is being extended to include all customers in Midlands' franchise area by April 1999. PowerNet, the GPUI Group's electric transmission company in Australia, is subject to regulation by the Office of the Regulator General. PowerNet's network and connection charges are subject to regulatory review every five or more years, with the next review scheduled in 2002 for application in 2003. Empresa Guaracachi S.A., the GPUI Group's electric generation company in Bolivia, is subject to regulation under the Electricity Law of 1994. Twice each year, the Superintendency of Electricity recalculates the prices that Empresa Guaracachi S.A. and other electric generators may charge for capacity based upon an estimated cost of constructing a new generating unit. In addition, energy prices are recalculated semi-annually based upon a projected cost of generation, including fuel and nonfuel variable operation and maintenance costs. Emdersa, a holding company that owns three electric distribution companies, Edesa, Edelar and Edesal, is subject to regulation by the Government of Argentina. Rates for electricity distribution in Argentina are established based on the cost of purchased electricity plus a distribution margin. The rate structure allows distribution companies to retain the benefit of any operational efficiencies they are able to achieve until tariffs are reset, generally every five years. Edesal (San Luis distributor) received its first rate review in June 1998. It is expected that Edelar (La Rioja distributor) and Edesa (Salta distributor) will receive their rate reviews in June 2000 and August 2001, respectively. NUCLEAR FACILITIES The GPU Energy companies have made investments in three major nuclear projects -- TMI-1 and Oyster Creek, both of which are operating generation facilities, and TMI-2, which was damaged during a 1979 accident. TMI-1 and TMI-2 are jointly owned by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively. Oyster Creek is owned by JCP&L. At December 31, 1998, the GPU Energy companies' net investment, including nuclear fuel, in TMI-1 was $71 million (JCP&L $18 million; Met-Ed $36 million; Penelec $17 million) and $682 million for Oyster Creek. JCP&L's net investment in TMI-2 at December 31, 1998 was $66 million. JCP&L is collecting revenues for TMI-2 on a basis which provides for the recovery of its remaining investment in the plant by 2008. In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders, discontinued the application of Statement of Financial Accounting Standards No. 71 and adopted the provisions of Statement of Financial Accounting Standards No. 101 and Emerging Issues Task Force Issue 97-4 with respect to their electric generation operations. Accordingly, Met-Ed and Penelec wrote-off their remaining investment in TMI-2 of $1 million and $7 million, respectively. Costs associated with the operation, maintenance and retirement of nuclear plants have continued to be significant and less predictable than costs associated with other sources of generation, in large part due to 25 changing regulatory requirements, safety standards, availability of nuclear waste disposal facilities and experience gained in the construction and operation of nuclear facilities. The GPU Energy companies may also incur costs and experience reduced output at their nuclear plants because of the prevailing design criteria at the time of construction and the age of the plants' systems and equipment. In addition, for economic or other reasons, operation of these plants for the full term of their operating licenses cannot be assured. Also, not all risks associated with the ownership or operation of nuclear facilities may be adequately insured or insurable. Consequently, the recovery of costs associated with nuclear projects, including replacement power, any unamortized investment at the end of each plant's useful life (whether scheduled or premature), the carrying costs of that investment and retirement costs, is not assured. Oyster Creek The operating license for the Oyster Creek station, a 619 MW boiling water reactor, expires in 2009. Oyster Creek operated at a 78% capacity factor for 1998. Its next refueling outage is scheduled to begin in the fall of 2000. In addition to the sale or continued operation of the Oyster Creek facility, JCP&L has been exploring the sale or early retirement of the plant to mitigate costs associated with its continued operation. GPU does not anticipate making a final decision on the plant before the NJBPU rules on JCP&L's restructuring filing. If a decision is made to retire the plant early, retirement would likely occur in 2000. Although management believes that the current rate structure would allow for the recovery of and return on its net investment in the plant and provide for decommissioning costs, there can be no assurance that such costs will be fully recoverable. TMI-1 The operating license for TMI-1, a 786 MW pressurized water reactor, expires in 2014. TMI-1 operated at a capacity factor of 99% for 1998. Its next refueling outage is scheduled to begin in the fall of 1999. GPU has entered into definitive agreements to sell TMI-1 to AmerGen. Highlights of the agreements are presented in the COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion and Analysis. TMI-2 As a result of the 1979 TMI-2 accident, individual claims for alleged personal injury (including claims for punitive damages), which are material in amount, were asserted against GPU, Inc. and the GPU Energy companies. Approximately 2,100 of such claims were filed in the United States District Court for the Middle District of Pennsylvania. Some of the claims also seek recovery for injuries from alleged emissions of radioactivity before and after the accident. At the time of the TMI-2 accident, as provided for in the Price-Anderson Act, the GPU Energy companies had (a) primary financial protection in the form of insurance policies with groups of insurance companies providing an aggregate of $140 million of primary coverage, (b) secondary financial protection in the form of private liability insurance under an industry retrospective rating plan providing for up to an aggregate of $335 million in 26 premium charges under such plan, and (c) an indemnity agreement with the NRC for up to $85 million, bringing their total financial protection up to an aggregate of $560 million. Under the secondary level, the GPU Energy companies are subject to a retrospective premium charge of up to $5 million per reactor, or a total of $15 million. In 1995, the U.S. Court of Appeals for the Third Circuit ruled that the Price-Anderson Act provides coverage under its primary and secondary levels for punitive as well as compensatory damages, but that punitive damages could not be recovered against the Federal Government under the third level of financial protection. In so doing, the Court of Appeals referred to the "finite fund" (the $560 million of financial protection under the Price-Anderson Act) to which plaintiffs must resort to get compensatory as well as punitive damages. The Court of Appeals also ruled that the standard of care owed by the defendants to a plaintiff was determined by the specific level of radiation which was released into the environment, as measured at the site boundary, rather than as measured at the specific site where the plaintiff was located at the time of the accident (as the defendants proposed). The Court of Appeals also held that each plaintiff still must demonstrate exposure to radiation released during the TMI-2 accident and that such exposure had resulted in injuries. In 1996, the U.S. Supreme Court denied petitions filed by GPU, Inc. and the GPU Energy companies to review the Court of Appeals' rulings. In 1996, the District Court granted a motion for summary judgment filed by GPU, Inc. and the GPU Energy companies, and dismissed all of the 2,100 pending claims. The Court ruled that there was no evidence which created a genuine issue of material fact warranting submission of plaintiffs' claims to a jury. The plaintiffs have appealed the District Court's ruling to the Court of Appeals for the Third Circuit, before which the matter is pending. There can be no assurance as to the outcome of this litigation. Based on the above, GPU, Inc. and the GPU Energy companies believe that any liability to which they might be subject by reason of the TMI-2 accident will not exceed their financial protection under the Price-Anderson Act. NUCLEAR PLANT RETIREMENT COSTS Retirement costs for nuclear plants include decommissioning the radiological portions of the plants and the cost of removal of nonradiological structures and materials. The disposal of spent nuclear fuel is covered separately by contracts with the DOE. In 1990, the GPU Energy companies submitted a report, in compliance with NRC regulations, setting forth a funding plan (employing the external sinking fund method) for the decommissioning of their nuclear reactors. Under this plan, the GPU Energy companies intend to complete the funding for Oyster Creek and TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2 funding completion date is 2014, consistent with TMI-2 remaining in long-term storage and being decommissioned at the same time as TMI-1. Based on NRC studies, a comparable funding target was developed for TMI-2 which took the accident into account. Under the NRC regulations, the funding targets (in 1998 dollars) are as follows: 27 (in millions) Oyster TMI-1 TMI-2 Creek JCP&L $ 67 $106 $328 Met-Ed 134 214 - Penelec 67 106 - --- --- --- Total $268 $426 $328 === === === The funding targets, while not considered cost estimates, are reference levels designed to assure that licensees demonstrate adequate financial responsibility for decommissioning. While the NRC regulations address activities related to the removal of the radiological portions of the plants, they do not address costs related to the removal of nonradiological structures and materials. A consultant to GPUN performed site-specific studies of TMI-1 (1995), TMI-2 (1995) and Oyster Creek (1995 and 1998), that considered various decommissioning methods and estimated the cost of decommissioning the radiological portions and the cost of removal of the nonradiological portions of each plant, using the prompt removal/dismantlement method. GPUN management has reviewed the methodology and assumptions used in these studies, is in agreement with them, and believes the results are reasonable. The NRC may require an acceleration of the decommissioning funding for Oyster Creek if the plant is retired early. The retirement cost estimates under the 1995 site-specific studies, assuming decommissioning at the end of the plants' license terms, are as follows (in 1998 dollars): (in millions) Oyster GPU TMI-1 TMI-2 Creek Radiological decommissioning $346 $421 $572 Nonradiological cost of removal 85 34* 31 --- --- --- Total $431 $455 $603 === === === * Net of $12.3 million spent as of December 31, 1998. Each of the GPU Energy companies is responsible for retirement costs in proportion to its respective ownership percentage. The 1995 Oyster Creek site-specific study was updated in 1998 in response to the previously announced potential early closure of the plant in the year 2000. An early shutdown would increase the retirement costs shown above to $611 million ($580 million for radiological decommissioning and $31 million for nonradiological cost of removal). Both estimates include substantial spending for an on-site dry storage facility for spent nuclear fuel and significant costs for storing the fuel until the DOE complies with the Nuclear Waste Policy Act of 1982 (see OTHER COMMITMENTS AND CONTINGENCIES section of Note 13, Commitments and Contingencies, of the Combined Notes to the Consolidated Financial Statements). In October 1998, GPU entered into definitive agreements to sell TMI-1 to AmerGen. The agreements provide, among other things, that upon closing, the GPU Energy companies will fund the TMI-1 decommissioning trusts up to $320 million and AmerGen will assume all TMI-1 decommissioning liabilities. If all 28 the necessary regulatory approvals, as well as certain Internal Revenue Service rulings, are obtained, the transfer of all the TMI-1 decommissioning liabilities and expenses to AmerGen will take place at the financial closing. The ultimate cost of retiring the GPU Energy companies' nuclear facilities may be different from the cost estimates contained in these site-specific studies. Such costs are subject to (a) the escalation of various cost elements (for reasons including, but not limited to, general inflation), (b) the further development of regulatory requirements governing decommissioning, (c) the technology available at the time of decommissioning, and (d) the availability of nuclear waste disposal facilities. The GPU Energy companies charge to depreciation expense and accrue retirement costs based on amounts being collected from customers. Customer collections are contributed to external trust funds. These deposits, including the related earnings, are classified as Nuclear decommissioning trusts, at market on the Consolidated Balance Sheets. TMI-1 and Oyster Creek: The NJBPU has granted JCP&L annual revenues for TMI-1 and Oyster Creek retirement costs of $5.2 million and $22.5 million, respectively. These annual revenues are based on the 1995 site-specific study estimates. The PaPUC has granted Met-Ed annual revenues for TMI-1 retirement costs of $8.5 million based on both the NRC funding target for radiological decommissioning costs and a 1988 site-specific study for nonradiological costs of removal. The PaPUC also granted Penelec annual revenues of $4.2 million for its share of TMI-1 retirement costs, on a basis consistent with that granted Met-Ed. In the Restructuring Orders, the PaPUC granted recovery of an interim level of TMI-1 decommissioning costs as part of the Competitive Transition Charge (CTC). This amount will be adjusted in Phase II of Met-Ed and Penelec's restructuring proceedings, once the net proceeds from the generation asset divestiture are determined. The amounts charged to depreciation expense in 1998 and the provisions for the future expenditure of these funds, which have been made in accumulated depreciation, are as follows: (in millions) Oyster TMI-1 Creek Amount expensed in 1998: JCP&L $ 5 $ 22 Met-Ed 9 - Penelec 4 - --- --- Total $ 18 $ 22 === === Accumulated depreciation provision at December 31, 1998: JCP&L $ 49 $273 Met-Ed 75 - Penelec 34 - --- --- Total $158 $273 === === 29 Management believes that any TMI-1 and Oyster Creek retirement costs, in excess of those currently recognized for ratemaking purposes, should be recoverable from customers. TMI-2: The estimated liabilities for TMI-2 future retirement costs (reflected as Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of December 31, 1998 and 1997 are $484 million (JCP&L $121 million; Met-Ed $242 million; Penelec $121 million) and $449 million (JCP&L $112 million; Met-Ed $225 million; Penelec $112 million), respectively. These amounts are based upon the 1995 site-specific study estimates (in 1998 and 1997 dollars, respectively) discussed above and an estimate for remaining incremental monitored storage costs of $29 million (JCP&L $7 million; Met-Ed $15 million; Penelec $7 million) for 1998 and $16 million (JCP&L $4 million; Met-Ed $8 million; Penelec $4 million) for 1997, as a result of TMI-2's entering long-term monitored storage in 1993. The GPU Energy companies are incurring annual incremental monitored storage costs of approximately $1.8 million (JCP&L $450 thousand; Met-Ed $900 thousand; Penelec $450 thousand). Offsetting the $484 million liability at December 31, 1998 is $252 million (JCP&L $23 million; Met-Ed $147 million; Penelec $82 million) which management believes is probable of recovery from customers and included in Regulatory assets, net on the Consolidated Balance Sheets, and $266 million (JCP&L $103 million; Met-Ed $120 million; Penelec $43 million) in trust funds for TMI-2 and included in Nuclear decommissioning trusts, at market on the Consolidated Balance Sheets. Earnings on trust fund deposits are included in amounts shown on the Consolidated Balance Sheets under Regulatory assets, net. TMI-2 decommissioning costs charged to depreciation expense in 1998 amounted to $13 million (JCP&L $2 million; Met-Ed $10 million; Penelec $1 million). The NJBPU has granted JCP&L revenues for TMI-2 retirement costs based on the 1995 site-specific estimates. In addition, JCP&L is recovering its share of TMI-2 incremental monitored storage costs. The PaPUC Restructuring Orders granted Met-Ed and Penelec recovery of TMI-2 decommissioning costs as part of the CTC, but also allowed Met-Ed and Penelec to defer as a regulatory asset those amounts that are above the level provided for in the CTC. At December 31, 1998, the accident-related portion of TMI-2 radiological decommissioning costs is considered to be $75 million (JCP&L $19 million; Met-Ed $37 million; Penelec $19 million), which is the difference between the 1995 TMI-1 and TMI-2 site-specific study estimates (in 1998 dollars). In connection with rate case resolutions at the time, JCP&L, Met-Ed and Penelec have made contributions to irrevocable external trusts relating to their shares of the accident-related portions of the decommissioning liability in the amounts of $15 million, $40 million and $20 million, respectively. These contributions were not recoverable from customers and have been expensed. The GPU Energy companies will not pursue recovery from customers for any amounts contributed in excess of the $75 million accident-related portion referred to above. JCP&L intends to seek recovery for any increases in TMI-2 retirement costs, and Met-Ed and Penelec intend to seek recovery for any increases in the nonaccident-related portion of such costs, but recognize that recovery cannot be assured. 30 INSURANCE GPU has insurance (subject to retentions and deductibles) for its operations and facilities including coverage for property damage, liability to employees and third parties, and loss of use and occupancy (primarily incremental replacement power costs). There is no assurance that GPU will maintain all existing insurance coverages, some of which will change as certain generating assets are sold. Losses or liabilities that are not completely insured, unless allowed to be recovered through ratemaking, could have a material adverse effect on the financial position of GPU. The decontamination liability, premature decommissioning and property damage insurance coverage for the TMI station and for Oyster Creek totals $2.7 billion per site. In accordance with NRC regulations, these insurance policies generally require that proceeds first be used for stabilization of the reactors and then to pay for decontamination and debris removal expenses. Any remaining amounts available under the policies may then be used for repair and restoration costs and decommissioning costs. Consequently, there can be no assurance that in the event of a nuclear incident, property damage insurance proceeds would be available for the repair and restoration of that station. The Price-Anderson Act limits GPU's liability to third parties for a nuclear incident at one of its sites to approximately $9.7 billion. Coverage for the first $200 million of such liability is provided by private insurance. The remaining coverage, or secondary financial protection, is provided by retrospective premiums payable by all nuclear reactor owners. Under secondary financial protection, a nuclear incident at any licensed nuclear power reactor in the country, including those owned by the GPU Energy companies, could result in assessments of up to $88 million per incident for each of the GPU Energy companies' two operating reactors, subject to an annual maximum payment of $10 million per incident per reactor. In addition to the retrospective premiums payable under the Price-Anderson Act, the GPU Energy companies are also subject to retrospective premium assessments of up to $26.8 million in any one year under insurance policies applicable to nuclear operations and facilities. The GPU Energy companies have insurance coverage for incremental replacement power costs resulting from an accident-related outage at their nuclear plants. Coverage commences after a 17-week waiting period at $3.5 million per week, and after 23 weeks of an outage, continues for three years beginning at $1.8 million and $2.6 million per week for the first year for Oyster Creek and TMI-1, respectively, decreasing to 80% of such amounts for years two and three. ELECTRIC GENERATION AND ENVIRONMENTAL MATTERS Fuel The GPU Energy companies utilized fuels in the generation of electric energy during 1998 in approximately the following percentages: 31 1998 Actuals Total JCP&L Met-Ed Penelec Coal 62% 25% 58% 87% Nuclear 35% 69% 38% 13% Gas, Oil & Hydro* 3% 6% 4% - * Includes pumped storage (which is a net user of electricity). Approximately 38% (JCP&L 59%; Met-Ed 31%; Penelec 29%) of the GPU Energy companies' total energy requirements in 1998 were supplied by utility contracts, NUG purchases, and interchange from other utilities. For 1999, the GPU Energy companies estimate that their use of fuels in the generation of electric energy will be in the following percentages: 1999 Estimates** Total JCP&L Met-Ed Penelec Coal 38% 10% 44% 71% Nuclear 61% 90% 55% 28% Gas, Oil & Hydro* 1% - 1% 1% * Includes pumped storage. ** Assumes mid-1999 sale of fossil-fuel and hydroelectric generating facilities, and year-end 1999 sale of TMI-1. Approximately 52% (JCP&L 61%; Met-Ed 38%; Penelec 56%) of the GPU Energy companies' 1999 energy requirements are expected to be supplied by utility contracts, NUG purchases, and interchange from other utilities. Fossil: The GPU Energy companies have entered into long-term contracts with nonaffiliated mining companies for the purchase of coal for certain generating stations in which they have ownership interests (JCP&L - 16.67% ownership interest in Keystone; Met-Ed - 16.45% ownership interest in Conemaugh; Penelec - 50% ownership interest in Homer City). The contracts, which expire at various dates between 1999 and 2007, require the purchase of either fixed or minimum amounts of the stations' coal requirements. The price of the coal under the contracts is based on adjustments of indexed cost components. The GPU Energy companies' share of the cost of coal purchased under these agreements is expected to aggregate $212 million (JCP&L $27 million; Met-Ed $57 million; Penelec $128 million) for 1999. These contracts will be assumed by the purchasers, upon the closings of the sales of the GPU Energy companies' fossil generation facilities. At the present time, adequate supplies of fossil fuels are readily available to the GPU Energy companies, but this situation could change rapidly as a result of actions over which they have no control. Nuclear: The preparation of nuclear fuel for generating station use involves various manufacturing stages for which GPU contracts separately. Stage I involves the mining and milling of uranium ores to produce natural uranium concentrates. Stage II provides for the chemical conversion of the 32 natural uranium concentrates into uranium hexafluoride. Stage III involves the process of enrichment to produce enriched uranium hexafluoride from the natural uranium hexafluoride. Stage IV provides for the fabrication of the enriched uranium hexafluoride into nuclear fuel assemblies for use in the reactor core at the nuclear generating station. In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), the GPU Energy companies have entered into contracts with, and have been paying fees to, the DOE for the future disposal of spent nuclear fuel in a repository or interim storage facility. Following its purchase of TMI-1, AmerGen will assume all liability for disposal costs related to spent fuel generated after the sale. In 1996, the DOE notified the GPU Energy companies and other standard contract holders that it will be unable to begin acceptance of spent nuclear fuel for disposal by 1998, as mandated by the NWPA. The DOE requested recommendations from contract holders for handling the delay. In January 1997, the GPU Energy companies, along with other electric utilities and state agencies, petitioned the U.S. Court of Appeals to, among other things, permit utilities to cease payments into the Federal Nuclear Waste Fund until the DOE complies with the NWPA. In November 1997, the Court denied this request. The DOE's inability to accept spent nuclear fuel could have a material impact on GPU's results of operations, as additional costs may be incurred to build and maintain interim on-site storage at Oyster Creek. TMI-1 has sufficient on-site storage capacity to accommodate spent nuclear fuel through the end of its licensed life. In June 1997, a consortium of electric utilities, including GPUN, filed a license application with the NRC seeking permission to build an interim above-ground disposal facility for spent nuclear fuel in northwestern Utah. There can be no assurance as to the outcome of these matters. Environmental Matters GPU is subject to a broad range of federal, state and local environmental and employee health and safety legislation and regulations. In addition, the GPU Energy companies are subject to licensing of hydroelectric projects by the FERC and of nuclear power projects by the NRC. Such licensing and other actions by federal agencies with respect to GPU's domestic operations are also subject to the National Environmental Policy Act. As a result of existing and proposed legislation and regulations, and ongoing legal proceedings dealing with environmental matters, including but not limited to acid rain, water quality, ambient air quality, global warming, electromagnetic fields, and storage and disposal of hazardous and/or toxic wastes, GPU may be required to incur substantial additional costs to construct new equipment, modify or replace existing and proposed equipment, remediate, decommission or cleanup waste disposal and other sites currently or formerly used by it, including formerly owned manufactured gas plants (MGP), coal mine refuse piles and generation facilities. GPU records liabilities (on an undiscounted basis) where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated, and adjusts these liabilities as required to reflect changes in circumstances. At December 31, 1998, the GPU Energy companies have liabilities recorded on their balance sheets for environmental matters totaling $90 million, as follows: 33 Company Site Description Amount (in millions) JCP&L MGP sites $52 Penelec Seward station 12 All Ash disposal and other sites 26* ---- Total $90 ==== * (JCP&L $6; Met-Ed $5; Penelec $15) Under the agreements entered into for the purchase of the GPU Energy companies' generating facilities, the buyers, in general, have agreed to assume all on-site environmental liabilities other than up to $6 million of costs for the Seward Station, which liability Penelec has retained. In 1998, the GPU Energy companies made capital expenditures of approximately $10 million (JCP&L $1 million; Met-Ed $5 million; Penelec $4 million) in response to environmental considerations and have budgeted approximately $3 million (Met-Ed $2 million; Penelec $1 million) for this purpose in 1999. The incremental annual operating and maintenance costs for such equipment is not expected to be material. For further information, see the Water, Residual Waste and Hazardous/Toxic Wastes sections below. Water: The federal Water Pollution Control Act (Clean Water Act) generally requires, with respect to existing steam electric power plants, the application of the best conventional or practicable pollutant control technology available and compliance with state-established water quality standards. Additionally, water quality-based effluent limits (more stringent than "technology" limits) may be applied to utility wastewater discharges based on receiving stream quality. With respect to future plants, the Clean Water Act requires the application of the "best available demonstrated control technology, processes, operating methods or other alternatives." The U.S. Environmental Protection Agency (EPA) has adopted regulations that establish thermal and other limitations for effluents discharged from both existing and new steam electric generating stations. Standards of performance are developed, and enforcement of effluent limitations is accomplished, through the issuance of discharge permits by the EPA, or states authorized by the EPA, which specify limitations to be applied. Discharge permits are required for all of the GPU Energy companies' steam generating stations and other stations that discharge wastewater to surface water bodies. The discharge permit for the Oyster Creek station may, among other things, require the installation of a closed-cycle cooling system, such as a cooling tower, to meet New Jersey state water quality-based thermal effluent limitations. Although construction of such a system is not required in order to meet the EPA's regulations setting effluent limitations for the Oyster Creek station (such regulations would accept the use of the once-through cooling system now in operation at this station), a closed-cycle cooling system may be required in order to comply with the water quality standards imposed by the New Jersey Department of Environmental Protection (NJDEP) for water quality certification and incorporated in the station's discharge permit. If a cooling tower is required, the capital costs could exceed $150 million. In October 1994, following six years of studies, the NJDEP issued a new Discharge to Surface Water Permit for the Oyster Creek station. The new permit grants JCP&L a variance from the New Jersey Surface Water Quality 34 Standards. The variance allows the continued operation of the existing once-through cooling system without modifications such as cooling towers. The variance is effective through October 1999. If this variance is not extended, JCP&L would retire the plant rather than construct a cooling tower. The NJDEP could revoke the variance at any time upon failure to comply with the permit conditions. Pursuant to federal environmental monitoring requirements, Penelec has reported to the Pennsylvania Department of Environmental Protection (PaDEP) that contaminants from coal mine refuse piles were identified in storm water run-off at Penelec's Seward station property. Penelec signed a modified Consent Order, which became effective December 1996, and a third Amendment in December 1998, that establish a schedule for submitting a plan for long-term remediation, based on future operating scenarios. Penelec currently estimates that the remediation of the Seward station property will range from $12 million to $20 million and has a recorded liability of $12 million at December 31, 1998. These cost estimates are subject to uncertainties based on continuing discussions with the PaDEP as to the method of remediation, the extent of remediation required and available cleanup technologies. Penelec expects recovery of these remediation costs in Phase II of its restructuring proceeding and has recorded a corresponding regulatory asset of approximately $12 million at December 31, 1998. In 1997, York Haven Power Company, a wholly-owned subsidiary of Met-Ed, entered into an agreement with various agencies to construct a fish passage facility at the York Haven hydroelectric project by April 2000. This agreement is part of the FERC license. The present estimated installed cost of the facility is $9.0 million, for which Met-Ed has agreed to remain responsible following the sale of the York Haven project. The GPU Energy companies are also subject to environmental and water diversion requirements adopted by the Delaware River Basin Commission and the Susquehanna River Basin Commission, as administered by those commissions or the PaDEP and the NJDEP. Nuclear: Reference is made to the Nuclear Facilities section for information regarding the TMI-2 accident, its aftermath and the GPU Energy companies' other nuclear facilities. New Jersey and Connecticut have established the Northeast Compact, to construct a low-level radioactive waste (radwaste) disposal facility in New Jersey, which was expected to commence operation by the end of 2003. GPUN's total share of the cost for developing, constructing and site licensing the facility was estimated to be $58 million. Through December 31, 1998, GPUN has made payments of $6 million. JCP&L is recovering the costs to construct this facility from customers, and $27 million has been collected to date. In February 1998, the New Jersey Low-Level Radwaste Facility Siting Board (Siting Board) voted to suspend the siting process in New Jersey. The Siting Board is in the process of determining what activities are required by law to be continued, and the level of funding required to support these activities. The Siting Board intended to return the unused funds to the generators, but the Governor has overruled this decision. Legislation is pending in New Jersey, however, that would mandate returning the unused funds to the generators, of which GPUN's share is approximately $2.6 million. GPUN cannot determine at this time what effect, if any, this matter will have on its operations. 35 Pennsylvania, Delaware, Maryland and West Virginia have established the Appalachian Compact to construct a facility for the disposal of low-level radwaste in those states, including low-level radwaste from TMI-1. To date, pre-construction costs of $33 million, out of an estimated $88 million, have been paid. Eleven nuclear plants have so far shared equally in the pre-construction costs; GPUN has contributed $3 million on behalf of TMI-1. Pennsylvania has suspended the search for a low-level radwaste disposal site in the state. GPUN cannot determine at this time what effect, if any, this may have on its operations. GPUN is currently shipping low-level radwaste to the Barnwell, South Carolina radwaste disposal site. Continuing delays in the completion of the Appalachian Compact disposal facility, and the suspension of the siting process in New Jersey, will require GPUN to perform an evaluation of its ability to safely store radwaste beyond these dates. The GPU Energy companies have provided for future contributions to the Decontamination and Decommissioning Fund for the cleanup of uranium enrichment plants operated by the Federal Government. GPU's total liability at December 31, 1998 amounted to $28 million (JCP&L $18 million; Met-Ed $7 million; Penelec $3 million). The remaining amount recoverable from ratepayers at December 31, 1998 is $29 million (JCP&L $18 million; Met-Ed $7 million; Penelec $4 million). Air: With respect to air quality, the GPU-owned or operated generating stations are subject to certain state environmental regulations of the NJDEP and the PaDEP. The stations are also subject to certain federal environmental regulations of the EPA. One of the major sets of regulations that governs air quality is the Federal Clean Air Act of 1970 (CAA). CAA Title I sets National Ambient Air Quality Standards (NAAQS) for certain criteria pollutants. The criteria pollutants are ozone, sulfur dioxide (SO2), nitrogen dioxide, particulate matter, carbon monoxide and lead. In particular, this Title has established the Northeast Ozone Transport Region (OTR), which includes 12 northeast states and the District of Columbia, to address the transport of those pollutants leading to non-attainment of the ozone NAAQS in the Northeast. Ozone control is facilitated by the control of pollutant precursors, which are nitrogen oxide (NOx) and volatile organic compounds (VOCs). Fossil fuel-fired electric generating stations are major sources of NOx emissions. Pennsylvania and New Jersey are part of the OTR, and will be required to control NOx emissions to a level that will provide for the attainment of the ozone standard in the Northeast. As an initial step, major stationary sources of NOx were required to implement Reasonably Available Control Technology (RACT) by May 31, 1995. The PaDEP established regulations that RACT be implemented on a case-by-case basis and thus is unique for each unit or facility. RACT proposals were prepared and submitted to the PaDEP in 1994. GPU has opted for the installation of low NOx burners and/or other control technology, and in some cases, limitations on annual operations, in order to achieve the reductions required by the PaDEP RACT regulations. The NJDEP's RACT regulations establish maximum allowable emission rates for utility boilers based on fuel used and boiler type, and on combustion turbines based on the type of fuel used. Existing units are eligible for emissions averaging upon approval of an averaging plan by the NJDEP. GPU is in compliance with RACT regulations in both New Jersey and Pennsylvania. 36 A Memorandum of Understanding (MOU) among the members of the Ozone Transport Commission (OTC) calls for inner and outer zones, with seasonal NOx emission reductions from 1990 emission levels of 65% and 55%, respectively, by May 1, 1999. JCP&L, Met-Ed and Penelec will spend an estimated $30,000, $340,000 and $200,000, respectively, to meet the 1999 reductions set by the OTC. The MOU also calls for a 75% reduction from 1990 emission levels for the inner and outer zones by May 2003. EPA regulations have been finalized for a 22 state region which call for utility reductions of 85% from projected 2007 NOx emissions. These requirements will supercede Phase III of the MOU. A market-based NOx trading system is proposed to allow for the transfer of excess reductions encouraging alternate compliance strategies. Under mandatory, routine review of the ozone NAAQS, the EPA issued new standards in July 1997 that will significantly increase the areas in the country which are not in attainment of the NAAQS. A timeline for implementation of the new standards calls for attainment designations by 2000; state implementation plans (SIP) by 2001 and 2003 for attainment and non-attainment areas, respectively; and attainment, with possible extensions, by 2011. The area around the Warren station has been designated as non-attainment for the SO2 NAAQS. The EPA and the PaDEP have both approved the use of a non-guideline air quality model, which is more representative and less conservative than the EPA guideline model, to evaluate the ambient air quality impacts of the station. This modeling has demonstrated attainment for the area, with no required reduction in Warren station emissions. At Shawville station, the approved use of the same non-guideline model shows attainment of the SO2 NAAQS within current Pennsylvania default SO2 emission limits. The vicinity of the Chestnut Ridge Energy Complex, which includes the Homer City, Conemaugh, Keystone and Seward stations, is officially designated as being in attainment of the SO2 NAAQS; however, both the EPA and the PaDEP have questioned the area's attainment of this standard. The EPA and the PaDEP have both approved the use of the same non-guideline model discussed above to evaluate the ambient air quality impacts of these generating stations. A proposed attainment and maintenance plan has been submitted to the PaDEP which includes allowable emission rates which are currently being achieved by the affected facilities. Attainment of the SO2 NAAQS has been taken into account as part of the design of the Conemaugh station scrubbers. In addition, Met-Ed has initiated ambient air quality modeling studies for its Portland and Titus stations. While the results are uncertain, these studies may result in a revised Pennsylvania SIP with source-specific emission limitations in order to attain NAAQS for SO2. Based on the results of the studies pursuant to compliance with NAAQS, significant SO2 reductions may be required at one or more of these stations, which could result in significant capital and additional operating expenditures. Under a court ordered review of the NAAQS for particulate matter, the EPA released new standards in July 1997, which could significantly increase the areas in the country that are not in attainment of the standard. The particulate matter NAAQS primarily impact NOx and SO2 emission sources. It is 37 possible that once attainment status is defined by the EPA and the reductions required under other provisions of the CAA are realized, compliance with the particulate matter NAAQS could require further reductions in NOx and/or SO2 emissions. Certain other environmental regulations limit the amount of particulate matter emitted into the environment. GPU has installed equipment at its coal-fired generating stations and may find it necessary to either upgrade or install additional equipment at certain of its stations to meet new particulate emission requirements. Also, the proposed revision to the particulate matter NAAQS could trigger reduction requirements. Title III of the CAA deals with emissions of hazardous air pollutants (HAPs). As part of Title III, the EPA is charged with conducting a study to determine if fossil fuel-fired electric steam generating units pose a serious threat to public health due to emissions of HAPs. The study will seek to determine whether regulation of utility sources is appropriate and necessary. If the study results prove, through risk analysis, that regulation is required, a Maximum Achievable Control Technology standard will be developed for utility sources. An interim study report was published in October 1996. In general, the study did not find unacceptable health risks from utility sources, but recommended further analysis of long-range transport of HAPs and the impact of mercury emissions. The interim report does not include the EPA's official recommendation as to the necessity of HAP regulation for utilities. An information collection request under the CAA has been issued for the sampling and analysis of mercury and chlorides in the various coal supplies. This will provide further data to EPA to determine if mercury and/or chlorides control will be mandated. Title IV of the CAA requires substantial reductions in SO2 emissions to meet a national cap beginning in the years 1995 and 2000 (Phases I and II, respectively). As a result, it will be necessary to install and operate emission control equipment, switch to slightly lower sulfur coal at some of their coal-fired plants, or purchase emission allowances in order to achieve compliance. Title IV also imposes requirements for the installation of NOx controls. To comply with Titles I and IV of the CAA, the GPU Energy companies expect to spend up to $243 million (JCP&L $44 million; Met-Ed $96 million; Penelec $103 million) for air pollution control equipment by the year 2000, of which approximately $242 million (JCP&L $44 million; Met-Ed $95 million; Penelec $103 million) has been spent as of December 31, 1998 (these amounts include costs to meet the 1999 reductions set by the OTC, as discussed on page 37). The capital costs of equipment are for the installation of flue gas desulfurization systems (scrubbers), low NOx burner technology, selective noncatalytic reduction and particulate removal upgrades. The Conemaugh, Portland and Shawville stations are Phase I affected units. The second of two scrubbers was installed at the Conemaugh station during 1995, as part of GPU's plans to comply with SO2 emission limitations. For the Portland station, Met-Ed plans to meet its Phase I compliance obligation through the use of SO2 emission allowances. The Shawville station will require lower sulfur coal and/or the purchase of emission allowances to meet its Phase I requirements. Since these coal fired units are Phase I affected, they are also subject to the Title IV NOx requirements. 38 The Homer City, Keystone and Titus stations have been declared early election units under federal regulations. This limits the Title IV NOx requirement to the Phase I NOx emission rates until 2008. GPU's current strategy for Phase II SO2 compliance is the use of fuel switching and the purchase of emission allowances at the Keystone and the Homer City Unit 3 stations, with periodic reviews of the cost effectiveness of the installation of scrubbers. Switching to lower sulfur coal and/or the purchase of emission allowances is currently planned for the Titus, Seward, Portland, Shawville and Warren stations as well. Homer City units 1 and 2 will use existing coal cleaning technology and the purchase of emission allowances. Additional control modifications are not expected to be necessary for Phase II compliance at the Conemaugh and Sayreville stations. Title IV of the CAA also requires Phase I and Phase II affected units to install a continuous emission monitoring system (CEMS) and provide quality assurance for the data related to SO2, NOx, opacity and volumetric flow. In addition, Title VIII of the CAA requires all affected sources to monitor carbon dioxide emissions. Monitoring systems have been installed and certified on JCP&L, Met-Ed and Penelec's Phase I and Phase II affected units as required by EPA, NJDEP and PaDEP regulations. The PaDEP has a CEMS enforcement policy to ensure consistent compliance with air quality regulations under federal and state statutes. The CEMS enforcement policy includes matters such as visible emissions, SO2 emission standards, NOx emissions and a requirement to maintain certified CEMS equipment. In addition, this policy provides a mechanism for the payment of certain prescribed amounts to the Pennsylvania Clean Air Fund (Clean Air Fund) for excess air pollutant emissions or monitoring failures. With respect to the operation of Met-Ed and Penelec's generating stations, it is not anticipated that payments to be made to the Clean Air Fund due to CEM penalties will be material in amount. The CAA has also expanded the enforcement options available to the EPA and the states and contains more stringent enforcement provisions and penalties. Moreover, citizen suits can seek civil penalties for violations of this Act. CAA Title V required that comprehensive permit applications be submitted by major stationary sources to the permitting authorities in 1995. Title V may dramatically increase the level of effort required to track compliance and tabulate emissions of the numerous processes regulated by the new permits once issued. The states' Title V program also established new emission fee structures. In 1998, the Pennsylvania stations paid $1.1 million in emissions fees, and the New Jersey fees totaled approximately $33,000. Emission fees are based on the level of actual emissions and are assessed on a per ton basis. In the fall of 1993, the Clinton Administration announced its Climate Change Action Plan (Plan), intended to reduce greenhouse gas emissions to 1990 levels by the year 2000. The Plan relies heavily on voluntary action by industry. GPU has joined approximately 630 other electric utility companies which have signed accords or are otherwise cooperating with the DOE under the Climate Challenge Program, which is the electric utility's response to the Plan. As a result of this and other programs, the CO2 emissions from GPU-owned generating facilities have been at or below 1990 levels since 1992. 39 The 1997 Kyoto Protocol calls for the U.S. to reduce its CO2 emissions to 7% below 1990 levels by 2008 to 2012. The President has stated that he will not ask the Senate to ratify the agreement until the developing nations also agree to emission targets. Electromagnetic Fields: There have been a number of studies regarding the possibility of adverse health effects from electric and power frequency magnetic fields that are found everywhere there is electricity. While some of the studies have indicated some association between exposure to magnetic fields and cancer, other studies have indicated no such association. The studies have not shown any causal relationship between exposure to magnetic fields and cancer, or any other adverse health effects. In 1990, the EPA issued a draft report that identifies magnetic fields as a possible carcinogen, although it acknowledged that there is still scientific uncertainty surrounding these fields and their possible link to adverse health effects. On the other hand, a 1992 White House Office of Science and Technology policy report states that "there is no convincing evidence in the published literature to support the contention that exposures to extremely low frequency electric and magnetic fields generated by sources such as household appliances, video display terminals, and local power lines are demonstrable health hazards." In 1994, results of a large-scale epidemiology study of electric utility workers suggested a statistical relationship between brain cancer and the class of workers who received the highest exposure. These findings conflicted with two earlier large-scale studies that found no such relationship. In 1996, the National Research Council of the National Academy of Sciences released a report which concluded that, "Based on a comprehensive evaluation of published studies relating to the effects of power-frequency electric and magnetic fields on cells, tissues and organisms (including humans), ... the current body of evidence does not show that exposure to these fields presents a human-health hazard. Specifically, no conclusive and consistent evidence shows that exposure to residential electric and magnetic fields produce cancer, adverse neurobehavioral effects, or reproductive and developmental effects." Additional studies are presently underway. Certain parties have alleged that exposure to electric and magnetic fields associated with the operation of transmission and distribution facilities will produce adverse impacts upon public health and safety and upon property values. Furthermore, regulatory actions under consideration by the NJDEP and bills introduced in the Pennsylvania legislature could, if enacted, establish a framework under which the intensity of the fields produced by electric transmission and distribution lines would be limited or otherwise regulated. The GPU Energy companies cannot determine at this time what effect, if any, this matter will have on their results of operations and financial position. Residual Waste: PaDEP regulations governing ash disposal sites require, among other things, groundwater assessments of landfills if existing groundwater monitoring indicates the possibility of degradation. The assessments could require the installation of additional monitoring wells and the evaluation of one year's data. If the assessments show degradation of the groundwater, Penelec and Met-Ed would be required to develop abatement plans, which may include the lining of currently unlined facilities. To date, Penelec has not identified any cases requiring abatement. In 1998, Penelec 40 reported to the PaDEP that it had exceeded the discharge limit at the Homer City Station ash disposal site. A groundwater assessment is required to evaluate the cause and to determine the need for abatement measures. Although Met-Ed's Titus station ash disposal site was upgraded in 1991 and meets many of the lined facility requirements, degradation has been identified at the site. In 1996, Met-Ed filed an abatement plan with the PaDEP in conjunction with its re-permitting application (see discussion below), which states that the problem will be abated once the station is closed and projected site closure procedures have been performed. The PaDEP has since required a more detailed groundwater assessment to evaluate the groundwater condition at the site. Also, Met-Ed's Portland station ash disposal site requires significant modifications, since the permit received from the PaDEP in December 1998 requires a synthetic liner and leachate collection and treatment system. In 1997, the GPU Energy companies filed with the PaDEP applications for re-permitting seven (JCP&L - one; Met-Ed - three; Penelec - three) operating ash disposal sites, including projected site closure procedures and related cost estimates. The cost estimates for the closure of these sites range from approximately $17 million to $22 million, and a liability of $17 million (JCP&L $1 million; Met-Ed $4 million; Penelec $12 million) is reflected on the Consolidated Balance Sheets at December 31, 1998. JCP&L has requested recovery of its share of closure costs in its restructuring plan filed with the NJBPU in July 1997. Met-Ed and Penelec expect recovery of these costs in Phase II of their restructuring proceedings. As a result, a regulatory asset of $17 million (JCP&L $1 million; Met-Ed $4 million; Penelec $12 million) is reflected on the Consolidated Balance Sheets at December 31, 1998. Other PaDEP residual waste compliance requirements involve storage impoundments, which also will eventually require groundwater monitoring systems and potential assessments of the impact on groundwater. Groundwater abatement may be necessary at locations where pollution problems are identified. The removal of all the residual waste ("clean closure") has been done at some impoundments to eliminate the need for future monitoring and abatement requirements. Storage impoundments must have implemented groundwater monitoring plans by 2002, but the PaDEP can require this at any time prior to this date or, at its discretion, defer full compliance beyond 2002 for some storage impoundments. A 1997 change in the PaDEP's regulations required submittal of groundwater monitoring plans for residual waste storage impoundments by July 1997. The GPU Energy companies have submitted plans for all their relevant stations and the PaDEP has begun to implement these plans at the Conemaugh, Homer City and Keystone stations. Hazardous/Toxic Wastes: Under the Toxic Substances Control Act (TSCA), the EPA has adopted certain regulations governing the use, storage, testing, inspection and disposal of electrical equipment that contain polychlorinated biphenyls (PCBs). Such regulations permit the continued use and servicing of certain electrical equipment (including transformers and capacitors) that contain PCBs. GPU has met all requirements of the TSCA to allow the continued use of equipment containing PCBs and has taken substantive voluntary actions to reduce the amount of PCB-containing electrical equipment. Prior to 1953, the GPU Energy companies owned and operated MGP sites in New Jersey and Pennsylvania. Waste contamination associated with the operation and dismantlement of these MGP sites is, or may be, present both on-site and off-site. Claims have been asserted against the GPU Energy 41 companies for the cost of investigation and remediation of these sites. The amount of such remediation costs and penalties may be significant and may not be covered by insurance. JCP&L has entered into agreements with the NJDEP for the investigation and remediation of 17 formerly owned MGP sites. JCP&L has also entered into various cost-sharing agreements with other utilities for most of the sites. As of December 31, 1998, JCP&L has spent approximately $32 million in connection with the cleanup of these sites. In addition, JCP&L has recorded an estimated environmental liability of $52 million relating to expected future costs of these sites (as well as two other properties). This estimated liability is based upon ongoing site investigations and remediation efforts, which generally involve capping the sites and pumping and treatment of ground water. Moreover, the cost to clean up these sites could be materially in excess of the $52 million due to significant uncertainties, including changes in acceptable remediation methods and technologies. In 1997, JCP&L's request to establish a Remediation Adjustment Clause for the recovery of MGP remediation costs was approved by the NJBPU. At December 31, 1998, JCP&L had recorded on its Consolidated Balance Sheet a regulatory asset of $44 million. JCP&L is continuing to pursue reimbursement from its insurance carriers for remediation costs already spent and for future estimated costs. In 1994, JCP&L filed a complaint with the Superior Court of New Jersey against several of its insurance carriers, relative to these MGP sites. Settlement has been reached with all but one of those insurance companies. In 1997, the EPA filed a complaint against GPU, Inc. in the United States District Court for the District of Delaware for enforcement of its unilateral order issued against GPU, Inc. to clean up the former Dover Gas Light Company (Dover) manufactured gas production site in Dover, Delaware. Dover was part of the AGECO/AGECORP group of companies from 1929 until 1942 and GPU, Inc. emerged from the AGECO/AGECORP reorganization proceedings. All of the common stock of Dover was sold in 1942 by a member of the AGECO/AGECORP group to an unaffiliated entity, and was subsequently acquired by Chesapeake Utilities Corporation (Chesapeake). According to the complaint, the EPA is seeking up to $0.5 million in past costs, $4.2 million for the cleanup of the Dover site and approximately $19 million in penalties. GPU, Inc. has responded to the EPA complaint stating that such claims should be dismissed because, among other things, they are barred by the operation of the Final Decree entered by the United States District Court for the Southern District of New York at the conclusion of the 1946 reorganization proceedings of AGECO/AGECORP. Chesapeake has also sued GPU, Inc. for a contribution to the cleanup of the Dover site. In December 1997, the Court refused to dismiss the complaint; GPU, Inc. has requested that the Court reconsider its decision. The parties continue to engage in settlement discussions. There can be no assurance as to the outcome of these proceedings. The Federal Resource Conservation and Recovery Act of 1976, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and the Superfund Amendment and Reauthorization Act of 1986 authorize the EPA to issue orders compelling responsible parties to take cleanup action at any location that is determined to present an imminent and substantial danger to the public or to the environment because of an actual or threatened release of one or more hazardous substances. Pennsylvania and New Jersey have enacted legislation giving similar authority to the PaDEP and the NJDEP, 42 respectively. In addition, federal and state law provides for payment by responsible parties for damage to natural resources. Because of the nature of the GPU Energy companies' business, various by-products and substances are produced and/or handled that are classified as hazardous under one or more of these statutes. GPU generally provides for the treatment, disposal or recycling of such substances through licensed independent contractors, but these statutory provisions also impose potential responsibility for certain cleanup costs on the generators of the wastes. GPU has been formally notified by the EPA and state environmental authorities that it is among the potentially responsible parties (PRPs) who may be jointly and severally liable to pay for the costs associated with the investigation and remediation at hazardous and/or toxic waste sites in the following number of instances (in some cases, more than one company is named for a given site): JCP&L MET-ED PENELEC GPUN GPU, INC. TOTAL 8 4 2 1 1 13 In addition, certain of the GPU companies have been requested to participate in the remediation or supply information to the EPA and state environmental authorities on several other sites for which they have not been formally named as PRPs, although the EPA and state authorities may nevertheless consider them as PRPs. Certain of the GPU companies have also been named in lawsuits requesting damages (which are material in amount) for hazardous and/or toxic substances allegedly released into the environment. A discussion of five PRP sites, where it is probable that a loss has been incurred, follows: JCP&L, Met-Ed and GPUN are among the more than 800 PRPs under CERCLA who may be liable to pay for costs associated with the investigation and remediation of the Maxey Flats disposal site, located in Fleming County, Kentucky. A negotiated settlement among all parties has been finalized and cleanup efforts have begun. The interim remediation work is estimated to cost $63 million, for which all responsible parties will be jointly and severally liable. The GPU Energy companies' estimated share of these costs, which is based upon a percentage of the total volume of waste believed shipped to the site, is JCP&L $1.1 million, Met-Ed $400 thousand and GPUN $150 thousand, which amounts are reflected on the Consolidated Balance Sheets accordingly. JCP&L has been named as a PRP by the NJDEP for allegedly disposing of hazardous waste at the Global Landfill, a dump site located in New Jersey. JCP&L signed a Consent Decree, along with about 50 other PRPs, to investigate the site and conduct site remediation. The current estimated cost of the remediation is $33 million. A final allocation of JCP&L's share has not yet been made. However, JCP&L's interim estimated allocation is $500,000, for which JCP&L has recorded a liability. Met-Ed received a PRP notice from the PaDEP asserting that it had disposed of hazardous waste at the Industrial Solvents & Chemical Company site, a former solvents recycler. This site is being remediated under the Pennsylvania Hazardous Sites Cleanup Act. Met-Ed has made immaterial payments to the PRP group for the water line installation and the removal of tanks, drums and other materials at the site. Met-Ed has agreed to settle this matter for the amounts already paid. Final settlement negotiations are in progress. 43 Penelec is part of a group of 10 PRPs who have entered into a Consent Decree with Pennsylvania and a settlement with the EPA to pay for costs associated with the remediation of a dump site located in Mill Creek Township near Erie, Pennsylvania. Penelec has paid approximately $114,000 in costs for the settlement with Pennsylvania and $600,000 in costs for the settlement with the EPA. Penelec's share of the remaining costs for the site is estimated to be $500,000 (including costs to cap the site), for which a liability has been recorded at December 31, 1998. Penelec has been named as a PRP by the EPA, along with over 1,000 other PRPs, for allegedly disposing of hazardous materials at the Jack's Creek/Sitken site, a former metals recycling and smelting operation in Mifflin County, Pennsylvania. Penelec has joined a PRP group, which is exploring a settlement with the EPA, but cannot predict the ultimate outcome of the negotiations. The ultimate cost of remediation of all these and other hazardous waste sites will depend upon changing circumstances as site investigations continue, including (a) the existing technology required for site cleanup, (b) the remedial action plan chosen and (c) the extent of site contamination and the portion attributed to the GPU company involved. FRANCHISES AND CONCESSIONS JCP&L operates pursuant to franchises in the territory served by it and has the right to occupy and use the public streets and ways of the state with its poles, wires and equipment upon obtaining the consent in writing of the owners of the soil, and also to occupy the public streets and ways underground with its conduits, cables and equipment, where necessary, for its electric operation. JCP&L has the requisite legal franchise for the operation of its electric business within the State of New Jersey, including in incorporated cities and towns where designations of new streets, public ways, etc., may be obtained upon application to such municipalities. JCP&L holds a FERC license expiring in 2013 authorizing it to operate and maintain Yards Creek in which JCP&L has a 50% ownership interest. Met-Ed and Penelec have the necessary franchise rights to furnish electric service in the various respective municipalities or territories in which each company now supplies such services. These electric franchise rights, which are generally nonexclusive rights, consist generally of (a) charter rights and (b) certificates of public convenience issued by the PaPUC and/or "grandfather rights". Such electric franchise rights are free from unduly burdensome restrictions and unlimited as to time, except in a few relatively minor cases and except as otherwise described below. The secondary franchise granted by the Borough of Boyertown to Met-Ed contains a provision that the Borough shall have the right at any time to purchase the electric system in the Borough at a valuation to be fixed by appraisers. Met-Ed holds a FERC license expiring in 2014 for the continued operation and maintenance of the York Haven hydroelectric project. Penelec holds a license from the FERC, which expires in 2002, for the continued operation and maintenance of the Piney hydroelectric project. In addition, Penelec and the Cleveland Electric Illuminating Company hold a license expiring in 2015 for Seneca in which Penelec has a 20% undivided interest. For the same station, Penelec and the Cleveland Electric Illuminating Company hold a Limited Power Permit issued by the Pennsylvania Water and Power Resources Board which is unlimited as to 44 time. For purposes of the Homer City station, Penelec and New York State Electric & Gas Corporation hold a Limited Power Permit issued by the Pennsylvania Water and Power Resources Board which expires in 2017, but is renewable by the permittees until they have recovered all capital invested by them in the project. Penelec also holds a Limited Power Permit issued by the Pennsylvania Water and Power Resources Board for its Shawville station which expires in 2003, but is renewable by Penelec until it has recovered all capital invested in the project. EMPLOYEE RELATIONS At January 29, 1999, GPU, Inc. and consolidated affiliates had 8,931 full-time employees (JCP&L 2,257; Met-Ed 2,639; Penelec 1,772; GPUI Group 461; all other companies 1,802). The nonsupervisory production and maintenance employees of the GPU Energy companies and certain of their nonsupervisory clerical employees are represented for collective bargaining purposes by local unions of the International Brotherhood of Electrical Workers (IBEW) at JCP&L, Met-Ed and Penelec and the Utility Workers Union of America (UWUA) at Penelec. JCP&L and Met-Ed's three-year contracts with the IBEW expire on October 31, 1999 and April 30, 2000, respectively. Penelec has renegotiated a four-year contract with the IBEW, expiring on May 14, 2002. The IBEW membership has ratified the new contract subject to reaching agreement on employee transition arrangements to be implemented upon GPU's divestiture of its fossil fuel and hydroelectric generating facilities. Penelec's three-year contract with the UWUA expires on June 30, 2001. 45 ITEM 2. PROPERTIES. GPU Energy Companies' Generating Stations At December 31, 1998, the generating stations of the GPU Energy companies had an aggregate effective capability of 6,751,000 net kilowatts (KW), as follows: Name of GPU Energy Year of Net KW Station Company Installation (Summer) ------- ---------- ------------ -------- COAL-FIRED: Homer City(a) Penelec 1969-1977 942,000 Shawville Penelec 1954-1960 597,000 Portland Met-Ed 1958-1962 401,000 Keystone(b) JCP&L 1967-1968 283,000 Conemaugh(c) Met-Ed 1970-1971 280,000 Titus Met-Ed 1951-1953 243,000 Seward Penelec 1950-1957 196,000 Warren Penelec 1948-1949 82,000 NUCLEAR: TMI-1(d) All 1974 786,000 Oyster Creek JCP&L 1969 619,000 GAS/OIL-FIRED: Sayreville JCP&L 1930-1958 229,000 Combustion Turbines(e) All 1960-1997 1,444,000 Other(f) All 1968-1977 298,000 Hydroelectric(g) Met-Ed/Penelec 1905-1969 64,000 PUMPED STORAGE:(h) Yards Creek JCP&L 1965 200,000 Seneca Penelec 1969 87,000 --------- TOTAL 6,751,000 ========= Aggregate Effective Capability of the GPU Energy Companies Net KW (Summer) (Winter) JCP&L 2,729,000 3,139,000 Met-Ed 1,738,000 1,861,000 Penelec 2,284,000 2,365,000 --------- --------- TOTAL 6,751,000 7,365,000 ========= ========= (a) Represents Penelec's undivided 50% interest in the station. (b) Represents JCP&L's undivided 16.67% interest in the station. (c) Represents Met-Ed's undivided 16.45% interest in the station. 46 (d) Jointly owned by JCP&L, Met-Ed and Penelec in percentages of 25%, 50% and 25%, respectively. (e) JCP&L - 912,000 KW, Met-Ed - 400,000 KW and Penelec 132,000 KW. (f) Consists of internal combustion and combined-cycle units (JCP&L - 290,000 KW, Met-Ed - 2,000 KW and Penelec - 6,000 KW). (g) Consists of Met-Ed's York Haven station (19,000 KW) and Penelec's Piney (27,000 KW) and Deep Creek stations (18,000 KW). (h) Represents the GPU Energy companies' undivided interests in these stations which are net users rather than net producers of electric energy. The GPU Energy companies' coal-fired, hydroelectric (other than the Deep Creek station) and pumped storage stations (other than the Yards Creek station) are located in Pennsylvania. The TMI-1 nuclear station is also located in Pennsylvania. The GPU Energy companies' gas-fired and oil-fired stations (other than some combustion turbines in Pennsylvania), the Yards Creek pumped storage station and the Oyster Creek nuclear station are located in New Jersey. The Deep Creek hydroelectric station is located in Maryland. Substantially all of the GPU Energy companies' properties are subject to the lien of their respective FMB indentures. The all-time peak loads of the GPU Energy companies are as follows: (In KW) Company Date Peak Load GPU Energy companies Jul. 15, 1997 9,555,000* JCP&L Jul. 22, 1998 4,817,000 Met-Ed Jul. 15, 1997 2,224,000 Penelec Jan. 19, 1997 2,652,000 * System peak load. 47 GPUI Group Generating Facilities At December 31, 1998, the GPUI Group had ownership interests in 19 operating natural gas-fired cogeneration and other nonutility power production facilities located both domestically and internationally, with an aggregate capability of 5,025,100 KW as follows: Name of Year of Ownership Facility Location Installation Total KW Interest (KW) U.S. Facilities Mid Georgia GA 1998 300,000 150,000 Selkirk NY 1992-94 350,000 66,900 Lake* FL 1993 110,000 109,900 Pasco* FL 1993 109,000 54,400 Onondaga* NY 1993 80,000 80,000 Syracuse* NY 1992 80,000 3,500 Marcal* NJ 1989 65,000 32,500 Camarillo* CA 1988 26,500 300 Chino* CA 1987 26,000 300 --------- --------- Total 1,146,500 497,800 --------- --------- Foreign Facilities Teesside** England 1993 1,875,000 249,400 Redditch** England 1991 29,000 14,500 Hereford** England 1980 15,000 7,500 Humber** England 1997 750,000 70,500 Enersis Group** Portugal 1987-95 70,000 17,500 Micdos** Spain 1975-95 33,000 7,100 Termobarran- quilla* Colombia 1972-96 890,000 254,600 Guaracachi* Bolivia 1975-94 165,000 82,500 Aranjuez* Bolivia 1974-94 36,900 18,500 Karachipampa* Bolivia 1982 14,700 7,400 --------- --------- Total 3,878,600 729,500 --------- --------- Total capability 5,025,100 1,227,300 ========= ========= * The GPUI Group has operating responsibility for these facilities. ** The GPUI Group's ownership interests in these facilities are through its investment in Midlands. 48 Transmission and Distribution System At December 31, 1998, the GPU Energy companies owned the following transmission and distribution facilities: JCP&L Met-Ed Penelec Total Transmission and Distribution Substations 304 248 474 1,026 ========== ========== ========== ========== Aggregate Installed Transformer Capacity of Substations (in kilovoltamperes - KVA) 21,104,035 11,618,960 15,804,854 48,527,849 ========== ========== ========== ========== Transmission System: Lines (In Circuit Miles): 500 KV 18 188 235 441 345 KV - - 149 149 230 KV 570 383 650 1,603 138 KV - 3 11 14 115 KV 232 385 1,330 1,947 69 KV, 46 KV and 34.5 KV 1,769 469 364 2,602 ---------- ---------- ---------- ---------- Total 2,589 1,428 2,739 6,756 ========== ========== ========== ========== Distribution System: Line Transformer Capacity (KVA) 10,348,078 6,176,550 7,031,077 23,555,705 ========== ========== ========== ========== Pole Miles of Overhead Lines 16,080 12,613 22,656 51,349 ========== ========== ========== ========== Trench Miles of Underground Cable 7,311 2,287 2,013 11,611 ========== ========== ========== ========== In addition, PowerNet which serves all of Victoria, Australia covering an area of approximately 87,900 square miles and a population of 4.5 million, owns a total of 4,062 miles of overhead and underground lines. Midlands, which provides service to 2.3 million customers in a 5,135 square mile area in England, owns a total of 39,544 miles of overhead and underground lines. ITEM 3. LEGAL PROCEEDINGS. Reference is made to Significant Developments - Pennsylvania Restructuring; New Jersey Restructuring; Nuclear Facilities - TMI-2 and Electric Generation and Environmental Matters under Item 1 and to Note 13, Commitments and Contingencies, of the Combined Notes to the Consolidated Financial Statements contained in Item 8 for a description of certain pending legal proceedings involving GPU. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 49 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. All of JCP&L, Met-Ed and Penelec's outstanding common stock is owned by GPU, Inc. During 1998, JCP&L, Met-Ed and Penelec paid dividends on their common stock to GPU, Inc. in the following amounts: JCP&L $195 million, Met-Ed $85 million and Penelec $65 million. In accordance with JCP&L, Met-Ed and Penelec's FMB indentures, as supplemented, the retained earnings at December 31, 1998 that are restricted as to the payment of dividends on their common stock are as follows: JCP&L - $1.7 million Met-Ed - $3.4 million Penelec - $10.1 million Stock Trading GPU, Inc. is listed as GPU on the New York Stock Exchange. On February 9, 1999, there were 37,537 registered holders of GPU, Inc. common stock. Dividends GPU, Inc. common stock dividend declaration dates are the first Thursdays of December, April, June, and October. Dividend payment dates fall on the last Wednesdays of February, May, August and November. Dividend declarations and quarterly stock price ranges for 1998 and 1997 are set forth below. Common Stock Dividends Declared Price Ranges* 1998 1997 1998 1997 Quarter High/Low High/Low ----- ----- ------- ------------------ ----------------- April $.515 $.50 First $44 11/16 $38 11/16 $36 1/8 $32 June .515 .50 Second 44 7/16 36 1/2 36 7/16 30 3/4 October .515 .50 Third 43 5/16 35 3/16 36 9/16 32 3/4 December .515 .50 Fourth 47 3/16 41 3/8 42 3/4 35 3/8 * Based on New York Stock Exchange Composite Transactions as reported in the Wall Street Journal. ITEM 6. SELECTED FINANCIAL DATA. See pages F-1 and F-2 for references to each registrant's Selected Financial Data required by this item. 50 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. See pages F-1 and F-2 for references to each registrant's Management's Discussion and Analysis of Financial Condition and Results of Operations required by this item. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. See page F-23 for references to GPU, Inc.'s Quantitative and Qualitative Disclosures About Market Risk required by this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See pages F-1 and F-2 for references to each registrant's Financial Statements and Quarterly Financial Data (unaudited) required by this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None 51 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Identification of Directors Information regarding GPU, Inc.'s directors is incorporated by reference to the BOARD OF DIRECTORS section of GPU, Inc.'s Proxy Statement for the 1999 Annual Meeting of Stockholders. The current directors of JCP&L, Met-Ed and Penelec, their ages, positions held and business experience during the past five years are as follows: Year First Elected ------------------ Name Age Position JCP&L Met-Ed Penelec - ---- --- -------- ----- ------ -------- JCP&L/Met-Ed/Penelec: F. D. Hafer (a) 58 Chairman of the Board and 1996 1978 1994 Chief Executive Officer D. Baldassari (b) 49 President 1982 1996 1996 D. W. Myers (c) 54 Vice President - Finance 1994 1996 1996 and Rates, and Comptroller C. B. Snyder (d) 53 Director 1997 1997 1997 JCP&L only: G. E. Persson (e) 67 Director 1983 S. C. Van Ness (f) 65 Director 1983 S. B. Wiley (g) 69 Director 1982 (a) Mr. Hafer is also Chairman, Chief Executive Officer, President and a director of GPU, Inc. and GPUS; Chairman of the Board and a director of GPUN; Chairman, Chief Executive Officer, and a director of Genco; Chairman and a director of GPU International, Inc. (GPUI), GPU Power, Inc. (GPU Power), GPU Capital, Inc. and its subsidiary GPU Electric, Inc. (GPU Electric); and a director of GPU AR, GPU Telcom and Saxton Nuclear Experimental Corporation, all subsidiaries of GPU, Inc. He is a director of Avon Energy Partners Holdings, Midlands Electricity plc, and GPU PowerNet PTY Ltd. Mr. Hafer also served as President of Met-Ed from 1986 to 1996 and as President of Penelec from 1994 to 1996. Mr. Hafer is a director of Utilities Mutual Insurance Company, a director and past president of the Manufacturers Association of Berks County and Chairman of the Board of the Pennsylvania Electric Association. Mr. Hafer is also a director of Kutztown University Foundation, Leadership Pennsylvania and the Reading Hospital and Medical Center and a trustee of the Caron Foundation and immediate past chairman and member of the Board of Trustees of the Foundation for a Drug-Free Pennsylvania. (b) Mr. Baldassari was elected President of JCP&L in 1992, and President of Met-Ed and Penelec in 1996. Mr. Baldassari is also President, Chief Executive Officer and a director of GPU Telcom; and a director of GPUS, GPUN, Genco, Saxton Nuclear Experimental Corporation, and First Morris Bank of Morristown, NJ. (c) Mr. Myers was elected Vice President - Finance and Rates, and Comptroller of Met-Ed and Penelec in 1996, and has also served as Vice President Finance and Rates, and Comptroller of JCP&L since 1994. Prior to that, he served as Vice President and Treasurer of GPU, Inc., GPUS, JCP&L, Met-Ed and Penelec since 1993. 52 (d) Mrs. Snyder was elected Executive Vice President - Corporate Affairs of GPUS in 1998. She is also a director of GPUS, GPU AR and GPU PowerNet PTY Ltd. Previously, she served as Senior Vice President - Corporate Affairs of GPUS, Vice President - Public Affairs of JCP&L since 1996, and Vice President - Public Affairs of Met-Ed and Penelec since 1994. Prior to 1994, she was Regional Director of Met-Ed since 1991. (e) Mrs. Persson serves as liaison (Special Assistant Director) between the N.J. Division of Consumer Affairs and various state boards. Prior to 1995, she was owner and President of Business Dynamics Associates of Red Bank, NJ. Mrs. Persson is a member of the United States Small Business Administration National Advisory Board, the New Jersey Small Business Advisory Council, the Board of Advisors of Brookdale Community College and the Board of Advisors of Georgian Court College. (f) Mr. Van Ness is an attorney with the firm of Huberd, Van Ness, Cayri and Goodell of Princeton, NJ since 1998. Prior to that he was affiliated with the law firm of Pico, Mack, Kennedy, Jaffe, Perrella and Yoskin of Trenton, NJ since 1990. He is also a director of The Prudential Insurance Company of America. (g) Mr. Wiley has been a partner in the law firm of Wiley, Malehorn and Sirota of Morristown, NJ since 1973. He is also Chairman of First Morris Bank of Morristown, NJ. The directors of the GPU companies are elected at their respective annual meetings of stockholders to serve until the next meeting of stockholders and until their respective successors are duly elected and qualified. There are no family relationships among the directors of the GPU companies. Identification of Executive Officers The current executive officers of GPU, Inc., JCP&L, Met-Ed and Penelec, their ages, positions held and business experience during the past five years are as follows: Year First Name Age Position Elected - ---- --- -------- ---------- GPU, Inc.: - --------- F. D. Hafer (a) 58 Chairman, President and Chief 1996 Executive Officer I. H. Jolles (b) 60 Senior Vice President and General 1990 Counsel B. L. Levy (c) 43 Senior Vice President and Chief 1991 Financial Officer and President, GPU Capital, Inc. and GPU Electric P. E. Maricondo (d) 52 Vice President, Comptroller and 1998 Chief Accounting Officer T. G. Howson (e) 50 Vice President and Treasurer 1994 M. A. Nalewako (f) 64 Secretary 1988 T. G. Broughton (g) 53 President, GPUN 1996 R. L. Wise (h) 55 President, Genco, GPUI and GPU Power 1994 D. Baldassari (i) 49 President, JCP&L, Met-Ed, Penelec 1992 C. B. Snyder (j) 53 Executive Vice President - 1997 Corporate Affairs, GPUS 53 Year First Elected Name Age Position JCP&L Met-Ed Penelec - ---- --- -------- ----- -------------- JCP&L/Met-Ed/Penelec: - --------------------- F. D. Hafer (a) 58 Chairman, and Chief 1996 1978 1994 Executive Officer D. Baldassari (i) 49 President and Chief 1992 1996 1996 Operating Officer I. H. Jolles (b) 60 Vice President and 1996 1996 1996 General Counsel B. L. Levy (c) 43 Vice President and 1998 1998 1998 Chief Financial Officer T. G. Howson (e) 50 Vice President 1994 1994 1994 and Treasurer C. Brooks (k) 49 Vice President - Human and 1997 1997 1997 Technical Resources D. J. Howe (l) 48 Vice President - 1996 1996 1996 Customer Services C. A. Mascari (m) 51 Vice President - Power 1997 1997 1997 Services D. W. Myers (n) 54 Vice President - 1994 1996 1996 Finance and Rates and Comptroller G. R. Repko (o) 53 Vice President - Business 1996 1994 1986 Development R. J. Toole (p) 56 Vice President - 1990 1989 1996 Generation R. S. Zechman (q) 55 Vice President - 1996 1990 1994 Engineering and Operations S. L. Guibord (r) 50 Secretary 1996 1996 1996 (a) See Note (a) on page 52. (b) Mr. Jolles is also Executive Vice President, General Counsel and a director of GPUS, General Counsel of GPUN and Genco, and a director of GPUS, GPUI, GPU Power, GPU Capital, Inc., GPU Electric, Midlands Electricity plc and GPU PowerNet PTY Ltd. He is also a director of Utilities Mutual Insurance Company. (c) Mr. Levy was elected Senior Vice President and Chief Financial Officer of GPU, Inc. as well as Executive Vice President of GPUS and Vice President of JCP&L, Met-Ed and Penelec in 1998. Mr. Levy is also a director of GPUI, GPU Power, GPU Capital, Inc., GPU Electric, Avon Energy Partners Holdings, Midlands Electricity plc, and GPU PowerNet PTY Ltd. Mr. Levy is also President of GPU Capital, Inc. and GPU Electric. He served as President, Chief Executive Officer and director of GPUI since 1991. (d) Mr. Maricondo was elected Vice President, Comptroller and Chief Accounting Officer of GPU, Inc. and GPUS in 1998. Prior to that he served as Vice President - Internal Auditing of GPUS since 1997 and as Vice President and Comptroller of GPUN from 1993. 54 (e) Mr. Howson is also Vice President and Treasurer of Genco, GPUN, GPU AR, Saxton Nuclear Experimental Corporation, and GPU Telcom. (f) Mrs. Nalewako is also Secretary of GPUS and Genco and Assistant Secretary of GPUN, JCP&L, Met-Ed and Penelec. (g) Mr. Broughton is also a director of GPUN. He previously served as Executive Vice President of GPUN since 1995. Prior to that, he served as Vice President - TMI of GPUN since 1991. (h) Mr. Wise is also a director of Genco, GPUI, GPU Power and GPU Electric. He previously served as President, Fossil Generation - GPUS since 1994. Prior to that, Mr. Wise served as President and a director of Penelec since 1986. He is also a director of US Bancorp Trust Company, US Bancorp, Inc., U.S. National Bank of Johnstown, PA., and Utilities Mutual Insurance Company. (i) See Note (b) on page 52. (j) See Note (d) on page 53. (k) Mr. Brooks previously served as Vice President - Collect and Disburse Money of Genco since 1996. Prior to that, he was Vice President Materials and Services of GPUS since 1990. (l) Mr. Howe previously served as Director of Marketing and Pricing of JCP&L since 1994. Prior to that, he was Director of Competitive Strategies and Initiatives of JCP&L since 1993. (m) Mr. Mascari previously served as Vice President - System Planning of GPUS since 1994. Prior to that, he was Vice President - Nuclear Assurance of GPUN since 1992. (n) See Note (c) on page 52. (o) Mr. Repko has also served as Vice President - Customer Services of Met-Ed and Penelec since 1994. Prior to that, he served as Vice President - Division Operations of Penelec from 1986 to 1993. (p) Mr. Toole is also a Vice President and a director of Genco. (q) Mr. Zechman has also served as Vice President - Administrative Services of Met-Ed since 1992. (r) Mr. Guibord has also served as Corporate Compliance Auditing Director of GPUS since 1994. Prior to that, he was a General Attorney at JCP&L. Mr. Guibord also serves as Secretary of GPUN, GPU AR, Saxton Nuclear Experimental Corporation, and GPU Telcom. The executive officers of the GPU companies are elected each year by their respective Boards of Directors at the first meeting of the Board held following the annual meeting of stockholders. Executive officers hold office until the next meeting of directors following the annual meeting of stockholders and until their respective successors are duly elected and qualified. There are no family relationships among the executive officers. 55 ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item with respect to GPU, Inc. is incorporated by reference to the EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 1999 Annual Meeting of Stockholders. The following table sets forth remuneration paid, as required by this Item, to the Chief Executive Officer and the five other most highly compensated executive officers of JCP&L, Met-Ed and Penelec for the year ended December 31, 1998. The managements of JCP&L, Met-Ed and Penelec were combined in a 1996 reorganization. Accordingly, the amounts shown below represent the aggregate remuneration paid to such executive officers by JCP&L, Met-Ed and Penelec during 1996, 1997 and 1998. Remuneration of Executive Officers SUMMARY COMPENSATION TABLE -------------------------- Long-Term Compensation ------------------------------- Annual Compensation Awards -------------------- ---------
Payouts Other Securities ------- Name and Annual Underlying LTIP All Other Principal Compens- Options Payouts Compens- Position Year Salary($) Bonus($) ation($)(1) Granted(#) ($)(2) ation($) ---- -------- ------- -------- --------- ------- ------- F. D. Hafer Chairman of the Board and Chief Executive Officer (3) (3) (3) (3) (3) (3) (3) D. Baldassari President (4) (4) (4) (4) (4) (4) (4) R. S. Zechman 1998 170,000 60,000 538 4,850 18,669 17,623(5) Vice President - 1997 162,538 32,000 637 - 20,085 15,843 Engineering 1996 152,596 44,000 596 - 19,470 14,051 & Operations D. J. Howe 1998 170,000 55,000 - 4,850 - 14,033(6) Vice President - 1997 162,308 32,000 - - - 11,524 Customer Services 1996 134,539 42,240 - - - 6,582 C. A. Mascari 1998 170,000 50,000 - 4,850 21,002 20,762(7) Vice President - 1997 156,228 32,000 - - 18,727 16,997 Power Services 1996 133,800 44,000 - - - 12,649 C. Brooks 1998 170,000 50,000 592 4,850 20,536 15,593(8) Vice President - 1997 148,277 32,000 664 - 20,922 13,783 Human & Technical 1996 135,700 42,500 565 - 18,445 12,173 Resources (1) Consists of earnings on "Long-Term Incentive Plan" ("LTIP") compensation paid in the year the award vests. (2) Consists of Performance Cash Incentive Awards paid on the 1991, 1992 and 1993 restricted stock awards which have vested under the 1990 Stock Plan. These amounts are designed to compensate recipients of restricted stock/unit awards for the amount of federal and state income taxes that are payable upon vesting of the restricted stock/unit awards. The restricted units issued in 1995, 1996, 1997 and 1998 under the 1990 Stock Plan are performance based. The 1998 awards are shown in "Long-Term 56
Incentive Plans - Awards in Last Fiscal Year" table (the "LTIP table"). Dividend equivalents are earned on the aggregate restricted units awarded under the 1990 Stock Plan and reinvested in additional units. The aggregate number and value (based on the stock price per share at December 31, 1998) of unvested and deferred vested stock-equivalent restricted units (including reinvested dividend equivalents) includes the amounts shown on the LTIP table, and at the end of 1998 were: Aggregate Units Aggregate Value F. D. Hafer see note (3) see note (3) D. Baldassari see note (4) see note (4) R. S. Zechman 5,281 $233,363 D. J. Howe 3,475 153,552 C. A. Mascari 6,419 283,636 C. Brooks 4,979 219,991 (3) Mr. Hafer was compensated by GPUS for his overall service on behalf of GPU and accordingly was not compensated directly by the other subsidiary companies for his services. Information with respect to Mr. Hafer's compensation is included in the EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 1999 Annual Meeting of Stockholders, which is incorporated herein by reference. (4) Information with respect to Mr. Baldassari's compensation is included in the EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 1999 Annual Meeting of Stockholders, which is incorporated herein by reference. (5) Consists of GPU's matching contributions under the Savings Plan ($6,400), matching contributions under the non-qualified deferred compensation plan ($1,680), above-market interest accrued on the retirement portion of deferred compensation ($72), and earnings on LTIP compensation not paid in the current year ($9,471). (6) Consists of GPU's matching contributions under the Savings Plan ($6,400), matching contributions under the non-qualified deferred compensation plan ($1,680), above-market interest accrued on the retirement portion of deferred compensation ($84), and earnings on LTIP compensation not paid in the current year ($5,869). (7) Consists of GPU's matching contributions under the Savings Plan ($6,400), matching contributions under the non-qualified deferred compensation plan ($1,680), above-market interest accrued on the retirement portion of deferred compensation ($1,060), and earnings on LTIP compensation not paid in the current year ($11,622). (8) Consists of GPU's matching contributions under the Savings Plan ($6,400), above-market interest accrued on the retirement portion of deferred compensation ($325), and earnings on LTIP compensation not paid in the current year ($8,868). Option Grants In Last Fiscal Year The following table summarizes option grants made during 1998 to the Named Executive Officers. All of these options were granted with an exercise price equal to the fair market value of GPU stock on the date of grant. 57 Individual Grants Number of Securities % of Total Underlying Options Grant Date Options Granted to Exercise or Present Grant Granted(1) Employees in Base Price Expiration Value(2) Name Date (#) Fiscal Year ($/Sh) Date ($) ----------- ----- --------- ----------- ----------- ---------- -------- F. D. Hafer (3) (3) (3) (3) (3) (3) D. Baldassari (4) (4) (4) (4) (4) (4) R. S. Zechman 06/04/98 4,850 1.4% $36.625 06/04/08 $21,049 D. J. Howe 06/04/98 4,850 1.4% 36.625 06/04/08 21,049 C. A. Mascari 06/04/98 4,850 1.4% 36.625 06/04/08 21,049 C. Brooks 06/04/98 4,850 1.4% 36.625 06/04/08 21,049 Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option Value The following table summarizes the number and value of all unexercised options held by the Named Executive Officers. In 1998, no options were exercised by any Named Executive Officer. Number of Securities Underlying Value of Unexercised Unexercised Options at In-the-Money Options Fiscal Year-End (#) at Fiscal Year-End ($) -------------------------- -------------------------- Name Exercisable Unexercisable Exercisable Unexercisable F. D. Hafer (3) (3) (3) (3) D. Baldassari (4) (4) (4) (4) R. S. Zechman - 4,850 - 36,678 D. J. Howe - 4,850 - 36,678 C. A. Mascari - 4,850 - 36,678 C. Brooks - 4,850 - 36,678 (1) Options become exercisable in three equal annual installments beginning on the first anniversary of the date of the grant. These grants will fully vest upon termination of employment resulting from death or disability. Options may be exercised after retirement in accordance with the terms of the 1998 Stock Option Agreement. In the event of a change in control during the option term, all options will be canceled and the executive officer will receive a cash payment in an amount equal to the excess of the average current market price over the exercise price. (2) Options are valued using a Black-Scholes option pricing model, a mathematical formula widely used to value options. The model as applied used the applicable grant dates and the exercise prices shown on the table, and the fair market value of Common Stock on the respective grant dates, which was in each case the same as the exercise price. For the June 4 grant, the model assumed (i) a risk-free rate of return of 5.78%, which approximates the rate on 10-year U.S. Treasury zero coupon bonds on the grant date; (ii) a stock price volatility of 17.26%, based on the average historical volatility for the 36-month period ending on the grant date; (iii) an average dividend yield of 5.68%, based on the average yield for a 36-month period; and (iv) the exercise of all options on the final day of their 10-year terms. No discount from the theoretical value 58 was taken to reflect the restrictions on the transfer of the options and the likelihood of the options being exercised in advance of the final day of their terms. (3) Information with respect to Mr. Hafer's options is included in the EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 1999 Annual Meeting of Stockholders, which is incorporated herein by reference. (4) Information with respect to Mr. Baldassari's options is included in the EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 1999 Annual Meeting of Stockholders, which is incorporated herein by reference. LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR This table shows the LTIP awards made to the Named Executive Officers for the performance period January 1, 1998 through December 31, 2002. Performance Estimated future payouts Number of or other under non-stock price- shares, period until based plans(1) ------------------------------- units or maturation Threshold Target Maximum Name other rights payout (#) (#) (#) --------- ----------- ------------ --------- ------- -------- F. D. Hafer (2) (2) (2) (2) (2) D. Baldassari (2) (2) (2) (2) (2) R. S. Zechman 1,060 5 year vesting 530 1,060 2,120 D. J. Howe 1,060 5 year vesting 530 1,060 2,120 C. A. Mascari 1,060 5 year vesting 530 1,060 2,120 C. Brooks 1,060 5 year vesting 530 1,060 2,120 (1) The restricted units awarded in 1998 under the 1990 Stock Plan provide for a performance adjustment to the aggregate number of units vesting for the recipient, including the accumulated reinvested dividend equivalents, based on the annualized GPU Total Shareholder Return (TSR) percentile ranking against all companies in the Standard & Poor's Electric Utility Index for the period between the award and vesting dates. With a 55th percentile ranking, the performance adjustment would be 100% as reflected in the "Target" column. In the event that the percentile ranking is below the 55th percentile, the performance adjustment would be reduced in steps reaching 0% below the 40th percentile. The minimum payout or "Threshold" begins at the 40th percentile, which results in a payout of 50% of target. A ranking below the 40th percentile would result in no award. Should the TSR percentile ranking exceed the 59th percentile, then the performance adjustment would be increased in steps reaching 200% at the 90th percentile as reflected in the "Maximum" column. Under the 1990 Stock Plan, regular quarterly dividends are reinvested in additional units that are subject to the vesting restrictions of the award. Actual payouts under the Plan would be based on the aggregate number of units awarded and the units accumulated through dividend reinvestment at the time the restrictions lapse. (2) Information with respect to Mr. Hafer's and Mr. Baldassari's long-term incentive plans is included in the EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 1999 Annual Meeting of Stockholders, which is incorporated herein by reference. 59 Proposed Remuneration of Executive Officers None of the Named Executive Officers in the Summary Compensation Table has an employment contract. The compensation of executive officers is determined from time to time by the Personnel & Compensation Committee of the GPU, Inc. Board of Directors. Retirement Plans The GPU Companies' pension plans provide for pension benefits, payable for life after retirement, based upon years of creditable service with the GPU Companies and the employee's career average compensation as defined below. Federal law limits the amount of an employee's pension benefits that may be paid from a qualified trust established pursuant to a qualified pension plan (such as the GPU Companies' plans). The GPU Companies also have adopted non-qualified plans providing that the portion of a participant's pension benefits which, by reason of such limitations, cannot be paid from such a qualified trust shall be paid directly on an unfunded basis by the participant's employer. The following table illustrates the amount of aggregate annual pension from funded and unfunded sources resulting from employer contributions to the qualified trust and direct payments payable upon retirement in 1999 (computed on a single life annuity basis) to persons in specified compensation and years of service classifications: ESTIMATED ANNUAL RETIREMENT BENEFITS (2) (3) (4) BASED UPON CAREER AVERAGE COMPENSATION (1999 Retirement) Career Average Compen- Years of Service ---------------------------------------------------------- sation(1) 15 20 25 30 35 40 --------- -------- -------- -------- -------- -------- ---------- $ 50,000 $ 13,879$ 18,506 $ 23,132$ 27,759$ 32,385 $ 36,761 100,000 28,879 38,506 48,132 57,759 67,385 76,361 150,000 43,879 58,506 73,132 87,759 102,385 115,961 200,000 58,879 78,506 98,132 117,759 137,385 155,561 250,000 73,879 98,506 123,132 147,759 172,385 195,161 300,000 88,879 118,506 148,132 177,759 207,385 234,761 350,000 103,879 138,506 173,132 207,759 242,385 274,361 400,000 118,879 158,506 198,132 237,759 277,385 313,961 450,000 133,879 178,506 223,132 267,759 312,385 353,561 500,000 148,879 198,506 248,132 297,759 347,385 393,161 550,000 163,879 218,506 273,132 327,759 382,385 432,761 600,000 178,879 238,506 298,132 357,759 417,385 472,361 650,000 193,879 258,506 323,132 387,759 452,385 511,961 700,000 208,879 278,506 348,132 417,759 487,385 551,561 750,000 223,879 298,506 373,132 447,759 522,385 591,161 800,000 238,879 318,506 398,132 477,759 557,385 630,761 (1) Career Average Compensation is the average annual compensation received from January 1, 1984 to retirement and includes Salary and Bonus. The career average compensation amounts for the following Named Executive Officers differ by more than 10% from the three year average annual 60 compensation set forth in the Summary Compensation Table and are as follows: Messrs. Hafer - $355,761; Baldassari - $223,671; Zechman - $129,791; Howe - $108,014; Mascari - $129,386; and Brooks - $123,784. (2) Years of Creditable Service at December 31, 1998: Messrs. Hafer - 36 years; Baldassari - 29 years; Zechman - 29 years; Howe - 22 years; Mascari - 25 years; and Brooks - 25 years. (3) Based on an assumed retirement at age 65 in 1999. To reduce the above amounts to reflect a retirement benefit assuming a continual annuity to a surviving spouse equal to 50% of the annuity payable at retirement, multiply the above benefits by 90%. The estimated annual benefits are not subject to any reduction for Social Security benefits or other offset amounts. (4) Annual retirement benefits under the basic pension per the above table cannot exceed 55%, as defined in the pension plan, of the average compensation during the highest paid 36 calendar months. As of December 31, 1998, none of the Named Executive Officers exceed the 55% limit. Remuneration of JCP&L Directors Nonemployee directors receive an annual retainer of $15,000, a fee of $1,000 for each Board meeting attended, and a fee of $1,000 for each Committee meeting attended. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item for GPU, Inc. is incorporated by reference to the SECURITY OWNERSHIP section of GPU, Inc.'s Proxy Statement for the 1999 Annual Meeting of Stockholders. All of the outstanding shares of JCP&L (15,371,270), Met-Ed (859,500) and Penelec (5,290,596) common stock are owned beneficially and of record by their parent, GPU, Inc., 300 Madison Avenue, Morristown, NJ 07962. The following table sets forth, as of February 1, 1999, the beneficial ownership of equity securities (and stock-equivalent units) of each of the directors and each of the executive officers named in the Summary Compensation Table, and of all directors and executive officers of each of the respective GPU Energy companies as a group. The shares of Common Stock owned by all directors and executive officers as a group constitute less than 1% of the total shares outstanding. 61 Amount and Nature of Beneficial Ownership Shares(1) Stock-Equivalent ------------ ---------------- Name Title of Security Direct Indirect Units(2) ---- ----------------- ------ -------- -------- JCP&L/Met-Ed/Penelec: F. D. Hafer GPU Common Stock 9,795 146 25,677 D. Baldassari GPU Common Stock 4,766 - 14,999 R. S. Zechman GPU Common Stock 2,147 - 5,281 D. J. Howe GPU Common Stock 481 - 3,475 C. A. Mascari GPU Common Stock - 5 6,419 C. Brooks GPU Common Stock 805 138 4,979 C. B. Snyder GPU Common Stock 344 - 5,403 JCP&L Only: G. E. Persson GPU Common Stock None S. C. Van Ness GPU Common Stock None S. B. Wiley GPU Common Stock None All Directors and Executive Officers as a Group GPU Common Stock 40,518 289 118,064 (1) The number of shares owned and the nature of such ownership, not being within the knowledge of GPU, have been furnished by each individual. (2) Restricted units, which do not have voting rights, represent rights (subject to vesting) to receive shares of Common Stock under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries (the "1990 Stock Plan"). These amounts also include restricted units which have vested under the 1990 Stock Plan, but which were deferred pursuant to that Plan by Mr. Mascari - 1,266 units. See Summary Compensation Table above. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) See pages F-1 and F-2 for references to Financial Statements and Financial Statement Schedules required by this item. 1. Exhibits: 3-A Articles of Incorporation of GPU, as amended through March 27, 1990 - Incorporated by reference to Exhibit 3-A, 1989 Annual Report on Form 10-K, SEC File No. 1-6047. 3-A-1 Articles of Amendment to Articles of Incorporation of GPU dated May 5, 1995 - Incorporated by reference to Exhibit A-4, Certificate Pursuant to Rule 24, SEC File No. 70-8569. 3-A-2 Articles of Incorporation of GPU, Inc. as amended August 1, 1996 - Incorporated by reference to Exhibit 3-A-2, 1996 Annual Report on Form 10-K, SEC File No. 1-6047. 62 3-B By-Laws of GPU, Inc. as amended December 4, 1997 -Incorporated by reference to Exhibit 3-B, 1997 Annual Report on Form 10-K, SEC File No. 1-6047. 3-C Restated Certificate of Incorporation of JCP&L, as amended - Incorporated by reference to Exhibit 3-A, 1990 Annual Report on Form 10-K, SEC File No. 1-3141. 3-C-1 Certificate of Amendment to Restated Certificate of Incorporation of JCP&L, dated June 19, 1992 - Incorporated by reference to Exhibit A-2(a), Certificate Pursuant to Rule 24, SEC File No. 70-7949. 3-C-2 Certificate of Amendment to Restated Certificate of Incorporation of JCP&L, dated June 19, 1992 - Incorporated by reference to Exhibit A-2(a)(i), Certificate Pursuant to Rule 24, SEC File No. 70-7949. 3-D By-Laws of JCP&L, as amended - Incorporated by reference to Exhibit 3-B, 1993 Annual Report on Form 10-K, SEC File No. 1-3141. 3-E Restated Articles of Incorporation of Met-Ed - Incorporated by reference to Exhibit B-18, 1991 Annual Report of GPU on Form U5S, SEC File No. 30-126. 3-F By-Laws of Met-Ed dated July 27, 1995, as amended Incorporated by reference to Exhibit 3-F, 1995 Annual Report on Form 10-K, SEC File No. 1-446. 3-G Restated Articles of Incorporation of Penelec as amended through March 10, 1992 - Incorporated by reference to Exhibit 3A, 1991 Annual Report on Form 10-K, SEC File No. 1-3522. 3-H By-Laws of Penelec dated May 22 1997, as amended Incorporated by reference to Exhibit B-45, 1997 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-A Indenture of JCP&L, dated March 1, 1946, between JCP&L and United States Trust Company of New York, Successor Trustee, as amended and supplemented by eight supplemental indentures dated December 1, 1948 through June 1, 1960 - Incorporated by reference to JCP&L's Instruments of Indebtedness Nos. 1 to 7, inclusive, and 9 and 10 filed as part of Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126 and 1-3292. 4-A-1 Ninth Supplemental Indenture of JCP&L, dated November 1, 1962 - Incorporated by reference to Exhibit 2-C, Registration No. 2-20732. 4-A-2 Tenth Supplemental Indenture of JCP&L, dated October 1, 1963 - Incorporated by reference to Exhibit 2-C, Registration No. 2-21645. 63 4-A-3 Eleventh Supplemental Indenture of JCP&L, dated October 1, 1964 - Incorporated by reference to Exhibit 5-A-3, Registration No. 2-59785. 4-A-4 Twelfth Supplemental Indenture of JCP&L, dated November 1, 1965 - Incorporated by reference to Exhibit 5-A-4, Registration No. 2-59785. 4-A-5 Thirteenth Supplemental Indenture of JCP&L, dated August 1, 1966 - Incorporated by reference to Exhibit 4-C, Registration No. 2-25124. 4-A-6 Fourteenth Supplemental Indenture of JCP&L, dated September 1, 1967 - Incorporated by reference to Exhibit 5-A-6, Registration No. 2-59785. 4-A-7 Fifteenth Supplemental Indenture of JCP&L, dated October 1, 1968 - Incorporated by reference to Exhibit 5-A-7, Registration No. 2-59785. 4-A-8 Sixteenth Supplemental Indenture of JCP&L, dated October 1, 1969 - Incorporated by reference to Exhibit 5-A-8, Registration No. 2-59785. 4-A-9 Seventeenth Supplemental Indenture of JCP&L, dated June 1, 1970 - Incorporated by reference to Exhibit 5-A-9, Registration No. 2-59785. 4-A-10 Eighteenth Supplemental Indenture of JCP&L, dated December 1, 1970 - Incorporated by reference to Exhibit 5-A-10, Registration No. 2-59785. 4-A-11 Nineteenth Supplemental Indenture of JCP&L, dated February 1, 1971 - Incorporated by reference to Exhibit 5-A-11, Registration No. 2-59785. 4-A-12 Twentieth Supplemental Indenture of JCP&L, dated November 1, 1971 - Incorporated by reference to Exhibit 5-A-12, Registration No. 2-59875. 4-A-13 Twenty-first Supplemental Indenture of JCP&L, dated August 1, 1972 - Incorporated by reference to Exhibit 5-A-13, Registration No. 2-59785. 4-A-14 Twenty-second Supplemental Indenture of JCP&L, dated August 1, 1973 - Incorporated by reference to Exhibit 5-A-14, Registration No. 2-59785. 4-A-15 Twenty-third Supplemental Indenture of JCP&L, dated October 1, 1973 - Incorporated by reference to Exhibit 5-A-15, Registration No. 2-59785. 4-A-16 Twenty-fourth Supplemental Indenture of JCP&L, dated December 1, 1973 - Incorporated by reference to Exhibit 5-A-16, Registration No. 2-59785. 64 4-A-17 Twenty-fifth Supplemental Indenture of JCP&L, dated November 1, 1974 - Incorporated by reference to Exhibit 5-A-17, Registration No. 2-59785. 4-A-18 Twenty-sixth Supplemental Indenture of JCP&L, dated March 1, 1975 - Incorporated by reference to Exhibit 5-A-18, Registration No. 2-59785. 4-A-19 Twenty-seventh Supplemental Indenture of JCP&L, dated July 1, 1975 - Incorporated by reference to Exhibit 5-A-19, Registration No. 2-59785. 4-A-20 Twenty-eighth Supplemental Indenture of JCP&L, dated October 1, 1975 - Incorporated by reference to Exhibit 5-A-20, Registration No. 2-59785. 4-A-21 Twenty-ninth Supplemental Indenture of JCP&L, dated February 1, 1976 - Incorporated by reference to Exhibit 5-A-21, Registration No. 2-59785. 4-A-22 Supplemental Indenture No. 29A of JCP&L, dated May 31, 1976 - Incorporated by reference to Exhibit 5-A-22, Registration No. 2-59785. 4-A-23 Thirtieth Supplemental Indenture of JCP&L, dated June 1, 1976 - Incorporated by reference to Exhibit 5-A-23, Registration No. 2-59785. 4-A-24 Thirty-first Supplemental Indenture of JCP&L, dated May 1, 1977 - Incorporated by reference to Exhibit 5-A-24, Registration No. 2-59785. 4-A-25 Thirty-second Supplemental Indenture of JCP&L, dated January 20, 1978 - Incorporated by reference to Exhibit 5-A-25, Registration No. 2-60438. 4-A-26 Thirty-third Supplemental Indenture of JCP&L, dated January 1, 1979 - Incorporated by reference to Exhibit A-20(b), Certificate Pursuant to Rule 24, SEC File No. 70-6242. 4-A-27 Thirty-fourth Supplemental Indenture of JCP&L, dated June 1, 1979 - Incorporated by reference to Exhibit A-28, Certificate Pursuant to Rule 24, SEC File No. 70-6290. 4-A-28 Thirty-sixth Supplemental Indenture of JCP&L, dated October 1, 1979 - Incorporated by reference to Exhibit A-30, Certificate Pursuant to Rule 24, SEC File No. 70-6354. 4-A-29 Thirty-seventh Supplemental Indenture of JCP&L, dated September 1, 1984 - Incorporated by reference to Exhibit A-1(cc), Certificate Pursuant to Rule 24, SEC File No. 70-7001. 4-A-30 Thirty-eighth Supplemental Indenture of JCP&L, dated July 1, 1985 - Incorporated by reference to Exhibit A-1(dd), Certificate Pursuant to Rule 24, SEC File No. 70-7109. 65 4-A-31 Thirty-ninth Supplemental Indenture of JCP&L, dated April 1, 1988 - Incorporated by reference to Exhibit A-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-7263. 4-A-32 Fortieth Supplemental Indenture of JCP&L, dated June 14, 1988 - Incorporated by reference to Exhibit A-1(ff), Certificate Pursuant to Rule 24, SEC File No. 70-7603. 4-A-33 Forty-first Supplemental Indenture of JCP&L, dated April 1, 1989 - Incorporated by reference to Exhibit A-1(gg), Certificate Pursuant to Rule 24, SEC File No. 70-7603. 4-A-34 Forty-second Supplemental Indenture of JCP&L, dated July 1, 1989 - Incorporated by reference to Exhibit A-1(hh), Certificate Pursuant to Rule 24, SEC File No. 70-7603. 4-A-35 Forty-third Supplemental Indenture of JCP&L, dated March 1, 1991 - Incorporated by reference to Exhibit 4-A-35, Registration No. 33-45314. 4-A-36 Forty-fourth Supplemental Indenture of JCP&L, dated March 1, 1992 - Incorporated by reference to Exhibit 4-A-36, Registration No. 33-49405. 4-A-37 Forty-fifth Supplemental Indenture of JCP&L, dated October 1, 1992 - Incorporated by reference to Exhibit 4-A-37, Registration No. 33-49405. 4-A-38 Forty-sixth Supplemental Indenture of JCP&L, dated April 1, 1993 - Incorporated by reference to Exhibit C-15, 1992 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-A-39 Forty-seventh Supplemental Indenture of JCP&L, dated April 10, 1993 - Incorporated by reference to Exhibit C-16, 1992 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-A-40 Forty-eighth Supplemental Indenture of JCP&L, dated April 15, 1993 - Incorporated by reference to Exhibit C-17, 1992 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-A-41 Forty-ninth Supplemental Indenture of JCP&L, dated October 1, 1993 - Incorporated by reference to Exhibit C-18, 1993 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-A-42 Fiftieth Supplemental Indenture of JCP&L, dated August 1, 1994 - Incorporated by reference to Exhibit C-19, 1994 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-A-43 Fifty-first Supplemental Indenture of JCP&L, dated August 15, 1996 - Incorporated by reference to Exhibit 4-A-43, 1996 Annual Report on Form 10-K, SEC File No. 1-6047. 4-B Indenture of Met-Ed, dated November 1, 1944 with United States Trust Company of New York, Successor Trustee, as amended and supplemented by fourteen supplemental indentures dated February 1, 1947 through May 1, 1960 - Incorporated by reference to Met-Ed's Instruments of Indebtedness Nos. 1 to 14, inclusive and 16, filed as part of Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126 and 1-3292. 66 4-B-1 Supplemental Indenture of Met-Ed, dated December 1, 1962 Incorporated by reference to Exhibit 2-E(1), Registration No. 2-59678. 4-B-2 Supplemental Indenture of Met-Ed, dated March 20, 1964 Incorporated by reference to Exhibit 2-E(2), Registration No. 2-59678. 4-B-3 Supplemental Indenture of Met-Ed, dated July 1, 1965 Incorporated by reference to Exhibit 2-E(3), Registration No. 2-59678. 4-B-4 Supplemental Indenture of Met-Ed, dated June 1, 1966 Incorporated by reference to Exhibit 2-B-4, Registration No. 2-24883. 4-B-5 Supplemental Indenture of Met-Ed, dated March 22, 1968 Incorporated by reference to Exhibit 4-C-5, Registration No. 2-29644. 4-B-6 Supplemental Indenture of Met-Ed, dated September 1, 1968 Incorporated by reference to Exhibit 2-E(6), Registration No. 2-59678. 4-B-7 Supplemental Indenture of Met-Ed, dated August 1, 1969 Incorporated by reference to Exhibit 2-E(7), Registration No. 2-59678. 4-B-8 Supplemental Indenture of Met-Ed, dated November 1, 1971 Incorporated by reference to Exhibit 2-E(8), Registration No. 2-59678. 4-B-9 Supplemental Indenture of Met-Ed, dated May 1, 1972 Incorporated by reference to Exhibit 2-E(9), Registration No. 2-59678. 4-B-10 Supplemental Indenture of Met-Ed, dated December 1, 1973 Incorporated by reference to Exhibit 2-E(10), Registration No. 2-59678. 4-B-11 Supplemental Indenture of Met-Ed, dated October 30, 1974 Incorporated by reference to Exhibit 2-E(11), Registration No. 2-59678. 4-B-12 Supplemental Indenture of Met-Ed, dated October 31, 1974 Incorporated by reference to Exhibit 2-E(12), Registration No. 2-59678. 4-B-13 Supplemental Indenture of Met-Ed, dated March 20, 1975 Incorporated by reference to Exhibit 2-E(13), Registration No. 2-59678. 4-B-14 Supplemental Indenture of Met-Ed, dated September 25, 1975 - Incorporated by reference to Exhibit 2-E(15), Registration No. 2-59678. 4-B-15 Supplemental Indenture of Met-Ed, dated January 12, 1976 Incorporated by reference to Exhibit 2-E(16), Registration No. 2-59678. 67 4-B-16 Supplemental Indenture of Met-Ed, dated March 1, 1976 Incorporated by reference to Exhibit 2-E(17), Registration No. 2-59678. 4-B-17 Supplemental Indenture of Met-Ed, dated September 28, 1977 - Incorporated by reference to Exhibit 2-E(18), Registration No. 2-62212. 4-B-18 Supplemental Indenture of Met-Ed, dated January 1, 1978 Incorporated by reference to Exhibit 2-E(19), Registration No. 2-62212. 4-B-19 Supplemental Indenture of Met-Ed, dated September 1, 1978 Incorporated by reference to Exhibit 4-A(19), Registration No. 33-48937. 4-B-20 Supplemental Indenture of Met-Ed, dated June 1, 1979 Incorporated by reference to Exhibit 4-A(20), Registration No. 33-48937. 4-B-21 Supplemental Indenture of Met-Ed, dated January 1, 1980 Incorporated by reference to Exhibit 4-A(21), Registration No. 33-48937. 4-B-22 Supplemental Indenture of Met-Ed, dated September 1, 1981 Incorporated by reference to Exhibit 4-A(22), Registration No. 33-48937. 4-B-23 Supplemental Indenture of Met-Ed, dated September 10, 1981 - Incorporated by reference to Exhibit 4-A(23), Registration No. 33-48937. 4-B-24 Supplemental Indenture of Met-Ed, dated December 1, 1982 Incorporated by reference to Exhibit 4-A(24), Registration No. 33-48937. 4-B-25 Supplemental Indenture of Met-Ed, dated September 1, 1983 Incorporated by reference to Exhibit 4-A(25), Registration No. 33-48937. 4-B-26 Supplemental Indenture of Met-Ed, dated September 1, 1984 Incorporated by reference to Exhibit 4-A(26), Registration No. 33-48937. 4-B-27 Supplemental Indenture of Met-Ed, dated March 1, 1985 Incorporated by reference to Exhibit 4-A(27), Registration No. 33-48937. 4-B-28 Supplemental Indenture of Met-Ed, dated September 1, 1985 Incorporated by reference to Exhibit 4-A(28), Registration No. 33-48937. 4-B-29 Supplemental Indenture of Met-Ed, dated June 1, 1988 Incorporated by reference to Exhibit 4-A(29), Registration No. 33-48937. 4-B-30 Supplemental Indenture of Met-Ed, dated April 1, 1990 Incorporated by reference to Exhibit 4-A(30), Registration No. 33-48937. 68 4-B-31 Amendment dated May 22, 1990 to Supplemental Indenture of Met-Ed, dated April 1, 1990 - Incorporated by reference to Exhibit 4-A(31), Registration No. 33-48937. 4-B-32 Supplemental Indenture of Met-Ed, dated September 1, 1992 - Incorporated by reference to Exhibit 4-A(32)(a), Registration No. 33-48937. 4-B-33 Supplemental Indenture of Met-Ed, dated December 1, 1993 Incorporated by reference to Exhibit C-58, 1993 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-B-34 Supplemental Indenture of Met-Ed dated July 15, 1995 Incorporated by reference to Exhibit 4-B-35, 1995 Annual Report on Form 10-K, SEC File No. 1-446. 4-B-35 Supplemental Indenture of Met-Ed dated August 15, 1996 Incorporated by reference to Exhibit 4-B-35, 1996 Annual Report on Form 10-K, SEC File No. 1-446. 4-B-36 Supplemental Indenture of Met-Ed dated May 1, 1997 Incorporated by reference to Exhibit 4-B-36, 1997 Annual Report on Form 10-K, SEC File No. 1-446. 4-C Mortgage and Deed of Trust of Penelec dated January 1, 1942 between Penelec and United States Trust Company of New York, Successor Trustee, and indentures supplemental thereto dated March 7, 1942 through May 1, 1960 - Incorporated by reference to Penelec's Instruments of Indebtedness Nos. 1-20, inclusive, filed as a part of Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126 and 1-3292. 4-C-1 Supplemental Indentures to Mortgage and Deed of Trust of Penelec dated May 1, 1961 through December 1, 1977 Incorporated by reference to Exhibit 2-D(1) to 2-D(19), Registration No. 2-61502. 4-C-2 Supplemental Indenture of Penelec dated June 1, 1978 Incorporated by reference to Exhibit 4-A(2), Registration No. 33-49669. 4-C-3 Supplemental Indenture of Penelec dated June 1, 1979 Incorporated by reference to Exhibit 4-A(3), Registration No. 33-49669. 4-C-4 Supplemental Indenture of Penelec dated September 1, 1984 Incorporated by reference to Exhibit 4-A(4), Registration No. 33-49669. 4-C-5 Supplemental Indenture of Penelec dated December 1, 1985 Incorporated by reference to Exhibit 4-A(5), Registration No. 33-49669. 4-C-6 Supplemental Indenture of Penelec dated December 1, 1986 Incorporated by reference to Exhibit 4-A(6), Registration No. 33-49669. 69 4-C-7 Supplemental Indenture of Penelec dated May 1, 1989 Incorporated by reference to Exhibit 4-A(7), Registration No. 33-49669. 4-C-8 Supplemental Indenture of Penelec dated December 1, 1990-Incorporated by reference to Exhibit 4-A(8), Registration No. 33-45312. 4-C-9 Supplemental Indenture of Penelec dated March 1, 1992 Incorporated by reference to Exhibit 4-A(9), Registration No. 33-45312. 4-C-10 Supplemental Indenture of Penelec, dated June 1, 1993 Incorporated by reference to Exhibit C-73, 1993 Annual Report of GPU on Form U5S, SEC File No. 30-126. 4-C-11 Supplemental Indenture of Penelec dated November 1, 1995 Incorporated by reference to Exhibit 4-C-11, 1995 Annual Report on Form 10-K, SEC File No. 1-3522. 4-C-12 Supplemental Indenture of Penelec dated August 15, 1996 Incorporated by reference to Exhibit 4-C-12, 1996 Annual Report on Form 10-K, SEC File No. 1-3522. 4-D Subordinated Debenture Indenture of JCP&L dated May 1, 1995 - Incorporated by reference to Exhibit A-8(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495. 4-E Subordinated Debenture Indenture of Met-Ed dated August 1, 1994 - Incorporated by reference to Exhibit A-8(a), Certificate Pursuant to Rule 24, SEC File No. 70-8401. 4-F Subordinated Debenture Indenture of Penelec dated July 1, 1994 - Incorporated by reference to Exhibit A-8(a), Certificate Pursuant to Rule 24, SEC File No. 70-8403. 4-G Amended and Restated Limited Partnership Agreement of JCP&L Capital, L.P., dated May 11, 1995 - Incorporated by reference to Exhibit A-5(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495. 4-H Action Creating Series A Preferred Securities of JCP&L Capital, L.P., dated May 11, 1995 - Incorporated by reference to Exhibit A-6(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495. 4-I Payment and Guarantee Agreement of JCP&L, dated May 18, 1995 - Incorporated by reference to Exhibit B-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495. 4-J Amended and Restated Limited Partnership Agreement of Met-Ed Capital, L.P., dated August 16, 1994 - Incorporated by reference to Exhibit A-5(a), Certificate Pursuant to Rule 24, SEC File No. 70-8401. 4-K Action Creating Series A Preferred Securities of Met-Ed Capital, L.P., dated August 16, 1994 - Incorporated by reference to Exhibit A-6(a), Certificate Pursuant to Rule 24, SEC File No. 70-8401. 70 4-L Payment and Guarantee Agreement of Met-Ed, dated August 23, 1994 - Incorporated by reference to Exhibit B-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-8401. 4-M Amended and Restated Limited Partnership Agreement of Penelec Capital, L.P., dated June 27, 1994 - Incorporated by reference to Exhibit A-5(a), Certificate Pursuant to Rule 24, SEC File No. 70-8403. 4-N Action Creating Series A Preferred Securities of Penelec Capital, L.P., dated June 27, 1994 - Incorporated by reference to Exhibit A-6(a), Certificate Pursuant to Rule 24, SEC File No. 70-8403. 4-O Payment and Guarantee Agreement of Penelec, dated July 5, 1994 - Incorporated by reference to Exhibit B-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-8403. 4-P Form of Rights Agreement between GPU, Inc. and ChaseMellon Shareholder Services, L.L.C. - Incorporated by reference to Exhibit 4, June 30, 1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047. 10-A GPU System Companies Deferred Compensation Plan dated June 5, 1997 - Incorporated by reference to Exhibit 10-A, 1997 Annual Report on Form 10-K, SEC File No. 1-6047, 1-3141, 1-446 and 1-3522. 10-B GPU System Companies Master Directors' Benefits Protection Trust dated February 6, 1997 - Incorporated by reference to Exhibit 10-B, 1997 Annual Report on Form 10-K, SEC File No. 1-6047 and 1-3141. 10-C GPU System Companies Master Executives' Benefits Protection Trust dated February 6, 1997 - Incorporated by reference to Exhibit 10-C, 1997 Annual Report on Form 10-K, SEC File No. 1-6047, 1-3141, 1-446 and 1-3522. 10-D Employee Incentive Compensation Plan of JCP&L dated April 1, 1995 - Incorporated by reference to Exhibit 10-D, 1995 Annual Report on Form 10-K, SEC File No. 1-3141. 10-E Employee Incentive Compensation Plan of Met-Ed dated April 1, 1995 - Incorporated by reference to Exhibit 10-E, 1995 Annual Report on Form 10-K, SEC File No. 1-446. 10-F Employee Incentive Compensation Plan of Penelec dated April 1, 1995 - Incorporated by reference to Exhibit 10-F, 1995 Annual Report on Form 10-K, SEC File No. 1-3522. 10-G Incentive Compensation Plan for Elected Officers of JCP&L dated February 6, 1997 - Incorporated by reference to Exhibit 10-G, 1997 Annual Report on Form 10-K, SEC File No. 1-3141. 10-H Incentive Compensation Plan for Elected Officers of Met-Ed dated February 6, 1997 - Incorporated by reference to Exhibit 10-H, 1997 Annual Report on Form 10-K, SEC File No. 1-446. 71 10-I Incentive Compensation Plan for Elected Officers of Penelec dated February 6, 1997 - Incorporated by reference to Exhibit 10-I, 1997 Annual Report on Form 10-K, SEC File No. 1-3522. 10-J Deferred Remuneration Plan for Outside Directors of JCP&L dated June 5, 1997 - Incorporated by reference to Exhibit 10-J, 1997 Annual Report on Form 10-K, SEC File No. 1-3141. 10-K JCP&L Supplemental and Excess Benefits Plan dated June 5, 1997 - Incorporated by reference to Exhibit 10-K, 1997 Annual Report on Form 10-K, SEC File No. 1-3141. 10-L Met-Ed Supplemental and Excess Benefits Plan dated June 5, 1997 - Incorporated by reference to Exhibit 10-L, 1997 Annual Report on Form 10-K, SEC File No. 1-446. 10-M Penelec Supplemental and Excess Benefits Plan dated June 5, 1997 - Incorporated by reference to Exhibit 10-M, 1997 Annual Report on Form 10-K, SEC File No. 1-3522. 10-N Letter agreement dated August 7, 1997 relating to terms of employment and pension benefits for I.H. Jolles Incorporated by reference to Exhibit 10-O, 1997 Annual Report on Form 10-K, SEC File No. 1-6047. 10-O GPU, Inc. Restricted Stock Plan for Outside Directors dated June 4, 1998. 10-P Retirement Plan for Outside Directors of GPU, Inc. dated June 5, 1997 - Incorporated by reference to Exhibit 10-R, 1997 Annual Report on Form 10-K, SEC File No. 1-6047. 10-Q Deferred Remuneration Plan for Outside Directors of GPU, Inc. dated October 8, 1997 - Incorporated by reference to Exhibit 10-R, 1997 Annual Report on Form 10-S, SEC File No. 1-6047. 10-R Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between Oyster Creek Fuel Corp. and JCP&L. 10-S Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between TMI-1 Fuel Corp. and JCP&L. 10-T Letter Agreement, dated as of November 5, 1998, from JCP&L relating to Oyster Creek Nuclear Material Lease Agreement. 10-U Letter Agreement, dated as of November 5, 1998, from JCP&L relating to JCP&L TMI-1 Nuclear Material Lease Agreement. 72 10-V Second Amended and Restated Trust Agreement, dated as of November 5, 1998, between United States Trust Company of New York, as Owner Trustee, Lord Fuel Corp., as Trustor and Beneficiary, and JCP&L, Met-Ed and Penelec. 10-W Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between TMI-1 Fuel Corp. and Met-Ed. 10-X Letter Agreement, dated as of November 5, 1998, from Met-Ed relating to Met-Ed TMI-1 Nuclear Material Lease Agreement. 10-Y Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between TMI-1 Fuel Corp. and Penelec. 10-Z Letter Agreement, dated as of November 5, 1998, from Penelec relating to Penelec TMI-1 Nuclear Material Lease Agreement. 10-AA GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries as amended and restated to reflect amendments through March 5, 1998. 10-BB Form of 1998 Stock Option Agreement under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. 10-CC Form of 1998 Performance Units Agreement under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. 10-DD Severance Protection Agreement for Dennis P. Baldassari, dated June 5, 1997 - Incorporated by reference to Exhibit 10, June 30, 1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047. 10-EE Severance Protection Agreement for Thomas G. Broughton, dated June 5, 1997 - Incorporated by reference to Exhibit 4, June 30, 1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047. 10-FF Severance Protection Agreement for Fred D. Hafer, dated June 5, 1997 - Incorporated by reference to Exhibit 4, June 30, 1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047. 10-GG Severance Protection Agreement for Ira H. Jolles, dated June 5, 1997 - Incorporated by reference to Exhibit 4, June 30, 1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047. 10-HH Severance Protection Agreement for Bruce L. Levy, dated June 5, 1997 - Incorporated by reference to Exhibit 4, June 30, 1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047. 10-II Severance Protection Agreement for Robert L. Wise, dated June 5, 1997 - Incorporated by reference to Exhibit 4, June 30, 1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047. 73 10-JJ Purchase and Sale Agreement by and between Penelec and FE Acquisition Corp., dated as of October 30, 1998 Incorporated by reference to Exhibit B-1, Amendment No. 1 to Declaration on Form U-1, SEC File 70-9457. 10-KK Homer City Electric Generating Station Asset Purchase Agreement by and among Penelec, NGE Generation, Inc., and New York State Electric & Gas Corporation, as sellers, and Mission Energy Westside, Inc., as buyer, dated as of August 1, 1998. 10-LL Purchase and Sale Agreement by and between JCP&L, as seller, and Sithe Energies, Inc., as buyer, dated as of October 29, 1998. 10-MM Purchase and Sale Agreement by and among JCP&L, Met-Ed as sellers, GPU, Inc, and Sithe Energies, Inc., as buyer, dated as of October 29, 1998. 10-NN Purchase and Sale Agreement by and between Met-Ed, as seller, and Sithe Energies, Inc., as buyer, dated as of October 29, 1998. 10-OO Purchase and Sale Agreement by and between Penelec, as seller, and Sithe Energies, Inc., as buyer, dated as of October 29, 1998. 10-PP Voluntary Enhanced Retirement Program Agreement for Nonbargaining Employees - Robert L. Wise, dated as of September 17, 1998. 10-QQ TMI Unit 1 Nuclear Generating Facility Asset Purchase Agreement by and among GPUN, JCP&L, Met-Ed, and Penelec as sellers, and AmerGen Energy Conpany, LLC, as buyer, dated as of October 15, 1998. 12 Statements Showing Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. A - GPU, Inc. and Subsidiary Companies B - JCP&L C - Met-Ed D - Penelec 21 Subsidiaries of the Registrants A - JCP&L B - Met-Ed C - Penelec 23 Consent of Independent Accountants A - GPU, Inc. B - JCP&L C - Met-Ed D - Penelec 74 27 Financial Data Schedules A - GPU, Inc. and Subsidiary Companies B - JCP&L C - Met-Ed D - Penelec 99 Generation Divestiture-1998 Pro-Forma Financial Statements. (b) Reports on Form 8-K: GPU, Inc.: Dated November 12, 1998, under Item 5 (Other Events). Dated December 7, 1998, under Item 5 (Other Events). Dated December 10, 1998, under Item 5 (Other Events). Dated January 4, 1999, under Item 5 (Other Events). Jersey Central Power & Light Company: Dated November 12, 1998, under Item 5 (Other Events). Metropolitan Edison Company: Dated November 12, 1998, under Item 5 (Other Events). Pennsylvania Electric Company: Dated November 12, 1998, under Item 5 (Other Events). 75 GPU, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GPU, INC. Dated: March 30, 1999 BY: /s/ F. D. Hafer ------------------------ F. D. Hafer, Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Title Date /s/ F. D. Hafer March 30, 1999 - ---------------------------------------------- F. D. Hafer, Chairman (Chief Executive Officer) and President /s/ B. L. Levy March 30, 1999 - ---------------------------------------------- B. L. Levy, Senior Vice President (Chief Financial Officer) /s/ P. E. Maricondo March 30, 1999 - ---------------------------------------------- P. E. Maricondo, Vice President and Comptroller (Chief Accounting Officer) /s/ T. H. Black March 30, 1999 - ---------------------------------------------- T. H. Black, Director /s/ T. B. Hagen March 30, 1999 - ---------------------------------------------- T. B. Hagen, Director /s/ H. F. Henderson, Jr. March 30, 1999 - ---------------------------------------------- H. F. Henderson, Jr., Director /s/ J. M. Pietruski March 30, 1999 - ---------------------------------------------- J. M. Pietruski, Director /s/ C. A. Rein March 30, 1999 - ---------------------------------------------- C. A. Rein, Director /s/ P. R. Roedel March 30, 1999 - ---------------------------------------------- P. R. Roedel, Director /s/ B. S. Townsend March 30, 1999 - ---------------------------------------------- B. S. Townsend, Director /s/ C. A. H. Trost March 30, 1999 - ---------------------------------------------- C. A. H. Trost, Director /s/ P. K. Woolf March 30, 1999 - ---------------------------------------------- P. K. Woolf, Director 76 JERSEY CENTRAL POWER & LIGHT COMPANY SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. JERSEY CENTRAL POWER & LIGHT COMPANY Dated: March 30, 1999 BY: /s/ D. Baldassari -------------------------------- D. Baldassari, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Title Date /s/ F. D. Hafer March 30, 1999 - ---------------------------------------------- F. D. Hafer, Chairman (Principal Executive Officer) and Director /s/ D. Baldassari March 30, 1999 - ---------------------------------------------- D. Baldassari, President (Principal Operating Officer) and Director /s/ B. L. Levy March 30, 1999 - ---------------------------------------------- B. L. Levy, Vice President (Principal Financial Officer) /s/ D. W. Myers March 30, 1999 - ---------------------------------------------- D. W. Myers, Vice President-Comptroller (Principal Accounting Officer) and Director /s/ C. B. Snyder March 30, 1999 - ---------------------------------------------- C. B. Snyder, Director /s/ G. E. Persson March 30, 1999 - ---------------------------------------------- G. E. Persson, Director /s/ S. C. Van Ness March 30, 1999 S. C. Van Ness, Director /s/ S. B. Wiley March 30, 1999 - ---------------------------------------------- S. B. Wiley, Director 77 METROPOLITAN EDISON COMPANY SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. METROPOLITAN EDISON COMPANY Dated: March 30, 1999 BY: /s/ D. Baldassari ----------------------------- D. Baldassari, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Title Date /s/ F. D. Hafer March 30, 1999 - ---------------------------------------------- F. D. Hafer, Chairman (Principal Executive Officer) and Director /s/ D. Baldassari March 30, 1999 - ---------------------------------------------- D. Baldassari, President (Principal Operating Officer) and Director /s/ B. L. Levy March 30, 1999 - ---------------------------------------------- B. L. Levy, Vice President (Principal Financial Officer) /s/ D. W. Myers March 30, 1999 - ---------------------------------------------- D. W. Myers, Vice President-Comptroller (Principal Accounting Officer) and Director /s/ C. B. Snyder March 30, 1999 - ---------------------------------------------- C. B. Snyder, Director 78 PENNSYLVANIA ELECTRIC COMPANY SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. PENNSYLVANIA ELECTRIC COMPANY Dated: March 30, 1999 BY: /s/ D. Baldassari ----------------------------- D. Baldassari, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Title Date /s/ F. D. Hafer March 30, 1999 - ---------------------------------------------- F. D. Hafer, Chairman (Principal Executive Officer) and Director /s/ D. Baldassari March 30, 1999 - ---------------------------------------------- D. Baldassari, President (Principal Operating Officer) and Director /s/ B. L. Levy March 30, 1999 - ---------------------------------------------- B. L. Levy, Vice President (Principal Financial Officer) /s/ D. W. Myers March 30, 1999 - ---------------------------------------------- D. W. Myers, Vice President-Comptroller (Principal Accounting Officer) and Director /s/ C. B. Snyder March 30, 1999 - ---------------------------------------------- C. B. Snyder, Director 79 INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES GPU, INC. Page Supplementary Data GPU Energy Companies' Statistics F-3 Selected Financial Data F-4 Quarterly Financial Data F-6 Combined Management's Discussion and Analysis of Financial Condition and Results of Operations F-7 Financial Statements Report of Independent Accountants F-44 Consolidated Balance Sheets as of December 31, 1998 and 1997 F-45 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 F-47 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1998, 1997 and 1996 F-48 Consolidated Statements of Retained Earnings for the Years Ended December 31, 1998, 1997 and 1996 F-48 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-49 Combined Notes to Consolidated Financial Statements F-50 Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the Years 1996-1998 F-119 JERSEY CENTRAL POWER & LIGHT COMPANY Supplementary Data Company Statistics F-120 Selected Financial Data F-121 Quarterly Financial Data F-122 Financial Statements Report of Independent Accountants F-123 Consolidated Balance Sheets as of December 31, 1998 and 1997 F-124 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 F-126 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1998, 1997 and 1996 F-127 Consolidated Statements of Retained Earnings for the Years Ended December 31, 1998, 1997 and 1996 F-127 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-128 Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the Years 1996-1998 F-129 F-1 INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES METROPOLITAN EDISON COMPANY Supplementary Data Company Statistics F-130 Selected Financial Data F-131 Quarterly Financial Data F-132 Financial Statements Report of Independent Accountants F-133 Consolidated Balance Sheets as of December 31, 1998 and 1997 F-134 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 F-136 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1998, 1997 and 1996 F-137 Consolidated Statements of Retained Earnings for the Years Ended December 31, 1998, 1997 and 1996 F-137 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-138 Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the Years 1996-1998 F-139 PENNSYLVANIA ELECTRIC COMPANY Supplementary Data Company Statistics F-140 Selected Financial Data F-141 Quarterly Financial Data F-142 Financial Statements Report of Independent Accountants F-143 Consolidated Balance Sheets as of December 31, 1998 and 1997 F-144 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 F-146 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1998, 1997 and 1996 F-147 Consolidated Statements of Retained Earnings for the Years Ended December 31, 1998, 1997 and 1996 F-147 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-148 Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the Years 1996-1998 F-149 Schedules other than those listed above have been omitted since they are not required, are inapplicable or the required information is presented in the Financial Statements or Notes thereto. F-2 GPU, Inc. and Subsidiary Companies
GPU ENERGY COMPANIES' STATISTICS For The Years Ended December 31, 1998 1997 1996 1995 1994 1993 - -------------------------------- ---- ---- ---- ---- ---- ---- Capacity at System Peak (in MW): Company owned 6,751 6,740 6,680 6,637 6,655 6,735 Contracted 4,275 3,930 3,536 3,604 3,416 3,236 ----- ----- ----- ----- ----- ----- Total capacity (a) 11,026 10,670 10,216 10,241 10,071 9,971 ====== ====== ====== ====== ====== ===== Hourly Peak Load (in MW): Summer peak 9,412 9,555 8,497 9,101 8,521 8,533 Winter peak 7,579 7,736 7,756 7,861 7,683 7,167 Reserve at system peak (%) 17.0 11.7 20.2 12.5 18.2 16.9 Load factor (%) (b) 59.4 57.6 64.2 57.5 61.7 60.9 Sources of Energy (in thousands of MWH): Coal 19,675 19,390 18,133 17,500 16,548 16,969 Nuclear 11,358 10,992 11,439 11,582 10,216 10,614 Gas, hydro & oil 888 800 812 1,019 1,071 575 --- --- --- ----- ----- --- Net generation 31,921 31,182 30,384 30,101 27,835 28,158 Utility purchases and interchange 8,782 9,004 8,795 10,297 10,326 11,984 Nonutility purchases 10,952 11,119 11,046 10,712 8,810 8,383 ------ ------ ------ ------ ----- ----- Total sources of energy 51,655 51,305 50,225 51,110 46,971 48,525 Company use, line loss, etc (4,300) (5,437) (5,777) (5,357) (4,313) (5,166) Total electric energy sales 47,355 45,868 44,448 45,753 42,658 43,359 ====== ====== ====== ====== ====== ====== Fuel Expense (in millions): Coal $ 263 $ 268 $ 263 $ 251 $ 260 $ 266 Nuclear 67 63 70 74 65 66 Gas & oil 32 40 38 38 39 32 -- -- -- -- -- -- Total $ 362 $ 371 $ 371 $ 363 $ 364 $ 364 ======== ======== ======== ======== ======== ======== Power Purchased and Interchanged (in millions): Utility and interchange purchases $ 311 $ 294 $ 267 $ 351 $ 367 $ 406 Nonutility purchases 788 734 730 671 528 491 Deferred nonutility costs (Pa.) (17) -- -- -- -- -- Amortization of nonutility buyout costs 30 19 9 -- -- -- -- -- - Total $ 1,112 $ 1,047 $ 1,006 $ 1,022 $ 895 $ 897 ======== ======== ======== ======== ======== ======== Electric Energy Sales (in thousands of MWH): Residential 15,347 15,091 15,298 14,802 14,788 14,498 Commercial 14,778 14,281 14,017 13,544 13,301 12,919 Industrial 12,644 12,469 12,093 11,982 11,983 11,699 Other 996 1,110 1,105 1,143 1,245 1,221 Sales to customers 43,765 42,951 42,513 41,471 41,317 40,337 Sales to other utilities 3,590 2,917 1,935 4,282 1,341 3,022 ----- ----- ----- ----- ----- ----- Total 47,355 45,868 44,448 45,753 42,658 43,359 ====== ====== ====== ====== ====== ====== Operating Revenues (in millions): Residential $ 1,579 $ 1,617 $ 1,599 $ 1,542$ 1,503 $ 1,465 Commercial 1,350 1,372 1,324 1,258 1,215 1,169 Industrial 795 833 803 780 774 755 Other 4 75 71 73 78 89 Sales to customers 3,728 3,897 3,797 3,653 3,570 3,478 Sales to other utilities 132 77 57 101 24 67 Total electric energy sales 3,860 3,974 3,854 3,754 3,594 3,545 Other revenues 93 70 64 51 56 51 -- -- -- -- -- -- Total $ 3,953 $ 4,044 $ 3,918 $ 3,805 $ 3,650 $ 3,596 ======= ======= ======= ======= ======= ======= Price per KWH (in cents): Residential 10.29 10.64 10.51 10.35 10.18 10.07 Commercial 9.14 9.54 9.47 9.25 9.12 9.04 Industrial 6.29 6.61 6.65 6.51 6.46 6.47 Total sales to customers 8.67 9.00 8.96 8.77 8.64 8.61 Total electric energy sales 8.29 8.60 8.70 8.17 8.43 8.17 Customers at Year-End (in thousands) 2,041 2,021 1,997 1,976 1,949 1,925 (a) Summer ratings at December 31, 1998 of owned and contracted capacity were 6,751 MW and 4,325 MW, respectively. (b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year.
F-3 GPU, Inc. and Subsidiary Companies
SELECTED FINANCIAL DATA For The Years Ended December 31, 1998(1) 1997(2) 1996(3) 1995(4) 1994(5) 1993 - -------------------------------- ------- ------- ------- ------- ------- ---- Common Stock Data Earnings per common share before extraordinary item: Basic $ 3.03 $ 2.78 $ 2.48 $ 3.79 $1.42 $ 2.65 Diluted $ 3.03 $ 2.77 $ 2.47 $ 3.79 $1.42 $ 2.65 Earnings per common share: Basic $ 2.83 $ 2.78 $ 2.48 $ 3.79 $1.42 $ 2.65 Diluted $ 2.83 $ 2.77 $ 2.47 $ 3.79 $1.42 $ 2.65 Cash dividends paid per share $ 2.045 $ 1.985 $ 1.925 $ 1.86 $1.775 $ 1.65 Book value per share $ 27.01 $ 25.59 $ 25.21 $ 24.66 $22.31 $ 22.69 Closing market price per share $44 3/16 $ 42 1/8 $ 33 5/8 $ 34 $ 26 1/4 $ 30 7/8 Common shares outstanding (In Thousands): Basic average 127,093 120,722 120,513 116,063 115,077 111,732 Diluted average 127,312 121,002 120,751 116,179 115,110 111,749 At year-end 127,996 121,081 120,870 120,619 115,315 115,041 Market price to book value at year-end 164% 165% 133% 138% 118% 136% Price/earnings ratio 15.6 15.2 13.6 9.0 18.5 11.7 Return on average common equity 10.7% 10.7% 9.8% 16.0% 6.3% 11.9% Financial Data (In Millions) Operating revenues $4,248.8 $4,143.4 $3,970.7 $3,822.5 $3,654.2 $3,599.4 Other operation and maintenance expense 1,106.9 993.7 1,114.9 965.1 1,085.5 914.1 Income before extraordinary item 385.9 335.1 298.4 440.1 163.7 295.7 Net income 360.1 335.1 298.4 440.1 163.7 295.7 Net utility plant in service 6,565.1 7,100.5 5,942.4 5,862.4 5,731.0 5,512.1 Total assets 16,288.1 12,822.9 10,851.4 9,751.5 9,087.6 8,692.1 Long-term debt 3,825.6 4,326.0 3,177.0 2,567.9 2,345.4 2,320.4 Long-term obligations under capital leases 2.6 3.3 6.6 11.7 17.0 23.3 Subsidiary-obligated mandatorily redeemable preferred securities 330.0 330.0 330.0 330.0 205.0 - Cumulative preferred stock with mandatory redemption 86.5 91.5 114.0 134.0 150.0 150.0 Capital expenditures and investments 468.2 2,268.6 977.5 626.7 659.8 511.9 Employees (actual) 8,957 9,346 9,345 10,286 10,555 11,963
F-4 GPU, Inc. and Subsidiary Companies (1) Results for 1998 include an extraordinary charge of $25.8 million (after-tax), or $0.20 per share, as a result of the PaPUC's Restructuring Orders on Met-Ed and Penelec's restructuring plans. Also in 1998, as a result of the PaPUC Orders, GPU recorded a non-recurring charge of $40 million (after-tax), or $0.32 per share, related to the obligation to refund 1998 revenues; and for the establishment of a sustainable energy fund. (2) Results for 1997 reflect a non-recurring charge of $109.3 million, or $0.90 per share, for a windfall profits tax imposed on privatized utilities, including Midlands Electricity plc, by the Government of the United Kingdom. (3) Results for 1996 reflect a non-recurring charge of $74.5 million ( after-tax), or $0.62 per share, for costs related to voluntary enhanced retirement programs. (4) Results for 1995 reflect the reversal of $104.9 million (after-tax), or $0.91 per share, of certain future TMI-2 retirement costs written off in 1994. The reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that overturned a 1994 lower court order, and restored a 1993 PaPUC order allowing for the recovery of such costs. Partially offsetting this increase was a non-recurring charge to income of $8.4 million (after-tax), or $0.07 per share, of TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. (5) Results for 1994 reflect a net non-recurring charge to earnings of $164.7 million (after-tax), or $1.43 per share, due to the write-off of certain future TMI-2 retirement costs ($104.9 million, or $0.91 per share); a charge for costs related to early retirement programs ($76.1 million, or $0.66 per share); a write-off of Penelec's postretirement benefit costs believed not probable of recovery in rates ($10.6 million, or $0.09 per share); and net interest income from refunds of previously paid federal income taxes related to the tax retirement of TMI-2 ($26.9 million, or $0.23 per share). F-5 GPU, Inc. and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED) First Quarter Second Quarter ------------- -------------- In Thousands, Except Per Share Data 1998 1997 1998* 1997 - -------------- ---- ---- ----- ---- Operating revenues $1,043,109 $1,051,012 $1,015,087 $942,783 Operating income 193,341 196,258 165,306 132,809 Income before extraordinary item 133,780 155,038 79,937 70,249 Net income/(loss) 133,780 155,038 (195,173) 70,249 Basic earnings per share before extraordinary item 1.07 1.29 0.62 0.58 Diluted earnings per share before extraordinary item 1.07 1.28 0.62 0.58 Basic earnings/(loss) per share 1.07 1.29 (1.54) 0.58 Diluted earnings/(loss) per share 1.07 1.28 (1.54) 0.58 Third Quarter Fourth Quarter ------------- -------------- In Thousands, Except Per Share Data 1998** 1997*** 1998 1997 - -------------- ------ ------- ---- ---- Operating revenues $1,168,779 $1,117,140 $1,021,817 $1,032,444 Operating income 177,630 177,286 121,561 140,765 Income before extraordinary 88,691 16,904 83,473 92,910 item Net income 338,046 16,904 83,473 92,910 Basic earnings per share before extraordinary item 0.69 0.14 0.65 0.77 Diluted earnings per share before extraordinary item 0.69 0.14 0.65 0.77 Basic earnings per share 2.65 0.14 0.65 0.77 Diluted earnings per share 2.65 0.14 0.65 0.77 * Results for the second quarter of 1998 were affected by an extraordinary charge of $275.1 million after-tax, or $2.16 per share, as a result of the Pennsylvania Public Utility Commission's (PaPUC) June 30, 1998 Restructuring Orders on Met-Ed and Penelec's restructuring plans. ** In the third quarter of 1998, as a result of amended PaPUC Restructuring Orders, GPU reversed $266.3 million after-tax, or $2.09 per share, of the extraordinary charge taken in the second quarter, primarily related to above-market nonutility generation costs; and recorded an additional extraordinary charge of $17 million after-tax, or $0.13 per share, primarily related to the write-off of FERC assets. Also, in the third quarter of 1998, as a result of the amended PaPUC Orders, GPU recorded a non-recurring charge of $40 million after-tax, or $0.32 per share, related to the obligation to refund 1998 revenues; and for the establishment of a sustainable energy fund. *** Results for the third quarter of 1997 reflect a non-recurring charge of $109.3 million, or $0.90 per share, for a windfall profits tax imposed on privatized utilities, including Midlands Electricity plc, by the Government of the United Kingdom.
F-6 GPU, Inc. and Subsidiary Companies COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GPU, Inc. owns all the outstanding common stock of three domestic electric utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer service, transmission and distribution operations of these electric utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU Energy companies." The generation operations of the GPU Energy companies are conducted by GPU Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). The "GPUI Group," as referred to in this report, develops, owns, operates and funds the acquisition of generation, transmission and distribution facilities worldwide through GPU International, Inc., GPU Power, Inc., GPU Capital, Inc. and GPU Electric, Inc., a subsidiary of GPU Capital, Inc. (Effective January 1, 1999, GPU International, Inc. and GPU Power, Inc., will develop, own, operate and fund the acquisition of generation facilities worldwide and will be referred to as the "GPUI Group." GPU Capital, Inc. and GPU Electric, Inc., will develop, own, operate and fund the acquisition of transmission and distribution systems outside the United States and will be referred to as "GPU Electric.") Other subsidiaries of GPU, Inc. include GPU Advanced Resources, Inc. (GPU AR), which is involved in retail energy sales; GPU Telcom Services, Inc. (GPU Telcom), which is engaged in telecommunications-related businesses; and GPU Service, Inc. (GPUS), which provides legal, accounting, financial and other services to the GPU companies. All of these companies considered together are referred to as "GPU." GPU RESULTS OF OPERATIONS GPU's 1998 earnings were $360.1 million, compared with 1997 earnings of $335.1 million. The earnings per share on a diluted basis for 1998 was $2.83, compared with earnings per share of $2.77 in 1997. GPU's return on average common equity was 10.7% in 1998, compared to 10.7% in 1997. Both periods reflect non-recurring items. In 1998, a non-recurring charge of $65.8 million after-tax, or $0.52 per share, was taken as a result of the Pennsylvania Public Utility Commission's (PaPUC) restructuring rate orders (Restructuring Orders) received by Met-Ed and Penelec. In 1997, a non-recurring charge of $109.3 million, or $0.90 per share, was taken for a windfall profits tax assessed on privatized utilities by the Government of the United Kingdom. Excluding the impact of the non-recurring items, GPU's earnings for 1998 would have been $425.9 million, compared to $444.4 million in 1997, and earnings per share on a diluted basis for 1998 would have been $3.35, compared to $3.67 in 1997. Return on average common equity for 1998 and 1997 on this basis would have been 12.4% and 14%, respectively. The 1998 earnings per share decrease on this basis was due to lower income from GPU's domestic utility operations, and increased shares outstanding due to the sale of GPU, Inc. common stock in February 1998. The GPU Energy companies' earnings reduction for the period was due to increased operation and maintenance expenses primarily related to the implementation of a new company-wide computer software system and restructuring costs related to staff reductions, partially offset by higher electric sales. After adjusting for the related impacts of F-7 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) the windfall profits tax, the GPUI Group's income contribution increased for the year and partially offset the GPU Energy companies' decrease. GPU, Inc. has reported to the financial community that in its view, GPU's 1998 earnings, on a "normalized" basis, were $3.66 per share (as compared to "normalized" earnings of $3.27 per share in 1997). This level of earnings for 1998 reflects adjustments to the reported $2.83 earnings per share as follows: the exclusion of the $0.52 per share charge related to the PaPUC's Restructuring Orders, the negative weather-effect on electric sales of $0.22 per share, $0.08 per share for a charge for the NUG portion of unbilled revenue, a $0.10 per share charge for costs related to staff reductions, and a $0.06 per share charge to terminate a power supply contract with Middletown, PA; offset by the exclusion of $0.15 per share of additional income for a gain on the sale of GPUI Group's investment in Solaris Power. GPU's 1997 earnings were $335.1 million, compared to 1996 earnings of $298.4 million. Earnings per share on a diluted basis were $2.77 in 1997, compared to $2.47 per share in 1996. If non-recurring items are excluded, earnings for 1997 would have been $444.4 million, or $3.67 per share, compared to $372.9 million, or $3.09 per share in 1996. The 1997 earnings increase on this basis was mainly due to increased earnings from the GPUI Group (including the result of GPU's policy of accruing U.S. income tax on its worldwide operations, which reduced GPU's federal income tax liability); reduced operation and maintenance expenses; increased kilowatt-hour (KWH) sales to domestic utility customers; and a step increase in unbilled revenue recorded by Met-Ed and Penelec as a result of including their energy cost rates (ECRs) in base rates and the cessation of deferred energy accounting, both effective January 1, 1997. These increases were partially offset by higher depreciation and financing expenses, increased amortizations due to a rate cap on JCP&L's earnings and the absence in 1997 of gains associated with the 1996 reacquisition of preferred stock. OPERATING REVENUES: Operating revenues increased 2.5% to $4.2 billion in 1998, after increasing 4.3% to $4.1 billion in 1997. The components of these changes were as follows: (in millions) 1998 1997 ---- ---- GPU Energy companies: KWH revenues $ 30.9 $ 94.6 Energy-related revenues 49.8 23.3 Obligation to refund 1998 revenues to customers per PaPUC Order (56.4) - GPU Telcom revenues 16.1 - Other revenues (130.9) 7.8 ------ ----- Total GPU Energy companies (90.5) 125.7 GPUI Group 186.3 45.7 GPU AR 9.6 1.3 ----- ------ Total increase in revenues $105.4 $172.7 ===== ===== F-8 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) GPU Energy Companies Kilowatt-hour revenues 1998 The increase in KWH revenues was primarily due to an increase in residential and commercial customer usage, partially offset by lower weather-related sales to residential and commercial customers, and the absence in 1998 of the step increase in unbilled revenue recorded by Met-Ed and Penelec as a result of including their ECRs in base rates in 1997. 1998 KWH Customer Sales by Service Class Residential 35% Commercial 34% Industrial/Other 31% 1997 The increase in KWH revenues was due primarily to the step increase in unbilled revenue recorded by Met-Ed and Penelec from inclusion of their ECRs in base rates; higher usage by industrial customers; and an increase in the number of commercial and residential customers. These increases were partially offset by lower weather-related sales to residential customers. KWH revenues include Met-Ed and Penelec's energy and tax revenues, consistent with the inclusion of their ECRs and State Tax Adjustment Surcharges (STAS) in base rates, effective January 1, 1997. Energy-related revenues (JCP&L only) 1998 and 1997 Generally, changes in energy-related revenues do not affect earnings as they reflect corresponding changes in JCP&L's levelized energy adjustment clause (LEAC) billed to customers and expensed. The 1998 increase was due primarily to increased sales to other utilities and higher residential and commercial customer sales. The 1997 increase was due primarily to higher energy cost rates and increased industrial and commercial customer sales. Obligation to refund 1998 revenues to customers per PaPUC Order 1998 The decrease in revenues reflects transmission and distribution (T&D) rate reductions resulting from the PaPUC's Restructuring Orders for Met-Ed and Penelec. These rate reductions reflect Met-Ed and Penelec's obligation to make refunds to customers from 1998 revenues (2.5% for Met-Ed customers and 3% for Penelec customers). GPU Telcom revenues 1998 GPU Telcom, a subsidiary formed in 1997, derived its 1998 revenues from contracts for the leasing and construction of telecommunication infrastructure. F-9 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) Other revenues 1998 and 1997 Generally, changes in other revenues do not affect earnings as they are offset by corresponding changes in expense. The 1998 decrease is primarily due to a decrease in revenue taxes as a result of New Jersey tax legislation that eliminated the gross receipts and franchise tax on utility bills and replaced it with a sales tax, a corporate business tax and a transitional energy facilities assessment, effective January 1, 1998. (See COMPETITIVE ENVIRONMENT AND RATE MATTERS.) GPUI Group 1998 The increase in revenues was due mainly to including the full year effect of GPUI Group's investments in GPU PowerNet Pty. Ltd. (PowerNet) and Lake Cogen, Ltd. (Lake), and the effect of including Onondaga Cogen, L.P. (OCLP) beginning in August 1998. 1997 The increase in revenues was due mainly to the inclusion of revenues from PowerNet, which GPU Electric acquired in November 1997, and the effect of including GPUI Group's investment in Lake, beginning in June 1997. GPU Advanced Resources 1998 and 1997 GPU AR, which was formed in the second quarter of 1997, derived its revenues from energy sales to customers who chose it as their energy supplier as part of the retail access pilot program in Pennsylvania. Some of GPU AR's customers are located in the GPU Energy companies' service territories. OPERATING EXPENSES: Power purchased and interchanged (PP&I) 1998 and 1997 Changes in the energy component of PP&I expense do not significantly affect JCP&L's earnings since these cost variances are passed through the LEAC. However, beginning on January 1, 1997, such cost variances for Met-Ed and Penelec are not subject to deferred accounting and have a current impact on earnings. In October 1998, the PaPUC approved the use of deferred accounting for above-market nonutility generation (NUG) costs as part of the Restructuring Orders for Met-Ed and Penelec. The 1998 increase in PP&I includes a charge by Met-Ed and Penelec for the NUG portion of unbilled revenue. Also affecting 1998 earnings were increased power purchases by Penelec and GPU AR. Lower reserve capacity expense contributed to earnings for 1997. Fuel and Deferral of energy and capacity costs, net 1998 and 1997 For JCP&L, changes in fuel and deferral of energy and capacity costs, net, do not affect earnings as they are offset by corresponding changes in energy revenues. Effective January 1, 1997, Met-Ed and Penelec ceased deferred F-10 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) energy accounting as their ECRs were combined with base rates; therefore, cost variances have a current impact on earnings. For Met-Ed, increases in fuel expense had a slight impact on 1998 earnings. Also contributing to the 1998 increase in expense was the effect of including GPUI Group's investments in Lake and OCLP. Other operation and maintenance (O&M) 1998 The increase in other O&M expenses was due primarily to the implementation by the GPU Energy companies of a new company-wide computer software system, costs related to staff reductions and the full year inclusion of O&M expenses for GPU Telcom. Also contributing to the increase was GPUI Group O&M expenses resulting from the full year effect of including PowerNet and Lake, as well as the effect of including OCLP beginning in August 1998. 1997 The decrease in other O&M expenses was due primarily to the absence of a $122.7 million pre-tax charge incurred in 1996, related to voluntary enhanced retirement programs. Also contributing to the decrease were lower production expenses due to the 1996 retirement of JCP&L's Werner and Gilbert generating stations, decreased emergency and storm-related activity, and reductions from work process improvements and a decrease in the workforce. Partially offsetting these were increased expenses related to the upgrade and modification of computer systems. Depreciation and amortization 1998 The increase in depreciation and amortization expense was due mainly to the full year inclusion of PowerNet and additions to plant in service. The increase also includes additional amortization expense related to JCP&L's Final Settlement representing the portion of JCP&L's return on equity which exceeds the maximum amount allowed and must be applied against JCP&L's stranded cost pool. 1997 The increase in depreciation and amortization expense was due primarily to additions to plant in service and higher depreciation rates. Taxes, other than income taxes 1998 and 1997 For JCP&L, changes in taxes other than income taxes do not significantly affect earnings as they are substantially recovered in revenues. The 1998 decrease in taxes other than income taxes was due to New Jersey tax legislation that eliminated the gross receipts and franchise tax on utility bills and replaced it with a sales tax, a corporate business tax and a transitional energy facilities assessment, effective January 1, 1998. Effective January 1, 1997, Met-Ed and Penelec's STAS were combined with base rates and are no longer subject to annual adjustment. For 1998 and 1997, Met-Ed and Penelec's STAS did not have a significant impact on GPU's earnings. F-11 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) OTHER INCOME AND DEDUCTIONS: Equity in undistributed earnings/(losses) of affiliates (GPUI Group only) 1998 The increase in equity in undistributed earnings of affiliates, net was primarily due to the absence in 1998 of a $109.3 million charge taken in 1997 for a windfall profits tax imposed on Midlands Electricity plc (Midlands) by the Government of the United Kingdom. 1997 The decrease in equity in undistributed earnings/(losses) of affiliates was due to the windfall profits tax charge of $109.3 million imposed on privatized utilities, including Midlands. Partially offsetting this was the inclusion of a full year of Midlands' 1997 income, in which a 50% interest was acquired in May 1996. Other income, net 1998 The increase in other income, net was due primarily to gains realized by the GPUI Group from the sale of its interest in Solaris, the sale of Allgas Energy stock and the sale of half its interest in the Mid-Georgia cogeneration plant. This increase was partially offset by a charge for start-up payments for the establishment of a sustainable energy fund by Met-Ed and Penelec per the Restructuring Orders; and a charge by Met-Ed for the Middletown settlement. Income taxes 1998 The increase in income taxes (on other income and deductions) was primarily related to taxes on increased GPUI Group income. 1997 The decrease in income taxes (on other income and deductions) was primarily related to the GPUI Group. GPU's federal income tax liability was reduced as a result of its policy of accruing U.S. income tax on its worldwide operations. INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest on long-term debt 1998 and 1997 The 1998 increase in interest on long-term debt was due primarily to debt associated with the PowerNet acquisition in November 1997. The 1997 increase was due primarily to debt associated with the PowerNet acquisition and the May 1996 Midlands acquisition. Preferred stock dividends of subsidiaries, net of gain on 1996 reacquisition 1998 In 1998, JCP&L redeemed $15 million stated value of cumulative preferred stock. F-12 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) 1997 The 1997 increase was due to the absence of the 1996 gain on reacquisition of cumulative preferred stock. In 1996, Met-Ed and Penelec reacquired $11.4 million stated value and $20 million stated value, respectively, of their cumulative preferred stock, through cash tender offers, resulting in an aggregate gain of $9.3 million. Also in 1997, JCP&L redeemed $20 million stated value of cumulative preferred stock. EXTRAORDINARY ITEM: Extraordinary item, net of income taxes 1998 The extraordinary loss was due to the impact of the PaPUC Restructuring Orders received by Met-Ed and Penelec. Accordingly, in 1998 Met-Ed and Penelec discontinued the application of Statement of Financial Accounting Standards No. 71 (FAS 71) and adopted the provisions of FAS 101 with respect to their electric generation operations. For additional information, see Note 5, Accounting for Extraordinary and Non-recurring Items. JCP&L RESULTS OF OPERATIONS JCP&L's 1998 earnings were $212.4 million, compared to 1997 earnings of $200.6 million. Contributing to this earnings increase were increased residential and commercial customer sales, partially offset by increased operation and maintenance expenses. JCP&L's return on average common equity was 13.5% in 1998, compared to 13.1% in 1997. Earnings in 1997 were $200.6 million, compared to 1996 earnings of $143.2 million. Contributing to this earnings increase were higher weather-related sales, higher new customer sales and lower operation and maintenance expenses due in part to a $39.4 million after-tax charge in 1996 for voluntary enhanced retirement programs. OPERATING REVENUES: Total revenues decreased 1.2% to $2.07 billion in 1998, after increasing 1.8% to $2.09 billion in 1997. The components of these changes are as follows: (in millions) 1998 1997 ---- ---- KWH revenues $ 64.0 $ 13.0 Energy-related revenues 48.2 22.1 Other revenues (136.5) 1.0 ----- ----- Increase/(decrease)in revenues $(24.3) $ 36.1 ===== ===== Kilowatt-hour revenues 1998 The increase in KWH revenues was due to higher residential and commercial customer usage and an increase in new residential and commercial customer sales partially offset by lower weather-related sales. F-13 GPU, Inc. and Subsidiary Companies JCP&L RESULTS OF OPERATIONS (continued) 1998 KWH Customer Sales by Service Class Residential 41% Commercial 40% Industrial/Other 19% 1997 The increase in KWH revenues was due to higher weather-related sales, an increase in new residential and commercial customer sales, partially offset by decreased usage. Energy-related revenues 1998 and 1997 Changes in energy-related revenues do not affect earnings as they reflect corresponding changes in the LEAC billed to customers and expensed. The 1998 increase was primarily due to increased sales to other utilities and higher residential and commercial customer sales. The 1997 increase was due primarily to higher energy cost rates and increased commercial and industrial customer sales. Other revenues 1998 and 1997 Generally, changes in other revenues do not affect earnings as they are offset by corresponding changes in expense. The 1998 decrease is primarily due to a decrease in revenue taxes as a result of New Jersey tax legislation that eliminated the gross receipts and franchise tax on utility bills and replaced it with a sales tax, a corporate business tax and a transitional energy facilities assessment, effective January 1, 1998. OPERATING EXPENSES: Power purchased and interchanged 1998 and 1997 Changes in the energy component of PP&I expense do not significantly affect earnings since these cost variances are passed through the LEAC. However, lower reserve capacity expense resulting primarily from reduced purchases from Pennsylvania Power & Light Company contributed to the 1997 earnings. Fuel and Deferral of energy and capacity costs, net 1998 and 1997 Changes in fuel and deferral of energy and capacity costs, net do not affect earnings as they are offset by corresponding changes in energy revenues. Other operation and maintenance 1998 The increase in other O&M expenses was due primarily to increased costs from the implementation of a new computer software system and for costs related to staff reductions. F-14 GPU, Inc. and Subsidiary Companies JCP&L RESULTS OF OPERATIONS (continued) 1997 The decrease in other O&M expenses was due in part to the absence of a $62.9 million pre-tax charge incurred in 1996, related to voluntary enhanced retirement programs. Also contributing to the decrease were lower production expenses due to the 1996 retirement of the Werner and Gilbert generating stations, a decrease in transmission charges from associated companies and a decrease in storm damage and emergency repairs. Depreciation and amortization 1998 The increase in depreciation and amortization expense was due primarily to additions to plant in service and additional amortization expense related to JCP&L's Final Settlement representing the portion of JCP&L's return on equity which exceeds the maximum amount allowed and must be applied against JCP&L's stranded cost pool. 1997 The increase in depreciation and amortization expense was due primarily to additions to plant in service, higher depreciation rates and higher regulatory asset amortizations. Taxes, other than income taxes 1998 and 1997 Changes in taxes other than income taxes do not significantly affect earnings as they are substantially recovered in revenues. OTHER INCOME AND DEDUCTIONS: Other income, net 1998 and 1997 The 1998 increase in other income, net was due primarily to the absence of the charges incurred in 1997 for the termination of a NUG contract and for a loss on the sale of fuel oil from the Gilbert generating station. INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES: Other interest 1998 The decrease in other interest expense was due to lower short-term debt levels. 1997 The increase in other interest expense was due to higher short-term debt levels. Preferred stock dividends 1998 and 1997 In 1998 and 1997, JCP&L redeemed $15 million stated value and $20 million stated value, respectively, of cumulative preferred stock. F-15 GPU, Inc. and Subsidiary Companies MET-ED RESULTS OF OPERATIONS Met-Ed's 1998 earnings were $50.4 million, compared to 1997 earnings of $93 million. Met-Ed's return on average common equity was 7.5% in 1998 compared to 12.9% in 1997. In 1998, a non-recurring charge of $26 million after-tax was taken as a result of the PaPUC's Restructuring Order for Met-Ed. Also contributing to the earnings decrease was increased operation and maintenance expenses primarily related to the implementation of a new computer software system and restructuring costs related to staff reductions. Earnings in 1997 were $93 million, compared to 1996 earnings of $71.8 million. This increase in earnings was primarily due to a step increase in unbilled revenue recorded by Met-Ed as a result of including its ECR in base rates and the cessation of deferred energy accounting, both effective January 1, 1997. Also contributing to the increase were increased customer usage, higher new customer sales and lower other operation and maintenance expenses due to a $15.4 million after-tax charge in 1996 for voluntary enhanced retirement programs. OPERATING REVENUES: Total revenues decreased 2.5% to $919.6 million in 1998, after increasing 3.6% to $943.1 million in 1997. The components of these changes are as follows: (in millions) 1998 1997 ---- ---- KWH revenues $ (4.5) $ 28.6 Obligation to refund 1998 revenues to customers per PaPUC Order (27.2) - Other revenues 8.2 4.1 ----- ----- Increase/(decrease)in revenues $(23.5) $ 32.7 ===== ===== Kilowatt-hour revenues 1998 The decrease in KWH revenues was due to the absence in 1998 of the step increase in unbilled revenue as a result of Met-Ed including its ECR in base rates, amounting to $13 million, and lower weather-related sales. Partially offsetting these decreases were increased sales to other utilities, an increase in new commercial and residential customer sales and increased customer usage. 1998 KWH Customer Sales by Service Class Residential 35% Commercial 28% Industrial/Other 37% 1997 The increase in KWH revenues was due to increased customer usage and an increase in new commercial and residential customer sales, partially offset by lower weather-related sales. Also contributing to the increase was the step increase in unbilled revenue described above. KWH revenues include energy and tax revenues, consistent with the inclusion of the ECR and STAS in base rates, effective January 1, 1997. F-16 GPU, Inc. and Subsidiary Companies MET-ED RESULTS OF OPERATIONS (continued) Obligation to refund 1998 revenues to customers per PaPUC Order 1998 The decrease in revenues reflects a T&D rate reduction of 2.5% resulting from the PaPUC's Restructuring Order for Met-Ed. The T&D rate reduction reflects Met-Ed's obligation to make refunds to customers from 1998 revenues. Other revenues 1998 and 1997 Generally, changes in other revenues do not affect earnings as they are offset by corresponding changes in expense. OPERATING EXPENSES: Fuel and Power purchased and interchanged 1998 and 1997 Effective January 1, 1997, Met-Ed ceased deferred energy accounting as its ECR was combined with base rates. Thus, energy cost variances now have a current impact on earnings. In 1998, the PaPUC approved the use of deferred accounting for above-market NUG costs as part of the Restructuring Order for Met-Ed. Increases in fuel expense had a slight impact on Met-Ed's 1998 earnings. Also, PP&I includes a charge by Met-Ed for the NUG portion of unbilled revenue. Changes in fuel and power purchased and interchanged did not have a significant impact on earnings for 1997. Other operation and maintenance 1998 The increase in other O&M expenses was due primarily to increased costs from the implementation of a new computer software system and increased costs related to staff reductions. 1997 The decrease in other O&M expenses was due to the absence of a $26.2 million pre-tax charge incurred in 1996 related to the voluntary enhanced retirement programs. Depreciation and amortization 1998 and 1997 The increase in depreciation and amortization was due to additions to plant in service and higher depreciation rates. Taxes, other than income taxes 1998 and 1997 Effective January 1, 1997, Met-Ed's STAS was combined with base rates and is no longer subject to annual adjustment. This did not have a significant impact on 1998 or 1997 earnings. F-17 GPU, Inc. and Subsidiary Companies MET-ED RESULTS OF OPERATIONS (continued) OTHER INCOME AND DEDUCTIONS: Other income/(expense), net 1998 The decrease in other income/(expense) net, was due primarily to a charge for start-up payments for the establishment of a sustainable energy fund per the PaPUC's Restructuring Order for Met-Ed and a charge for the Middletown settlement. 1997 The increase in other income/(expense), net was due to an increase in interest income. INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES: Other interest 1998 and 1997 The increase in other interest expense was due to higher short-term debt levels. Preferred stock dividends and Gain on preferred stock reacquisition 1997 In 1996, Met-Ed reacquired $11.4 million stated value of its cumulative preferred stock through cash tender offers, resulting in an aggregate gain of $3.7 million. EXTRAORDINARY ITEM: Extraordinary item, net of income taxes 1998 The extraordinary loss was due to the impact of the PaPUC Restructuring Order received by Met-Ed. Accordingly, in 1998 Met-Ed discontinued the application of FAS 71 and adopted the provisions of FAS 101 with respect to their electric generation operations. For additional information, see Note 5, Accounting for Extraordinary and Non-recurring Items. PENELEC RESULTS OF OPERATIONS Penelec's 1998 earnings were $38.9 million, compared to 1997 earnings of $94.4 million. Penelec's return on average common equity was 5% in 1998 compared to 12.1% in 1997. In 1998, a non-recurring charge of $39.8 million after-tax was taken as a result of the PaPUC's Restructuring Order for Penelec. Also contributing to the earnings decrease was increased operation and maintenance expenses primarily related to the implementation of a new computer software system and restructuring costs related to staff reductions. Earnings in 1997 were $94.4 million, compared to 1996 earnings of $73.9 million. This increase in earnings was primarily due to a step increase in F-18 GPU, Inc. and Subsidiary Companies PENELEC RESULTS OF OPERATIONS (continued) unbilled revenue recorded by Penelec as a result of including its ECR in base rates and the cessation of deferred energy accounting, both effective January 1, 1997. Also contributing to the increase was increased customer usage and lower other operation and maintenance expenses due primarily to a $19.7 million after-tax charge in 1996 for voluntary enhanced retirement programs. OPERATING REVENUES: Total revenues decreased 2.0% to $1.0 billion in 1998, after increasing 3.3% to $1.1 billion in 1997. The components of these changes are as follows: (in millions) 1998 1997 ---- ---- KWH revenues $ 13.9 $ 40.0 Obligation to refund 1998 revenues to customers per PaPUC Order (29.2) - Other revenues (5.4) (6.7) ----- ----- Increase/(decrease)in revenues $(20.7) $ 33.3 ===== ===== Kilowatt-hour revenues 1998 The increase in KWH revenues was primarily due to increased sales to other utilities and increased industrial customer usage offset by lower weather-related sales. The revenue comparison was also affected by the absence in 1998 of the step increase in unbilled revenue as a result of Penelec including its ECR in base rates, amounting to $15 million. 1998 KWH Customer Sales by Service Class Residential 27% Commercial 31% Industrial/Other 42% 1997 The increase in KWH revenues was due to increased industrial and commercial customer usage offset by lower weather-related sales. Also contributing to the increase was the step increase in unbilled revenue described above. KWH revenues include energy and tax revenues, consistent with the inclusion of the ECR and STAS in base rates, effective January 1, 1997. Other revenues 1998 and 1997 Generally, changes in other revenues do not affect earnings as they are offset by corresponding changes in expense. F-19 GPU, Inc. and Subsidiary Companies PENELEC RESULTS OF OPERATIONS (continued) OPERATING EXPENSES: Fuel and Power purchased and interchanged 1998 and 1997 Effective January 1, 1997, Penelec ceased deferred energy accounting as its ECR was combined with base rates. Thus, energy cost variances now have a current impact on earnings. In 1998, the PaPUC approved the use of deferred accounting for above-market NUG costs as part of the Restructuring Order for Penelec. The 1998 increase in PP&I includes a charge for the NUG portion of unbilled revenue. Changes in fuel and power purchased and interchanged did not have a significant impact on earnings for 1997. Other operation and maintenance 1998 The increase in other O&M expenses was due primarily to increased costs from the implementation of a new computer software system and increased costs related to staff reductions. 1997 The decrease in other O&M expenses was due primarily to the absence of a $33.6 million pre-tax charge incurred in 1996, related to the voluntary enhanced retirement programs. Depreciation and amortization 1998 and 1997 The increases in depreciation and amortization expense were due to additions to plant in service and higher depreciation rates. Taxes, other than income taxes 1998 and 1997 Effective January 1, 1997, Penelec's STAS was combined with base rates and is no longer subject to annual adjustment. This did not have a significant impact on 1998 or 1997 earnings. OTHER INCOME AND DEDUCTIONS: Other income/(expense), net 1998 The decrease in other income/(expense) net, was due primarily to a charge for start-up payments for the establishment of a sustainable energy fund per the Restructuring Order for Penelec. 1997 The increase in other income/(expense), net was due primarily to an increase in interest income. F-20 GPU, Inc. and Subsidiary Companies PENELEC RESULTS OF OPERATIONS (continued) INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES: Preferred stock dividends and Gain on preferred stock reacquisition 1997 In 1996, Penelec reacquired $20 million stated value of its cumulative preferred stock through cash tender offers, resulting in an aggregate gain of $5.6 million. EXTRAORDINARY ITEM: Extraordinary item, net of income taxes 1998 The extraordinary loss was due to the impact of the PaPUC Restructuring Order received by Penelec. Accordingly, in 1998 Penelec discontinued the application of FAS 71 and adopted the provisions of FAS 101 with respect to their electric generation operations. For additional information, see Note 5, Accounting for Extraordinary and Non-recurring Items. - ---------------------- The following sections of Management's Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements made that are not historical facts are forward-looking and, accordingly, involve risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Although such forward-looking statements have been based on reasonable assumptions, there is no assurance that the expected results will be achieved. Some of the factors that could cause actual results to differ materially include, but are not limited to: the effects of regulatory decisions; changes in law and other governmental actions and initiatives; the impact of deregulation and increased competition in the industry; industry restructuring; expected outcomes of legal proceedings; the completion of generation asset divestiture; generating plant performance; fuel prices and availability; the effects of the Year 2000 issue (see LIQUIDITY AND CAPITAL RESOURCES section in Management's Discussion and Analysis); and uncertainties involved with foreign operations including political risks and foreign currency fluctuations. GPUI GROUP The GPUI Group owns, operates, develops and invests in electric power generation, transmission and distribution facilities throughout the world. It has also made investments in certain advanced technologies related to the electric power industry. The GPUI Group has ownership interests in transmission and distribution businesses in England and Australia. It also has ownership interests in nine operating cogeneration plants in the U.S. totaling 1,147 megawatts (MW) (of which the GPUI Group's equity interest represents 498 MW) of capacity, and ten operating generating facilities located in foreign countries totaling 3,879 MW (of which the GPUI Group's equity interest represents 730 MW) of capacity. It also has investments in four generating facilities under construction totaling 1,698 MW (of which the GPUI Group's equity interest represents 301 MW) of capacity. When F-21 GPU, Inc. and Subsidiary Companies appropriate, the GPUI Group also engages in the purchase or sale of interests in particular businesses. At December 31, 1998, GPU, Inc.'s aggregate investment in the GPUI Group was $590 million; GPU, Inc. has also guaranteed up to an additional $761 million of GPUI Group obligations. GPU, Inc. has Securities and Exchange Commission (SEC) authorization to finance investments in foreign utility companies (FUCOs) and exempt wholesale generators (EWGs) up to an aggregate amount equal to 100% of GPU's average consolidated retained earnings, or approximately $2.2 billion as of December 31, 1998. At December 31, 1998, GPU, Inc. has remaining authorization to finance approximately $979 million of additional investments in FUCOs and EWGs. In 1997, GPU Electric acquired PowerNet from the Australian State of Victoria, for A$2.6 billion (approximately U.S. $1.9 billion). PowerNet owns and maintains the high-voltage electricity transmission system in Victoria, covering an area of approximately 87,900 square miles and a population of approximately 4.5 million. For additional information, see Note 6 of the Notes to Consolidated Financial Statements. In January 1998, as a result of cross-ownership restrictions in the Australian State of Victoria, GPU Electric sold its 50% share in Solaris Power (Solaris) to The Australian Gas Light Company for A$208 million (approximately U.S. $135.2 million) and 10.36% of the outstanding common stock of Allgas Energy Limited (Allgas), the natural gas distributor in Queensland, Australia. The Allgas shares had a market value of A$14.6 million (approximately U.S. $9.5 million) at the date of sale. As a result of the Solaris sale, GPU recorded an after-tax gain of $18.3 million. In July 1998, GPU Electric sold its Allgas shares for A$25.8 million (approximately U.S. $16 million). In February 1998, GPU International sold a one-half interest in the Mid-Georgia cogeneration project (Mid-Georgia, a 300 MW facility located in Kathleen, Georgia) to Sonat Energy Services Company. As a result, GPU recorded an after-tax gain on the sale of $5.8 million in the first quarter of 1998. In June 1998, Mid-Georgia began commercial operation under a 30-year power purchase agreement to sell capacity and energy on a dispatchable basis to Georgia Power. In November 1998, Midlands announced the sale of its electric supply business to National Power plc. GPU and Cinergy jointly acquired Midlands in 1996. National Power will acquire all the assets of Midlands' supply business and assume its liabilities, including obligations under all Midlands' power purchase agreements, for $300 million ($150 million for GPU's share) plus an adjustment for working capital at financial closing, which is expected in the second quarter of 1999. Midlands will continue to own its distribution business, as well as interests in various generation stations. In December 1998, GPU Electric agreed to acquire Emdersa, an Argentine holding company that owns three electric distribution companies, for $435 million. The three companies serve approximately 335,000 customers throughout a service territory of approximately 124,300 square miles in northwest Argentina. GPU expects to complete the purchase of Emdersa in the first quarter of 1999. Management expects that the GPUI Group will provide a substantial portion of GPU's future earnings growth and intends to make additional investments in F-22 GPU, Inc. and Subsidiary Companies its business activities. The timing and amount of these investments, however, will depend upon the availability of appropriate opportunities and financing capabilities. Market Risk Sensitive Instruments The GPUI Group uses interest rate swaps to manage the risk of increases in variable interest rates. All of the agreements effectively convert variable rate debt, including commercial paper, to fixed rate debt. None of these swap agreements are held for trading purposes. During 1998, PowerNet replaced interest rate swap agreements with swaps having more favorable economic terms. As a result, PowerNet recognized A$7.2 million (approximately U.S. $4.4 million) of swap breakage costs. The following summarizes the principal characteristics of swap agreements entered into as of December 31, 1998: (in thousands)
Fixed Variable Notional Fair Termination Pay/Receive Interest Interest Rate Amount Value(a) Date Characteristic Rate at 12/31/98 ------ -------- ---- -------------- ---- ----------- PowerNet A$ 14,000 A$ 14 10/1/99 fixed/variable 4.66% 4.87% A$ 14,000 A$ 2 10/1/99 fixed/variable 4.69% 4.87% A$ 14,000 A$ 10 10/1/99 fixed/variable 4.70% 4.89% A$ 22,750 A$ (2) 10/1/99 fixed/variable 4.71% 4.85% A$ 39,250 A$ 68 10/1/00 fixed/variable 4.75% 4.84% A$ 26,000 A$ 28 10/1/00 fixed/variable 4.79% 4.85% A$ 42,250 A$ 28 10/1/00 fixed/variable 4.81% 4.85% A$ 26,000 A$ 81 10/3/00 fixed/variable 4.77% 4.87% A$ 26,000 A$ 68 10/3/00 fixed/variable 4.80% 4.89% A$ 212,000 A$ (5,164) 11/6/00 fixed/variable 6.14% 4.89-4.93% A$ 481,250 A$ (24,691) 11/6/02 fixed/variable 6.56% 4.89-4.93% A$ 385,000 A$ (29,558) 11/8/04 fixed/variable 6.82% 4.82-4.93% A$ 288,750 A$ (34,330) 11/6/07 fixed/variable 7.14% 4.82-4.93% A$ 288,750 A$ (34,523) 11/6/07 fixed/variable 7.15% 4.82-4.93% --------- --------- A$1,880,000 A$ (127,969) (a) Represents the amount the GPUI Group would (pay)/receive to terminate the swap agreements prior to their scheduled termination dates.
The amount of debt obligations covered by swap agreements and the expected variable interest rates on such debt, for each of the next five years, are as follows: (in thousands) PowerNet -------- Expected Average Variable Debt Interest Covered Rate ------- ---- 1999 A$1,880,000 4.7-4.9% 2000 A$1,759,688 4.9-5.0% 2001 A$1,158,125 5.1-5.2% 2002 A$1,037,813 5.2-5.3% 2003 A$ 436,250 5.3-5.4% F-23 GPU, Inc. and Subsidiary Companies The expected variable interest rates included above, for the years 1999 through 2003, were provided by the financial institutions with whom the swap agreements were executed, and were derived from their proprietary models based upon recognized financial principles. The swap agreements resulted in actual interest expense for covered debt of $83.7 million in 1998, as compared to $65.4 million in interest expense, had the GPUI Group not entered into the agreements. It is management's intent to refinance A$721.9 million (approximately U.S. $442 million) of debt, which is scheduled to mature in November 2002, on a long-term basis. LIQUIDITY AND CAPITAL RESOURCES Capital Expenditures and Investments GPU Energy Companies The GPU Energy companies' capital spending was $328 million (JCP&L $155 million; Met-Ed $75 million; Penelec $89 million; Other $9 million) in 1998, and was used primarily for new customer connections and to expand and improve existing T&D facilities. In 1999, capital expenditures for the GPU Energy companies are estimated to be $397 million (JCP&L $183 million; Met-Ed $97 million; Penelec $98 million; Other $19 million), primarily for ongoing T&D system development and to implement an integrated information system. In 1998, expenditures for maturing obligations were $43 million (JCP&L $13 million; Penelec $30 million). Expenditures for maturing obligations are expected to total $83 million (JCP&L $3 million; Met-Ed $30 million; Penelec $50 million) in 1999, and $131 million (JCP&L $51 million; Met-Ed $50 million; Penelec $30 million) in 2000. Management estimates that a substantial portion of the GPU Energy companies' 1999 capital outlays will be satisfied through internally generated funds. GPU's capital leases are primarily for nuclear fuel held by the GPU Energy companies. Nuclear fuel capital leases at December 31, 1998 totaled $126 million (JCP&L $85 million; Met-Ed $27 million; Penelec $14 million). When consumed, portions of the presently leased material will be replaced by additional leased material at an annual rate of approximately $36 million (JCP&L $9 million; Met-Ed $18 million; Penelec $9 million). In the event the needed nuclear fuel cannot be leased, the associated capital requirements would have to be met by other means. Upon closing of the sale of Three Mile Island Unit 1 (TMI-1) to AmerGen Energy Company, LLC (AmerGen), the GPU Energy companies will terminate the related fuel lease and pay all outstanding amounts due under the related credit facility (see Managing the Transition section of COMPETITIVE ENVIRONMENT AND RATE MATTERS). GPUI Group The GPUI Group's capital spending was $140 million in 1998, which was used primarily to improve PowerNet's facilities and to make additional investments in EWGs and FUCOs. For 1999, capital expenditures are forecasted to be $39 million, primarily for ongoing development of PowerNet's transmission system and to make additional investments in EWGs and FUCOs. In 1998, expenditures for maturing obligations were $538 million, and are expected to total $481 million in 1999, and $534 million in 2000. Management estimates that the GPUI Group's 1999 capital outlays will be satisfied through both internally generated funds and external financings. F-24 GPU, Inc. and Subsidiary Companies Capital Expenditures and Investments* (in millions) ------------- 1994 1995 1996 1997 1998 1999** ---- ---- ---- ---- ---- ---- GPU Energy companies $586 $462 $404 $356 $328 $397 GPUI Group $ 74 $165 $574 $1,912 $140 $ 39 * Includes consolidated operations only ** Estimate Financing GPU, Inc. GPU, Inc. has received SEC approval to issue and sell up to $300 million of unsecured debentures through 2001. In February 1998, GPU, Inc. sold seven million shares of common stock. The net proceeds of $269 million were used primarily to reduce indebtedness associated with the PowerNet and Midlands acquisitions, and the balance was used for other corporate purposes. Further significant investments by the GPUI Group, or otherwise, may require GPU, Inc. to issue additional debt and/or common stock (see GPUI GROUP for a discussion of GPU, Inc.'s remaining investment authorization). GPU, Inc. has requested SEC authorization to issue and sell up to $100 million of commercial paper through December 2003. GPU, Inc. expects that the proceeds from the issuance of the commercial paper will be used for general corporate purposes and to make additional investments in EWGs and FUCOs. In January 1999, the GPU, Inc. Board of Directors authorized the repurchase of up to $350 million of GPU, Inc. common stock. The repurchases will initially be funded with borrowings. GPU Energy Companies Under existing authorizations, JCP&L and Penelec may issue first mortgage bonds (FMBs), including secured medium-term notes, and preferred stock through June 1999. Met-Ed has similar authority through December 1999. Aggregate amounts available for issuance under the JCP&L, Met-Ed and Penelec programs are $145 million, $190 million and $70 million, respectively, of which $100 million for JCP&L and Met-Ed and $70 million for Penelec may consist of preferred stock. The GPU Energy companies do not, however, expect to issue additional senior securities under these existing authorizations. Instead, Met-Ed and Penelec have obtained regulatory approval through December 31, 2000 to issue senior notes and preferred securities in aggregate amounts of $250 million and $725 million, respectively, of which up to $125 million for each company may consist of preferred securities. JCP&L is seeking similar regulatory approval through December 31, 2000 to issue senior notes and preferred securities in the aggregate amount of $300 million, of which up to $200 million may consist of preferred securities. Current plans call for the GPU Energy companies to issue secured senior notes and preferred securities during the next three years to fund the redemption of maturing senior securities, refinance outstanding senior securities and finance construction activities. The secured senior notes would become unsecured when 80% or more of the FMBs issued are collateral for senior notes. All senior notes issued thereafter would be unsecured. F-25 GPU, Inc. and Subsidiary Companies The GPU Energy companies' bond indentures and articles of incorporation include provisions that limit the amount of long-term debt, preferred stock and short-term debt the companies may issue. The GPU Energy companies' interest and preferred dividend coverage ratios are currently in excess of indenture and charter restrictions. The amount of FMBs that the GPU Energy companies could issue based on the bondable value of property additions is in excess of amounts currently authorized. The GPU Energy companies have regulatory authority to incur short-term debt, a portion of which may be through the issuance of commercial paper. In 1998, Penelec redeemed $30 million principal amount of FMBs and JCP&L redeemed $15 million stated value of cumulative preferred stock pursuant to mandatory and optional sinking fund provisions. In 1999, Penelec expects, subject to market conditions, to redeem approximately $600 million of its FMBs out of the proceeds from the sale of the generating assets. In January 1999, Met-Ed and Penelec announced the redemption of all their outstanding shares of cumulative preferred stock. The shares will be redeemed on February 19, 1999 at a price of $12.6 million and $17.6 million for Met-Ed and Penelec, respectively. The GPU Energy companies' cost of capital and ability to obtain external financing are affected by their security ratings, which are periodically reviewed by the credit rating agencies. The GPU Energy companies' FMBs are currently rated at an equivalent of "BBB+" or higher by the major credit rating agencies, while the preferred stock and mandatorily redeemable preferred securities have been assigned an equivalent of "BBB" or higher. In addition, the GPU Energy companies' commercial paper is rated as having good credit quality. GPUI Group In 1998, GPU Capital entered into a commercial paper credit facility to finance up to $1 billion of investments in FUCOs and EWGs. GPU expects that the proceeds from the sale of commercial paper (guaranteed by GPU, Inc.) will be used to repay a portion of the outstanding foreign acquisition debt and to finance future investments in FUCOs and EWGs. In January 1999, GPU Capital issued $375 million of commercial paper which was used primarily to reduce the Midlands acquisition debt. Also in 1998, Austran Holdings, Inc. (Austran), a wholly owned subsidiary of GPU Electric, entered into a A$500 million (approximately U.S. $306 million) commercial paper program. PowerNet has guaranteed Austran's obligations under this program. As of December 31, 1998, Austran had outstanding approximately A$458 million (approximately U.S. $280 million) under the commercial paper program to refinance the maturing portion of the senior debt credit facility used to finance the PowerNet acquisition. The Austran borrowings are classified as noncurrent on the Consolidated Balance Sheet since it is management's intent to reissue the commercial paper on a long-term basis. In 1998, GPU Electric sold its 50% stake in Solaris, the net sales proceeds of which were used to reduce by $112 million the Solaris and PowerNet acquisition debt. The balance of the proceeds was applied for other corporate purposes. In 1998, PowerNet and Midlands acquisition debt was reduced by an additional $40 million and $189 million, respectively, from proceeds provided by the sale of GPU, Inc. common stock. GPU may further reduce Midlands and PowerNet acquisition debt with a portion of the proceeds from the sale of the F-26 GPU, Inc. and Subsidiary Companies GPU Energy companies' fossil-fueled and hydroelectric generating facilities, which is expected to be completed in mid-1999 (see Managing the Transition section of COMPETITIVE ENVIRONMENT AND RATE MATTERS). Capitalization Each of the GPU companies' target capitalization ratios are designed to provide credit quality ratings that permit capital market access at reasonable costs. The target capitalization ratios vary by subsidiary depending upon their business and financial risk. GPU's actual capitalization ratios at December 31 for the years indicated, were as follows: GPU, Inc. and Subsidiary Companies 1998 1997 1996 - ---------------------------------- ---- ---- ---- Common equity 40% 35% 43% Preferred equity 6 6 7 Notes payable and long-term debt 54 59 50 --- --- --- 100% 100% 100% === === === JCP&L 1998 1997 1996 - ----- ---- ---- ---- Common equity 50% 50% 48% Preferred equity 8 9 9 Notes payable and long-term debt 42 41 43 --- --- --- 100% 100% 100% === === === Met-Ed 1998 1997 1996 - ------ ---- ---- ---- Common equity 47% 49% 48% Preferred equity 8 7 8 Notes payable and long-term debt 45 44 44 --- --- --- 100% 100% 100% === === === Penelec 1998 1997 1996 - ------- ---- ---- ---- Common equity 47% 47% 45% Preferred equity 7 7 7 Notes payable and long-term debt 46 46 48 --- --- --- 100% 100% 100% === === === In 1998, the quarterly dividend on GPU, Inc.'s common stock was increased by 3.0% to an annualized rate of $2.06 per share. GPU, Inc.'s payout rate in 1998 was 61% of earnings (excluding the non-recurring items). Management will continue to review GPU, Inc.'s dividend policy to determine how to best serve the long-term interests of shareholders. Year 2000 Issue GPU is addressing the Year 2000 issue by undertaking a comprehensive review of its computers, software and equipment with embedded systems such as microcontrollers (together, "Year 2000 Components"), and of its business relationships with third parties, including key customers, lenders, trading partners, vendors, suppliers and service providers. Remediation plans and corrective actions are in progress. The remediation plans include, among other things, the modification or replacement of Year 2000 Components which are not ready for use beyond 1999. In addition, GPU has begun to develop contingency plans for mission-critical systems. GPU's Year 2000 project is not expected to cause any material delay in the completion of other planned projects by information technology services. F-27 GPU, Inc. and Subsidiary Companies In January 1999, an independent consultant retained by GPU to review the adequacy of GPU's Year 2000 plans favorably rated the GPU Energy companies in their progress toward achieving Year 2000 readiness as measured against the consultant's "best practices" model. The consultant also identified certain weaknesses that GPU is currently addressing. The PaPUC has entered an Order mandating that Pennsylvania jurisdictional utilities have their mission-critical systems Year 2000 compliant by March 31, 1999. In November 1998, an Administrative Law Judge (ALJ) assigned to the proceeding conducted hearings to support recommendations demanding that the PaPUC relax its March 31, 1999 mandate in certain cases. Met-Ed and Penelec have jointly submitted testimony to the proceeding and participated in the hearings. While there can be no assurance as to the outcome of this matter, including if the PaPUC will modify its March 31, 1999 compliance date, GPU believes that its current Year 2000 plans are adequate relative to its mission-critical systems. In addition to the PaPUC mandate, inquiries concerning GPU's Year 2000 readiness have been made by the New Jersey Board of Public Utilities (NJBPU), the U.S. Nuclear Regulatory Commission (NRC), the U.S. Department of Energy, and by numerous third parties with which GPU has business relationships. Costs The GPU Energy companies currently estimate that they will spend approximately $43.3 million (JCP&L $18.6 million; Met-Ed $12 million; Penelec $12.7 million) on the Year 2000 issue, which includes $8.1 million (JCP&L $2.7 million; Met-Ed $2.7 million; Penelec $2.7 million) that is being spent as a part of the purchase and implementation of a new integrated information system (Project Enterprise), as described below. The $43.3 million also includes $7.4 million(JCP&L $3.4 million; Met-Ed $1.9 million; Penelec $2.1 million) that would have been spent in any event for maintenance and cyclical replacement plans. Approximately 55% of the expected costs involve the modification or replacement of Year 2000 Components; and 45% are for labor (including contract labor) and other project expenses. These costs are being funded by the GPU Energy companies from their operations. Through December 31, 1998, the GPU Energy companies have spent a total of approximately $20.6 million (JCP&L $8.6 million; Met-Ed $6 million; Penelec $6 million) (of the $43.3 million) in connection with the Year 2000 issue, of which $15.9 million (JCP&L $6.5 million; Met-Ed $4.7 million; Penelec $4.7 million) was spent in 1998. The GPUI Group currently expects to spend approximately $9 million to address the Year 2000 issue, primarily to replace or modify equipment at Midlands. Through December 31, 1998, a total of approximately $2.5 million has been spent, substantially all of which was spent in 1998. The Project Enterprise system, referenced above, is designed to help the GPU Energy companies manage business growth and meet the mandates of electric utility deregulation. The system is scheduled to be substantially operational for the GPU Energy companies and GPUS by March 1999 and fully operational for all companies by June 1999. GPUN and Genco are not installing Project Enterprise before the year 2000, but rather are making modifications to their systems to achieve Year 2000 readiness. For critical systems, these modifications are expected to be completed by March 31, 1999, and for remaining systems by July 31, 1999. F-28 GPU, Inc. and Subsidiary Companies Milestones GPU has established Inventory, Assessment, Remediation, Testing and Monitoring as the primary phases for its Year 2000 program. The Inventory phase of the program has been completed. The milestones for Assessment, Remediation, Testing and Monitoring are as follows: Assessment Remediation Testing Monitoring ---------- ----------- ------- ---------- GPU Energy and GPUS 02/28/1999 03/31/1999 03/31/1999 03/31/2000 Genco 02/28/1999 11/15/1999 11/15/1999 05/31/2000 GPUN 03/31/1999 10/31/1999 10/31/1999 03/31/2000 GPUI Group 02/28/1999 09/30/1999 09/30/1999 03/31/2000 Genco expects to complete modifications and testing of Year 2000 Components involved in 90% of its generation capacity by May 31, 1999. Modifications and testing of the remaining components, primarily for two generating units, will be completed during maintenance outages scheduled in the Fall of 1999. GPUN expects to complete modifications and testing for most of its systems and components by July 1, 1999. Modifications and testing of the remaining components at TMI-1, which is scheduled for a refueling outage in September 1999, are not expected to be completed until late October 1999. Third Party Qualification Due to the interdependence of computer systems and the reliance on other organizations for supplies, materials or services, GPU is addressing the Year 2000 issue as it relates to the readiness of third parties. As part of its Year 2000 strategy, GPU is contacting key customers, lenders, trading partners, vendors, suppliers and service providers to assess whether they are adequately addressing the Year 2000 issue. With respect to computer software and equipment with embedded systems, GPU has analyzed where it is dependent upon third party data and has identified several critical areas: (1) the Pennsylvania-New Jersey-Maryland (PJM) Interconnection; (2) electric generation suppliers, such as cogeneration operators and nonutility generators (NUGs); (3) Electronic Data Interchange (EDI) with trading partners; (4) Electronic Funds Transfer (EFT) with financial institutions; (5) vendors; and (6) customers. The following summarizes the actions that have taken place with critical third parties: - - PJM - Data link testing has been completed. Major testing of system upgrades is scheduled for completion during the first quarter of 1999. - - Electric generation suppliers - GPU has contacted all critical electric generation suppliers and information concerning their readiness has been received from approximately 81%. Those that have responded have readiness dates that extend into September 1999. - - EDI/EFT - GPU has sent readiness questionnaires to all critical organizations with which it exchanges data electronically and conducts electronic funds transfers. GPU has received responses from approximately 23% of those contacted. Testing with critical trading partners is scheduled for completion during the first quarter of 1999. F-29 GPU, Inc. and Subsidiary Companies - - Vendors - GPU has contacted all critical vendors and approximately 61% have responded as to their readiness. - - Customers - A customer readiness assessment was initiated during the fourth quarter of 1998 and approximately 64% of critical customers have been contacted. GPU has received responses from 20% of those contacted. Scenarios and Contingencies If GPU, or critical third parties upon whom GPU relies, are unable to successfully address their Year 2000 issues on a timely basis, certain computers, equipment, systems and applications may not function properly, which could have a material adverse effect on GPU's operations and financial condition. While GPU cannot predict what effect, if any, the Year 2000 issue will have on its operations, one possible scenario could include, among other things, interruptions in delivering electric service, and a temporary inability to process transactions, provide bills or operate electric generating stations. GPU currently has no loss estimates related to Year 2000 risks that could potentially result from any such scenario. While there can be no assurance as to the outcome of this matter, GPU believes that its Year 2000 preparations will be successful relative to its mission-critical Year 2000 Components. In addition, GPU is developing contingency plans in accordance with the contingency planning schedule proposed by the North American Electric Reliability Council. These plans, which are currently expected to be finalized in mid- to late-1999, will include supplementing present general emergency procedures with specific measures for Year 2000 problems and the placing of troubleshooting teams at sites where critical components are located. COMPETITIVE ENVIRONMENT AND RATE MATTERS Managing the Transition Currently, and increasingly in the future, GPU will serve customers in markets where there will essentially be capped rates. Since GPU has, to a large extent, exited the merchant generation business, it will need to supply energy largely from contracted purchases and purchases in the open market. Management is in the process of identifying and addressing these market risks, however, there can be no assurance that GPU will be able to supply electricity to customers that it has obtained at reasonable cost. GPU expects to be in a regulated business (the transmission and distribution of electricity) that will be lower risk than that of a company engaged in merchant generation, but also expects that the rate of return on equity investment will be somewhat lower as well. In addition, inflation may have a varying effect on GPU since it will be a factor in revenue calculations in some jurisdictions, but may cause increased operating costs with GPU having a limited ability to pass these costs to its customers because of capped rates in other areas. GPU has been active both on the federal and state levels in helping to shape electric industry restructuring while seeking to protect the interests of its shareholders and customers, and is attempting to assess the impact that these competitive pressures and other changes will have on its financial condition and results of operations. F-30 GPU, Inc. and Subsidiary Companies In October 1997, GPU announced its intention to begin a process to sell, through a competitive bid process, up to all of the fossil-fuel and hydroelectric generating facilities owned by the GPU Energy companies. These facilities, comprised of 26 operating stations, support organizations and development sites, total approximately 5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300 MW; Penelec 2,100 MW)of capacity and have a net book value of approximately $1.1 billion (JCP&L $272 million; Met-Ed $283 million; Penelec $508 million) at December 31, 1998. In August 1998, Penelec and New York State Electric & Gas Corporation (NYSEG) entered into definitive agreements with Edison Mission Energy to sell the Homer City Station for a total purchase price of approximately $1.8 billion. Penelec and NYSEG each own a 50% interest in the station, and will share equally in the net sale proceeds. The sale, which is subject to various federal and state regulatory approvals, is expected to be completed in the first quarter of 1999. In November 1998, the GPU Energy companies entered into definitive agreements with Sithe Energies and FirstEnergy Corporation to sell all their remaining fossil-fuel and hydroelectric generating facilities other than JCP&L's 50% interest in the Yards Creek Pumped Storage Facility (Yards Creek) for a total purchase price of approximately $1.7 billion (JCP&L $442 million; Met-Ed $677 million; Penelec $604 million). Penelec's 20% undivided ownership interest in the Seneca Pumped Storage Facility is being sold to FirstEnergy for $43 million, which is included in the above amount. The sales are expected to be completed by mid-1999, subject to the timely receipt of the necessary regulatory and other approvals. Sithe has agreed to assume the collective bargaining agreements covering union employees and to fill bargaining positions on the basis of seniority. Sithe has also agreed to use reasonable efforts to offer positions to Genco non-bargaining employees. The GPU Energy companies have agreed to assume up to $20 million (JCP&L $7 million; Met-Ed $9 million; Penelec $4 million)of employee severance costs for employees not hired by Sithe. In October 1998, the GPU Energy companies entered into definitive agreements to sell TMI-1 to AmerGen, which is a joint venture between PECO Energy and British Energy. Terms of the purchase agreements are summarized as follows: - - The total cash purchase price is approximately $100 million, which represents $23 million to be paid at closing, and $77 million for the nuclear fuel in the reactor to be paid in five equal annual installments beginning one year after the closing. The purchase price and closing payment are subject to certain adjustments for capital expenditures and other items. - - AmerGen will make contingent payments of up to $80 million for the period January 1, 2002 through December 31, 2010 depending on the actual energy market clearing prices through 2010. - - GPU will purchase the energy and capacity from TMI-1 from the closing through December 31, 2001, at predetermined rates. - - At closing, GPU will make additional deposits into the TMI-1 decommissioning trusts to bring the trust totals up to $320 million and AmerGen will then assume all liability and obligation for decommissioning TMI-1. F-31 GPU, Inc. and Subsidiary Companies - - GPU will continue to own and hold the license for Three Mile Island Unit 2 (TMI-2). No liability for TMI-2 or its decommissioning will be assumed by AmerGen. AmerGen will, however, maintain TMI-2 under contract with GPU. - - AmerGen will employ all employees located at TMI-1 at closing, and will also have the opportunity to offer positions to GPUN's headquarters staff. GPU will be responsible for all severance payments associated with these employees for a one-year period following closing. AmerGen will assume the current collective bargaining agreement covering TMI-1 union employees. The sale is subject to various conditions, including the receipt of satisfactory federal and state regulatory approvals. NRC approval of the TMI-1 license transfer to AmerGen, as well as certain rulings from the Internal Revenue Service, will be necessary with respect to the maintenance or transfer of the decommissioning trusts. There can be no assurance as to the outcome of these matters. The net proceeds from the sales described above will be used to reduce the capitalization of the respective GPU Energy companies, repurchase GPU, Inc. common stock, fund previously incurred liabilities in accordance with the Pennsylvania settlement, and may also be applied to reduce short-term debt, finance further acquisitions, and to reduce acquisition debt of the GPUI Group. In addition to the continued operation of the Oyster Creek Nuclear Generating Station (Oyster Creek), JCP&L has been exploring the sale or early retirement of the plant to mitigate costs associated with its continued operation. GPU does not anticipate making a final decision on the plant before the NJBPU rules on JCP&L's restructuring filing. As part of its strategy of achieving earnings growth, GPU is continuing to investigate investment opportunities in various domestic and foreign power projects and foreign utility systems, and intends to make additional investments and/or acquisitions which would be financed with new debt or new equity. GPU has identified the following strategic objectives to guide it over the next several years: (1) reposition GPU based on changing industry risks; (2) build upon GPU's core competency in regulated infrastructure (mainly the transmission and distribution of electricity); (3) divest the commodity/merchant generation business; (4) seek growth through the acquisition of domestic and international regulated infrastructure assets (i.e. electric, natural gas, water, telecommunications); (5) continue to develop the contract generation business (generation for which contracts to sell power to third parties have been executed) through the GPUI Group; and (6) continue to participate in the retail energy and supply business to determine if a viable economic opportunity exists through GPU AR. GPU's strategies may include business combinations with other companies, internal restructurings involving the complete or partial separation of its wholesale and retail businesses and acquisitions of other businesses. No assurances can be given as to whether any potential transactions of the type described above may actually occur, or as to the ultimate effect thereof on the financial condition or competitive position of GPU. F-32 GPU, Inc. and Subsidiary Companies Recent Regulatory Actions Pennsylvania In 1996, Pennsylvania adopted comprehensive legislation which provides for the restructuring of the electric utility industry. The legislation, among other things, permits Pennsylvania retail consumers to choose their electric supplier and requires the unbundling of rates for transmission, distribution and generation services. Utilities have the opportunity to recover their prudently incurred stranded costs that result from customers choosing another supplier through a PaPUC approved competitive transition charge, subject to certain conditions, including that they attempt to mitigate these costs. For a discussion of stranded costs, see the Competition and the Changing Regulatory Environment section of Note 13 of the Notes to Consolidated Financial Statements. In June 1997, Met-Ed and Penelec filed with the PaPUC their restructuring plans to implement competition and customer choice in Pennsylvania. In October 1998, the PaPUC adopted Restructuring Orders approving Settlement Agreements entered into by Met-Ed, Penelec, the PaPUC and all but two of the intervenors in the restructuring proceeding who have appealed the Restructuring Orders. One of these appeals remains pending and is scheduled to be heard in April 1999. For additional information, see Note 5, Accounting for Extraordinary and Non-recurring Items. The major elements of the Restructuring Orders are as follows: - - A transmission and distribution tariff rate which provides adequate funding for maintaining the reliability of Met-Ed and Penelec's electric distribution systems; - - A rate reduction from January 1, 1999 through December 31, 1999, for all customers, whether they choose an alternate supplier or not, reflecting Met-Ed and Penelec's obligation to make refunds to customers from 1998 revenues (2.5% for Met-Ed customers and 3% for Penelec customers from December 1996 levels); - - The ability of all customers to participate in electric choice on January 1, 1999 - two years sooner than called for in Pennsylvania's Customer Choice Act; - - Customers will receive a "shopping credit" that will result in savings if they buy electricity from an alternate supplier that charges less than the shopping credit. The average shopping credit in 1999 will be 4.350 cents per KWH for Met-Ed and 4.404 cents per KWH for Penelec. Actual prices will vary by customer rate class; - - Assurance of full recovery of the above-market costs of government-mandated contracts to buy electricity from NUGs (Beginning in 2005, the amount collected will be adjusted every five years over the life of each contract); - - A rate cap for the cost of delivering electricity (transmission and distribution) until 2004; - - A rate cap for electricity purchased from Met-Ed and Penelec, as providers of last resort, until 2010; F-33 GPU, Inc. and Subsidiary Companies - - PaPUC approval for Met-Ed and Penelec to sell all of their generating stations, including TMI-1; - - Recovery of $658 million in stranded costs for Met-Ed over 12 years and $332 million for Penelec over 11 years. Future NUG operating costs for which rate recovery has been assured may be adjusted every five years over the life of each NUG contract. (These amounts reflect the effects of using the estimated net proceeds from selling Met-Ed and Penelec's generating plants to reduce stranded costs and will be adjusted based on actual net sale proceeds); - - $2.7 million and $3.4 million for assistance in 1999 to low-income customers of Met-Ed and Penelec, respectively; increasing to $6.4 million and $6.9 million, respectively, in 2002; - - A sustainable energy fund to promote the development and use of renewable energy and clean energy technologies with one-time payments in 1998 of $5.7 million from Met-Ed and of $6.4 million from Penelec; - - The ability of some customers to choose another licensed supplier to provide metering services beginning January 1, 1999, and billing services beginning January 1, 2000; - - A phase-in of competitive bidding beginning no later than June 1, 2000, for other suppliers to be the "provider of last resort" for customers who do not shop; and - - The dismissal of all pending litigation in accordance with the Settlement Agreements. New Jersey In April 1997, the NJBPU issued final Findings and Recommendations for Restructuring the Electric Power Industry in New Jersey. The NJBPU recommended, among other things, that certain electric retail customers be permitted to choose their supplier beginning October 1998, expanding to include all retail customers by July 1, 2000. The NJBPU also recommended a near-term electric rate reduction of 5-10% with the phase-in of retail competition, as well as additional rate reductions accomplished as a result of new energy tax legislation, as discussed below. The NJBPU has proposed that utilities have an opportunity to recover their stranded costs associated with generating capacity commitments provided that they attempt to mitigate these costs. Also, NUG contracts which cannot be mitigated would be eligible for stranded cost recovery. The determination of stranded cost recovery by the NJBPU would be undertaken on a case-by-case basis, with no guaranty for full recovery of these costs. A separate market transition charge (MTC) would be established for each utility to allow utilities to recover stranded costs over 4 to 8 years. The MTC would be capped to ensure that customers experience the NJBPU's recommended overall rate reduction of 5-10%. In addition, the NJBPU is proposing that utilities unbundle their rates and allow customers to choose their electric generation supplier. Transmission and distribution of electricity would continue as a regulated monopoly and utilities would be responsible for connecting customers to the system and for providing distribution service. Transmission service would be F-34 GPU, Inc. and Subsidiary Companies provided by an independent system operator (ISO), which would be responsible for maintaining the reliability of the regional power grid and would be regulated by the Federal Energy Regulatory Commission (FERC). In July 1997, New Jersey enacted energy tax legislation which eliminated the 13% gross receipts and franchise tax on utility bills effective January 1, 1998. As a result, utilities are now collecting from customers a 6% sales tax and paying a corporate business tax which amounts to 1-2% of revenues. Utilities are also paying a transitional energy facilities assessment which will phase out over five years and result in a 5-6% rate reduction to customers. In July 1997, JCP&L filed with the NJBPU its proposed restructuring plan. Included in the plan were stranded cost, unbundled rate and restructuring filings. Highlights of the plan include: - - Some electric retail customers would be able to choose their supplier beginning on October 1, 1998, as initially recommended by the NJBPU, expanding to include all retail customers by July 1, 2000. - - JCP&L would unbundle its rates and these rates would apply to all distribution customers, with the exception of a Production Charge, which would be charged only to customers who do not choose an alternative energy supplier. The proposed unbundled rate structure would include: -- A flat monthly Customer Charge for the costs associated with metering, billing and customer account administration. -- A Delivery Charge consisting of capital and O&M costs associated with the transmission and distribution system; the recovery of regulatory assets, including those associated with generation; the cost of social programs; and certain costs related to the proposed ratemaking treatment of Oyster Creek. -- A Market Energy and Capacity (MEC) Charge would be established on a monthly basis for a six-month period for electricity provided to customers for whom JCP&L continues to act as their electric generation supplier. JCP&L would be the supplier of last resort for customers who cannot or do not wish to purchase energy from an alternative supplier. The MEC would be based upon competitively "bidding out" the discrepancy between projected needs and projected resources. JCP&L would true-up the MEC charges for sales differences against its actual cost to provide that power, plus interest. The true-up would be recovered from, or credited to, the customers who were customers during that period, based upon their usage during such period. The MEC would be established every six months. -- A Societal Benefits Charge to recover demand-side management costs, manufactured gas plant remediation costs, and nuclear decommissioning costs. -- A MTC to recover non-NUG stranded generation costs (other than Oyster Creek). This charge would include both owned generation and utility purchase power commitments. It is expected that the MTC would be in effect for less than a three-year period. F-35 GPU, Inc. and Subsidiary Companies -- A NUG Transition Charge (NTC) to recover ongoing above-market NUG costs over the life of the contracts and provide a mechanism to flow through to customers the benefits of future NUG mitigation efforts. The NTC would be subject to an annual true-up for actual cost escalations or reductions, changes in availability or dispatch levels and other cost variations over the life of each NUG project. The NTC would also be subject to adjustment in the future to reflect additional NUG buyout or restructuring costs and any related savings. - - The unbundling plan calls for an estimated 10% rate reduction, which would include a 2.1% reduction effective as part of JCP&L's Stipulation of Final Settlement (Final Settlement) approved by the NJBPU in 1997. The remaining reductions would be phased in over a two-year period beginning after the commencement of retail choice, and would be achieved through, among other things, the proposed early retirement of Oyster Creek for ratemaking purposes in September 2000 and the securitization of certain above-market costs. In addition to this rate reduction, JCP&L customers would receive an additional rate reduction of approximately 6% to be phased in over the next five years as a result of energy tax legislation signed into law in July 1997. - - In addition to the continued operation of the Oyster Creek facility, JCP&L is exploring the early retirement of the plant to mitigate costs associated with its continued operation. A final decision on the plant's future will not be made until the NJBPU rules on JCP&L's restructuring filing. Nevertheless, JCP&L has proposed that the NJBPU approve an early retirement of Oyster Creek in September 2000, for ratemaking purposes, with the following ratemaking treatment: -- The market value of Oyster Creek's generation output would be recovered in the Production Charge. -- The above-market operating costs would be recovered as a component of the Delivery Charge through September 2000. If the plant is operated beyond that date, these costs would not be included in customer rates. -- Existing Oyster Creek regulatory assets would, like other regulatory assets, be recovered as part of the Delivery Charge. -- Oyster Creek decommissioning costs would, like TMI-1 decommissioning costs, be recovered as a component of the Societal Benefits Charge. -- JCP&L's net investment in Oyster Creek would be recovered through the Delivery Charge as a levelized annuity, effective with the commencement of retail choice through its original expected operating life, 2009. - - Stranded costs at the time originally proposed by the NJBPU for initial customer choice, on a present value basis, are estimated at $1.6 billion, of which $1.5 billion is for above-market NUG contracts. The $1.6 billion excludes above-market generation costs related to Oyster Creek. F-36 GPU, Inc. and Subsidiary Companies Numerous parties have intervened in this proceeding and have contested various aspects of JCP&L's filings, including, among other things, recovery by JCP&L of plant capital additions since its last base rate case in 1992, projections of future electricity prices on which stranded cost recovery calculations are based, the appropriate level of return and the appropriateness of earning a return on stranded investment. Consultants retained by the NJBPU Staff, the Division of Ratepayer Advocate and other parties have proposed that JCP&L's stranded cost recoveries should be substantially lower than the levels JCP&L is seeking. In a February 1998 order, the NJBPU substantially affirmed an ALJ ruling which required that rates be unbundled based on the 1992 cost of service levels which were the basis for JCP&L's last base rate case, but clarified that (1) JCP&L could update its 1992 cost of service study to reflect adjustments consistent with the 1997 NJBPU approved Final Settlement which, among other things, recognized certain increased expense levels and reductions to base rates and (2) all of the other updated post-1992 cost information that JCP&L had submitted in the proceeding should remain in the record, which the NJBPU will utilize after issuance of the ALJ's initial decision to establish a reasonable level of rates going forward. Furthermore, the NJBPU emphasized in its order that the final unbundled rates established as a result of this proceeding will be lower than the current bundled rates. This directive has been recognized in JCP&L's July 1997 restructuring plan which proposed annual revenue reductions totaling approximately $185 million. The NJBPU will render final and comprehensive decisions on the precise level of aggregate rate reductions required in order to accomplish its primary goals of introducing retail competition and lowering electricity costs for consumers. If the NJBPU were to accept the positions of various parties or their consultants, or were ultimately to deny JCP&L's request to recover post-1992 capital additions and increased expenses, it would have a material adverse impact on JCP&L's stranded cost recovery, restructuring proceeding and future earnings. Hearings with respect to the stranded cost and unbundled rate filings have been completed. In September 1998, the ALJ issued a recommended decision containing the following major elements: - - The ALJ did not consider current cost levels as the basis for unbundling rates, but instead used 1992 costs. With the exception of JCP&L's investment in a new combustion turbine plant, the ALJ denied recovery of post-1992 rate case capital additions but recommended that the NJBPU reconsider these matters. - - The ALJ recommended that the Oyster Creek investment be recovered over a period of between four and eleven years, but once the plant is retired for ratemaking purposes, no return should be provided on the unamortized investment. - - The ALJ recommended that the 2.1% rate reduction implemented in April 1997 as part of JCP&L's Final Settlement should not be part of the 5-10% rate reduction mandated by the NJBPU's Final Report. F-37 GPU, Inc. and Subsidiary Companies - - The ALJ endorsed a market line higher than that proposed by JCP&L. - - The ALJ approved recovery of actual NUG costs through a NUG Transition Charge, over the lives of the contracts. - - The ALJ accepted JCP&L's proposal for recovery of nuclear decommissioning costs through a Societal Benefits Charge, but disallowed the inclusion of fossil decommissioning costs in the calculation of stranded costs. - - The ALJ accepted JCP&L's generation asset divestiture plan and the position that the net proceeds be applied to reduce other stranded costs. Evidentiary hearings before the NJBPU with respect to the separate restructuring filing were held jointly with the other New Jersey utilities, and briefs have been filed. In 1999, legislation to deregulate New Jersey's electricity market was enacted which generally provides for, among other things, the following: - - Customer choice of electric generation supplier for all consumers beginning no later than August 1, 1999; - - A 5% rate reduction for all customers beginning August 1, 1999, with another 5% rate reduction to be phased in over the next three years. The rate reduction must be maintained for one year after the end of the three year phase-in; - - The aggregation of electric generation service by a government or private aggregator; - - The unbundling of customer bills; - - The ability to recover stranded costs; and - - The ability to securitize stranded costs. The NJBPU is expected to issue final decisions on JCP&L's stranded cost, unbundled rate and restructuring filings in the second quarter of 1999. There can be no assurance as to the outcome of these matters. Federal Regulation In November 1997, the FERC issued an order to the PJM Power Pool which, among other things, directed the GPU Energy companies to implement a single-system transmission rate, effective April 1, 1998. The implementation of a single-system rate is not expected to affect total transmission revenues. It would, however, increase the pricing for transmission service in Met-Ed and Penelec's service territories and reduce the pricing for transmission service in JCP&L's service territory. The GPU Energy companies have requested the FERC to reconsider its ruling requiring a single-system transmission rate. The Restructuring Orders for Met-Ed and Penelec provide for a transmission and distribution rate cap exception to recover the increase in the transmission rate from Met-Ed and Penelec's retail customers in the event the FERC denies the request for F-38 GPU, Inc. and Subsidiary Companies reconsideration of the single-system transmission rate. The FERC's ruling may also have an effect on JCP&L's distribution rates. There can be no assurance as to the outcome of this matter. Several bills have been introduced in Congress providing for a comprehensive restructuring of the electric utility industry. These bills proposed, among other things, retail choice for all utility customers, the opportunity for utilities to recover their prudently incurred stranded costs in varying degrees, and repeal of both the Public Utility Regulatory Policies Act (PURPA) and the Public Utility Holding Company Act of 1935 (PUHCA). The Clinton administration has announced a Comprehensive Electricity Competition Plan which proposes, among other things, customer choice by January 1, 2003, stranded cost recovery, reliability standards, environmental provisions, and the repeal of both PURPA and PUHCA. The plan does, however, allow states to opt out of the mandate if they believe consumers would be better served by an alternative policy. The administration's plan was submitted to Congress in June 1998 but was not acted on. Nonutility Generation Agreements Pursuant to the mandates of PURPA and state regulatory directives, the GPU Energy companies have been required to enter into power purchase agreements with NUGs for the purchase of energy and capacity for remaining periods of up to 22 years. Although a few of these facilities are dispatchable, most are must-run and generally obligate the GPU Energy companies to purchase, at the contract price, the output up to the contract limits. As of December 31, 1998, facilities covered by these agreements having 1,687 MW (JCP&L 918 MW; Met-Ed 364 MW; Penelec 405 MW)of capacity were in service. In 1998, Met-Ed and Penelec paid developers a total of $25 million and $6.1 million, respectively, to buyout amended power purchase agreements. These buyout payments were approved for recovery as part of the PaPUC's Restructuring Orders. The 1998 PaPUC Restructuring Orders and the legislation in New Jersey provide for full recovery of the above-market costs of NUG agreements. The GPU Energy companies will continue efforts to reduce the above-market costs of these agreements and will, where beneficial, attempt to renegotiate the prices of the agreements, offer contract buyouts and attempt to convert must-run agreements to dispatchable agreements. There can be no assurance as to the extent to which these efforts will be successful. (See the Competition and the Changing Regulatory Environment section of Note 13 of the Notes to Consolidated Financial Statements.) The GPU Energy companies intend to avoid, to the maximum extent practicable, entering into any new NUG agreements that are not needed or not consistent with current market pricing and continue to support legislative efforts to repeal PURPA. THE GPU ENERGY COMPANIES' SUPPLY PLAN Under traditional retail regulation, supply planning in the electric utility industry is directly related to projected sales growth in a utility's franchise service territory. In light of retail access legislation enacted in F-39 GPU, Inc. and Subsidiary Companies Pennsylvania and New Jersey, the extent to which competition will affect the GPU Energy companies' supply plan remains uncertain (see COMPETITIVE ENVIRONMENT AND RATE MATTERS). As the GPU Energy companies prepare to operate in a competitive environment, their supply planning strategy will focus on providing for the needs of existing retail customers who do not choose a competitive supplier and continue to receive energy supplied by the GPU Energy companies and whom the GPU Energy companies continue to have an obligation to serve. The GPU Energy companies' capacity (in megawatts) and sources of energy (in gigawatt-hours) for 1998 are as follows: Capacity Sources of Energy MW % GWH % -- - --- - Coal 3,024 27 19,675 38 Nuclear 1,405 13 11,358 22 Gas, hydro & oil 2,322 21 888 2 Nonutility generation 1,687 15 10,952 21 Utility contracts 2,638 24 5,177 10 Spot market & interchange purchases - - 3,605 7 ------ --- ------ --- Total 11,076 100 51,655 100 ====== === ====== === After the sale of the GPU Energy companies' generation facilities has been completed, GPU will have 819 MW of capacity and related energy from Oyster Creek and Yards Creek remaining to meet customer needs. The GPU Energy companies also have contracts with NUG facilities totaling 1,687 MW (JCP&L 918 MW; Met-Ed 364 MW; Penelec 405 MW)and JCP&L has agreements with other utilities to provide for up to 629 MW of capacity and related energy (see Note 13, COMMITMENTS AND CONTINGENCIES). The GPU Energy companies have agreed to purchase all of the capacity and energy from TMI-1 through December 31, 2001. In addition, the GPU Energy companies have the right to call the capacity of the Homer City station (942 MW) for two years and the capacity of the generating stations purchased by Sithe (4,117 MW) for three years, from the dates of sale. The GPU Energy companies' remaining capacity and energy needs will focus on short- to intermediate-term commitments (one month to three years) during periods of expected high energy price volatility and reliance on spot market purchases during other periods. Management is in the process of identifying and addressing the GPU Energy companies' future capacity and energy needs, and the impact of customer shopping and changes in demand (see the Managing the Transition section of COMPETITIVE ENVIRONMENT AND RATE MATTERS). Provider of Last Resort Under the PaPUC Restructuring Orders, Met-Ed and Penelec customers may shop for their generation supplier beginning January 1, 1999. A PaPUC approved competitive bid process will assign provider of last resort (PLR) service for 20% of Met-Ed and Penelec's retail customers on June 1, 2000, 40% on June 1, 2001, 60% on June 1, 2002, and 80% on June 1, 2003, to licensed generation suppliers referred to as Competitive Default Service (CDS). If no qualified bids for CDS are received at or below their generation rate caps, Met-Ed and Penelec will continue to provide PLR service at the rate cap levels until 2010 unless modified by the PaPUC. Any retail customers assigned to CDS may return to Met-Ed and Penelec as the default PLR at no additional charge. Met-Ed and Penelec may meet any remaining PLR obligation at rates not less than the lowest rate charged by the winning CDS provider, but no higher than F-40 GPU, Inc. and Subsidiary Companies Met-Ed and Penelec's rate cap. The restructuring legislation enacted in New Jersey requires that JCP&L be the PLR for at least three years starting with the implementation of customer choice on August 1, 1999. JCP&L is entitled to recover reasonable and prudently incurred costs for PLR services. Within the three-year period, the NJBPU is to determine whether to make PLR services available on a competitive basis. ENVIRONMENTAL MATTERS As a result of existing and proposed legislation and regulations, and ongoing legal proceedings dealing with environmental matters, including but not limited to acid rain, water quality, ambient air quality, global warming, electromagnetic fields, and storage and disposal of hazardous and/or toxic wastes, GPU may be required to incur substantial additional costs to construct new equipment, modify or replace existing and proposed equipment, remediate, decommission or cleanup waste disposal and other sites currently or formerly used by it, including formerly owned manufactured gas plants (MGP), coal mine refuse piles and generation facilities. GPU records environmental liabilities (on an undiscounted basis) where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated, and adjusts these liabilities as required to reflect changes in circumstances. At December 31, 1998, the GPU Energy companies have liabilities recorded on their balance sheets for environmental remediation totaling $90 million (JCP&L $58 million; Met-Ed $5 million; Penelec $27 million). In 1998, the GPU Energy companies made capital expenditures of approximately $10 million (JCP&L $1 million; Met-Ed $5 million; Penelec $4 million)related to environmental compliance and have budgeted approximately $3 million (Met-Ed $2 million; Penelec $1 million)for this purpose in 1999. The incremental annual operating and maintenance costs for equipment related to environmental compliance is not expected to be material. Moreover, following the completion of the sale of their generating facilities, the GPU Energy companies will no longer be subject to environmental requirements for the ownership, operation or maintenance of these facilities. For more information, see the Environmental Matters section of Note 13 of the Notes to Consolidated Financial Statements. LEGAL MATTERS - TMI-2 ACCIDENT CLAIMS In 1996, a U.S. District Court granted a motion for summary judgment, filed by GPU, Inc. and the GPU Energy companies, dismissing all of the 2,100 pending claims for alleged personal injury and punitive damages filed as a result of the TMI-2 accident in March 1979. The Court ruled that there was no evidence which created a genuine issue of material fact warranting submission of plaintiffs' claims to a jury. The plaintiffs have appealed the District Court's ruling to the Third Circuit, before which the matter is pending. There can be no assurance as to the outcome of this litigation. For more information, see the Nuclear Facilities section of Note 13 of the Notes to Consolidated Financial Statements. F-41 GPU, Inc. and Subsidiary Companies ACCOUNTING MATTERS Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting for the Effects of Certain Types of Regulation," applies to regulated utilities that have the ability to recover their costs through rates established by regulators and charged to customers. In response to the continuing deregulation of the electric utility industry, the SEC has questioned the continued applicability of FAS 71 by investor-owned utilities with respect to their electric generation operations. In response to these concerns, the Financial Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF Issue 97-4) concluded in June 1997 that utilities are no longer subject to FAS 71, for the relevant portion of their business, when they know details of their individual transition plans to a competitive electric generation marketplace. The EITF also concluded that utilities can continue to carry previously recorded regulated assets, as well as any newly established regulated assets (including those related to generation), on their balance sheets if regulators have guaranteed a regulated cash flow stream to recover the cost of these assets. In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders which, among other things, essentially remove from regulation the costs associated with providing electric generation service to Pennsylvania consumers, effective January 1, 1999. Accordingly, in 1998 Met-Ed and Penelec discontinued the application of FAS 71 and adopted the provisions of Statement of Financial Accounting Standards No. 101 (FAS 101), "Regulated Enterprises Accounting for the Discontinuation of Application of FASB Statement No. 71" and EITF Issue 97-4 with respect to their electric generation operations. The transmission and distribution portion of Met-Ed and Penelec's operations will continue to be subject to the provisions of FAS 71. JCP&L expects to discontinue the application of FAS 71 and adopt FAS 101 and EITF Issue 97-4 for its electric generation operations no later than its receipt of NJBPU approval of its restructuring plans, which is expected in the second quarter of 1999. In accordance with Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," impairment tests performed by the GPU Energy companies on the December 31, 1998 net book value of their generation facilities determined that the net investment in TMI-1 was impaired, resulting in a write-down of $518 million (pre-tax) (JCP&L $134 million; Met-Ed $257 million; Penelec $127 million)to reflect TMI-1's fair market value. Of the amount written down for TMI-1, $508 million (JCP&L $134 million; Met-Ed $255 million; Penelec $119 million)was re-established as a regulatory asset since management believes it is probable of recovery in the restructuring process and $10 million (Met-Ed $2 million; Penelec $8 million) (the FERC jurisdictional portion) was charged to expense as an extraordinary item. In 1998, Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities," was issued. FAS 133 requires that companies recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. To comply with this statement, GPU will be required to include its derivative transactions on its balance sheet at fair value, and recognize the subsequent changes in fair value as either gains or losses in earnings or report them as a component of other comprehensive income, depending upon the intended use and F-42 GPU, Inc. and Subsidiary Companies designation of the derivative as a hedge. FAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. GPU expects to adopt FAS 133 in the first quarter of 2000 and is in the process of evaluating the impact of this statement. In 1998, the FASB's EITF issued guidance on accounting for energy contracts in EITF Issue 98-10, "Accounting for Energy Trading and Risk Management Activities," which is effective for fiscal years beginning after December 15, 1998. EITF Issue 98-10 addresses whether certain types of contracts for the sale and purchase of energy commodities should be marked to market or accounted for under accrual accounting. The adoption of EITF Issue 98-10 in the first quarter of 1999 is not expected to have a material impact on GPU's financial position or results of operations. In 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which is effective for fiscal years beginning after December 15, 1998. The adoption of SOP 98-1 in the first quarter of 1999 is not expected to have a material impact on GPU's financial position or results of operations. Also, in 1998, the AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5), which is effective for financial statements for fiscal years beginning after December 15, 1998. SOP 98-5 requires the expensing of the costs of start-up activities as incurred. Additionally, previously capitalized start-up costs must be written off as a cumulative effect of a change in accounting principle. The adoption of SOP 98-5 in the first quarter of 1999 is not expected to have a material impact on GPU's financial position or results of operations. F-43 GPU, Inc. and Subsidiary Companies REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of GPU, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of GPU, Inc. and Subsidiary Companies at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statement. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York February 3, 1999 F-44 GPU, Inc. and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1998 1997 - ------------ ---- ---- ASSETS Utility Plant: Transmission, distribution and general plant $ 7,579,455 $7,248,612 Generation plant 3,445,984 3,902,065 --------- --------- Utility plant in service 11,025,439 11,150,677 Accumulated depreciation (4,460,341) (4,050,165) ---------- ---------- Net utility plant in service 6,565,098 7,100,512 Construction work in progress 94,005 250,050 Other, net 145,792 159,009 ------- ------- Net utility plant 6,804,895 7,509,571 --------- --------- Other Property and Investments: GPUI Group equity investments (Note 14) 682,125 596,679 Goodwill, net (Note 6) 545,262 581,364 Nuclear decommissioning trusts, at market (Note 13) 716,274 579,673 Nuclear fuel disposal trust, at market 116,871 108,652 Other, net 239,411 252,335 ------- ------- Total other property and investments 2,299,943 2,118,703 --------- --------- Current Assets: Cash and temporary cash investments 72,755 85,099 Special deposits 62,673 27,093 Accounts receivable: Customers, net 286,278 290,247 Other 126,088 104,441 Unbilled revenues 144,076 147,162 Materials and supplies, at average cost or less: Construction and maintenance 155,827 187,799 Fuel 42,697 40,424 Investments held for sale 48,473 106,317 Deferred income taxes (Note 8) 47,521 83,962 Prepayments 76,021 55,613 Other - 1,023 ----- Total current assets 1,062,409 1,129,180 --------- --------- Deferred Debits and Other Assets: Regulatory assets, net: (Notes 5 & 13) Competitive transition charge 1,023,815 - Other regulatory assets, net 2,882,413 1,547,478 Deferred income taxes (Note 8) 2,004,278 383,169 Other 210,356 134,833 ------- ------- Total deferred debits and other assets 6,120,862 2,065,480 --------- --------- Total Assets $16,288,109 $12,822,934 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. F-45 GPU, Inc. and Subsidiary Companies CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1998 1997 - ------------ ---- ---- LIABILITIES AND CAPITALIZATION Capitalization: Common stock $ 331,958 $314,458 Capital surplus 1,011,310 755,040 Retained earnings 2,230,425 2,140,712 Accumulated other comprehensive income/(loss) (31,304) (29,296) ------- ------- Total 3,542,389 3,180,914 Reacquired common stock, at cost (77,741) (80,984) ------- ------- Total common stockholders' equity (Note 4) 3,464,648 3,099,930 Cumulative preferred stock: (Note 4) With mandatory redemption 86,500 91,500 Without mandatory redemption 66,478 66,478 Subsidiary-obligated mandatorily redeemable preferred securities (Note 4) 330,000 330,000 Long-term debt (Note 3) 3,825,584 4,325,972 - --------- --------- Total capitalization 7,773,210 7,913,880 --------- --------- Current Liabilities: Securities due within one year (Notes 3 & 4) 563,683 631,934 Notes payable (Note 2) 368,607 353,214 Obligations under capital leases (Note 12) 126,480 138,919 Accounts payable 394,815 413,791 Taxes accrued 92,339 48,304 Interest accrued 81,931 83,947 Deferred energy credits 2,411 25,645 Other 377,594 325,681 ------- ------- Total current liabilities 2,007,860 2,021,435 --------- --------- Deferred Credits and Other Liabilities: Deferred income taxes (Note 8) 3,044,947 1,566,131 Unamortized investment tax credits 114,308 123,162 Three Mile Island Unit 2 future costs 483,515 448,808 Nonutility generation contract loss liability 1,803,820 - Other 1,060,449 749,518 --------- ------- Total deferred credits and other liabilities 6,507,039 2,887,619 --------- --------- Commitments and Contingencies (Note 13) Total Liabilities and Capitalization $16,288,109 $12,822,934 ========== ========== The accompanying notes are an integral part of the consolidated financial statements.
F-46 GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME (In Thousands) For The Years Ended December 31, 1998 1997 1996 - -------------------------------- ---- ---- ---- Operating Revenues $4,248,792 $4,143,379 $3,970,711 ---------- ---------- ---------- Operating Expenses: Fuel 407,105 400,329 389,569 Power purchased and interchanged 1,122,841 1,046,906 1,005,630 Deferral of energy and capacity costs, net (25,542) 6,043 19,788 Other operation and maintenance 1,106,913 993,739 1,114,854 Depreciation and amortization 522,094 467,714 407,672 Taxes, other than income taxes 219,302 357,913 355,283 ------- ------- ------- Total operating expenses 3,352,713 3,272,644 3,292,796 --------- --------- --------- Operating Income Before Income Taxes 896,079 870,735 677,915 Income taxes (Note 8) 238,241 223,617 159,649 Operating Income 657,838 647,118 518,266 Other Income and Deductions: Allowance for other funds used during construction 916 75 2,249 Equity in undistributed earnings/(losses) of affiliates (Note 6) 72,012 (27,100) 33,981 Other income, net 48,366 5,585 23,490 Income taxes (Note 8) (1,848) 30,081 (7,070) ------ ------ ------ Total other income and deductions 119,446 8,641 52,650 ------- ----- ------ Income Before Interest Charges and Preferred Dividends 777,284 655,759 570,916 ------- ------- ------- Interest Charges and Preferred Dividends: Long-term debt 318,396 246,935 213,544 Subsidiary-obligated mandatorily redeemable preferred securities 28,888 28,888 28,888 Other interest 35,053 36,482 29,623 Allowance for borrowed funds used during construction (4,348) (5,508) (8,423) Preferred stock dividends of subsidiaries, net of gain on reacquisition of $9,288 in 1996 11,243 12,524 6,231 ------ ---- ------ ------ ----- Total interest charges and preferred dividends 389,232 319,321 269,863 ------- ------- ------- Minority interest net income 2,171 1,337 2,701 ----- ----- ----- Income Before Extraordinary Item 385,881 335,101 298,352 Extraordinary item (net of income tax benefit of $16,300) (Note 5) (25,755) - - ------- -------- ------- Net Income $ 360,126 $ 335,101 $ 298,352 ========== ========== ========== Basic- Earnings Per Average Common Share Before Extraordinary Item $ 3.03 $ 2.78 $ 2.48 Extraordinary Item (0.20) - - ----- ------- ------- Earnings Per Average Common Share $ 2.83 $ 2.78 $ 2.48 ========== ========== ========== Average Common Shares Outstanding (In Thousands) 127,093 120,722 120,513 ------- ------- ------- Diluted-Earnings Per Average Common Share Before Extraordinary Item $ 3.03 $ 2.77 $ 2.47 Extraordinary Item (0.20) - - ----- ------ ------- Earnings Per Average Common Share $ 2.83 $ 2.77 $ 2.47 ========== ========== ========== Average Common Shares Outstanding (In Thousands) 127,312 121,002 120,751 ======= ======= ======= Cash Dividends Paid Per Share $ 2.045 $ 1.985 $ 1.925 ========== ========== ========== The accompanying notes are an integral part of the consolidated financial statements.
F-47 GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) For The Years Ended December 31, 1998 1997 1996 - -------------------------------- ---- ---- ---- Net income $360,126 $335,101 $298,352 -------- -------- -------- Other comprehensive income/(loss), net of tax: (Note 4) Net unrealized gain on investments 8,987 6,374 704 Foreign currency translation (9,461) (48,929) 3,054 Minimum pension liability (1,534) (1,495) (2,175) ------ ------ ------ Total other comprehensive income/(loss) (2,008) (44,050) 1,583 ------ ------- ----- Comprehensive income $358,118 $291,051 $299,935 ======== ======== ========
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (In Thousands) For The Years Ended December 31, 1998 1997 1996 - -------------------------------- ---- ---- ---- Balance at beginning of year $2,140,712 $2,054,222 $1,991,599 Net income 360,126 335,101 298,352 Cash dividends declared on common stock (263,561) (241,517) (235,731) Other adjustments, net (6,852) (7,094) 2 ------ ------ - Balance at end of year $2,230,425 $2,140,712 $2,054,222 ========== ========== ========== The accompanying notes are an integral part of the consolidated financial statements.
F-48 GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) For The Years Ended December 31, 1998 1997 1996 - -------------------------------- ---- ---- ---- Operating Activities: Net income $ 360,126 $ 335,101 $ 298,352 Extraordinary item (net of income tax benefit of $16,300) 25,755 - - ------ ----- ------ Income before extraordinary item 385,881 335,101 298,352 Adjustments to reconcile income to cash provided: Depreciation and amortization 552,795 487,962 422,506 Amortization of property under capital leases 49,913 50,108 55,642 PaPUC restructuring rate orders 68,500 - - Gain on sale of investments (43,548) - - Equity in undistributed (earnings)/losses of affiliates, net of distributions received (44,621) 69,862 (23,994) Voluntary enhanced retirement programs - - 122,739 Nuclear outage maintenance costs, net 3,105 2,374 (6,078) Deferred income taxes and investment tax credits, net (165,860) (29,248) 57,144 Deferred energy and capacity costs, net (24,482) 8,193 19,719 Allowance for other funds used during construction (916) (75) (2,249) Changes in working capital: Receivables 91,285 (76,178) 2,893 Materials and supplies 704 4,803 6,604 Special deposits and prepayments (18,514) 28,371 (36,294) Payables and accrued liabilities (18,645) 49,025 (103,221) Nonutility generation contract buyout costs (54,018) (56,550) (120,018) Other, net 15,597 (29,485) (41,089) ------ ------- ------- Net cash provided by operating activities 797,176 844,263 652,656 ------- ------- ------- Investing Activities: Capital expenditures and investments: GPU Energy companies (328,452) (356,416) (403,880) GPUI Group (139,771) (1,912,221) (573,587) Proceeds from sale of investments 160,244 - - Contributions to decommissioning trusts (51,039) (40,283) (40,324) Other, net (37,876) 34,500 (26,238) ------- ------ ------- Net cash used for investing activities (396,894) (2,274,420) (1,044,029) -------- ---------- ---------- Financing Activities: Issuance of long-term debt 749,724 1,893,219 743,596 Increase/(Decrease) in notes payable, net (62,292) 87,667 141,657 Retirement of long-term debt (1,036,110) (184,015) (150,763) Capital lease principal payments (50,663) (49,560) (56,217) Termination of interest rate swap agreements (4,310) - - Issuance of common stock 269,448 - - Redemption of preferred stock of subsidiaries (15,000) (20,000) (42,347) Dividends paid on common stock (258,058) (239,597) (231,956) -------- -------- -------- Net cash provided/(required) by financing activities (407,261) 1,487,714 403,970 -------- --------- ------- Effect of exchange rate changes on cash (5,365) (4,062) 585 ------ ------ --- Net increase/(decrease) in cash and temporary cash investments from above activities (12,344) 53,495 13,182 Cash and temporary cash investments, beginning of year 85,099 31,604 18,422 ------ ------ ------ Cash and temporary cash investments, end of year $ 72,755 $ 85,099 $ 31,604 ========== ========== ========== Supplemental Disclosure: Interest and preferred dividends paid $ 370,303 $ 307,064 $ 281,057 ========== ========== ========== Income taxes paid $ 333,994 $ 229,373 $ 153,599 ========== ========== ========== New capital lease obligations incurred $ 37,793 $ 41,898 $ 34,826 ========== ========== ========== Common stock dividends declared but not paid $ 65,917 $ 60,414 $ 58,493 ========== ========== ========== The accompanying notes are an integral part of the consolidated financial statement
F-49 GPU, Inc. and Subsidiary Companies COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GPU, Inc., a Pennsylvania corporation, is a holding company registered under the Public Utility Holding Company Act of 1935. GPU, Inc. does not directly operate any utility properties, but owns all the outstanding common stock of three domestic electric utilities serving customers in New Jersey -- Jersey Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer service, transmission and distribution operations of these electric utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU Energy companies." The generation operations of the GPU Energy companies are conducted by GPU Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). The "GPUI Group," as referred to in this report, develops, owns, operates and funds the acquisition of generation, transmission and distribution facilities worldwide through GPU International, Inc., GPU Power, Inc., GPU Capital, Inc. and GPU Electric, Inc., a subsidiary of GPU Capital, Inc. (Effective January 1, 1999, GPU International, Inc. and GPU Power, Inc., will develop, own, operate and fund the acquisition of generation facilities worldwide and will be referred to as the "GPUI Group." GPU Capital, Inc. and GPU Electric, Inc., will develop, own, operate and fund the acquisition of transmission and distribution systems outside the United States and will be referred to as "GPU Electric".) Other subsidiaries of GPU, Inc. include GPU Advanced Resources, Inc. (GPU AR), which is involved in retail energy sales; GPU Telcom Services, Inc. (GPU Telcom), which is engaged in telecommunications-related businesses; and GPU Service, Inc. (GPUS), which provides legal, accounting, financial and other services to the GPU companies. All of these companies considered together are referred to as "GPU." 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from those estimates. SYSTEM OF ACCOUNTS Certain reclassifications of prior years' data have been made to conform with the current presentation. The GPU Energy companies' accounting records are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC) and adopted by the Pennsylvania Public Utility Commission (PaPUC) and the New Jersey Board of Public Utilities (NJBPU). GPU's accounting records also comply with the Securities and Exchange Commission's (SEC) rules and regulations. F-50 GPU, Inc. and Subsidiary Companies CONSOLIDATION The consolidated financial statements include the accounts of all subsidiaries. All significant intercompany transactions and accounts are eliminated in consolidation. GPU consolidates the accounts of its wholly-owned subsidiaries and any affiliates in which it has a controlling financial interest (generally evidenced by a greater than 50% ownership interest). GPU also uses the equity method of accounting for investments in affiliates in which it has the ability to exercise significant influence. (For further information, see Note 14, GPUI Group Equity Investments.) REGULATORY ACCOUNTING Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting for the Effects of Certain Types of Regulation," applies to regulated utilities that have the ability to recover their costs through rates established by regulators and charged to customers. The GPU Energy companies currently account for Met-Ed and Penelec's transmission and distribution operations as well as all of JCP&L's operations in accordance with FAS 71. In accordance with the provisions of FAS 71, the GPU Energy companies have deferred certain costs pursuant to actions of the NJBPU and PaPUC, and are recovering or expect to recover such costs in regulated rates charged to customers. Regulatory assets and liabilities are reflected net in the Deferred Debits and Other Assets section of the Consolidated Balance Sheets. (For further information about regulatory assets and liabilities, see Note 13, Commitments and Contingencies.) With the receipt of PaPUC Restructuring Orders in 1998, GPU determined that Met-Ed and Penelec's electric generation operations no longer met the criteria for the continued application of FAS 71, and therefore adopted the provisions of Statement of Financial Accounting Standards No. 101 (FAS 101), "Regulated Enterprises Accounting for the Discontinuation of Application of FASB Statement No. 71" and Emerging Issues Task Force (EITF) Issue 97-4, Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statement No. 71 "Accounting for the Effects of Certain Types of Regulation" and No. 101 "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71," for that portion of its business. JCP&L's generation operations will continue to be accounted for under the provisions of FAS 71 until no later than its receipt of NJBPU approval of its restructuring plans. CURRENCY TRANSLATION In accordance with Statement of Financial Accounting Standards No. 52 (FAS 52), "Foreign Currency Translation," balance sheet accounts of foreign operations are translated from foreign currencies into U.S. dollars at year-end rates, while income statement accounts are translated at the average month-end exchange rates for the relevant period. The resulting translation adjustments are included in Accumulated other comprehensive income/(loss), net of deferred taxes, on the Consolidated Balance Sheets. Gains and losses resulting from foreign currency transactions are included in Net Income. F-51 GPU, Inc. and Subsidiary Companies REVENUES GPU recognizes electric operating revenues for services rendered to the end of the relevant accounting period. The GPU Energy companies' electric operating revenues also include an estimate for unbilled revenues. DEFERRED ENERGY COSTS JCP&L recovers its energy-related costs through a Levelized Energy Adjustment Clause (LEAC), and defers any differences between actual energy costs and amounts recovered from customers through rates. Similarly, through December 31, 1996, Met-Ed and Penelec recovered their energy costs through an Energy Cost Rate (ECR), and deferred any differences between actual energy costs and amounts recovered through rates. As a result of legislative and regulatory actions, effective January 1, 1997, Met-Ed and Penelec ceased deferred energy accounting, except for incremental nonutility generation (NUG) costs which are included in Competitive Transition Charge and Other regulatory assets, net on the Consolidated Balance Sheets. For further information, see Competitive Environment and Rate Matters section, Management's Discussion and Analysis. UTILITY PLANT At December 31, 1998, Met-Ed and Penelec's generation plant is valued at the lower of cost or market. During 1998, the GPU Energy companies' investment in Three Mile Island Unit 1 (TMI-1) was written down to its market value. All other utility plant and additions are valued at original cost. DEPRECIATION GPU provides for depreciation at annual rates determined and revised periodically, on the basis of studies, to be sufficient to depreciate the original cost of depreciable property over estimated remaining service lives, which are generally longer than those employed for tax purposes. These rates, on an aggregate composite basis, were as follows: GPU JCP&L Met-Ed Penelec --- ----- ------ ------- 1998 3.43% 3.65% 3.53% 3.25% 1997 3.34% 3.60% 3.39% 3.08% 1996 3.31% 3.58% 3.27% 2.82% ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) The FERC Uniform System of Accounts defines AFUDC as "the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds when so used." The GPU Energy companies record AFUDC as a charge to their regulated construction work in progress, and the equivalent credits to interest charges for the pre-tax cost of borrowed funds and to other income for the allowance for other funds. While AFUDC results in an increase in utility plant and represents current earnings, it is realized in cash through depreciation or amortization allowances only when the related plant is recognized in rates. On an aggregate composite basis, the annual rates utilized by the GPU Energy companies were as follows: F-52 GPU, Inc. and Subsidiary Companies GPU JCP&L Met-Ed Penelec --- ----- ------ ------- 1998 6.74% 7.50% 6.49% 6.08% 1997 6.38% 6.48% 6.12% 6.41% 1996 6.79% 6.88% 8.11% 6.15% In 1998, Met-Ed and Penelec ceased accruing AFUDC for their electric generation construction work in progress, and adopted Statement of Financial Accounting Standards No. 34 (FAS 34), "Capitalizing Interest Costs." AMORTIZATION POLICIES Accounting for TMI-2 and Forked River Investments: At December 31, 1998, $66 million is included in Other regulatory assets, net on the Consolidated Balance Sheets for JCP&L's investment in Three Mile Island Unit 2 (TMI-2). JCP&L is collecting annual revenues for the amortization of TMI-2 of $9.6 million. This level of revenue will be sufficient to recover the remaining investment by 2008. Met-Ed and Penelec have collected all of their TMI-2 investment attributable to retail customers. At December 31, 1998, $62 million is included in Other regulatory assets, net on the Consolidated Balance Sheets for JCP&L's Forked River project. JCP&L is collecting annual revenues for the amortization of this project of $11.2 million, which will be sufficient to recover its remaining investment by the year 2006. Because JCP&L has not been provided revenues for a return on the unamortized balances of the damaged TMI-2 facility and the cancelled Forked River project, these investments are being carried at their discounted present values. Nuclear Fuel: The GPU Energy companies amortize nuclear fuel on a unit-of-production basis. Rates are determined and periodically revised to amortize the cost of the fuel over its useful life. At December 31, 1998 and 1997, the liability of the GPU Energy companies for future contributions to the Federal Decontamination and Decommissioning Fund for the cleanup of uranium enrichment plants operated by the Federal Government amounted to $28 million (JCP&L $18 million; Met-Ed $7 million; Penelec $3 million) and $31 million (JCP&L $20 million; Met-Ed $7 million; Penelec $4 million), respectively, and was primarily reflected in Deferred Credits and Other Liabilities-Other. Annual contributions, which began in 1993, are being made over a 15-year period and are being recovered from customers. At December 31, 1998 and 1997, $29 million (JCP&L $18 million; Met-Ed $7 million; Penelec $4 million) and $33 million (JCP&L $21 million; Met-Ed $8 million; Penelec $4 million), respectively, was recorded on the Consolidated Balance Sheets in Other regulatory assets, net. Intangibles: The GPUI Group records goodwill for any amount paid over the fair value of net tangible assets it acquires, and other intangible assets for the right to perform management services. As of December 31, 1998 and 1997, the GPUI Group had goodwill and other intangibles, net of accumulated amortization, of approximately $545 million and $581 million, respectively. Goodwill and other F-53 GPU, Inc. and Subsidiary Companies intangibles are amortized on a straight-line basis over periods not exceeding 40 years. Amortization expense, in the aggregate, amounted to $14 million and $2.8 million for the years ended December 31, 1998 and 1997, respectively. The GPUI Group periodically reviews undiscounted projections of future cash flows from operations to assess any potential intangible impairment. An impairment would be recorded based upon discounted projected cash flows. A discussion of the goodwill related to the purchase of PowerNet Victoria (PowerNet), and other acquisitions is included in Note 6, Acquisitions and Note 14, GPUI Group Equity Investments. NUCLEAR OUTAGE MAINTENANCE COSTS The GPU Energy companies accrue incremental nuclear outage maintenance costs anticipated to be incurred during scheduled nuclear plant refueling outages to provide a proper matching of revenues to expenses. NUCLEAR FUEL DISPOSAL FEE The GPU Energy companies are providing for estimated future disposal costs for spent nuclear fuel at Oyster Creek and TMI-1 in accordance with the Nuclear Waste Policy Act of 1982. The GPU Energy companies entered into contracts in 1983 with the U.S. Department of Energy (DOE) for the disposal of spent nuclear fuel. The total liability under these contracts, including interest, at December 31, 1998, all of which relates to spent nuclear fuel from nuclear generation through April 1983, amounted to $189 million (JCP&L $141 million; Met-Ed $32 million; Penelec $16 million), and is reflected in Deferred Credits and Other Liabilities - Other. As the actual liability is substantially in excess of the amount recovered to date from ratepayers, JCP&L has reflected such excess of $21 million at December 31, 1998 in Regulatory assets, net. The rates presently charged to customers provide for the collection of these costs, plus interest, over remaining periods of eight years for JCP&L and Met-Ed. The GPU Energy companies are collecting one mill per kilowatt-hour from their customers for spent nuclear fuel disposal costs resulting from nuclear generation subsequent to April 1983. These amounts are remitted quarterly to the DOE. (See Note 13, Commitments and Contingencies, for a discussion of the DOE's current inability to begin acceptance of spent nuclear fuel from the GPU Energy companies and other standard contract holders.) INCOME TAXES GPU files a consolidated federal income tax return. All participants are jointly and severally liable for the full amount of any tax, including penalties and interest, which may be assessed against the group. Deferred income taxes, which result primarily from liberalized depreciation methods, deferred energy costs, decommissioning funds and discounted Forked River and TMI-2 investments, reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. Investment tax credits (ITC) are amortized over the estimated service lives of the related facilities. F-54 GPU, Inc. and Subsidiary Companies CARRYING AMOUNTS OF FINANCIAL INSTRUMENTS The carrying amounts of Temporary cash investments, Special deposits, Securities due within one year and Notes payable on the Consolidated Balance Sheets approximate fair value due to the short period to maturity. The carrying amounts of the Nuclear decommissioning trusts and Nuclear fuel disposal trust, whose assets are invested in cash equivalents and debt and equity securities, also approximate fair value. ENVIRONMENTAL LIABILITIES GPU may be subject to loss contingencies resulting from environmental laws and regulations, which include obligations to mitigate the effects on the environment of the disposal or release of certain hazardous wastes and substances at various sites. GPU records liabilities (on an undiscounted basis) for hazardous waste sites where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated and adjusts these liabilities as required to reflect changes in circumstances. STATEMENTS OF CASH FLOWS For the purpose of the consolidated statements of cash flows, temporary investments include all unrestricted liquid assets, such as cash deposits and debt securities, with maturities generally of three months or less. Cash flows are reported using the U.S. dollar equivalent of the functional currencies in effect at the time of the cash transaction. The effect of exchange rate changes on cash balances held in foreign currencies are reported as a separate line item on the Consolidated Statements of Cash Flows. F-55 GPU, Inc. and Subsidiary Companies
2. SHORT-TERM BORROWING ARRANGEMENTS At December 31, 1998 and 1997, GPU had short-term notes outstanding as follows: 1998 1997 ---- ---- Balance Weighted Balance Weighted Company Facility Outstanding Avg. Rate Outstanding Avg. Rate - ------- -------- ----------- --------- ----------- --------- (in millions) (in millions) GPU, Inc. Bank Lines of Credit $ 69 7.0% $ 92 6.6% JCP&L Bank Lines of Credit 53 6.3 96 6.5 Commercial Paper 69 6.2 19 6.5 Met-Ed Bank Lines of Credit 17 6.1 49 6.7 Commercial Paper 63 6.4 18 6.9 Penelec Bank Lines of Credit 32 5.9 61 6.7 Commercial Paper 54 6.1 17 6.9 GPUI Bank Lines of Credit 12 6.2 1 6.2 --- --- --- --- Total $369 6.4% $353 6.6% === === === ===
GPU has $1.8 billion of committed credit facilities, which include various committed lines of credit totaling $207 million, an unsecured $250 million Revolving Credit Agreement, and three other Credit Agreements, discussed below, which are guaranteed by GPU, Inc. GPU Capital has entered into a $1 billion 364-day senior revolving credit facility to support the issuance of commercial paper. GPU Capital is the largest of three issuers ($1 billion) in a $1.45 billion commercial paper program. The other issuers are GPU Australia Holdings, Inc. ($350 million) and GPU, Inc. which has requested SEC authorization to issue and sell up to $100 million under this program. GPU Capital, along with GPU Australia Holdings, will use the proceeds from the sale of commercial paper to finance up to $1.35 billion of investments in foreign utility companies (FUCOs) and exempt wholesale generating companies (EWGs). The facility fee of .15 of 1% on the GPU Capital credit facility is based on GPU's current senior debt ratings and is payable annually. A separate $360 million credit facility serves as the backstop for the GPU Australia Holdings commercial paper program. The associated annual fee is .15 of 1%. GPU International has a separate Credit Agreement providing for borrowings through December 1999 of up to $30 million outstanding at any time. Up to $15 million may be utilized to provide letters of credit. An annual facility fee ranging from .085% to .4% on the total amount of the Credit Agreement and a letter of credit fee ranging from .265% to 1.6% on the outstanding letters of credit are payable by GPU International. The Revolving Credit Agreement between GPU, Inc., the GPU Energy companies and a consortium of banks is subject to various covenants. The agreement expires May 6, 2001. A facility fee of .125 of 1% is payable annually. Borrowing rates and the facility fee are based on the long-term debt ratings of GPU, Inc. and the GPU Energy companies. F-56 GPU, Inc. and Subsidiary Companies
3. LONG-TERM DEBT At December 31, 1998 and 1997, long-term debt outstanding was as follows: (in thousands) GPU, Inc. and Subsidiary Companies 1998 1997 ---- ---- First Mortgage Bonds (GPU Energy companies)(a) $2,417,810 $2,447,810 Amounts due within one year (80,000) (30,000) Unamortized net discount (3,039) (3,284) --------- --------- Total 2,334,771 2,414,526 Other long-term debt: GPUI Group (excludes amounts due within one year of $481,135 for 1998 and $589,390 for 1997) 1,456,713 1,877,300 Other (excludes amounts due within one year of $48 for 1998 and $44 for 1997) 34,100 34,146 --------- --------- Total long-term debt $3,825,584 $4,325,972 ========= =========
(in thousands) JCP&L
First Mortgage Bonds - Series as noted (a): 1998 1997 ---- ---- 6.04% due 2000 $ 40,000 $ 40,000 6.45% due 2001 40,000 40,000 9% due 2002 50,000 50,000 6 3/8% due 2003 150,000 150,000 7 1/8% due 2004 160,000 160,000 6.78% due 2005 50,000 50,000 8 1/4% due 2006 50,000 50,000 6.85% due 2006 40,000 40,000 7.90% due 2007 40,000 40,000 7 1/8% due 2009 6,300 6,300 7.10% due 2015 12,200 12,200 9.20% due 2021 50,000 50,000 8.55% due 2022 30,000 30,000 8.82% due 2022 12,000 12,000 8.85% due 2022 38,000 38,000 8.32% due 2022 40,000 40,000 7.98% due 2023 40,000 40,000 7 1/2% due 2023 125,000 125,000 8.45% due 2025 50,000 50,000 6 3/4% due 2025 150,000 150,000 --------- --------- Subtotal 1,173,500 1,173,500 Amounts due within one year - - Unamortized net discount (2,992) (3,233) --------- --------- Total 1,170,508 1,170,267 Other long-term debt (excludes amounts due within one year of $12 for 1998 and $11 for 1997) 3,024 3,037 --------- --------- Total long-term debt $1,173,532 $1,173,304 ========= =========
F-57 GPU, Inc. and Subsidiary Companies (in thousands) Met-Ed
First Mortgage Bonds - Series as noted (a): 1998 1997 ---- ---- 7.05% due 1999 $ 30,000 $ 30,000 6.2% due 2000 30,000 30,000 9.48% due 2000 20,000 20,000 8.05% due 2002 30,000 30,000 6.6% due 2003 20,000 20,000 7.22% due 2003 40,000 40,000 9.1% due 2003 30,000 30,000 6.34% due 2004 40,000 40,000 6.77% due 2005 30,000 30,000 7.35% due 2005 20,000 20,000 6.36% due 2006 17,000 17,000 6.40% due 2006 33,000 33,000 6.00% due 2008 8,700 8,700 6.1% due 2021 28,500 28,500 8.6% due 2022 30,000 30,000 8.8% due 2022 30,000 30,000 6.97% due 2023 30,000 30,000 7.65% due 2023 30,000 30,000 8.15% due 2023 60,000 60,000 5.95% due 2027 13,690 13,690 ------- -------- Subtotal 570,890 570,890 Amounts due within one year (30,000) - Unamortized net discount (35) (39) ------- ------- Total 540,855 570,851 Other long-term debt (excludes amounts due within one year of $24 for 1998 and $22 for 1997) 6,049 6,073 ------- ------- Total long-term debt $ 546,904 $ 576,924 ======= =======
F-58 GPU, Inc. and Subsidiary Companies (in thousands) Penelec
First Mortgage Bonds - Series as noted (a): 1998 1997 ---- ---- 7 7/8% due 1998 $ - $ 30,000 5.99% due 1999 50,000 50,000 6.15% due 2000 30,000 30,000 6.8% due 2001 20,000 20,000 8.70% due 2001 30,000 30,000 7.40% due 2002 10,000 10,000 7.43% due 2002 30,000 30,000 7.92% due 2002 10,000 10,000 7.40% due 2003 10,000 10,000 6.60% due 2003 30,000 30,000 7.02% due 2003 20,000 20,000 7.48% due 2004 40,000 40,000 6.10% due 2004 30,000 30,000 6.7% due 2005 30,000 30,000 6.35% due 2006 40,000 40,000 8.05% due 2006 10,000 10,000 6 1/8% due 2007 4,110 4,110 6.55% due 2009 50,000 50,000 5.35% due 2010 12,310 12,310 5.35% due 2010 12,000 12,000 5.80% due 2020 20,000 20,000 8.33% due 2022 20,000 20,000 7.49% due 2023 30,000 30,000 8.38% due 2024 40,000 40,000 8.61% due 2025 30,000 30,000 7.53% due 2025 40,000 40,000 6.05% due 2025 25,000 25,000 ------- ------- Subtotal 673,420 703,420 Amounts due within one year (50,000) (30,000) Unamortized net discount (11) (12) ------- ------- Total 623,409 673,408 Other long-term debt (excludes amounts due within one year of $12 for 1998 and $11 for 1997) 3,025 3,036 ------- ------- Total long-term debt $ 626,434 $ 676,444 ======= ======= (a) Substantially all of the utility plant owned by the GPU Energy companies is subject to the lien of their respective mortgages.
F-59 GPU, Inc. and Subsidiary Companies
For the years 1999, 2000, 2001, 2002 and 2003 GPU has long-term debt maturities for first mortgage bonds and other long-term debt as follows: (in millions) Company 1999 2000 2001 2002 2003 - ------- ---- ---- ---- ---- ---- JCP&L $ - $ 40 $ 40 $ 50 $150 Met-Ed 30 50 0 30 90 Penelec 50 30 50 50 60 GPUI Group 481 535 93 535 2 GPUS - - 22 - - --- --- --- --- --- Total $561 $655 $205 $665 $302 === --- === === === The estimated fair value of GPU's long-term debt, including amounts due within one year, as of December 31, 1998 and 1997 was as follows:
(in thousands) --------------
1998 1997 ---- ---- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- JCP&L $1,173,544 $1,245,141 $1,173,315 $1,231,766 Met-Ed 576,928 613,573 576,946 607,336 Penelec 676,447 718,405 706,455 736,031 GPUI Group 1,937,847 1,855,836 2,466,690 2,467,286 GPUS 22,000 22,000 22,000 22,000 --------- --------- --------- --------- Total $4,386,766 $4,454,955 $4,945,406 $5,064,419 ========= ========= ========= =========
The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to GPU for debt of the same remaining maturities and credit qualities. At December 31, 1998, the GPUI Group had long-term debt outstanding of $1.9 billion, of which approximately $723 million was guaranteed by GPU, Inc. The guaranteed amount consisted of the following: $350 million under a five-year U.S. bank credit agreement used to partially fund GPU Electric's acquisition of PowerNet (see Note 6); and 225 million British pounds (approximately U.S. $373 million at December 31, 1998) under a bank term loan facility used to fund GPU Electric's investment in Midlands. F-60 GPU, Inc. and Subsidiary Companies 4. STOCKHOLDERS' EQUITY COMMON EQUITY Common Stock: GPU, Inc. The following table presents information relating to the common stock ($2.50 par value) of GPU, Inc.: 1998 1997 1996 ---- ---- ---- Authorized shares 350,000,000 350,000,000 350,000,000 Issued shares 132,783,338 125,783,338 125,783,338 Reacquired shares 4,787,657 4,950,727 5,172,201 Outstanding shares 127,995,681 120,832,611 120,611,137 Outstanding restricted units 307,773 248,883 258,705 In 1998, GPU, Inc. sold seven million shares of common stock. The net proceeds of $269 million were used primarily to reduce indebtedness associated with the PowerNet and Midlands acquisitions, and the balance was used for other corporate purposes. In 1998, 1997 and 1996, capital surplus was credited $4.3 million, $3 million and $3 million, respectively, for shares issued pursuant to GPU, Inc.'s Dividend Reinvestment Plan. Also in 1998, capital surplus was credited $252 million, net related to the issuance of common stock. In 1997, GPU adopted Statement of Financial Accounting Standards No. 128 (FAS 128), "Earnings Per Share," which requires a dual presentation of earnings per share for companies that have common stock equivalents. GPU's basic and diluted earnings per share are not materially different. Pursuant to the 1990 Stock Plan, awards may be granted in the form of incentive stock options, nonqualified stock options, restricted shares of common stock and restricted units. In 1998, 1997 and 1996, GPU, Inc. issued restricted units to officers representing rights to receive shares of common stock, on a one-for-one basis, at the end of the restriction period. The number of shares eventually issued will depend upon the degree that GPU's performance goals have been met for the restriction period and could range from 0% to 200% of the originally awarded units. In 1998, GPU, Inc. granted stock options to its officers to purchase 305,950 and 30,000 shares at $36.625 per share and $44.25 per share, respectively. All options have an exercise price equal to the fair market value of GPU, Inc. common stock on the grant date. Options are exercisable in accordance with the terms set forth in the 1990 Stock Plan. In 1998, no options were exercised. In 1998 and 1997, pursuant to the Deferred Stock Unit Plan for Outside Directors, restricted units were issued to outside directors representing rights to receive shares of GPU, Inc. common stock, on a one-for-one basis. All restricted units are considered common stock equivalents and, accordingly, are reflected in the computation of diluted earnings per share shown on the Consolidated Income Statements. The restricted units accrue dividend equivalents on a quarterly basis, which are reinvested in additional equivalent units. In 1998, 1997 and 1996, outside directors were awarded 53,260, 64,941 and 63,206 restricted units, respectively. In 1998, 1997 and 1996, GPU, Inc. issued a total of 20,611, 54,491 and 37,253 shares of common stock, respectively, from previously reacquired shares. F-61 GPU, Inc. and Subsidiary Companies In 1996, GPU adopted Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based Compensation," which establishes a fair value-based method of accounting for employee stock-based compensation. Under this method, compensation cost is measured at the grant date, based on the market price of the stock at that date, and is recognized as expense over the restricted period. FAS 123 permits companies to continue to follow the accounting prescribed by Accounting Principles Board Opinion No. 25 (APB No. 25), provided that pro forma disclosures of net income are made as if the fair value-based method of accounting had been applied. GPU has elected to continue accounting for stock-based compensation in accordance with APB No. 25, which contains provisions for subsequent adjustments to compensation cost based on market price fluctuations of the stock after the grant date. The pro forma effects on net income resulting from the application of the fair value-based method of accounting defined in FAS 123 are immaterial. At December 31, 1998 and 1997, the following issues of common stock were outstanding: (in thousands) GPU, Inc. 1998 1997 - --------- ---- ---- Common stock, par value $2.50 per share $331,958 $314,458 ======= ======= JCP&L Common stock, par value $10 per share, 16,000,000 shares authorized, 15,371,270 shares issued and outstanding $153,713 $153,713 ======= ======= Met-Ed Common stock, no par value, 900,000 shares authorized, 859,500 shares issued and outstanding 66,273 $ 66,273 ====== ====== Penelec Common stock, par value $20 per share, 5,400,000 shares authorized, 5,290,596 shares issued and outstanding $105,812 $105,812 ======= ======= Accumulated Other Comprehensive Income/(Loss) In 1997, GPU adopted Statement of Financial Accounting Standards No. 130 (FAS 130), "Reporting Comprehensive Income." At December 31, 1998 and 1997, GPU had on the Consolidated Balance Sheets the following amounts in Accumulated other comprehensive income/(loss): GPU, Inc. and Subsidiary Companies (in thousands) 1998 1997 ---- ---- Net unrealized gain on investments $ 28,345 $ 19,358 Foreign currency translation (54,377) (44,916) Minimum pension liability (5,272) (3,738) ------ ------ Accumulated other comprehensive income/(loss) $(31,304) $(29,296) ====== ====== F-62 GPU, Inc. and Subsidiary Companies JCP&L 1998 1997 ----- ---- ---- Net unrealized gain on investments $ - $ - Minimum pension liability (425) - ------ ------- Accumulated other comprehensive income/(loss) $ (425) $ - ====== ======= Met-Ed Net unrealized gain on investments $ 17,054 $ 12,906 Minimum pension liability (534) (419) ------ ------ Accumulated other comprehensive income $ 16,520 $ 12,487 ====== ====== Penelec Net unrealized gain on investments $ 8,518 $ 6,454 Minimum pension liability (165) (122) ------ ------ Accumulated other comprehensive income $ 8,353 $ 6,332 ====== ====== The components of other comprehensive income/(loss), and the related tax effects, for the years 1998, 1997 and 1996 are as follows: (in thousands) GPU, Inc. and Subsidiary Companies Amount Income Tax Amount Before (Expense) Net of 1998 Taxes Benefit Taxes - ---- ------ ------- ------- Net unrealized gain on investments $ 13,235 $(4,248) $ 8,987 Foreign currency translation: Foreign currency translation during year (23,295) 8,233 (15,062) Realized loss in net income 8,737 (3,136) 5,601 ------ ------ ------ Foreign currency translation, net (14,558) 5,097 (9,461) Minimum pension liability (2,605) 1,071 (1,534) ------ ------ ------ Total other comprehensive income/(loss) $ (3,928) $ 1,920 $ (2,008) ===== ====== ===== 1997 Net unrealized gain on investments 10,895 (4,521) 6,374 Foreign currency translation, net (73,115) 24,186 (48,929) Minimum pension liability (2,541) 1,046 (1,495) ------ ------ ------ Total other comprehensive income/(loss) $(64,761) $ 20,711 $(44,050) ====== ====== ======= 1996 Unrealized gain on investments: Gain on investments during the year $ 10,797 $(3,922) 6,875 Realized gain in net income (9,494) 3,323 (6,171) ------ ----- ----- Net unrealized gain on investments 1,303 (599) 704 Foreign currency translation, net 3,054 - 3,054 Minimum pension liability (3,706) 1,531 (2,175) ------ ----- ----- Total other comprehensive income $ 651 $ 932 $ 1,583 ====== ===== ===== F-63 GPU, Inc. and Subsidiary Companies (in thousands) JCP&L Amount Income Tax Amount Before (Expense) Net of 1998 Taxes Benefit Taxes - ---- ------ ------- ----- Net unrealized gain on investments $ - $ - $ - Minimum pension liability (718) 293 (425) ------ ----- ----- Total other comprehensive income/(loss) $ (718) $ 293 $ (425) ===== ===== ===== Met-Ed 1998 Net unrealized gain on investments $ 6,990 $(2,842) $ 4,148 Minimum pension liability (196) 81 (115) ----- ----- ----- Total other comprehensive income/(loss) $ 6,794 $(2,761) $ 4,033 ===== ===== ===== 1997 Net unrealized gain on investments $ 7,263 $(3,014) $ 4,249 Minimum pension liability (267) 110 (157) ------ ----- ----- Total other comprehensive income/(loss) $ 6,996 $(2,904) $ 4,092 ====== ===== ===== 1996 Net unrealized gain on investments $ 6,883 $(2,856) $ 4,027 Minimum pension liability (448) 186 (262) ----- ----- ----- Total other comprehensive income/(loss) $ 6,435 $(2,670) $ 3,765 ===== ===== ===== Penelec 1998 Net unrealized gain on investments $ 3,470 $(1,406) $ 2,064 Minimum pension liability (73) 30 (43) ------ ----- ----- Total other comprehensive income/(loss) $ 3,397 $(1,376) $ 2,021 ===== ===== ===== 1997 Net unrealized gain on investments $ 3,632 $(1,507) $ 2,125 Minimum pension liability (209) 87 (122) ----- ----- ----- Total other comprehensive income/(loss) $ 3,423 $(1,420) $ 2,003 ===== ===== ===== 1996 Net unrealized gain on investments 3,442 $(1,428) $ 2,014 Minimum pension liability - - - ----- ----- ------ Total other comprehensive income/(loss) 3,442 $(1,428) $ 2,014 ===== ===== ===== F-64 GPU, Inc. and Subsidiary Companies PREFERRED EQUITY Cumulative Preferred Stock: At December 31, 1998 and 1997, the following issues of cumulative preferred stock were outstanding: GPU, Inc. and Subsidiary Companies (in thousands) 1998 1997 ---- ---- Cumulative preferred stock (a): With mandatory redemption (d) $ 89,000 $ 104,000 Amounts due within one year (e) (2,500) (12,500) ------- ------- Total cumulative preferred stock with mandatory redemption $ 86,500 $ 91,500 ======= ======= Cumulative preferred stock (a): Without mandatory redemption (b), (f) $ 65,996 $ 65,996 Premium on cumulative preferred stock 482 482 ------- ------- Total cumulative preferred stock without mandatory redemption $ 66,478 $ 66,478 ======= ======= JCP&L Cumulative preferred stock, without par value, 15,600,000 shares authorized, 1,315,000 and 1,415,000 shares issued and outstanding in 1998 and 1997, respectively (a): (in thousands) 1998 1997 ---- ---- Cumulative preferred stock - without mandatory redemption (b): 4% Series, 125,000 shares, callable at $106.50 a share $12,500 $ 12,500 7.88% Series E, 250,000 shares, callable at $103.65 a share 25,000 25,000 ------ ------ Subtotal 37,500 37,500 Premium on cumulative preferred stock 241 241 ------ ------ Total cumulative preferred stock - without mandatory redemption $ 37,741 $ 37,741 ====== ====== Cumulative preferred stock - with mandatory redemption (c), (d), (e): 8.48% Series I ,100,000 shares in 1997 $ - $ 10,000 8.65% Series J, 500,000 shares 50,000 50,000 7.52% Series K, 440,000 shares 39,000 44,000 ------- ------- Subtotal 89,000 104,000 Amounts due within one year (e) (2,500) (12,500) ------- ------- Total cumulative preferred stock - with mandatory redemption $ 86,500 $ 91,500 ======= ======= F-65 GPU, Inc. and Subsidiary Companies Met-Ed Cumulative preferred stock, without par value, 10,000,000 shares authorized, 119,475 shares issued and outstanding in 1998 and 1997, without mandatory redemption (a), (b), (f): (in thousands) 1998 1997 ---- ---- 3.90% Series, 64,384 shares, callable at $105.625 a share $ 6,438 $ 6,438 4.35% Series, 22,517 shares, callable at $104.25 a share 2,252 2,252 3.85% Series, 9,252 shares, callable at $104.00 a share 925 925 3.80% Series, 7,982 shares callable at $104.70 a share 798 798 4.45% Series, 15,340 shares, callable at $104.25 a share 1,534 1,534 ------ ------ Subtotal 11,947 11,947 Premium on cumulative preferred stock 109 109 ------ ------ Total cumulative preferred stock $ 12,056 $ 12,056 ====== ====== Penelec Cumulative preferred stock, without par value, 11,435,000 shares authorized, 165,485 shares issued and outstanding in 1998 and 1997, without mandatory redemption (a), (b), (f): (in thousands) 1998 1997 ---- ---- 4.40% Series B, 29,678 shares, callable at $108.25 per share $ 2,968 $ 2,968 3.70% Series C, 49,568 shares, callable at $105.00 per share 4,957 4,957 4.05% Series D, 28,219 shares, callable at $104.53 per share 2,822 2,822 4.70% Series E, 14,103 shares, callable at $105.25 per share 1,410 1,410 4.50% Series F, 17,081 shares, callable at $104.27 per share 1,708 1,708 4.60% Series G, 26,836 shares, callable at $104.25 per share 2,684 2,684 ------ ------ Subtotal 16,549 16,549 Premium on cumulative preferred stock 132 132 ------ ------ Total cumulative preferred stock $ 16,681 $ 16,681 ====== ====== (a) At December 31, 1998 and 1997, the GPU Energy companies were authorized to issue 37,035,000 shares of cumulative preferred stock. If dividends on any of the preferred stock are in arrears for four quarters, the holders of preferred stock, voting as a class, are entitled to elect a majority of the board of directors of that company until all dividends in arrears have been paid. A GPU Energy company may not redeem preferred stock unless dividends on all of its preferred stock for all past quarterly dividend periods have been paid or declared and set aside for payment. F-66 GPU, Inc. and Subsidiary Companies (b) The outstanding shares of preferred stock without mandatory redemption are callable at various prices above their stated values. At December 31, 1998, the aggregate amount at which these shares could be called by the GPU Energy companies was $69 million (JCP&L $39 million; Met-Ed $13 million; Penelec $17 million). (c) The 7.52% and 8.65% Series are callable at various prices above their stated values beginning in 2002 and 2000, respectively. The 7.52% Series is to be redeemed ratably over twenty years which began in 1998. The 8.65% Series is to be redeemed ratably over six years beginning in 2000. (d) During 1998, JCP&L redeemed $5 million stated value of 7.52% cumulative preferred stock and $10 million stated value of 8.48% cumulative preferred stock pursuant to mandatory and optional sinking fund provisions. During 1997, JCP&L redeemed $20 million stated value of 8.48% cumulative preferred stock pursuant to mandatory and optional sinking fund provisions. JCP&L's total redemption cost for 1998 and 1997 was $15 million and $20 million, respectively. (e) The outstanding shares with mandatory redemption have the following redemption requirements over the next five years: $2.5 million in 1999 and $10.8 million in 2000, 2001, 2002 and 2003. The fair value of the preferred stock with mandatory redemption, including amounts due within one year, based on market price quotations at December 31, 1998 and 1997, was $94.7 million and $109.9 million, respectively. (f) During 1996, Met-Ed and Penelec reacquired, pursuant to cash tender offers, cumulative preferred stock for a total cost of $7.7 million and $14.4 million, respectively. A reacquisition gain of $3.7 million and $5.6 million was recorded for Met-Ed and Penelec, respectively, which resulted in an increase in GPU, Inc.'s 1996 diluted earnings per share of $0.08. (g) In January 1999, Met-Ed and Penelec announced the redemption of all outstanding shares of cumulative preferred stock. The shares will be redeemed on February 19, 1999 at a price of $12.6 million and $17.6 million for Met-Ed and Penelec, respectively. Subsidiary-Obligated Mandatorily Redeemable Preferred Securities: JCP&L Capital, L.P., Met-Ed Capital, L.P. and Penelec Capital, L.P., are special-purpose partnerships in which a subsidiary of JCP&L, Met-Ed and Penelec, respectively, is the sole general partner. In 1995, JCP&L Capital, L.P. issued $125 million of mandatorily redeemable preferred securities (Preferred Securities) and in 1994, Met-Ed Capital, L.P. and Penelec Capital, L.P. issued $100 million and $105 million, respectively, of Preferred Securities. The proceeds were lent to JCP&L, Met-Ed and Penelec, respectively, which, in turn, issued their deferrable interest subordinated debentures to the partnerships. The following issues of Preferred Securities were outstanding at December 31, 1998 and 1997: F-67 GPU, Inc. and Subsidiary Companies Issue Securities Total Company Series Price Outstanding in thousands) - ------- ------ ----- ----------- ------------- JCP&L Capital, L.P. 8.56% $25 5,000,000 $125,000 Met-Ed Capital, L.P. 9.00% $25 4,000,000 100,000 Penelec Capital, L.P. 8.75% $25 4,200,000 105,000 ------- Total $330,000 The fair value of the Preferred Securities based on market price quotations at December 31, 1998 and 1997 was $336 million (JCP&L $128 million, Met-Ed $102 million, Penelec $106 million) and $341 million (JCP&L $128 million, Met-Ed $104 million, Penelec $109 million), respectively. The Preferred Securities of JCP&L Capital, L.P. mature in 2044, while those of Met-Ed Capital, L.P. and Penelec Capital, L.P. mature in 2043. Their respective Preferred Securities are redeemable at the option of JCP&L beginning in 2000, and at the option of Met-Ed and Penelec beginning in 1999, at 100% of their principal amount, or earlier under certain limited circumstances, including the loss of the federal tax deduction for interest paid on the subordinated debentures. JCP&L, Met-Ed and Penelec have fully and unconditionally guaranteed payment of distributions, to the extent there is sufficient cash on hand to permit such payments and legally available funds, and payments on liquidation or redemption of their respective Preferred Securities. Distributions on the Preferred Securities (and interest on the subordinated debentures) may be deferred for up to 60 months, but JCP&L, Met-Ed and Penelec may not pay dividends on, or redeem or acquire, any of their preferred or common stock until deferred payments on their respective subordinated debentures are paid in full. 5. ACCOUNTING FOR EXTRAORDINARY AND NON-RECURRING ITEMS Pennsylvania Restructuring Write-offs Historically, the rates an electric utility charges its customers have been based on the utility's costs of operation. As a result, the GPU Energy companies were required to account for the economic effects of cost-based ratemaking regulation under the provisions of FAS 71. FAS 71 requires regulated entities, in certain circumstances, to defer, as regulatory assets, the impact on operations of costs expected to be recovered in future rates. In response to the continuing deregulation of the electric utility industry, the SEC has questioned the continued applicability of FAS 71 by investor-owned utilities with respect to their electric generation operations. In response to these concerns, the Financial Accounting Standards Board's (FASB) EITF concluded in June 1997 that utilities are no longer subject to FAS 71, for the relevant portion of their business, when they know details of their individual transition plans to a competitive electric generation marketplace. The EITF also concluded that utilities can continue to carry previously recorded regulated assets, as well as any newly established regulated assets (including those related to generation), on their balance sheets if regulators have guaranteed a regulated cash flow stream to recover the cost of these assets. F-68 GPU, Inc. and Subsidiary Companies In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders (Restructuring Orders) which, among other things, essentially remove from regulation the costs associated with providing electric generation service to Pennsylvania consumers, effective January 1, 1999. Accordingly, in 1998 Met-Ed and Penelec discontinued the application of FAS 71 and adopted the provisions of FAS 101 and EITF Issue 97-4 with respect to their electric generation operations. The transmission and distribution portion of Met-Ed and Penelec's operations continue to be subject to the provisions of FAS 71. JCP&L expects to discontinue the application of FAS 71 and adopt FAS 101 and EITF Issue 97-4 for its electric generation operations no later than its receipt of NJBPU approval of its restructuring plans, which is expected in the second quarter of 1999. Also, as a result of the Restructuring Orders, Met-Ed and Penelec recorded non-recurring charges for customer refunds of 1998 revenues, and for the establishment of a sustainable energy fund. For the year ended December 31, 1998, the net effect on earnings of the PaPUC's Restructuring Orders was as follows:
(in millions, except per share data) Met-Ed Penelec Total ------ ------- ----- Write-off of existing Pennsylvania generation regulatory assets $ 8.0 $ 2.8 $ 10.8 Write-off of existing FERC generation regulatory assets 1.5 17.6 19.1 Write-off of FERC portion of TMI-1 impairment and TMI-1 decommissioning 2.0 10.2 12.2 ------- ------- ------- Extraordinary loss (pre-tax) due to FAS 101 write-off 11.5 30.6 42.1 Obligation to refund 1998 revenues 27.2 29.2 56.4 Establishment of sustainable energy fund 5.7 6.4 12.1 ------- ------- ------- Total pre-tax write-off 44.4 66.2 110.6 Income tax benefit (18.4) (26.4) (44.8) ------- ------- ------- Total after-tax write-off $ 26.0 $ 39.8 $ 65.8 ======= ======= ======= GPU loss per average common share due to Pennsylvania restructuring $ 0.21 $ 0.31 $ 0.52 ======= ======= =======
FAS 121 Impairment Tests on Generation Facilities In accordance with Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", impairment tests performed by the GPU Energy companies on the December 31, 1998 net book value of their generation facilities determined that the net investment in TMI-1 was impaired, resulting in a write-down of $518 million (pre-tax) to reflect TMI-1's fair market value. Of the amount written down for TMI-1, $508 million was established as a regulatory asset because management believes it is probable of recovery in F-69 GPU, Inc. and Subsidiary Companies the restructuring process and $10 million (the FERC jurisdictional portion) was charged to expense as an extraordinary item. 6. ACQUISITIONS POWERNET In 1997, GPU Electric acquired the business of PowerNet from the State of Victoria, Australia for A$2.6 billion (approximately U.S. $1.9 billion). The fair value of the assets acquired totaled approximately U.S. $2 billion and the amount of liabilities assumed totaled approximately U.S. $142.9 million. PowerNet owns and operates the high-voltage electricity transmission system in the State of Victoria serving an area of approximately 87,900 square miles and a population of approximately 4.5 million. The PowerNet acquisition was financed through: (1) a senior debt credit facility of A$1.9 billion (approximately U.S. $1.4 billion), which is non-recourse to GPU, Inc.; (2) a five-year U.S. $450 million bank credit agreement which is guaranteed by GPU, Inc.; and (3) an equity contribution from GPU, Inc. of U.S. $50 million. As part of the PowerNet acquisition, the GPUI Group entered into various interest rate swap agreements to mitigate the risk of increases in variable interest rates on the senior debt credit facility. These swaps became effective in November 1997, and expire on various dates through November 2007. The GPUI Group expects to record amounts paid and received under the agreements as adjustments to the interest expense of the underlying debt. The acquisition of PowerNet was accounted for under the purchase method of accounting. The total acquisition costs exceeded the estimated value of net assets by A$877 million (approximately U.S. $537 million). This excess amount is considered goodwill and is being amortized to expense on a straight-line basis over 40 years. PowerNet has been included in GPU's consolidated financial statements since its purchase on November 6, 1997. The following unaudited pro forma consolidated results of operations for the years 1997 and 1996 have been prepared in accordance with Accounting Principles Board Opinion No. 16, assuming the acquisition date was effective January 1, 1996 with debt financing. The pro forma results are not necessarily indicative of the actual results that would have been realized had the acquisition occurred on the assumed date of January 1, 1996, nor are they necessarily indicative of future results. The pro forma consolidated operating results are for information purposes only and are as follows: (Unaudited) 1997 1996 ---- ----
(in thousands except As As per share data) Reported Pro Forma Reported Pro Forma - --------------- -------- --------- -------- --------- Operating revenues $4,143,379 $4,316,452 $3,970,711 $4,184,661 Net income $ 335,101 $ 326,742 $ 298,352 $ 282,494 Basic earnings per share $ 2.78 $ 2.71 $ 2.48 $ 2.34 Diluted earnings per share $ 2.77 $ 2.70 $ 2.47 $ 2.34
F-70 GPU, Inc. and Subsidiary Companies MIDLANDS ELECTRICITY PLC In 1996, GPU and Cinergy Corp. (Cinergy) formed Avon Energy Partners Holdings (Holdings), a 50/50 joint venture, to acquire Midlands Electricity plc (Midlands), an English regional electric company. A wholly-owned subsidiary of Holdings, Avon, purchased the outstanding shares of Midlands through a cash tender offer of 1.7 billion British pounds (approximately U.S. $2.6 billion). GPU's 50% interest in Holdings is held by EI UK Holdings, Inc. (EI UK), a wholly-owned subsidiary of GPU Electric. Midlands distributes electricity to 2.3 million customers in England in an area with a population of five million. In November 1998, Midlands announced the sale of its electric supply business to National Power plc. The sale is subject to approval by Great Britain's Department of Trade and Industry and the Office of Electricity Regulation, and is expected to be completed in the second quarter of 1999. EI UK borrowed approximately 342 million British pounds (approximately U.S. $586 million) through a GPU, Inc. guaranteed five-year bank term loan facility to fund its investment in Holdings. Holdings borrowed approximately 1.1 billion British pounds (approximately U.S. $1.8 billion) through a term loan and revolving credit facility to provide for the balance of the acquisition price. EI UK accounts for its 50% investment in Holdings using the equity method of accounting (see Note 14, GPUI Group Equity Investments). Accordingly, EI UK's investment is reported on the Consolidated Balance Sheets in GPUI Group equity investments, and its proportionate share of earnings from Holdings is reflected in Equity in undistributed earnings/(losses) of affiliates in the Consolidated Statements of Income. The acquisition of Midlands by Avon was accounted for under the purchase method of accounting. The total acquisition cost exceeded the estimated value of net assets by 1.4 billion British pounds (approximately U.S. $2.1 billion). This excess amount is considered goodwill and is being amortized to expense on a straight-line basis over 40 years. F-71 GPU, Inc. and Subsidiary Companies 7. ACCOUNTING FOR DERIVATIVE INSTRUMENTS GPU's use of derivative financial and commodity instruments is principally limited to the GPUI Group. GPU has not held or issued derivative financial or commodity instruments for trading purposes. Interest Rate Swap Agreements: The GPUI Group uses interest rate swap agreements to manage the risk of increases in variable interest rates. At December 31, 1998, these agreements covered approximately $1.2 billion of debt, including commercial paper, and are scheduled to expire on various dates through November 2007. The GPUI Group records amounts paid and received under the agreements as adjustments to the interest expense of the underlying debt since the swaps are related to specific assets, liabilities or anticipated transactions of the GPUI Group. For the year ended December 31, 1998, fixed rate interest expense exceeded variable rate interest by approximately $18.3 million. (For additional information, see GPUI Group section, Management's Discussion and Analysis.) Indexed Swap Agreement: In 1998, GPU International entered into a 10-year indexed swap agreement with Niagara Mohawk Power Corporation (NIMO) which, among other things, provides GPU International a fixed revenue stream (over the life of the swap agreement) on its investment in the Onondaga Cogeneration project. At December 31, 1998, the indexed swap agreement is valued at $62.4 million and is included in Other - Deferred Debits and Other Assets on the Consolidated Balance Sheets. This valuation was derived using the discounted estimated cash flows of the payments expected to be received by GPU International from NIMO over the life of the swap agreement. 8. INCOME TAXES As of December 31, 1998 and 1997, Regulatory assets, net on the Consolidated Balance Sheets reflected $450 million and $511 million, respectively, of Income taxes recoverable through future rates (primarily related to liberalized depreciation), and Income taxes refundable through future rates of $53 million and $89 million, respectively (related to unamortized ITC), substantially due to the recognition of amounts not previously recorded with the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in 1993, as follows: (in millions) 1998 1997 ---- ---- Income Taxes Recoverable Through Future Rates: JCP&L $173 $128 Met-Ed 134 179 Penelec 143 204 --- --- Total $450 $511 === === Income Taxes Refundable Through Future Rates: JCP&L $ 36 $ 37 Met-Ed 11 22 Penelec 6 30 --- --- Total $ 53 $ 89 === === F-72 GPU, Inc. and Subsidiary Companies Summaries of the components of deferred taxes as of December 31, 1998 and 1997 are as follows:
GPU, Inc. and Subsidiary Companies: (in millions) Deferred Tax Assets Deferred Tax Liabilities - ------------------- ------------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Current: Current: Unbilled revenue $ 31 $ 31 Revenue taxes $ 8 $ 10 Deferred energy - 7 Deferred energy 4 - ----- ----- Other 16 46 Total $ 12 $ 10 ----- --- ===== ===== Total $ 47 $ 84 ===== === Noncurrent: Noncurrent: Unamortized ITC $ 70 $ 89 Liberalized Decommissioning 151 74 depreciation: Contributions in aid Previously flowed of construction 26 24 through $ 202 $ 263 Cumulative translation Future revenue adjustment 29 - requirements 155 193 ----- ----- Above-market NUGs 748 - Customer transition Subtotal 357 456 charge 534 - Liberalized Revenue subject depreciation 719 860 to refund 23 - Customer transition Generation revenue charge 1,684 - requirements 44 - Other 379 196 Other 285 250 ----- --- ----- ----- Total $2,004 $383 Total $3,045 $1,566 ===== === ===== ===== JCP&L: (in millions) Deferred Tax Assets Deferred Tax Liabilities - ------------------- ------------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Current: Current: Unbilled revenue $ 21 $ 21 Revenue taxes $ 12 $ 10 === === Deferred energy - 7 --- --- Total $ 21 $ 28 === === Noncurrent: Noncurrent: Unamortized ITC $ 36 $ 38 Liberalized Decommissioning 46 33 depreciation: Contributions in aid Previously flowed of construction 20 19 through $ 46 $ 52 DOE SNF interest 25 23 Future revenue Other 52 42 requirements 49 36 --- --- --- --- Total $179 $155 === === Subtotal 95 88 Liberalized depreciation 375 411 Forked River 5 7 TMI-1 investment/loss 60 - Other 136 138 --- --- Total $671 $644 === ===
F-73 GPU, Inc. and Subsidiary Companies
Met-Ed: (in millions) Deferred Tax Assets Deferred Tax Liabilities - ------------------- ------------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Noncurrent: Current: Liberalized Unbilled revenue $ 3 $ 3 depreciation: ===== === Previously flowed through $ 57 $ 97 Future revenue Noncurrent: requirements 50 72 ----- --- Unamortized ITC $ 16 $ 22 Decommissioning 65 27 Subtotal 107 169 Contributions in aid Liberalized of construction 3 2 depreciation 127 191 Customer transition Customer transition charge 160 - charge 737 - Above-market NUGs 327 - Other 40 53 ------ --- Revenue subject Total $1,011 $413 ===== === to refund 11 - Generation revenue requirements 23 - Other 109 36 ----- --- Total $ 714 $ 87 ===== === Penelec: (in millions) Deferred Tax Assets Deferred Tax Liabilities - ------------------- ------------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Noncurrent: Current: Liberalized Unbilled revenue $ 8 $ 8 depreciation: === === Previously flowed Noncurrent: through $ 96 $114 Unamortized ITC $ 19 $ 30 Future revenue Decommissioning 41 14 requirements 55 85 ----- --- Contributions in aid of construction 3 3 Subtotal 151 199 Customer transition Liberalized charge 373 - depreciation 212 245 Above-market NUGs 421 - Customer transition Revenue subject charge 948 - to refund 12 - Other 27 34 ----- --- Generation revenue Total $1,338 $478 ===== === requirements 21 - Other 61 9 --- --- Total $951 $ 56 === === F-74
GPU, Inc. and Subsidiary Companies The reconciliations from net income to book income subject to tax and from the federal statutory rate to combined federal and state effective tax rates are as follows: GPU, Inc. and Subsidiary Companies: (in millions) 1998 1997 1996 ---- ---- ---- Net income $360 $335 $298 Preferred stock dividends 11 13 16 Gain on preferred stock reacquisition - - (9) Income tax expense 250 234 184 --- --- --- Book income subject to tax $621* $582* $489* === === === Federal statutory rate 35% 35% 35% State tax, net of federal benefit 5 4 3 Other - 1 - --- --- --- Effective income tax rate 40% 40% 38% === === === * Includes pre-tax foreign operations income of $238 million, $34 million and $58 million, of which $88 million, $20 million and $54 million, respectively for 1998, 1997 and 1996, are included in Equity in undistributed earnings/(losses) of affiliates in the Consolidated Statements of Income. JCP&L: (in millions) 1998 1997 1996 ---- ---- ---- Net income $222 $212 $156 Income tax expense 145 112 74 --- --- ---- Book income subject to tax $367 $324 $230 === === ==== Federal statutory rate 35% 35% 35% State tax, net of federal benefit 5 - - Other (1) - (3) --- --- --- Effective income tax rate 39% 35% 32% === === === Met-Ed: (in millions) 1998 1997 1996 ---- ---- ---- Net income $ 51 $ 93 $ 69 Income tax expense 33 66 50 --- --- --- Book income subject to tax $ 84 $159 $119 === === === Federal statutory rate 35% 35% 35% State tax, net of federal benefit 6 6 5 Amortization of ITC (2) - (2) Other - - 4 --- --- --- Effective income tax rate 39% 41% 42% === === === F-75 GPU, Inc. and Subsidiary Companies Penelec: (in millions) 1998 1997 1996 ---- ---- ---- Net income $ 40 $ 95 $ 70 Income tax expense 31 71 45 --- --- --- Book income subject to tax $ 71 $166 $115 === === === Federal statutory rate 35% 35% 35% State tax, net of federal benefit 8 6 6 Other 1 2 (2) --- --- --- Effective income tax rate 44% 43% 39% === === === Federal and state income tax expense is comprised of the following: GPU, Inc. and Subsidiary Companies: (in millions) 1998 1997 1996 ---- ---- ---- Provisions for taxes currently payable: Domestic $290 $206 $108 Foreign 22 40 11 --- --- ---- Total provision for taxes $312 $246 $119 Deferred income taxes: Liberalized depreciation $ (4) $ 9 $ 27 Deferral of energy costs 10 (3) (8) Accretion income 4 4 5 Decommissioning (19) (5) (9) PA Restructuring (FAS 71) (15) - - Pension expense/Voluntary Enhanced Retirement Programs (8) (10) 15 Nonutility generation contract buyout costs (11) 5 41 Provision for rate refunds (10) - - Other - (2) 6 --- --- --- Deferred income taxes, net (53) (2) 77 --- --- --- Amortization of ITC, net (9) (10) (12) --- --- --- Income tax expense $250 $234 $184 === === === The foreign taxes in the above table for 1998, 1997 and 1996 include $27 million ($10 million Current; $17 million Deferred), $41 million ($37 million Current; $4 million Deferred) and $17 million ($10 million Current; $7 million Deferred) in foreign tax expense which is netted in Equity in undistributed earnings/(losses) of affiliates in the Consolidated Statements of Income. F-76 GPU, Inc. and Subsidiary Companies JCP&L: (in millions) 1998 1997 1996 ---- ---- ---- Provisions for taxes currently payable $187 $139 $ 70 - Deferred income taxes: Liberalized depreciation $(11) $ (3) $ 1 Gain/Loss on reacquired debt 3 (1) - New Jersey revenue tax (2) (3) (3) Deferral of energy costs 10 (2) (8) Abandonment loss - Forked River (4) (5) (4) Nuclear outage maintenance costs 3 (4) 5 Accretion income 4 4 5 Unbilled revenue - (3) (5) Decommissioning (12) (3) (2) Pension expense/VERP (2) (5) 4 Nonutility generation contract buyout costs - 6 22 Demand-side management - (3) (4) Other postemployment benefits (5) 2 - Global settlement (8) - - Gas site & investigation MGP insurance recovery (8) - - Other (6) (2) - --- --- --- Deferred income taxes, net (38) (22) 11 --- --- ---- Amortization of ITC, net (4) ( 5) (7) --- --- --- Income tax expense $145 $112 $ 74 === === ==== Met-Ed: (in millions) 1998 1997 1996 ---- ---- ---- Provisions for taxes currently payable $ 56 $ 63 $ 25 Deferred income taxes: Liberalized depreciation $ 5 $ 6 $ 10 Deferral of energy costs - - 5 Unbilled revenue - 3 - Decommissioning (5) (2) (3) PA Restructuring (FAS 71) 15 - - Pension expense/VERP (3) (3) 5 Nonutility generation contract buyout costs (9) (6) 14 Nuclear outage maintenance costs (3) 3 (3) Nonutility generation contract over collections 8 4 - Other postemployment benefits (5) (1) 2 Provision for rate refund (11) - - CTC NUG deferrals (5) - - Sustainable energy fund (2) - - Other (6) 1 (3) --- --- --- Deferred income taxes, net (21) 5 27 --- --- --- Amortization of ITC, net (2) (2) (2) --- --- --- Income tax expense $ 33 $ 66 $ 50 === === === F-77 GPU, Inc. and Subsidiary Companies Penelec: (in millions) 1998 1997 1996 ---- ---- ---- Provisions for taxes currently payable $ 47 $ 61 $ 26 Deferred income taxes: Liberalized depreciation $ 2 $ 6 $ 8 Deferral of energy costs - (1) - Unbilled revenue - (7) 5 Decommissioning (2) - (1) PA Restructuring (FAS 71) (11) - - Pension expense/VERP (2) (2) 7 Nonutility generation contract buyout costs (1) 5 5 Nuclear outage maintenance costs (1) 1 (1) Nonutility generation contract over collections 6 6 - Other postemployment benefits (2) 3 (1) Other (3) 2 - --- --- --- Deferred income taxes, net (14) 13 22 --- --- --- Amortization of ITC, net (2) (3) (3) --- --- --- Income tax expense $ 31 $ 71 $ 45 === === === The Internal Revenue Service (IRS) has completed its examinations of GPU's federal income tax returns through 1992. The years 1993 through 1995 are currently being audited. 9. SUPPLEMENTARY INCOME STATEMENT INFORMATION Maintenance expense and other taxes charged to operating expenses consisted of the following: (in millions) 1998 1997 1996 ---- ---- ---- Maintenance: JCP&L $ 91 $102 $120 Met-Ed 49 46 50 Penelec 62 68 65 --- --- --- Total Maintenance $202 $216 $235 === === === Other Taxes: New Jersey Transitional Energy Facility Assessment $ 67 $ - $ - New Jersey Unit Tax (JCP&L) - 211 208 --- --- --- Total $ 67 $211 $208 === === === Pennsylvania State Gross Receipts: Met-Ed $ 39 $ 39 $ 38 Penelec 40 42 40 --- --- --- Total $ 79 $ 81 $ 78 === === === F-78 GPU, Inc. and Subsidiary Companies (in millions) 1998 1997 1996 ---- ---- ---- Real Estate and Personal Property: JCP&L $ 9 $ 9 $ 8 Met-Ed 6 8 8 Penelec 8 10 9 --- --- --- Total $ 23 $ 27 $ 25 --- --- --- Other: JCP&L $ 19 $ 12 $ 13 Met-Ed 13 12 15 Penelec 16 15 16 Other 2 - - --- --- ---- Total $ 50 $ 39 $ 44 --- --- --- Total Other Taxes $219 $358 $355 === === === The cost of services rendered to the GPU Energy companies by their affiliates is as follows: (in millions) 1998 1997 1996 ---- ---- ---- JCP&L: Cost of services rendered by GPUN $182 $156 $221 Cost of services rendered by GPUS 26 31 44 Cost of services rendered by Genco 51 52 85 --- --- --- Total $259 $239 $350 === === === Amount Charged to Income $239 $228 $293 === === === Met-Ed: Cost of services rendered by GPUN $ 59 $ 78 $ 67 Cost of services rendered by GPUS 40 31 29 Cost of services rendered by Genco 108 91 85 --- --- --- Total $207 $200 $181 === === === Amount Charged to Income $180 $179 $153 === === === Penelec: Cost of services rendered by GPUN $ 30 $ 40 $ 34 Cost of services rendered by GPUS 17 19 31 Cost of services rendered by Genco 163 162 159 --- --- --- Total $210 $221 $224 === === === Amount Charged to Income $170 $195 $181 === === === For the years 1998, 1997 and 1996, JCP&L purchased $26 million, $24 million and $21 million, respectively, of energy from a cogeneration project in which an affiliate has a 50% partnership interest. F-79 GPU, Inc. and Subsidiary Companies 10. EMPLOYEE BENEFITS In 1998, GPU adopted Statement of Financial Accounting Standards No. 132 (FAS 132), "Employer's Disclosures about Pensions and Other Postretirement Benefits." FAS 132 revises the disclosure requirements for pension and other postretirement benefit plans but does not change the measurement or recognition of these plans. Pension Plans and Other Postretirement Benefits: GPU maintains defined benefit pension plans covering substantially all employees. GPU also provides certain retiree health care and life insurance benefits for substantially all employees who reach retirement age while working for GPU. The following tables provide a reconciliation of the changes in the plans' benefit obligation and fair value of assets for the years ended December 31, 1998 and 1997, a statement of the funded status of the plans, the amounts recognized in the Consolidated Balance Sheets as of December 31, 1998 and 1997 and the assumptions used in the measurement of the benefit obligation. GPU, Inc. and Subsidiary Companies (in millions) Other Postretirement Pension Benefits Benefits 1998 1997 1998 1997 ---- ---- ---- ---- Change in benefit obligation: Benefit obligation at January 1: $ 1,791.7 $ 1,691.4 $ 798.0 $ 706.0 Service cost 36.1 31.1 16.4 10.7 Interest cost 121.6 122.2 54.4 51.7 Plan amendments 9.6 13.3 (6.0) (8.9) Actuarial (gain)/loss 26.2 69.3 (55.7) 65.3 Benefits paid (123.9) (135.6) (30.2) (26.8) Curtailments 6.8 - 12.5 - Termination benefits 28.9 - 1.1 - -------- -------- ------- ------- Benefit obligation at December 31: $ 1,897.0 $ 1,791.7 $ 790.5 $ 798.0 ======== ======== ======= ====== Change in plan assets: Fair value of plan assets at January 1: $ 2,033.3 $ 1,801.8 $ 403.0 $ 303.6 Actual return on plan assets 342.9 341.4 78.9 66.9 Employer contributions 6.5 25.7 55.4 59.3 Benefits paid (123.9) (135.6) (30.2) (26.8) -------- -------- ------- ------ Fair value of plan assets at December 31: $ 2,258.8 $ 2,033.3 $ 507.1 $ 403.0 ======== ======== ======= ====== Funded Status: Funded status at December 31: $ 361.8 $ 241.6 $ (283.4) $(395.0) Unrecognized net actuarial (gain)/loss (439.5) (282.8) (37.8) 73.3 Unrecognized prior service cost 27.6 19.2 4.3 6.6 Unrecognized net transition (asset)/obligation (1.9) (2.5) 210.7 238.0 -------- -------- ------- ------ Net amount recognized $ (52.0) $ (24.5) $ (106.2) $ (77.1) ======== ======== ======= ====== F-80 GPU, Inc. and Subsidiary Companies (in millions) Other Postretirement Pension Benefits Benefits 1998 1997 1998 1997 ---- ---- ---- ---- Amounts recognized in the Consolidated Balance Sheet at December 31: Prepaid benefit cost $ 42.0 $ 26.1 $ 43.8 $ 29.5 Accrued benefit liability (103.0) (57.0) (150.0) (106.6) Accumulated other comprehensive income 5.3 3.8 - - Deferred income taxes 3.7 2.6 - - -------- -------- ------- ------ Net amount recognized $ (52.0) $ (24.5) $ (106.2) $ (77.1) ======== ======== ======= ====== JCP&L Change in benefit obligation: Benefit obligation at January 1: $ 496.6 $ 473.5 $ 203.8 $ 179.9 Service cost 7.2 6.1 2.9 1.5 Interest cost 33.7 34.2 13.9 13.2 Plan amendments - 6.6 - 5.3 Actuarial (gain)/loss 3.9 17.7 (16.6) 8.9 Benefits paid (34.8) (41.5) (7.3) (5.0) Curtailments 0.6 - 1.2 - Termination benefits 2.5 - 0.3 - -------- -------- ------- ------- Benefit obligation at December 31: $ 509.7 $ 496.6 $ 198.2 $ 203.8 ======== ======== ======= ====== Change in plan assets: Fair value of plan assets at January 1: $ 577.1 $ 514.5 $ 99.0 $ 70.7 Actual return on plan assets 97.1 97.8 20.0 17.4 Employer contributions - 3.8 25.8 13.5 Benefits paid (34.8) (41.5) (7.3) 5.0 Change in allocations 0.5 2.5 (0.5) (7.6) -------- -------- ------- ------ Fair value of plan assets at December 31: $ 639.9 $ 577.1 $ 137.0 $ 99.0 ======== ======== ======= ====== Funded Status: Funded status at December 31: $ 130.2 $ 80.5 $ (61.2) $(104.8) Unrecognized net actuarial (gain)/loss (139.3) (87.7) (16.1) 15.7 Unrecognized prior service cost 8.3 9.3 0.5 0.6 Unrecognized net transition (asset)/obligation (1.0) (1.2) 61.0 66.9 -------- -------- ------- ------ Net amount recognized $ (1.8) $ 0.9 $ (15.8) $ (21.6) ======== ======== ======= ====== F-81 GPU, Inc. and Subsidiary Companies (in millions) Other Postretirement Pension Benefits Benefits 1998 1997 1998 1997 ---- ---- ---- ---- Amounts recognized in the Consolidated Balance Sheet at December 31: Prepaid benefit cost $ 18.8 $ 2.6 $ 27.2 $ 11.8 Accrued benefit liability (21.3) (1.7) (43.0) (33.4) Accumulated other comprehensive income 0.4 - - - Deferred income taxes 0.3 - - - -------- -------- ------- ------ Net amount recognized $ (1.8) $ 0.9 $ (15.8) $ (21.6) ======== ======== ======= ====== Met-Ed Change in benefit obligation: Benefit obligation at January 1: $ 345.9 $ 302.5 $ 152.5 $ 124.2 Service cost 6.3 4.3 2.9 1.5 Interest cost 23.4 21.8 11.2 10.0 Plan amendments 3.1 1.8 (2.2) (0.8) Actuarial (gain)/loss 14.3 42.7 (0.1) 22.4 Benefits paid (22.8) (27.2) (5.2) (4.8) Curtailments 0.5 - 3.4 - Termination benefits 7.2 - 0.5 - -------- -------- ------- ------- Benefit obligation at December 31: $ 377.9 $ 345.9 $ 163.0 $ 152.5 ======== ======== ======= ====== Change in plan assets: Fair value of plan assets at January 1: $ 373.2 $ 309.9 $ 49.5 $ 34.7 Actual return on plan assets 65.0 63.1 9.9 8.6 Employer contributions - 5.5 5.3 9.3 Benefits paid (22.8) (27.2) (5.2) 4.8 Change in allocations 12.9 21.9 2.9 (7.9) -------- -------- ------- ------ Fair value of plan assets at December 31: $ 428.3 $ 373.2 $ 62.4 $ 49.5 ======== ======== ======= ====== Funded Status: Funded status at December 31: $ 50.4 $ 27.3 $ (100.6) $(103.0) Unrecognized net actuarial (gain)/loss (65.2) (32.8) 20.5 34.1 Unrecognized prior service cost 7.6 5.0 0.9 1.2 Unrecognized net transition (asset)/obligation (0.6) (0.8) 39.7 42.1 -------- -------- ------- ------ Net amount recognized $ (7.8) $ (1.3) $ (39.5) $ (25.6) ======== ======== ======= ====== F-82 GPU, Inc. and Subsidiary Companies (in millions) Other Postretirement Pension Benefits Benefits 1998 1997 1998 1997 ---- ---- ---- ---- Amounts recognized in the Consolidated Balance Sheet at December 31: Prepaid benefit cost $ - $ 0.5 $ - $ - Accrued benefit liability (8.7) (2.5) (39.5) (25.6) Accumulated other comprehensive income 0.5 0.4 - - Deferred income taxes 0.4 0.3 - - -------- -------- ------- ------ Net amount recognized $ (7.8) $ (1.3) $ (39.5) $ (25.6) ======== ======== ======= ====== Penelec Change in benefit obligation: Benefit obligation at January 1: $ 404.4 $ 367.0 $ 236.1 $ 204.0 Service cost 4.1 3.3 2.1 1.5 Interest cost 27.2 26.2 15.1 13.7 Plan amendments 4.3 2.7 (3.5) (2.2) Actuarial (gain)/loss 8.9 40.9 (35.4) 26.8 Benefits paid (37.6) (35.7) (6.9) (7.7) Curtailments 0.7 - 4.5 - Termination benefits 7.7 - - - -------- -------- ------- ------ Benefit obligation at December 31: $ 419.7 $ 404.4 $ 212.0 $ 236.1 ======== ======== ======= ====== Change in plan assets: Fair value of plan assets at January 1: $ 486.8 $ 411.8 $ 130.4 $ 95.6 Actual return on plan assets 81.9 81.1 22.9 21.5 Employer contributions 0.1 6.6 10.0 18.8 Benefits paid (37.6) (35.7) (6.9) (7.7) Change in allocations 4.0 23.0 (12.6) 2.2 -------- -------- ------- ------ Fair value of plan assets at December 31: $ 535.2 $ 486.8 $ 143.8 $ 130.4 ======== ======== ======= ====== Funded Status: Funded status at December 31: $ 115.5 $ 82.4 $ (68.2) $(105.7) Unrecognized net actuarial (gain)/loss (105.9) (69.8) (4.4) 21.0 Unrecognized prior service cost 10.3 7.5 0.3 1.8 Unrecognized net transition obligation 1.4 1.5 60.0 77.0 -------- -------- ------- ------ Net amount recognized $ 21.3 $ 21.6 $ (12.3) $ (5.9) ======== ======== ======= ====== F-83 GPU, Inc. and Subsidiary Companies (in millions) Other Postretirement Pension Benefits Benefits 1998 1997 1998 1997 ---- ---- ---- ---- Amounts recognized in the Consolidated Balance Sheet at December 31: Prepaid benefit cost $ 22.5 $ 22.9 $ 16.5 $ 14.1 Accrued benefit liability (1.5) (1.5) (28.8) (20.0) Accumulated other comprehensive income 0.2 0.1 - - Deferred income taxes 0.1 0.1 - - -------- --------- ------- ------ Net amount recognized $ 21.3 $ 21.6 $ (12.3) $ (5.9) ======== ======== ======= ======= Weighted average assumptions as of December 31: Discount rate 6.75% 7.0% 6.75% 7.0% Expected return on plan assets 8.5% 8.5% 8.5% 8.5% Rate of compensation increase 4.5% 5.0% The following tables provide the components of net periodic pension and other postretirement benefit costs: (in millions) Pension Plans: GPU, Inc. and Subsidiary Companies 1998 1997 1996 - ---------------------------------- ---- ---- ---- Service cost $ 36.1 $ 31.1 $ 36.1 Interest cost 121.6 122.2 112.1 Expected return on plan assets (140.1) (131.5) (123.2) Amortization of transition asset (0.5) (0.5) (0.7) Other amortization 1.1 0.2 (0.4) ------ ----- ----- Net periodic pension cost $ 18.2 $ 21.5 $ 23.9 ====== ===== ===== JCP&L Service cost $ 7.2 $ 6.1 $ 8.0 Interest cost 33.7 34.2 32.1 Expected return on plan assets (39.6) (37.5) (36.3) Amortization of transition asset (0.3) (0.3) (0.3) Other amortization 0.6 0.1 - ------ ----- ------ Net periodic pension cost $ 1.6 $ 2.6 $ 3.5 ====== ===== ===== Met-Ed Service cost $ 6.3 $ 4.3 $ 4.5 Interest cost 23.4 21.8 19.6 Expected return on plan assets (25.4) (22.3) (21.3) Amortization of transition asset (0.1) (0.1) (0.2) Other amortization 0.4 0.6 0.2 ------ ----- ----- Net periodic pension cost $ 4.6 $ 4.3 $ 2.8 ====== ===== ===== F-84 GPU, Inc. and Subsidiary Companies Penelec 1998 1997 1996 - ------- ---- ---- ---- Service cost $ 4.1 $ 3.3 $ 6.0 Interest cost 27.2 26.2 29.3 Expected return on plan assets (33.1) (29.7) (32.3) Amortization of transition obligation 0.3 0.3 0.4 Other amortization 0.4 0.2 (0.1) ------ ----- ----- Net periodic pension cost $ (1.1) $ 0.3 $ 3.3 ====== ===== ===== In 1998, the effect of decreasing the discount rate assumption from 7% to 6.75% was partially offset by the effect of decreasing the salary scale assumption from 5% to 4.5% and resulted in a $35 million (JCP&L $7 million; Met-Ed $7 million; Penelec $8 million; Other $13 million)increase in the benefit obligation as of December 31, 1998. In 1997, the effect of decreasing the discount rate assumption from 7.5% to 7% was partially offset by the effect of decreasing the salary scale assumption from 5.5% to 5% and resulted in a $63 million (JCP&L $16 million; Met-Ed $10 million; Penelec $12 million; Other $25 million)increase in the benefit obligation as of December 31, 1997. The above net periodic pension cost amount for 1998 excludes pre-tax charges of $30 million (JCP&L $8 million; Met-Ed $11 million; Penelec $9 million; Other $2 million), of which $22 million (JCP&L $6 million; Met-Ed $9 million; Penelec $7 million) was deferred pending future rate recovery, resulting from early retirement programs in 1998. The above net periodic pension cost amount for 1996 excludes pre-tax charges of $71 million (JCP&L $37 million; Met-Ed $17 million; Penelec $17 million) resulting from early retirement programs in that year. (in millions) Other Postretirement Benefits: GPU, Inc. and Subsidiary Companies 1998 1997 1996 - ---------------------------------- ---- ---- ---- Service cost $ 16.4 $ 10.7 $ 14.3 Interest cost 54.4 51.7 45.7 Expected return on plan assets (29.5) (23.7) (13.8) Amortization of transition obligation 15.8 16.8 17.4 Other amortization 5.0 2.3 2.9 ----- ----- ----- Net periodic postretirement benefit cost 62.1 57.8 66.5 Deferred for future recovery - (13.0) (18.2) ----- ----- ----- Postretirement benefit cost, net of deferrals $ 62.1 $ 44.8 $ 48.3 ===== ===== ===== JCP&L Service cost $ 2.9 $ 1.5 $ 2.8 Interest cost 13.9 13.2 11.4 Expected return on plan assets (7.3) (5.7) (2.8) Amortization of transition obligation 4.4 4.7 4.8 Other amortization 0.7 0.6 0.7 ----- ----- ----- Net periodic postretirement benefit cost 14.6 14.3 16.9 Deferred for future recovery - (0.8) (4.4) ----- ----- ----- Postretirement benefit cost, net of deferrals $ 14.6 $ 13.5 $ 12.5 ===== ===== ===== F-85 GPU, Inc. and Subsidiary Companies Met-Ed 1998 1997 1996 - ------ ---- ---- ---- Service cost $ 2.9 $ 1.5 $ 1.9 Interest cost 11.2 10.0 8.6 Expected return on plan assets (3.9) (3.1) (1.6) Amortization of transition obligation 3.1 3.2 3.2 Other amortization 1.7 0.8 0.7 ----- ----- ----- Net periodic postretirement benefit cost 15.0 12.4 12.8 Deferred for future recovery - (5.1) (4.1) ----- ----- ----- Postretirement benefit cost, net of deferrals $ 15.0 $ 7.3 $ 8.7 ===== ===== ===== Penelec Service cost $ 2.0 $ 1.5 $ 2.7 Interest cost 15.1 13.7 14.1 Expected return on plan assets (8.9) (6.6) (4.6) Amortization of transition obligation 4.8 4.8 5.4 Other amortization 1.4 0.6 0.9 ----- ----- ----- Net periodic postretirement benefit cost 14.4 14.0 18.5 Deferred for future recovery - - - ----- ----- ------ Postretirement benefit cost, net of deferrals $ 14.4 $ 14.0 $ 18.5 ===== ===== ===== In 1998, the effect of decreasing the assumption relating to the long-term medical cost of managed care plans was partially offset by the effect of decreasing the discount rate assumption from 7% to 6.75% and resulted in a $40 million (JCP&L $12 million; Met-Ed $7 million; Penelec $5 million; Other $16 million) decrease in the benefit obligation as of December 31, 1998. In 1997, the effect of decreasing the discount rate assumption from 7.5% to 7% was partially offset by the effect of decreasing the ultimate long-term health care trend rate assumption from 6% to 5.5% and resulted in a $22 million (JCP&L $5 million; Met-Ed $6 million; Penelec $6 million; Other $5 million) increase in the benefit obligation as of December 31, 1997. The benefit obligation was determined by application of the terms of the medical and life insurance plans, including the effects of established maximums on covered costs, together with relevant actuarial assumptions and health-care cost trend rates of 8% for those not eligible for Medicare and 6% for those eligible for Medicare, then decreasing gradually to 5.5% in 2004 and thereafter. These costs also reflect the implementation of an annual cost-cap of 6% for individuals who retire after December 31, 1995 and reach age 65. The effect of a 1% change in these assumed cost trend rates would increase or decrease the benefit obligation by $54.1 million (JCP&L $13.9 million; Met-Ed $11.4 million; Penelec $14.2 million; Other $14.6 million) or $72.6 million (JCP&L $17.8 million; Met-Ed $15.1 million; Penelec $18.6 million; Other $21.1 million), respectively. In addition, such a 1% change would increase or decrease the aggregate service and interest cost components of net periodic postretirement health-care cost by $4.8 million (JCP&L $1.2 million; Met-Ed $1 million; Penelec $1.2 million; Other $1.4 million) or $7.6 million (JCP&L $1.9 F-86 GPU, Inc. and Subsidiary Companies million; Met-Ed $1.6 million; Penelec $1.8 million; Other $2.3 million), respectively. The above net periodic postretirement benefit cost amount for 1998 excludes pre-tax charges of $20 million (JCP&L $6 million; Met-Ed $6 million; Penelec $7 million; Other $1 million), of which $12 million (JCP&L $3 million; Met-Ed $5 million; Penelec $4 million; Other $1 million) was deferred pending future rate recovery, resulting from early retirement programs in 1998. The above net periodic postretirement benefit cost amount for 1996 excludes pre-tax charges to earnings of $52 million (JCP&L $26 million; Met-Ed $13 million; Penelec $13 million)resulting from early retirement programs in that year. In JCP&L's 1993 base rate proceeding, the NJBPU allowed JCP&L to collect $3 million annually for incremental postretirement benefit costs, charged to expense, and recognized as a result of FAS 106. Based on the final order, and in accordance with EITF Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises," JCP&L has deferred the amounts above that level. A 1997 Stipulation of Final Settlement (Final Settlement) allows JCP&L to recover and amortize the deferred balance at December 31, 1997 over a fifteen-year period. In addition, the Final Settlement allows JCP&L to recover current amounts accrued pursuant to FAS 106, including amortization of the transition obligation. Met-Ed has deferred the incremental postretirement benefit costs associated with the adoption of FAS 106 and in accordance with EITF Issue 92-12, as authorized by the PaPUC in its 1993 base rate order. In accordance with EITF Issue 92-12, effective January 1998, Met-Ed has ceased deferring these costs. The approximately one-third generation-related portion of the deferred balance at December 31, 1997 is to be recovered in rates over a twelve-year period pursuant to the PaPUC's Restructuring Orders. The remaining two-thirds for the transmission and distribution-related portion is to be amortized over a fourteen-year period beginning January 1999, pursuant to the Restructuring Orders. In 1994, Penelec determined that its FAS 106 costs, including costs deferred since January 1993, were not probable of recovery and charged those deferred costs to expense. Savings Plans: GPU also maintains savings plans for substantially all employees. These plans provide for employee contributions up to specified limits and for various levels of employer matching contributions. The matching contributions for GPU were as follows: (in millions) Company 1998 1997 1996 - ------- ---- ---- ---- JCP&L $ 2.8 $ 2.4 $ 2.8 Met-Ed 3.4 3.1 3.2 Penelec 1.6 1.3 1.4 Other 5.8 5.8 6.7 ----- ----- ----- Total $ 13.6 $ 12.6 $ 14.1 ===== ===== ===== F-87 GPU, Inc. and Subsidiary Companies 11. JOINTLY OWNED STATIONS Each participant in a jointly owned station finances its portion of the investment and charges its share of operating expenses to the appropriate expense accounts. The GPU Energy companies participated with nonaffiliated utilities in the following jointly owned stations at December 31, 1998: Balance (in millions) --------------------- % Accumulated Station Owner Ownership Investment Depreciation - ------- ----- --------- ---------- ------------ Homer City Penelec 50 $453.1 $180.1 Conemaugh Met-Ed 16.45 143.0 52.5 Keystone JCP&L 16.67 91.0 25.4 Yards Creek JCP&L 50 28.5 6.0 Seneca Penelec 20 16.3 5.4 In 1998, Penelec and New York State Electric & Gas Corporation (NYSEG) entered into definitive agreements with Edison Mission Energy to sell the Homer City Station. Also in 1998, the GPU Energy companies entered into definitive agreements with Sithe Energies and FirstEnergy Corporation to sell substantially all their remaining fossil-fuel and hydroelectric generating facilities. For further details, see Note 13, Commitments and Contingencies. 12. LEASES The GPU Energy companies' capital leases consist primarily of leases for nuclear fuel. Nuclear fuel capital leases at December 31, 1998 totaled $126 million (JCP&L $85 million; Met-Ed $27 million; Penelec $14 million), net of amortization of $298 million (JCP&L $177 million; Met-Ed $81 million; Penelec $40 million). Nuclear fuel capital leases at December 31, 1997 totaled $136 million (JCP&L $79 million; Met-Ed $38 million; Penelec $19 million), net of amortization of $251 million (JCP&L $151 million; Met-Ed $67 million; Penelec $33 million). The GPU Energy companies have nuclear fuel lease agreements with nonaffiliated fuel trusts. In 1998, the GPU Energy companies refinanced the Oyster Creek and TMI-1 nuclear fuel leases to provide for aggregate borrowings of up to $190 million ($90 million for Oyster Creek and $100 million for TMI-1) outstanding at any one time. Reductions in nuclear fuel financing costs are expected through the new credit facilities. It is contemplated that when consumed, portions of the presently leased material will be replaced by additional leased material. The GPU Energy companies are responsible for the disposal costs of nuclear fuel leased under these agreements. These nuclear fuel leases have initial terms of 364 days, and are renewable annually thereafter at the lender's option. Subject to certain conditions of termination, the GPU Energy companies are required to purchase all nuclear fuel then under lease at a price that will allow the lessor to recover its net investment. Lease expense consists of an amount designed to amortize the cost of the nuclear fuel as consumed plus interest costs. For the years ended December 31, 1998, 1997 and 1996, these amounts were as follows: F-88 GPU, Inc. and Subsidiary Companies (in millions) Company 1998 1997 1996 - ------- ---- ---- ---- JCP&L $ 35 $ 31 $ 32 Met-Ed 14 12 16 Penelec 6 6 8 ----- ----- ----- Total $ 55 $ 49 $ 56 ===== ===== ===== Upon the closing of the sale of TMI-1 to AmerGen Energy Company, LLC (AmerGen), the GPU Energy companies will terminate the related fuel lease and pay all outstanding amounts due under the related credit facility. JCP&L and Met-Ed have sold and leased back substantially all of their respective ownership interests in the Merrill Creek Reservoir project. The minimum lease payments under these operating leases, which have remaining terms of 35 years, average approximately $3 million annually for each company. JCP&L and Met-Ed have agreed to sublease a portion of the Merrill Creek project to Sithe Energies and are currently investigating the extent to which they may be able to sublet additional interests in Merrill Creek. Management believes JCP&L and Met-Ed's remaining liability is a recoverable stranded cost. There can be no assurance as to the outcome of this matter. A subsidiary of GPU International has sold and leased back an electric cogeneration facility for an initial term of eleven years. For the years 1998, 1997 and 1996, the annual lease payments under this operating lease were approximately $11.5 million, $10 million and $10 million, respectively. The lease payments escalate annually, increasing to $16 million in year eleven. 13. COMMITMENTS AND CONTINGENCIES COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT --------------------------------------------------- The Emerging Competitive Market and Stranded Costs: - --------------------------------------------------- The current market price of electricity being below the cost of some utility-owned generation and power purchase commitments, combined with the ability of some customers to choose their energy suppliers, has created stranded costs in the electric utility industry. These stranded costs, while generally recoverable in a regulated environment, are at risk in a deregulated and competitive environment. The PaPUC's Restructuring Orders issued in 1998 granted Met-Ed and Penelec recovery of a substantial portion of their stranded costs. New Jersey legislation enacted in 1999, among other things, also provides for the recovery of stranded costs. See Competitive Environment and Rate Matters section of Management's Discussion and Analysis. In 1997, Met-Ed and Penelec filed with the PaPUC their proposed restructuring plans to implement competition and customer choice in Pennsylvania. In June 1998, the PaPUC entered restructuring rate orders on the restructuring plans. As a result of the orders, Met-Ed and Penelec wrote-off in the second quarter of 1998, $320 million and $150 million pre-tax, respectively. Following appeals and extended negotiations, in October 1998, the PaPUC adopted Restructuring Orders, approving the Settlement Agreements F-89 GPU, Inc. and Subsidiary Companies entered into by Met-Ed, Penelec, the PaPUC and all but two of the intervenors in the restructuring proceedings who have appealed the Restructuring Orders. One of these appeals remains pending and is scheduled to be heard in April 1999. There can be no assurance as to the outcome of these appeals. In the third quarter, as a result of the Restructuring Orders, Met-Ed and Penelec reversed $313 million and $142 million pre-tax, respectively, of the write-offs recorded in the second quarter and recorded additional non-recurring charges of $38 million and $58 million pre-tax, for Met-Ed and Penelec, respectively. For additional information, see Note 5, Accounting for Extraordinary and Non-recurring Items. In 1997, the NJBPU released Phase II of the Energy Master Plan (NJEMP), which proposes that New Jersey electric utilities should have an opportunity to recover their stranded costs associated with generating capacity commitments and caused by electric retail competition, provided that they attempt to mitigate these costs. In 1997, JCP&L filed with the NJBPU its proposed restructuring plan for a competitive electric marketplace in New Jersey as required by the NJEMP. In this plan, JCP&L estimated that its total above-market costs related to power purchase commitments and company-owned generation, on a present value basis, was $1.6 billion excluding above-market generation costs related to Oyster Creek. These estimates are subject to significant uncertainties including the future market price of both electricity and other competitive energy sources, as well as the timing of when these above-market costs become stranded due to customers choosing another supplier. JCP&L proposed recovery of its remaining Oyster Creek plant investment as a regulatory asset, through a nonbypassable charge to customers. At December 31, 1998, JCP&L's net investment in Oyster Creek was $682 million. Highlights of this plan are presented in the Competitive Environment and Rate Matters section of Management's Discussion and Analysis. In 1998, hearings on JCP&L's stranded cost and unbundled rate filings were completed before an Administrative Law Judge (ALJ) and a recommended decision was issued. See Competitive Environment and Rate Matters section of Management's Discussion and Analysis for highlights of the ALJ recommended decision. In 1999, legislation to deregulate New Jersey's electricity market was enacted which generally provides for, among other things, customer choice of electric generation supplier for all consumers beginning no later than August 1, 1999; a 5% rate reduction for all customers beginning August 1, 1999 with another 5% rate reduction to be phased in over the next three years (which must be maintained for one year after the end of the three year phase-in); the aggregation of electric generation service by a government or private aggregator; the unbundling of customer bills; the ability to recover stranded costs and the ability to securitize stranded costs. The NJBPU is expected to issue final decisions on JCP&L's stranded cost, unbundled rate and restructuring filings in the second quarter of 1999. The inability of JCP&L to recover its stranded costs in whole or in part could result in the recording of liabilities for above-market NUG costs, decommissioning costs, and write-downs of uneconomic generation plant and regulatory assets recorded in accordance with FAS 71 and EITF Issue 97-4. The inability to recover these stranded costs could have a material adverse effect on GPU's results of operations. F-90 GPU, Inc. and Subsidiary Companies In October 1997, GPU announced its intention to begin a process to sell, through a competitive bid process, up to all of the fossil-fuel and hydroelectric generating facilities owned by the GPU Energy companies. These facilities, comprised of 26 operating stations, support organizations and development sites, total approximately 5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300 MW; Penelec 2,100 MW) of capacity and have a net book value of approximately $1.1 billion (JCP&L $272 million; Met-Ed $283 million; Penelec $508 million) at December 31, 1998. The net proceeds from the sale will be used to reduce the capitalization of the respective GPU Energy companies, repurchase GPU, Inc. common stock, fund previously incurred liabilities in accordance with the Pennsylvania settlement, and may also be applied to reduce short-term debt, finance further acquisitions, and to reduce acquisition debt of the GPUI Group. In August 1998, Penelec and New York State Electric & Gas Corporation (NYSEG) entered into definitive agreements with Edison Mission Energy to sell the Homer City Station for a total purchase price of approximately $1.8 billion. Penelec and NYSEG each own a 50% interest in the station, and will share equally in the net sale proceeds. The sale, which is subject to various federal and state regulatory approvals, is expected to be completed in the first quarter of 1999. In November 1998, the GPU Energy companies entered into definitive agreements with Sithe Energies and FirstEnergy Corporation to sell all their remaining fossil-fuel and hydroelectric generating facilities other than JCP&L's 50% interest in the Yards Creek Pumped Storage Facility (Yards Creek) for a total purchase price of approximately $1.7 billion (JCP&L $442 million; Met-Ed $677 million; Penelec $604 million). The sales are expected to be completed in mid-1999, subject to the timely receipt of the necessary regulatory and other approvals. JCP&L and Public Service Electric & Gas Company (PSE&G) each hold a 50% undivided ownership interest in Yards Creek. In December 1998, JCP&L filed a petition with the NJBPU seeking a declaratory order that, among other things, PSE&G's right of first refusal to purchase JCP&L's ownership interest at its current book value under a 1964 agreement between the companies was void and unenforceable. PSE&G subsequently commenced a lawsuit in New Jersey Superior Court requesting, among other things, that JCP&L be directed to sell its ownership interest to PSE&G in accordance with the 1964 agreement as well as injunctive relief and damages. In January 1999, the Court granted motions filed by JCP&L and the NJBPU and dismissed PSE&G's complaint on the grounds that the NJBPU had primary jurisdiction in the matter. Management believes that the fair market value of JCP&L's ownership interest in Yards Creek is substantially in excess of its December 31, 1998 book value of $22 million. There can be no assurance of the outcome of this matter. Nonutility Generation Agreements: Pursuant to the mandates of the federal Public Utility Regulatory Policies Act and state regulatory directives, the GPU Energy companies have been required to enter into power purchase agreements with NUGs for the purchase of energy and capacity for remaining periods of up to 22 years. The following table shows actual payments from 1996 through 1998, and estimated payments from 1999 through 2003. F-91 GPU, Inc. and Subsidiary Companies Payments Under NUG Agreements ----------------------------- (in millions) Total JCP&L Met-Ed Penelec ----- ----- ------ ------- * 1996 $730 $370 $168 $192 * 1997 759 384 172 203 * 1998 788 403 174 211 1999 798 399 170 229 2000 816 404 169 243 2001 805 413 166 226 2002 819 425 169 225 2003 827 422 173 232 * Actual. As of December 31, 1998, NUG facilities covered by agreements having 1,687 MW (JCP&L 918 MW; Met-Ed 364 MW; Penelec 405 MW) of capacity were in service. While a few of these NUG facilities are dispatchable, most are must-run and generally obligate the GPU Energy companies to purchase, at the contract price, the output up to the contract limits. The emerging competitive generation market has created uncertainty regarding the forecasting of the companies' energy supply needs, which has caused the GPU Energy companies to change their supply strategy to seek shorter-term agreements offering more flexibility. The GPU Energy companies' future supply plan will likely focus on short- to intermediate-term commitments (one month to three years) during periods of expected high energy price volatility and reliance on spot market purchases during other periods. The projected cost of energy from new generation supply sources has also decreased due to improvements in power plant technologies and lower forecasted fuel prices. As a result of these developments, the rates under virtually all of the GPU Energy companies' NUG agreements for facilities currently in operation are substantially in excess of current and projected prices from alternative sources. The 1998 PaPUC Restructuring Orders and the legislation in New Jersey provide for full recovery of the above-market costs of NUG agreements. The GPU Energy companies will continue efforts to reduce the above-market costs of these agreements and will, where beneficial, attempt to renegotiate the prices of the agreements, offer contract buyouts and attempt to convert must-run agreements to dispatchable agreements. There can be no assurance as to the extent to which these efforts will be successful. In 1997, the NJBPU approved a Final Settlement which, among other things, provides for the recovery of costs associated with the buyout of the Freehold Cogeneration project. The Final Settlement provides for recovery through the LEAC of buyout costs up to $130 million, and 50% of any costs from $130 million to $140 million, over a seven-year period for the termination of the Freehold power purchase agreement. The NJBPU approved the cost recovery on an interim basis subject to refund, pending further review by the NJBPU. There can be no assurance as to the outcome of this matter. F-92 GPU, Inc. and Subsidiary Companies In 1998, Met-Ed and Penelec entered into definitive buyout agreements with two NUG project developers. These agreements are contingent upon Met-Ed and Penelec obtaining a final and non-appealable PaPUC order allowing for the full recovery of the buyout payments through retail rates. The Restructuring Orders established terms and conditions that would enable the buyout agreements to proceed; however, until appeals to the Restructuring Orders are resolved, there can be no assurance as to the outcome of these matters. JCP&L has contracts through 2002 to purchase between 5,250 GWH and 5,450 GWH of electric generation per year at an average annual cost of $410 million. The prices during this period are estimated to escalate approximately 0.9% annually on a unit cost (cents/KWH) basis. From 2003 through 2008, JCP&L has contracts to purchase between 5,000 GWH and 5,300 GWH of electric generation per year at an average annual cost of $429 million. The prices during this period are estimated to escalate approximately 1.9% annually. After 2008, when major contracts begin to expire, purchases steadily decline to approximately 1,180 GWH in 2014. The contract unit cost is estimated to escalate approximately 2.6% annually from 2009 through 2014, with a total average annual cost of $229 million during this period. All of JCP&L's contracts will have expired by the end of 2020. Met-Ed has contracts through 2008 to purchase between 2,200 GWH and 2,400 GWH of electric generation per year at an average annual cost of $173 million. The prices during this period are estimated to escalate approximately 2.0% annually on a unit cost basis. From 2009 through 2012, Met-Ed is forecast to purchase between 1,800 GWH and 2,200 GWH of electric generation per year at an average annual cost of $173 million. During this period, the prices are estimated to decrease approximately 0.7% annually on a unit cost basis. After 2012, Met-Ed's remaining contracts expire rapidly through 2016; thereafter, they remain constant until the expiration of the last contract in 2020. Penelec has contracts through 2010 to purchase between 3,250 GWH and 3,500 GWH of electric generation per year at an average annual cost of $237 million. The prices during this period are estimated to escalate approximately 1.2% annually on a unit cost basis. From 2011 through 2018, purchases decline from approximately 2,600 GWH to approximately 1,350 GWH in 2018. The contract unit cost is estimated to decrease approximately 0.1% annually from 2011 through 2018, with a total average annual cost of $154 million during this period. After 2018, Penelec's remaining contracts expire rapidly through 2020. The GPU Energy companies are recovering certain of their NUG costs (including certain buyout costs) from customers. The Restructuring Orders provide assurance of full recovery of these costs for Met-Ed and Penelec. Met-Ed and Penelec recorded a liability of $1.8 billion (Met-Ed $0.8 million; Penelec $1.0 million) for their above-market NUG costs, which is fully offset by Regulatory assets, net on the Consolidated Balance Sheets. The restructuring legislation in New Jersey includes provisions for the recovery of costs under NUG agreements and NUG buyout costs. (See Competitive Environment and Rate Matters section, Management's Discussion and Analysis for additional discussion.) F-93 GPU, Inc. and Subsidiary Companies Regulatory assets, net: - ----------------------- In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders which, among other things, essentially remove from regulation the costs associated with providing electric generation service to Pennsylvania consumers, effective January 1, 1999. Accordingly, in 1998 Met-Ed and Penelec discontinued the application of FAS 71 and adopted the provisions of FAS 101 and EITF Issue 97-4 with respect to their electric generation operations. The transmission and distribution portion of Met-Ed and Penelec's operations will continue to be subject to the provisions of FAS 71. See Note 5, Accounting for Extraordinary and Non-recurring Items. JCP&L expects to discontinue the application of FAS 71 and adopt FAS 101 and EITF Issue 97-4 for its electric generation operations no later than its receipt of NJBPU approval of its restructuring plans, which is expected in the second quarter of 1999. Regulatory assets, net as reflected in the December 31, 1998 and 1997 Consolidated Balance Sheets in accordance with the provisions of FAS 71 and EITF Issue 97-4 were as follows: GPU, Inc. and Subsidiaries (in thousands) - -------------------------- -------------- 1998 1997 ---- ---- Competitive transition charge per PaPUC Order $1,023,815 $ - ========= ========= Other regulatory assets, net: Reserve for generation divestiture (JCP&L) $ 136,804 $ - Phase II reserve for generation divestiture (Met-Ed and Penelec) 1,356,580 - Income taxes recoverable through future rates 449,638 510,680 Income taxes refundable through future rates (52,701) (89,247) Net investment in TMI-2 65,787 83,951 TMI-2 decommissioning costs 119,571 257,180 Nonutility generation contract buyout costs 123,208 245,568 Unamortized property losses 80,287 99,532 Other postretirement benefits 73,770 89,569 Environmental remediation 50,214 90,308 N.J. unit tax 33,244 39,797 Unamortized loss on reacquired debt 32,247 40,489 Load and demand-side management programs 12,568 23,164 DOE enrichment facility decommissioning 28,956 33,472 Nuclear fuel disposal fee 21,092 21,512 Storm damage 30,166 31,097 Deferred nonutility generation costs not in current rates (16,067) 24,857 Future nonutility generation costs not in CTC 369,290 - Public utility realty taxes (PURTA) 8,060 - Other regulatory liabilities (50,319) (13,959) Other regulatory assets 10,018 59,508 --------- --------- Total other regulatory assets, net $2,882,413 $1,547,478 ========= ========= F-94 GPU, Inc. and Subsidiary Companies JCP&L - ----- (in thousands) -------------- 1998 1997 ---- ---- Other regulatory assets, net: Reserve for generation divestiture $ 136,804 $ - Income taxes recoverable through future rates 172,752 128,111 Income taxes refundable through future rates (35,535) (37,759) Net investment in TMI-2 65,787 75,541 TMI-2 decommissioning costs 19,192 30,024 Nonutility generation contract buyout costs 120,708 140,500 Unamortized property losses 80,287 94,726 Other postretirement benefits 46,486 49,807 Environmental remediation 50,214 61,324 N.J. unit tax 33,244 39,797 Unamortized loss on reacquired debt 25,981 28,729 Load and demand-side management programs 12,568 23,164 DOE enrichment facility decommissioning 18,049 21,223 Nuclear fuel disposal fee 21,092 23,781 Storm damage 30,166 31,097 Other regulatory liabilities (49,840) (11,467) Other regulatory assets 5,930 37,878 --------- --------- Total other regulatory assets, net $ 753,885 $ 736,476 ========= ========= Met-Ed - ------ Competitive transition charge per PaPUC Order $ 680,213 $ - ========= ========= Other regulatory assets, net: Phase II reserve for generation divestiture $ 421,807 $ - Income taxes recoverable through future rates 133,585 178,927 Income taxes refundable through future rates (10,804) (21,749) Net investment in TMI-2 - 1,187 TMI-2 decommissioning costs 68,091 145,103 Nonutility generation contract buyout costs 2,500 76,368 Unamortized property losses - 2,650 Other postretirement benefits 27,284 39,762 Environmental remediation - 4,121 Unamortized loss on reacquired debt 3,023 5,329 DOE enrichment facility decommissioning 7,409 8,166 Nuclear fuel disposal fee - (1,511) Deferred nonutility generation costs not in current rates (7,746) 10,265 Future nonutility generation costs not in CTC 271,270 - Public utility realty taxes (PURTA) 3,699 - Other regulatory liabilities (83) (2,446) Other regulatory assets 1,899 4,515 --------- --------- Total other regulatory assets, net $ 921,934 $ 450,687 ========= ========= F-95 GPU, Inc. and Subsidiary Companies Penelec (in thousands) - ------- -------------- 1998 1997 ---- ---- Competitive transition charge per PaPUC Order $ 343,602 $ - ========= ========= Other regulatory assets, net: Phase II reserve for generation divestiture 934,773 - Income taxes recoverable through future rates 143,301 203,642 Income taxes refundable through future rates (6,362) (29,739) Net investment in TMI-2 - 7,223 TMI-2 decommissioning costs 32,288 82,053 Nonutility generation contract buyout costs - 28,700 Unamortized property losses - 2,156 Environmental remediation - 24,863 Unamortized loss on reacquired debt 3,243 6,431 DOE enrichment facility decommissioning 3,498 4,083 Nuclear fuel disposal fee - (758) Deferred nonutility generation costs not in current rates (8,321) 14,592 Future nonutility generation costs not in CTC 98,020 - Public utility realty taxes (PURTA) 4,361 - Other regulatory liabilities (396) (46) Other regulatory assets 2,189 17,115 --------- --------- Total other regulatory assets, net $1,206,594 $ 360,315 ========= ========= Competitive transition charge: Represents the stranded cost recovery amounts allowed by the PaPUC, which are to be collected from customers of Met-Ed and Penelec, beginning January 1, 1999, over 12-year and 11-year transition periods, respectively, except for above-market NUG costs which will be recovered over the lives of the related power purchase contracts. The CTC amounts will be adjusted in a Phase II rate restructuring order, after divestiture of the generation assets is complete. Stranded costs, as defined by the Pennsylvania Customer Choice Act, include an electric utility's known and measurable generation-related costs, which would have been recoverable in the former regulated market, but are not recoverable in a competitive electric generation market. Reserve for generation divestiture (JCP&L): Represents generation divestiture shortfall which is probable of recovery in future rates, inclusive of divestiture transaction costs. Phase II reserve for generation divestiture (Met-Ed and Penelec): Represents generation divestiture CTC shortfall to be addressed in a Phase II rate restructuring order, inclusive of future closure costs of various ash disposal sites; amounts related to the remediation of Penelec's Seward station property; costs for a voluntary enhanced retirement program offered to all or certain Genco employees; certain income tax-related items; and divestiture transaction costs. Income taxes recoverable/refundable through future rates: Represents amounts deferred due to the implementation of FAS 109, "Accounting for Income Taxes," in 1993. F-96 GPU, Inc. and Subsidiary Companies Net investment in TMI-2: Represents costs that are recoverable through rates for the GPU Energy companies' remaining investment in the plant and fuel core. TMI-2 decommissioning costs: Represents costs that are recoverable through rates for the GPU Energy companies' radiological decommissioning and the cost of removal of nonradiological structures and materials in accordance with the 1995 site-specific study (in 1998 dollars). For additional information, see Nuclear Plant Retirement Costs. Nonutility generation contract buyout costs: Represents amounts incurred for terminating power purchase contracts with NUGs, for which rate recovery has been granted or is probable. Unamortized property losses: Consists mainly of costs associated with JCP&L's Forked River project, which are included in rates. Other postretirement benefits: Includes costs associated with the adoption of FAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which are deferred in accordance with EITF Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises." Environmental remediation: Consists of amounts related to the investigation and remediation of several manufactured gas plant sites formerly owned by JCP&L, as well as several other JCP&L sites; Penelec's Seward station property; and future closure costs of various ash disposal sites for the GPU Energy companies. For additional information, see Environmental Matters. N.J. unit tax: Represents certain state taxes, with interest, for which JCP&L received NJBPU approval in 1993 to recover over a ten-year period. Unamortized loss on reacquired debt: Represents premiums and expenses incurred in the early redemption of long-term debt. In accordance with FERC regulations, reacquired debt costs are amortized over the remaining original life of the retired debt. Load and demand-side management (DSM) programs: Consists of load management costs and other DSM program expenditures that are currently being recovered, with interest, through JCP&L's retail base rates and demand-side factor. Also includes provisions for lost revenues between base rate cases and performance incentives. Department of Energy (DOE) enrichment facility decommissioning: Represents payments to the DOE over a 15-year period which began in 1994. Nuclear fuel disposal fee: Represents amounts recoverable through rates for estimated future disposal costs for spent nuclear fuel at Oyster Creek and TMI-1 in accordance with the Nuclear Waste Policy Act of 1982 (NWPA). Storm damage: Relates to incremental noncapital costs associated with various storms in the JCP&L service territory that are not recoverable through insurance. These amounts were deferred based upon past rate recovery precedent. An annual amortization amount is included in JCP&L's retail base rates and is charged to expense. F-97 GPU, Inc. and Subsidiary Companies Deferred nonutility generation costs not in current rates: Represents NUG operating costs which are not reflected in Met-Ed and Penelec's current rates, for which rate recovery has been assured (see Management's Discussion and Analysis - Competitive Environment and Rate Matters). Future nonutility generation costs not in CTC: Represents future NUG operating costs which are not presently included in Met-Ed and Penelec's CTC, for which recovery has been assured. The amounts collected will be adjusted every five years over the life of each NUG contract. Public utility realty taxes (PURTA): Represents additional assessments under the public utility realty tax, which are recoverable through Met-Ed and Penelec's state tax adjustment surcharges. ACCOUNTING MATTERS ------------------ In 1998, Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities," was issued. FAS 133 requires that companies recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. To comply with this statement, GPU will be required to include its derivative transactions on its balance sheet at fair value, and recognize the subsequent changes in fair value as either gains or losses in earnings or report them as a component of other comprehensive income, depending upon the intended use and designation of the derivative as a hedge. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. GPU expects to adopt this statement in the first quarter of 2000. GPU is in the process of evaluating the impact of FAS 133. In 1998, the FASB's EITF issued guidance on accounting for energy contracts with EITF Issue 98-10, "Accounting for Energy Trading and Risk Management Activities," which is effective for fiscal years beginning after December 15, 1998. EITF Issue 98-10 addresses whether certain types of contracts for the sale and purchase of energy commodities should be marked to market or accounted for under accrual accounting. GPU will adopt EITF Issue 98-10 in the first quarter of 1999. The adoption of EITF Issue 98-10 is not expected to have a material impact on GPU's financial position or results of operations. FAS 121 requires that regulatory assets meet the recovery criteria of FAS 71 on an ongoing basis in order to avoid a write-down. In addition, FAS 121 requires that long-lived assets, identifiable intangibles, capital leases and goodwill be reviewed for impairment whenever events occur or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. FAS 121 also requires the recognition of impairment losses when the carrying amounts of those assets are greater than the estimated cash flows expected to be generated from the use and eventual disposition of the assets. The restructuring proceeding in New Jersey could result in substantial disallowance of certain capital additions; the disallowance of certain stranded costs; reduction in cost of capital allowances on certain elements of plant and cost deferrals; and tariff rate unbundling reflecting an allocation of costs to the transmission and distribution activities lower than that F-98 GPU, Inc. and Subsidiary Companies proposed by JCP&L. Management believes that the outcome of that proceeding could have a material adverse effect on GPU's future earnings. NUCLEAR FACILITIES ------------------ The GPU Energy companies have made investments in three major nuclear projects -- TMI-1 and Oyster Creek, both of which are operating generation facilities, and TMI-2, which was damaged during a 1979 accident. TMI-1 and TMI-2 are jointly owned by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively. Oyster Creek is owned by JCP&L. At December 31, 1998 and 1997, the GPU Energy companies' net investment in TMI-1 and Oyster Creek, including nuclear fuel, was as follows: Net Investment (in millions) ---------------------------- TMI-1 Oyster Creek ----- ------------ 1998 ---- JCP&L $ 18 $682 Met-Ed 36 - Penelec 17 - --- --- Total $ 71 $682 === === 1997 ---- JCP&L $155 $701 Met-Ed 300 - Penelec 147 - --- --- Total $602 $701 === === The GPU Energy companies' net investment in TMI-2 at December 31, 1998 was $66 million for JCP&L and $84 million, (JCP&L $76 million, Met-Ed $1 million; Penelec $7 million) at December 31, 1997. JCP&L is collecting revenues for TMI-2 on a basis which provides for the recovery of its remaining investment in the plant by 2008. In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders, discontinued the application of FAS 71 and adopted the provisions of FAS 101 and EITF Issue 97-4 with respect to their electric generation operations. Accordingly, Met-Ed and Penelec wrote-off their remaining investment in TMI-2 of $1 million and $7 million, respectively. Costs associated with the operation, maintenance and retirement of nuclear plants have continued to be significant and less predictable than costs associated with other sources of generation, in large part due to changing regulatory requirements, safety standards, availability of nuclear waste disposal facilities and experience gained in the construction and operation of nuclear facilities. The GPU Energy companies may also incur costs and experience reduced output at their nuclear plants because of the prevailing design criteria at the time of construction and the age of the plants' systems and equipment. In addition, for economic or other reasons, operation of these plants for the full term of their operating licenses cannot be assured. Also, not all risks associated with the ownership or operation of F-99 GPU, Inc. and Subsidiary Companies nuclear facilities may be adequately insured or insurable. Consequently, the recovery of costs associated with nuclear projects, including replacement power, any unamortized investment at the end of each plant's useful life (whether scheduled or premature), the carrying costs of that investment and retirement costs, is not assured. (See Competition and the Changing Regulatory Environment.) In addition to the continued operation of the Oyster Creek facility, JCP&L has been exploring the sale or early retirement of the plant to mitigate costs associated with its continued operation. GPU does not anticipate making a final decision on the plant before the NJBPU rules on JCP&L's restructuring filing. If a decision is made to retire the plant early, retirement would likely occur in 2000. Although management believes that the current rate structure would allow for the recovery of and return on its net investment in the plant and provide for decommissioning costs, there can be no assurance that such costs will be fully recoverable. (See Management's Discussion and Analysis - Competitive Environment and Rate Matters.) In October 1998, GPU entered into definitive agreements to sell TMI-1 to AmerGen, a joint venture between PECO Energy and British Energy. Highlights of the agreements are presented in the Competitive Environment and Rate Matters section of Management's Discussion and Analysis. TMI-2: - ------ As a result of the 1979 TMI-2 accident, individual claims for alleged personal injury (including claims for punitive damages), which are material in amount, were asserted against GPU, Inc. and the GPU Energy companies. Approximately 2,100 of such claims were filed in the United States District Court for the Middle District of Pennsylvania. Some of the claims also seek recovery for injuries from alleged emissions of radioactivity before and after the accident. At the time of the TMI-2 accident, as provided for in the Price-Anderson Act, the GPU Energy companies had (a) primary financial protection in the form of insurance policies with groups of insurance companies providing an aggregate of $140 million of primary coverage, (b) secondary financial protection in the form of private liability insurance under an industry retrospective rating plan providing for up to an aggregate of $335 million in premium charges under such plan, and (c) an indemnity agreement with the Nuclear Regulatory Commission (NRC) for up to $85 million, bringing their total financial protection up to an aggregate of $560 million. Under the secondary level, the GPU Energy companies are subject to a retrospective premium charge of up to $5 million per reactor, or a total of $15 million (JCP&L $7.5 million; Met-Ed $5 million; Penelec $2.5 million). In 1995, the U.S. Court of Appeals for the Third Circuit ruled that the Price-Anderson Act provides coverage under its primary and secondary levels for punitive as well as compensatory damages, but that punitive damages could not be recovered against the Federal Government under the third level of financial protection. In so doing, the Court of Appeals referred to the "finite fund" (the $560 million of financial protection under the Price-Anderson Act) to which plaintiffs must resort to get compensatory as well as punitive damages. F-100 GPU, Inc. and Subsidiary Companies The Court of Appeals also ruled that the standard of care owed by the defendants to a plaintiff was determined by the specific level of radiation which was released into the environment, as measured at the site boundary, rather than as measured at the specific site where the plaintiff was located at the time of the accident (as the defendants proposed). The Court of Appeals also held that each plaintiff still must demonstrate exposure to radiation released during the TMI-2 accident and that such exposure had resulted in injuries. In 1996, the U.S. Supreme Court denied petitions filed by GPU, Inc. and the GPU Energy companies to review the Court of Appeals' rulings. In 1996, the District Court granted a motion for summary judgment filed by GPU, Inc. and the GPU Energy companies, and dismissed all of the 2,100 pending claims. The Court ruled that there was no evidence which created a genuine issue of material fact warranting submission of plaintiffs' claims to a jury. The plaintiffs have appealed the District Court's ruling to the Court of Appeals for the Third Circuit, before which the matter is pending. There can be no assurance as to the outcome of this litigation. Based on the above, GPU, Inc. and the GPU Energy companies believe that any liability to which they might be subject by reason of the TMI-2 accident will not exceed their financial protection under the Price-Anderson Act. NUCLEAR PLANT RETIREMENT COSTS ------------------------------ Retirement costs for nuclear plants include decommissioning the radiological portions of the plants and the cost of removal of nonradiological structures and materials. The disposal of spent nuclear fuel is covered separately by contracts with the DOE. In 1990, the GPU Energy companies submitted a report, in compliance with NRC regulations, setting forth a funding plan (employing the external sinking fund method) for the decommissioning of their nuclear reactors. Under this plan, the GPU Energy companies intend to complete the funding for Oyster Creek and TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2 funding completion date is 2014, consistent with TMI-2 remaining in long-term storage and being decommissioned at the same time as TMI-1. Based on NRC studies, a comparable funding target was developed for TMI-2 which took the accident into account. Under the NRC regulations, the funding targets (in 1998 dollars) for TMI-1, TMI-2, and Oyster Creek are as follows: (in millions) Oyster TMI-1 TMI-2 Creek ----- ----- ----- JCP&L $ 67 $106 $328 Met-Ed 134 214 - Penelec 67 106 - --- --- --- Total $268 $426 $328 === === === The funding targets, while not considered cost estimates, are reference levels designed to assure that licensees demonstrate adequate financial responsibility for decommissioning. While the NRC regulations address F-101 GPU, Inc. and Subsidiary Companies activities related to the removal of the radiological portions of the plants, they do not address costs related to the removal of nonradiological structures and materials. A consultant to GPUN performed site-specific studies of TMI-1 (1995), TMI-2 (1995) and Oyster Creek (1995 and 1998), that considered various decommissioning methods and estimated the cost of decommissioning the radiological portions and the cost of removal of the nonradiological portions of each plant, using the prompt removal/dismantlement method. GPUN management has reviewed the methodology and assumptions used in these studies, is in agreement with them, and believes the results are reasonable. The NRC may require an acceleration of the decommissioning funding for Oyster Creek if the plant is retired early. The retirement cost estimates under the site-specific studies, assuming decommissioning at the end of the plants' license terms, are as follows (in 1998 dollars): (in millions) Oyster TMI-1 TMI-2 Creek ----- ----- ----- Radiological decommissioning $346 $421 $572 Nonradiological cost of removal 85 34 * 31 --- --- --- Total $431 $455 $603 === === === * Net of $12.3 million spent as of December 31, 1998. Each of the GPU Energy companies is responsible for retirement costs in proportion to its respective ownership percentage. The 1995 Oyster Creek site-specific study was updated in response to the previously announced potential early closure of the plant in the year 2000. An early shutdown would increase the retirement costs shown above to $611 million ($580 million for radiological decommissioning and $31 million for nonradiological cost of removal). Both estimates include substantial spending for an on-site dry storage facility for spent nuclear fuel and significant costs for storing the fuel until the DOE complies with the Nuclear Waste Policy Act of 1982 (see Other Commitments and Contingencies). In October 1998, GPU entered into definitive agreements to sell TMI-1 to AmerGen. The agreements provide, among other things, that upon closing, the GPU Energy companies will fund the TMI-1 decommissioning trusts up to $320 million and AmerGen will assume all TMI-1 decommissioning liabilities. If all the necessary regulatory approvals, as well as certain Internal Revenue Service rulings, are obtained, the transfer of all the TMI-1 decommissioning liabilities and expenses to AmerGen will take place at the financial closing. The ultimate cost of retiring the GPU Energy companies' nuclear facilities may be different from the cost estimates contained in these site-specific studies. Such costs are subject to (a) the escalation of various cost elements (for reasons including, but not limited to, general inflation), (b) the further development of regulatory requirements governing decommissioning, (c) the technology available at the time of decommissioning, and (d) the availability of nuclear waste disposal facilities. The GPU Energy companies charge to depreciation expense and accrue retirement costs based on amounts being collected from customers. Customer F-102 GPU, Inc. and Subsidiary Companies collections are contributed to external trust funds. These deposits, including the related earnings, are classified as Nuclear decommissioning trusts, at market on the Consolidated Balance Sheets. TMI-1 and Oyster Creek: The Final Settlement approved by the NJBPU in 1997 has granted JCP&L annual revenues for TMI-1 and Oyster Creek retirement costs of $5.2 million and $22.5 million, respectively. These annual revenues are based on the 1995 site-specific study estimates. The PaPUC has granted Met-Ed annual revenues for TMI-1 retirement costs of $8.5 million based on both the NRC funding target for radiological decommissioning costs and the 1988 site-specific study for nonradiological costs of removal. The PaPUC also granted Penelec annual revenues of $4.2 million for its share of TMI-1 retirement costs, on a basis consistent with that granted Met-Ed. In the Restructuring Orders, the PaPUC granted recovery of an interim level of TMI-1 decommissioning costs as part of the CTC. This amount will be adjusted in Phase II of Met-Ed and Penelec's restructuring proceedings, once the net proceeds from the generation asset divestiture are determined. The amounts charged to depreciation expense in 1998 and the provisions for the future expenditure of these funds, which have been made in accumulated depreciation, are as follows: (in millions) Oyster TMI-1 Creek ----- ----- Amount expensed in 1998: JCP&L $ 5 $ 22 Met-Ed 9 - Penelec 4 - --- --- Total $ 18 $ 22 === === Accumulated depreciation provision at December 31, 1998: JCP&L $ 49 $273 Met-Ed 74 - Penelec 35 - --- --- Total $158 $273 === === Management believes that any TMI-1 and Oyster Creek retirement costs, in excess of those currently recognized for ratemaking purposes, should be recoverable from customers. TMI-2: The estimated liabilities for TMI-2 future retirement costs (reflected as Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of December 31, 1998 and 1997 are as follows: F-103 GPU, Inc. and Subsidiary Companies (in millions) Total JCP&L Met-Ed Penelec ----- ----- ------ ------- 1998 $484 $121 $242 $121 1997 $449 $112 $225 $112 These amounts are based upon the 1995 site-specific study estimates (in 1998 and 1997 dollars, respectively) discussed above and an estimate for remaining incremental monitored storage costs of $29 million (JCP&L $7 million; Met-Ed $15 million; Penelec $7 million ) for 1998 and $16 million (JCP&L $4 million; Met-Ed $8 million; Penelec $4 million) for 1997, as a result of TMI-2's entering long-term monitored storage in 1993. The GPU Energy companies are incurring annual incremental monitored storage costs of approximately $1.8 million (JCP&L $450 thousand; Met-Ed $900 thousand ; Penelec $450 thousand). Offsetting the $484 million liability at December 31, 1998 is $252 million (JCP&L $23 million; Met-Ed $147 million; Penelec $82 million) which management believes is probable of recovery from customers and included in Regulatory assets, net on the Consolidated Balance Sheets, and $266 million (JCP&L $103 million; Met-Ed $120 million; Penelec $43 million) in trust funds for TMI-2 and included in Nuclear decommissioning trusts, at market on the Consolidated Balance Sheets. Earnings on trust fund deposits are included in amounts shown on the Consolidated Balance Sheets under Regulatory assets, net. TMI-2 decommissioning costs charged to depreciation expense in 1998 amounted to $13 million (JCP&L $2 million; Met-Ed $10 million; Penelec $1 million). The NJBPU has granted JCP&L revenues for TMI-2 retirement costs based on the 1995 site-specific estimates. In addition, JCP&L is recovering its share of TMI-2's incremental monitored storage costs. The PaPUC Restructuring Orders granted Met-Ed and Penelec recovery of TMI-2 decommissioning costs as part of the CTC, but also allowed Met-Ed and Penelec to defer as a regulatory asset those amounts that are above the level provided for in the CTC. At December 31, 1998, the accident-related portion of TMI-2 radiological decommissioning costs is considered to be $75 million (JCP&L $19 million; Met-Ed $37 million; Penelec $19 million), which is the difference between the 1995 TMI-1 and TMI-2 site-specific study estimates (in 1998 dollars). In connection with rate case resolutions at the time, JCP&L, Met-Ed and Penelec have made contributions to irrevocable external trusts relating to their shares of the accident-related portions of the decommissioning liability in the amounts of $15 million, $40 million and $20 million, respectively. These contributions were not recoverable from customers and have been expensed. The GPU Energy companies will not pursue recovery from customers for any amounts contributed in excess of the $75 million accident-related portion referred to above. JCP&L intends to seek recovery for any increases in TMI-2 retirement costs, and Met-Ed and Penelec intend to seek recovery for any increases in the nonaccident-related portion of such costs, but recognize that recovery cannot be assured. F-104 GPU, Inc. and Subsidiary Companies INSURANCE --------- GPU has insurance (subject to retentions and deductibles) for its operations and facilities including coverage for property damage, liability to employees and third parties, and loss of use and occupancy (primarily incremental replacement power costs). There is no assurance that GPU will maintain all existing insurance coverages, some of which will change as certain generating assets are sold. Losses or liabilities that are not completely insured, unless allowed to be recovered through ratemaking, could have a material adverse effect on the financial position of GPU. The decontamination liability, premature decommissioning and property damage insurance coverage for the TMI station and for Oyster Creek totals $2.7 billion per site. In accordance with NRC regulations, these insurance policies generally require that proceeds first be used for stabilization of the reactors and then to pay for decontamination and debris removal expenses. Any remaining amounts available under the policies may then be used for repair and restoration costs and decommissioning costs. Consequently, there can be no assurance that in the event of a nuclear incident, property damage insurance proceeds would be available for the repair and restoration of that station. The Price-Anderson Act limits GPU's liability to third parties for a nuclear incident at one of its sites to approximately $9.8 billion. Coverage for the first $200 million of such liability is provided by private insurance. The remaining coverage, or secondary financial protection, is provided by retrospective premiums payable by all nuclear reactor owners. Under secondary financial protection, a nuclear incident at any licensed nuclear power reactor in the country, including those owned by the GPU Energy companies, could result in assessments of up to $88 million per incident for each of the GPU Energy companies' two operating reactors, subject to an annual maximum payment of $10 million per incident per reactor. In addition to the retrospective premiums payable under the Price-Anderson Act, the GPU Energy companies are also subject to retrospective premium assessments of up to $26.8 million (JCP&L $16.9 million; Met-Ed $6.6 million; Penelec $3.3 million) in any one year under insurance policies applicable to nuclear operations and facilities. The GPU Energy companies have insurance coverage for incremental replacement power costs resulting from an accident-related outage at their nuclear plants. Coverage commences after a 17-week waiting period at $3.5 million per week, and after 23 weeks of an outage, continues for three years beginning at $1.8 million and $2.6 million per week for the first year for Oyster Creek and TMI-1, respectively, decreasing to 80% of such amounts for years two and three. ENVIRONMENTAL MATTERS --------------------- As a result of existing and proposed legislation and regulations, and ongoing legal proceedings dealing with environmental matters, including but not limited to acid rain, water quality, ambient air quality, global warming, electromagnetic fields, and storage and disposal of hazardous and/or toxic wastes, GPU may be required to incur substantial additional costs to construct new equipment, modify or replace existing and proposed equipment, remediate, decommission or cleanup waste disposal and other sites currently or formerly F-105 GPU, Inc. and Subsidiary Companies used by it, including formerly owned manufactured gas plants (MGP), coal mine refuse piles and generation facilities. To comply with Titles I and IV of the federal Clean Air Act Amendments of 1990 (Clean Air Act), the GPU Energy companies have spent $242 million (JCP&L $44 million; Met-Ed $95 million; Penelec $103 million) to date. Effective November 1997, the Pennsylvania Environmental Quality Board adopted regulations implementing the NOx reductions proposed by the Ozone Transport Commission (OTC), and in December 1997, the New Jersey Department of Environmental Protection developed a proposal with the electric utility industry on a plan to implement the OTC's proposed NOx reductions. The GPU Energy companies expect that the U.S. Environmental Protection Agency (EPA) will approve these state implementation plans, and that as a result, they would expect to spend an estimated $0.6 million (JCP&L $30 thousand; Met-Ed $340 thousand; Penelec $200 thousand) in 1999 to meet the seasonal reductions agreed upon by the OTC. In July 1997 and October 1998 the EPA adopted new, more stringent rules on ozone and particulate matter. Several groups have filed suit in the U.S. Court of Appeals to overturn these new air quality standards on the grounds that, among other things, they are based on inadequate scientific evidence. The GPU Energy companies are unable to determine what additional costs, if any, will be incurred if the EPA rules are upheld. Moreover, the timing and amounts of expenditures under the Clean Air Act will be dependent upon the timing of the sales of the related generating facilities. GPU has been formally notified by the EPA and state environmental authorities that it is among the potentially responsible parties (PRPs) who may be jointly and severally liable to pay for the costs associated with the investigation and remediation at hazardous and/or toxic waste sites (in some cases, more than one company is named for a given site): JCP&L MET-ED PENELEC GPUN GPU, INC. TOTAL ----- ------ ------- ---- --------- ----- 8 4 2 1 1 13 In addition, certain of the GPU companies have been requested to participate in the remediation or supply information to the EPA and state environmental authorities on several other sites for which they have not been formally named as PRPs, although the EPA and state authorities may nevertheless consider them as PRPs. Certain of the GPU companies have also been named in lawsuits requesting damages (which are material in amount) for hazardous and/or toxic substances allegedly released into the environment. The ultimate cost of remediation will depend upon changing circumstances as site investigations continue, including (a) the existing technology required for site cleanup, (b) the remedial action plan chosen and (c) the extent of site contamination and the portion attributed to the GPU companies involved. In 1997, the EPA filed a complaint against GPU, Inc. in the United States District Court for the District of Delaware for enforcement of its unilateral order issued against GPU, Inc. to clean up the former Dover Gas Light Company (Dover) manufactured gas production site in Dover, Delaware. Dover was part of the AGECO/AGECORP group of companies from 1929 until 1942 and GPU, Inc. emerged from the AGECO/AGECORP reorganization proceedings. All of the common stock of Dover was sold in 1942 by a member of the AGECO/AGECORP group to an unaffiliated entity, and was subsequently acquired by Chesapeake Utilities Corporation (Chesapeake). According to the complaint, the EPA is seeking up F-106 GPU, Inc. and Subsidiary Companies to $0.5 million in past costs, $4.2 million for work in connection with the cleanup of the Dover site and approximately $19 million in penalties. GPU, Inc. has responded to the EPA complaint stating that such claims should be dismissed because, among other things, they are barred by the operation of the Final Decree entered by the United States District Court for the Southern District of New York at the conclusion of the 1946 reorganization proceedings of AGECO/AGECORP. Chesapeake has also sued GPU, Inc. for a contribution to the cleanup of the Dover site. In December 1997, the Court refused to dismiss the complaint; GPU, Inc. has requested that the Court reconsider its decision. The parties continue to engage in settlement discussions. There can be no assurance as to the outcome of these proceedings. Pursuant to federal environmental monitoring requirements, Penelec has reported to the Pennsylvania Department of Environmental Protection (PaDEP) that contaminants from coal mine refuse piles were identified in storm water run-off at Penelec's Seward station property. Penelec signed a modified Consent Order, which became effective December 1996, that establishes a schedule for submitting a plan for long-term remediation, based on future operating scenarios. Penelec currently estimates that the remediation of the Seward station property will range from $12 million to $20 million and has a recorded liability of $12 million at December 31, 1998. These cost estimates are subject to uncertainties based on continuing discussions with the PaDEP as to the method of remediation, the extent of remediation required and available cleanup technologies. Penelec expects recovery of these remediation costs in Phase II of its restructuring proceeding and has recorded a corresponding regulatory asset of approximately $12 million at December 31, 1998. In 1997, the GPU Energy companies filed with the PaDEP applications for re-permitting seven operating ash disposal sites, including projected site closure procedures and related cost estimates. The cost estimates for the closure of these sites range from approximately $17 million to $22 million, and a liability of $17 million (JCP&L $1 million; Met-Ed $4 million; Penelec $12 million) is reflected on the Consolidated Balance Sheets at December 31, 1998. JCP&L has requested recovery of its share of closure costs in its restructuring plan filed with the NJBPU in July 1997. Met-Ed and Penelec expect recovery of these costs in Phase II of their restructuring proceedings. As a result, a regulatory asset of $17 million (JCP&L $1 million; Met-Ed $4 million; Penelec $12 million) is reflected on the Consolidated Balance Sheets at December 31, 1998. JCP&L has entered into agreements with the New Jersey Department of Environmental Protection for the investigation and remediation of 17 formerly owned MGP sites. JCP&L has also entered into various cost-sharing agreements with other utilities for most of the sites. As of December 31, 1998, JCP&L has spent approximately $32 million in connection with the cleanup of these sites. In addition, JCP&L has recorded an estimated environmental liability of $52 million relating to expected future costs of these sites (as well as two other properties). This estimated liability is based upon ongoing site investigations and remediation efforts, which generally involve capping the sites and pumping and treatment of ground water. Moreover, the cost to clean up these sites could be materially in excess of $52 million due to significant uncertainties, including changes in acceptable remediation methods and technologies. F-107 GPU, Inc. and Subsidiary Companies In 1997, JCP&L's request to establish a Remediation Adjustment Clause for the recovery of MGP remediation costs was approved by the NJBPU as part of the Final Settlement. At December 31, 1998, JCP&L had recorded on its Consolidated Balance Sheet a regulatory asset of $44 million. JCP&L is continuing to pursue reimbursement from its insurance carriers for remediation costs already spent and for future estimated costs. In 1994, JCP&L filed a complaint with the Superior Court of New Jersey against several of its insurance carriers, relative to these MGP sites. Pretrial discovery is continuing. OTHER COMMITMENTS AND CONTINGENCIES ----------------------------------- GPUI Group: - ----------- At December 31, 1998, the GPUI Group had investments totaling approximately $1.2 billion in businesses and facilities located in foreign countries. Although management attempts to mitigate the risk of investing in certain foreign countries by securing political risk insurance, the GPUI Group faces additional risks inherent to operating in such locations, including foreign currency fluctuations (see Management's Discussion and Analysis - GPUI Group). At December 31, 1998, GPU, Inc.'s aggregate investment in the GPUI Group was $590 million; GPU, Inc. has also guaranteed up to an additional $761 million of GPUI Group obligations. Of this amount, $735 million is included in Long-term debt and Securities due within one year on GPU's Consolidated Balance Sheet at December 31, 1998, and $26 million relates to various other obligations of the GPUI Group. Midlands has invested in a power project in Pakistan (Uch Power Project) which was originally scheduled to begin commercial operation in late 1998. The Uch Power Project is a 586 MW facility of which Midlands is a 40% owner. Construction of the Uch Power Project is complete, but commercial operation has been delayed pending resolution of a dispute with the Pakistani government. In July 1998, the Pakistani government-owned utility issued a notice of intent to terminate certain key project agreements. The notice asserted that various forms of corruption were involved in the original granting of the agreements to the Uch investors by the predecessor Pakistani government. The Uch investors, including Midlands, strongly deny the allegations and are continuing to explore remedies to the situation. GPU Electric believes that similar notices were received by a number of other independent power projects in Pakistan. In December 1998, the Pakistani government offered to withdraw these notices. Through its 50% ownership in Midlands, GPU Electric's current investment in the Uch Power Project is approximately $32 million, and project lenders could require GPU Electric to make additional capital contributions to the project of approximately $12 million under certain conditions. There can be no assurance as to the outcome of this matter. Lake Cogen, Ltd. (Lake), an independent power project owned by GPU International, is pursuing legal proceedings against Florida Power Corporation (FPC) to resolve an ongoing disagreement involving the pricing under the power purchase agreement between Lake and FPC. GPU International's total investment F-108 GPU, Inc. and Subsidiary Companies in Lake, including guaranteed lease payments, is approximately $21 million. A court decision is expected in February 1999. There can be no assurance as to the outcome of this proceeding. Other: - ------ GPU's capital programs, for which substantial commitments have been incurred and which extend over several years, contemplate expenditures of $436 million (JCP&L $183 million; Met-Ed $97 million; Penelec $98 million; Other $58 million) during 1999. The GPU Energy companies have entered into long-term contracts with nonaffiliated mining companies for the purchase of coal for certain generating stations in which they have ownership interests. The contracts, which expire at various dates between 1999 and 2007, require the purchase of either fixed or minimum amounts of the stations' coal requirements. The price of the coal under the contracts is based on adjustments of indexed cost components. The GPU Energy companies' share of the cost of coal purchased under these agreements is expected to aggregate $212 million (JCP&L $27 million; Met-Ed $57 million; Penelec $128 million) for 1999. These contracts will be assumed by Sithe Energies, upon the closing of its purchase of the GPU Energy companies' fossil generation facilities. JCP&L has entered into agreements with other utilities to purchase capacity and energy for various periods through 2004. These agreements provide for up to 629 MW in 1999, declining to 445 MW in 2000 through 2003 and 345 MW in 2004 when the final agreement expires. Payments pursuant to these agreements are estimated to be $114 million in 1999, $91 million in 2000, $99 million in 2001, $109 million in 2002, $113 million in 2003 and $48 million in 2004. In accordance with the NWPA, the GPU Energy companies have entered into contracts with, and have been paying fees to, the DOE for the future disposal of spent nuclear fuel in a repository or interim storage facility. Following its purchase of TMI-1, AmerGen will assume liabilities for disposal costs related to spent fuel generated after the sale. In 1996, the DOE notified the GPU Energy companies and other standard contract holders that it will be unable to begin acceptance of spent nuclear fuel for disposal by 1998, as mandated by the NWPA. The DOE requested recommendations from contract holders for handling the delay. In January 1997, the GPU Energy companies, along with other electric utilities and state agencies, petitioned the U.S. Court of Appeals to, among other things, permit utilities to cease payments into the Federal Nuclear Waste Fund until the DOE complies with the NWPA. In November 1997, the Court denied this request. The DOE's inability to accept spent nuclear fuel could have a material impact on GPU's results of operations, as additional costs may be incurred to build and maintain interim on-site storage at Oyster Creek. TMI-1 has sufficient on-site storage capacity to accommodate spent nuclear fuel through the end of its licensed life. In June 1997, a consortium of electric utilities, including GPUN, filed a license application with the NRC seeking permission to build an interim above-ground disposal facility for spent nuclear fuel in northwestern Utah. There can be no assurance as to the outcome of these matters. F-109 GPU, Inc. and Subsidiary Companies New Jersey and Connecticut have established the Northeast Compact, to construct a low-level radioactive waste disposal facility in New Jersey, which was expected to commence operation by the end of 2003. GPUN's total share of the cost for developing, constructing and site licensing the facility was estimated to be $58 million. Through December 31, 1998, GPUN has made payments of $6 million. JCP&L is recovering the costs to construct this facility from customers, and $27 million has been collected to date. In February 1998, the New Jersey Low-Level Radwaste Facility Siting Board (Siting Board) voted to suspend the siting process in New Jersey. The Siting Board is in the process of determining what activities are required by law to be continued, and the level of funding required to support these activities. The Siting Board intended to return the unused funds to the generators, but the Governor has overruled this decision. Legislation is pending in New Jersey, however, that would mandate returning the unused funds to the generators, of which GPUN's share is approximately $2.6 million. GPUN cannot determine at this time what effect, if any, this matter will have on its operations. Pennsylvania, Delaware, Maryland and West Virginia have established the Appalachian Compact to construct a facility for the disposal of low-level radwaste in those states, including low-level radwaste from TMI-1. To date, pre-construction costs of $33 million, out of an estimated $88 million, have been paid. Eleven nuclear plants have so far shared equally in the pre-construction costs; GPUN has contributed $3 million on behalf of TMI-1. Pennsylvania has suspended the search for a low-level radwaste disposal site in the state. GPUN cannot determine at this time what effect, if any, this may have on its operations. JCP&L's two operating nuclear units are subject to the NJBPU's annual nuclear performance standard. Operation of these units at an aggregate annual generating capacity factor below 65% or above 75% would trigger a charge or credit based on replacement energy costs. At current cost levels, the maximum annual effect on net income of the performance standard charge at a 40% capacity factor would be approximately $11 million before tax. While a capacity factor below 40% would generate no specific monetary charge, it would require the issue to be brought before the NJBPU for review. The annual measurement period, which begins in March of each year, coincides with that used for the LEAC. At December 31, 1998, GPU, Inc. and consolidated affiliates had 8,957 employees worldwide (JCP&L 2,258; Met-Ed 2,654; Penelec 1,780; GPUI Group 454; all other companies 1,811), of which 8,611 employees were located in the U.S. The majority of the U.S. workforce is employed by the GPU Energy companies, of which approximately 4,650 are represented by unions for collective bargaining purposes. JCP&L, Met-Ed and Penelec's collective bargaining agreements with the International Brotherhood of Electrical Workers expire in 1999, 2000 and 2002, respectively. Penelec's collective bargaining agreement with the Utility Workers Union of America expires in 2001. During the normal course of the operation of its businesses, in addition to the matters described above, GPU is from time to time involved in disputes, claims and, in some cases, as a defendant in litigation in which compensatory and punitive damages are sought by the public, customers, contractors, vendors and other suppliers of equipment and services and by employees alleging unlawful employment practices. While management does not expect that the outcome of these matters will have a material effect on GPU's financial F-110 GPU, Inc. and Subsidiary Companies position or results of operations, there can be no assurance that this will continue to be the case. 14. GPUI GROUP EQUITY INVESTMENTS The GPUI Group uses the equity method of accounting for investments in which it has the ability to exercise significant influence over the operating and financial policies of the investee (generally evidenced by a 20% to 50% ownership interest). Investments accounted for under the equity method at December 31, 1998 follow: Ownership Investment Location of Operations Percentage - ---------- ---------------------- ---------- Midlands Electricity plc United Kingdom 50% Mid-Georgia Cogen, L.P. United States 50% Prime Energy, L.P. United States 50% Pasco Cogen, Ltd. United States 50% GPU Solar, Inc. United States 50% Termobarranquilla S.A. Colombia 29% Selkirk Cogeneration Partners, L.P. United States 19% EnviroTech Investment Fund United States 10% Project Orange Associates, L.P. United States 4% OLS Power, L.P. United States 1% Summarized financial information for the GPUI Group's equity method investments (which are not consolidated in the financial statements), including both the GPUI Group's ownership interests and the non-ownership interests, is as follows: Balance Sheet Data (in thousands) - --------------------------------- 1998 1997 ----------- ------------ Current Assets $ 657,396 $ 675,051 Noncurrent Assets 6,113,529 6,534,586 Current Liabilities (1,750,590) (1,570,071) Noncurrent Liabilities (3,427,785) (4,288,418) ---------- ---------- Net Assets $ 1,592,550 $ 1,351,148 ========== ========== GPU International Group's Equity in Net Assets $ 708,808 $ 641,173 ========== ========== F-111 GPU, Inc. and Subsidiary Companies Earnings Data (in thousands) 1998 1997 1996 --------------------------------- Revenues $ 2,803,702 $2,931,065 $1,869,038 Operating Income $ 443,742 $ 410,217 $ 266,337 Net Income/(Loss) $ 170,568 $ (28,480)$ 70,346 Cash Distributions Received $ 27,391 $ 42,762 $ 9,987 GPU International Group's Equity in Net Income/(Loss) $ 72,012 $ (27,100)$ 33,981 As of December 31, 1998 and 1997, GPUI Group equity investments on the Consolidated Balance Sheets included goodwill (net of accumulated amortization) of approximately $18.5 million and $66 million, respectively, which is amortized to expense over periods not exceeding 40 years. Amortization expense for the years ended December 31, 1998, 1997 and 1996 amounted to $1.6 million, $3.6 million and $1.6 million, respectively. In January 1998, GPU Electric sold its 50% stake in Solaris Power. As a result of the sale, the GPUI Group recorded a decrease in goodwill of $41.2 million and an after-tax gain on the sale of $18.3 million. Also in 1998, $4.7 million of goodwill related to the Lake Cogeneration project was transferred to retained earnings since the investment in this project is no longer accounted for under the equity method of accounting. 15. SEGMENT INFORMATION In 1997, GPU adopted Statement of Financial Accounting Standards No. 131 (FAS 131), "Disclosures about Segments of an Enterprise and Related Information," which requires the reporting of certain financial information by business segment and geographic area. For the purpose of providing segment information, the GPU Energy companies consist of the three domestic electric utility companies serving customers in Pennsylvania and New Jersey, as well as Genco, GPUN, GPU Telcom and GPUS. The GPUI Group develops, owns, operates, and funds the acquisition of generation, transmission and distribution facilities worldwide. For information related to the GPUI Group's acquisitions, see Note 6, Acquisitions. GPU AR is involved in retail energy sales. Corporate represents the activities of GPU, Inc., a registered holding company. GPU's reportable segments are strategic business units that are managed separately due to their different operating and regulatory environments. GPU's segment information is as follows: F-112 GPU, Inc. and Subsidiary Companies Earnings Segment Data (in thousands) Depreciation Operating and Operating 1998 Revenues Amortization Income - ---- --------- ------------ --------- Domestic: GPU Energy companies $3,953,254 $ 469,623 $ 549,579 GPUI Group* 178,459 13,175 27,887 Less: The effect of consolidating the GPUI Group's equity investments included above (108,998) (8,615) (27,961) Add: Equity in undistributed earnings of affiliates, net on the income statement - - - GPU AR 10,938 - (2,285) Corporate - - (4,713) --------- --------- --------- Subtotal 4,033,653 474,183 542,507 -------- --------- --------- Foreign: (GPUI Group only) Australia 181,059 40,841 106,112 United Kingdom* 1,202,653 58,352 143,977 Other* 66,473 14,732 15,221 Less: The effect of consolidating the GPUI Group's equity investments included above (1,235,046) (66,014) (149,979) Add: Equity in undistributed earnings of affiliates, net on the income statement - - - --------- --------- --------- Subtotal 215,139 47,911 115,331 --------- --------- --------- Consolidated Total $4,248,792 $ 522,094 $ 657,838 ======== ========= ========= Other Interest and Income and Preferred 1998 Deductions Dividends Net Income - ---- ---------- --------- ---------- Domestic: GPU Energy companies $ 21,982 $ 241,886 $ 303,920 GPUI Group* 2,659 18,924 11,622 Less: The effect of consolidating the GPUI Group's equity investments included above 1,706 (18,732) (7,523) Add: Equity in undistributed earnings of affiliates, net on the income statement 7,523 - 7,523 GPU AR 54 - (2,231) Corporate (672) 6,433 (11,818) --------------------- --------- Subtotal 33,252 248,511 301,493 ---------- --------- --------- Foreign: (GPUI Group only) Australia 21,000 108,227 18,885 United Kingdom* 9,529 116,257 37,249 Other* 2,646 13,197 2,499 Less: The effect of consolidating the GPUI Group's equity investments included above (11,470) (96,960) (64,489) Add: Equity in undistributed earnings of affiliates, net on the income statement 64,489 - 64,489 --------- --------- --------- Subtotal 86,194 140,721 58,633 --------- --------- --------- Consolidated Total $ 119,446 $ 389,232 $ 360,126 ========= ========= ========= * Includes the effect of consolidating the GPUI Group's ownership interest in investments accounted for under the equity method (pro-rata consolidation), which are not consolidated in GPU's audited financial statements. F-113 GPU, Inc. and Subsidiary Companies Earnings Segment Data (in thousands)(continued) Depreciation Operating and Operating 1997 Revenues Amortization Income - ---- --------- ------------ --------- Domestic: GPU Energy companies $4,043,800 $ 451,009 $ 632,951 GPUI Group* 154,135 9,782 21,764 Less: The effect of consolidating the GPUI Group's equity investments included above (115,408) (9,004) (23,918) Add: Equity in undistributed earnings of affiliates, net on the income statement - - - GPU AR 1,339 - (4,785) Corporate - - (8,493) --------- --------- --------- Subtotal 4,083,866 451,787 617,519 --------- --------- --------- Foreign: (GPUI Group only) Australia* 175,888 18,571 58,486 United Kingdom* 1,105,502 28,286 137,805 Other* 55,801 12,905 12,021 Less: The effect of consolidating the GPUI Group's equity investments included above (1,277,678) (43,835) (178,713) Add: Equity in undistributed earnings of affiliates, net on the income statement - - - --------- --------- --------- Subtotal 59,513 15,927 29,599 --------- --------- --------- Consolidated Total $4,143,379 $ 467,714 $ 647,118 ========= ========= ========= Other Interest and Income and Preferred 1997 Deductions Dividends Net Income - ---- ---------- --------- ---------- Domestic: GPU Energy companies $ 4,094 $ 249,015 $ 388,030 GPUI Group* (12,733) 22,393 (13,362) Less: The effect of consolidating the GPUI Group's equity investments included above 7,930 (21,792) 5,804 Add: Equity in undistributed earnings of affiliates, net on the income statement (5,804) - (5,804) GPU AR 3 - (4,782) Corporate (136) 5,649 (14,278) --------- --------- --------- Subtotal (6,646) 255,265 355,608 --------- --------- --------- Foreign: (GPUI Group only) Australia* 541 46,396 12,631 United Kingdom* (51,018) 117,624 (30,837) Other* 4,792 17,777 (2,301) Less: The effect of consolidating the GPUI Group's equity investments included above 82,268 (117,741) 21,296 Add: Equity in undistributed earnings of affiliates, net on the income statement (21,296) - (21,296) --------- --------- --------- Subtotal 15,287 64,056 (20,507) --------- --------- --------- Consolidated Total $ 8,641 $ 319,321 $ 335,101 ========= ========= ========= * Includes the effect of consolidating the GPUI Group's ownership interest in investments accounted for under the equity method (pro-rata consolidation), which are not consolidated in GPU's audited financial statements. F-114 GPU, Inc. and Subsidiary Companies Earnings Segment Data (in thousands)(continued) Depreciation Operating and Operating 1996 Revenues Amortization Income - ----- --------- ------------ ---------- Domestic: GPU Energy companies $3,918,089 $ 400,253 $ 517,915 GPUI Group* 121,721 9,229 23,652 Less: The effect of consolidating the GPUI Group's equity investments included above (104,890) (8,327) (21,605) Add: Equity in undistributed earnings of affiliates, net on the income statement - - - GPU AR - - - Corporate - - (9,636) --------- --------- --------- Subtotal 3,934,920 401,155 510,326 --------- --------- --------- Foreign: (GPUI Group only) Australia* 150,044 9,048 25,639 United Kingdom* 570,042 15,628 58,474 Other* 52,572 9,156 10,233 Less: The effect of consolidating the GPUI Group's equity investments included above (736,867) (27,315) (86,406) Add: Equity in undistributed earnings of affiliates, net on the income statement - - - --------- --------- --------- Subtotal 35,791 6,517 7,940 --------- --------- --------- Consolidated Total $3,970,711 $ 407,672 $ 518,266 ========= ========= ========= Other Interest and Income and Preferred 1996 Deductions Dividends Net Income - ---- ---------- --------- ---------- Domestic: GPU Energy companies $ 6,099 $ 235,066 $ 288,948 GPUI Group* 2,560 18,415 7,797 Less: The effect of consolidating the GPUI Group's equity investments included above 4,614 (17,601) 610 Add: Equity in undistributed earnings of affiliates, net on the income statement (1,993) - (1,993) GPU AR - - - Corporate 413 5,114 (14,337) --------- --------- --------- Subtotal 11,693 240,994 281,025 --------- --------- --------- Foreign: (GPUI Group only) Australia* (930) 25,311 (602) United Kingdom* 10,166 59,862 8,778 Other* 4,398 5,881 6,049 Less: The effect of consolidating the GPUI Group's equity investments included above (8,651) (62,185) (32,872) Add: Equity in undistributed earnings of affiliates, net on the income statement 35,974 - 35,974 --------- --------- --------- Subtotal 40,957 28,869 17,327 --------- --------- --------- Consolidated Total $ 52,650 $ 269,863 $ 298,352 ========= ========= ========= * Includes the effect of consolidating the GPUI Group's ownership interest in investments accounted for under the equity method (pro-rata consolidation), which are not consolidated in GPU's audited financial statements. F-115 GPU, Inc. and Subsidiary Balance Sheet Segment Data (in thousands) Current Noncurrent Current 1998 Assets Assets Liabilities - ---- -------- ---------- ----------- Domestic: GPU Energy companies $ 807,973 $12,475,608 $1,205,733 GPUI Group* 126,321 412,953 58,343 Less: The effect of consolidating the GPUI Group's equity investments included above (51,046) (202,985) (17,271) Add: GPUI Group equity investments included on the balance sheet - 80,614 - GPU AR 2,358 115 2,222 Corporate 5,001 6,672 140,132 --------- ---------- ---------- Subtotal 890,607 12,772,977 1,389,159 --------- ---------- --------- Foreign: (GPUI Group only) Australia 91,112 1,690,018 561,562 United Kingdom* 142,854 2,213,350 836,431 Other* 136,822 385,836 54,366 Less: The effect of consolidating the GPUI Group's equity investments included above (198,986) (2,437,992) (833,658) Add: GPUI Group equity investments included on the balance sheet - 601,511 - --------- ---------- --------- Subtotal 171,802 2,452,723 618,701 --------- ---------- --------- Consolidated Total $1,062,409 $15,225,700 $2,007,860 ========= ========== ======== Other Cash Long-Term Noncurrent Capital 1998 Debt Liabilities Expenditures - ---- ---- ------------------------ Domestic: GPU Energy companies $2,368,870 $6,211,677 $ 328,418 GPUI Group* 188,774 218,998 31,574 Less: The effect of consolidating the GPUI Group's equity investments included above (188,774) (19,968) (10,199) Add: GPUI Group equity investments included on the balance sheet - - - GPU AR - 158 34 Corporate - 1,360 - --------- --------- --------- Subtotal 2,368,870 6,412,225 349,827 --------- -------- --------- Foreign: (GPUI Group only) Australia 1,060,877 46,397 58,549 United Kingdom* 1,116,144 204,680 50,092 Other* 188,928 57,032 60,096 Less: The effect of consolidating the GPUI Group's equity investments included above (909,235) (213,295) (50,341) Add: GPUI Group equity investments included on the balance sheet - - - --------- --------- --------- Subtotal 1,456,714 94,814 118,396 --------- --------- --------- Consolidated Total $3,825,584 $6,507,039 $ 468,223 ======== ========= ========= * Includes the effect of consolidating the GPUI Group's ownership interest in investments accounted for under the equity method (pro-rata consolidation), which are not consolidated in GPU's audited financial statements. F-116 GPU, Inc. Subsidiary Companies Balance Sheet Segment Data (in thousands) (continued) Current Noncurrent Current 1997 Assets Assets Liabilities - ---- -------- ---------- ----------- Domestic: GPU Energy companies $ 831,269 $ 9,015,913 $1,140,492 GPUI Group* 81,027 352,139 90,097 Less: The effect of consolidating the GPUI Group's equity investments included above (43,777) (182,384) (21,360) Add: GPUI Group equity investments included on the balance sheet - 79,458 - GPU AR 4,961 161 3,301 Corporate 165 6,313 155,977 --------- ---------- --------- Subtotal 873,645 9,271,600 1,368,507 --------- ---------- --------- Foreign: (GPUI Group only) Australia* 86,226 2,091,619 558,496 United Kingdom* 188,462 2,152,977 785,152 Other* 114,786 396,078 43,419 Less: The effect of consolidating the GPUI Group's equity investments included above (240,256) (2,735,741) (734,139) Add: GPUI Group equity investments included on the balance sheet 106,317 517,221 - --------- ---------- --------- Subtotal 255,535 2,422,154 652,928 --------- ---------- --------- Consolidated Total $1,129,180 $11,693,754 $2,021,435 ========= ========== ========= Other Cash Long-Term Noncurrent Capital 1997 Debt Liabilities Expenditures - ---- ---- ----------- ------------ Domestic: GPU Energy companies $2,448,672 $2,721,527 $ 356,416 GPUI Group* 263,378 46,880 111,125 Less: The effect of consolidating the GPUI Group's equity investments included above (171,665) (12,321) (120) Add: GPUI Group equity investments included on the balance sheet - - - GPU AR - - - Corporate - 1,418 - --------- --------- --------- Subtotal 2,540,385 2,757,504 467,421 --------- --------- --------- Foreign: (GPUI Group only) Australia* 1,485,639 115,390 1,811,921 United Kingdom* 1,367,471 245,105 77,706 Other* 258,794 64,803 1,213 Less: The effect of consolidating the GPUI Group's equity investments included above (1,326,317) (295,183) (89,624) Add: GPUI Group equity investments included on the balance sheet - - - --------- --------- --------- Subtotal 1,785,587 130,115 1,801,216 --------- --------- --------- Consolidated Total $4,325,972 $2,887,619 $2,268,637 ========= ========= ========= * Includes the effect of consolidating the GPUI Group's ownership interest in investments accounted for under the equity method (pro-rata consolidation), which are not consolidated in GPU's audited financial statements. F-117 GPU, Inc. Subsidiary Companies Balance Sheet Segment Data (in thousands) (continued) Current Noncurrent Current 1996 Assets Assets Liabilities - ---- -------- ---------- ----------- Domestic: GPU Energy companies $ 807,551 $ 8,955,961 $1,174,250 GPUI Group* 97,494 274,648 41,982 Less: The effect of consolidating the GPUI Group's equity investments included above (48,970) (195,453) (32,910) Add: GPUI Group equity investments included on the balance sheet - 68,779 - GPU AR - - - Corporate 7,535 5,792 138,381 --------- ---------- --------- Subtotal 863,610 9,109,727 1,321,703 --------- ---------- --------- Foreign: (GPUI Group only) Australia* 38,822 385,997 33,527 United Kingdom* 356,646 1,935,287 507,879 Other* 47,062 291,297 21,727 Less: The effect of consolidating the GPUI Group's equity investments included above (408,966) (2,493,887) (548,230) Add: GPUI Group equity investments included on the balance sheet - 725,809 - --------- ---------- --------- Subtotal 33,564 844,503 14,903 --------- ---------- --------- Consolidated Total $ 897,174 $ 9,954,230 $1,336,606 ========= ========= ========= Other Cash Long-Term Noncurrent Capital 1996 Debt Liabilities Expenditures - ---- ---- ----------- ------------ Domestic: GPU Energy companies $2,427,802 $2,709,406 $ 403,880 GPUI Group* 242,038 32,494 56,180 Less: The effect of consolidating the GPUI Group's equity investments included above (179,738) (15,836) (301) Add: GPUI Group equity investments included on the balance sheet - - - GPU AR - - - Corporate - 1,412 - --------- --------- --------- Subtotal 2,490,102 2,727,476 459,759 --------- --------- --------- Foreign: (GPUI Group only) Australia* 336,957 4,490 9,952 United Kingdom* 1,538,342 238,207 567,407 Other* 176,475 80,849 51,714 Less: The effect of consolidating the GPUI Group's equity investments included above (1,364,860) (271,305) (111,365) Add: GPUI Group equity investments included on the balance sheet - - - --------- --------- --------- Subtotal 686,914 52,241 517,708 --------- --------- --------- Consolidated Total $3,177,016 $2,779,717 $ 977,467 ========= ========= ========= * Includes the effect of consolidating the GPUI Group's ownership interest in investments accounted for under the equity method (pro-rata consolidation), which are not consolidated in GPU's audited financial statements. F-118 GPU, Inc. Subsidiary Companies SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions Balance (1) (2) at Charged to Charged Balance Beginning Costs and to Other at End Description of Period Expenses Accounts Deductions of Period ----------- --------- -------- -------- ---------- --------- Year ended December 31, 1998 Allowance for doubtful accounts $8,087 $16,169 $5,564(a) $21,486(b) $8,334 Allowance for inventory obsolescence 1,484 - (13)(f) 1,311(c) 160 Year ended December 31, 1997 Allowance for doubtful accounts $8,660 $17,984 $6,069(a) $24,626(b) $8,087 Allowance for inventory obsolescence 2,256 - 8(e) 780(c) 1,484 Year ended December 31, 1996 Allowance for doubtful accounts $8,182 $17,501 $5,304(a) $22,327(b) $8,660 Allowance for inventory obsolescence 3,373 650 2,207(d) 3,974(c) 2,256 (a) Recovery of accounts previously written off. (b) Accounts receivable written off. (c) Inventory written off. (d) Sale of inventory previously written off by Met-Ed ($4) and JCP&L ($4) and reestablishment of zero value inventory by JCP&L ($2,199). (e) Sale of inventory previously written off by Met-Ed ($7) and JCP&L ($1). (f) Sale of inventory previously written off by Met-Ed ($13).
F-119 Jersey Central Power & Light Company and Subsidiary Company
COMPANY STATISTICS For The Years Ended December 31, 1998 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------- Capacity at System Peak (in MW): Company owned 2,729 2,718 2,850 2,749 2,765 2,839 Contracted 2,933 2,794 2,497 2,462 2,403 2,033 ------ ------ ------ ------ ------ ------ Total capacity (a) 5,662 5,512 5,347 5,211 5,168 4,872 ====== ====== ====== ====== ====== ====== Hourly Peak Load (in MW): Summer peak 4,817 4,817 4,130 4,554 4,292 4,564 Winter peak 3,175 3,168 3,173 3,260 3,242 3,129 Reserve at company peak (%) 17.3 14.4 29.5 14.4 20.4 6.7 Load factor (%) (b) 47.7 46.5 53.9 47.1 50.8 49.1 Sources of Energy (in thousands of MWH): Coal 2,224 2,215 2,105 1,929 1,738 1,983 Nuclear 6,064 6,553 6,114 6,791 5,275 6,151 Gas, hydro & oil 487 548 535 861 757 460 ------ ------ ------ ------ ------ ------ Net generation 8,775 9,316 8,754 9,581 7,770 8,594 Utility purchases and interchange 7,567 6,044 6,608 6,304 6,966 7,253 Nonutility purchases 5,271 5,342 5,439 5,850 4,920 4,820 ------ ------ ------ ------ ------ ------ Total sources of energy 21,613 20,702 20,801 21,735 19,656 20,667 Company use, line loss, etc. (1,558) (1,794) (2,127) (1,749) (1,405) (2,026) ------ ------ ------ ------ ------ ------ Total electric energy sales 20,055 18,908 18,674 19,986 18,251 18,641 ====== ====== ====== ====== ====== ====== Fuel Expense (in millions): Coal $27 $ 28 $ 30 $ 26 $26 $28 Nuclear 37 39 40 44 35 42 Gas & oil 22 34 31 31 34 29 -- --- --- --- --- -- Total $86 $101 $101 $101 $95 $99 == === === === == == Power Purchased and Interchanged (in millions): Utility and interchange purchases $293 $234 $246 $279 $295 $310 Nonutility purchases 403 384 370 382 304 292 Amortization of nonutility buyout costs 20 9 - - - - --- --- --- --- --- --- Total $716 $627 $616 $661 $599 $602 === === === === === === Electric Energy Sales (in thousands of MWH): Residential 7,551 7,256 7,266 7,112 7,094 6,983 Commercial 7,259 6,974 6,829 6,611 6,586 6,474 Industrial 3,474 3,536 3,497 3,562 3,673 3,689 Other 81 79 78 77 76 369 ------ ------ ------ ------ ------ ------ Sales to customers 18,365 17,845 17,670 17,362 17,429 17,515 Sales to other utilities 1,690 1,063 1,004 2,624 822 1,126 ------ ------ ------ ------ ------ ------ Total 20,055 18,908 18,674 19,986 18,251 18,641 ====== ====== ====== ====== ====== ====== Operating Revenues (in millions): Residential $ 891 $ 907 $ 895 $ 881 $ 855 $ 835 Commercial 779 797 775 742 721 699 Industrial 288 313 311 315 322 321 Other 15 21 21 21 21 40 ----- ----- ----- ----- ----- ----- Sales to customers 1,973 2,038 2,002 1,959 1,919 1,895 Sales to other utilities 75 36 35 62 19 31 ----- ----- ----- ----- ----- ----- Total electric energy sales 2,048 2,074 2,037 2,021 1,938 1,926 Other revenues 22 20 21 15 15 10 ----- ----- ----- ----- ----- ----- Total $2,070 $2,094 $2,058 $2,036 $1,953 $1,936 ===== ===== ===== ===== ====== ===== Price per KWH (in cents): Residential 11.82 12.47 12.40 12.31 12.06 11.90 Commercial 10.74 11.42 11.38 11.20 10.92 10.78 Industrial 8.30 8.85 8.92 8.45 8.78 8.70 Total sales to customers 10.79 11.41 11.38 11.24 11.00 10.80 Total electric energy sales 10.25 10.96 10.96 10.08 10.61 10.31 Customers at Year-End (in thousands) 982 969 954 940 924 911 (a)Summer ratings at December 31, 1998 of owned and contracted capacity were 2,729 MW and 2,577 MW, respectively. (b)The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year.
F-120 Jersey Central Power & Light Company and Subsidiary Company
SELECTED FINANCIAL DATA (In Millions) For the Years Ended December 31, 1998 1997 1996(1) 1995 1994(2) 1993 - --------------------------------------------------------------------------------------------- Operating revenues $2,069.6 $2,094.0 $2,057.9 $2,035.9 $1,952.4 $1,935.9 Other operation and maintenance expense 485.0 455.0 556.1 475.4 526.6 460.1 Net income 222.4 212.0 156.3 199.1 162.8 158.3 Earnings available for common stock 212.4 200.6 143.2 184.6 148.0 141.5 Net utility plant in service 2,538.2 2,664.1 2,717.1 2,641.6 2,620.2 2,558.2 Total assets 4,582.1 4,641.6 4,676.7 4,418.8 4,294.9 4,202.7 Long-term debt 1,173.5 1,173.3 1,173.1 1,192.9 1,168.4 1,215.7 Long-term obligations under capital leases - - 0.1 2.4 4.4 7.0 Company-obligated mandatorily redeemable preferred securities 125.0 125.0 125.0 125.0 - - Cumulative preferred stock with mandatory redemption 86.5 91.5 114.0 134.0 150.0 150.0 Capital expenditures and investments 154.9 172.2 199.8 217.8 243.9 197.1 Return on average common equity 13.5% 13.1% 9.5% 13.1% 11.2% 11.1% Employees (actual) 2,258 2,509 2,538 3,111 3,077 3,447 (1) Results for 1996 reflect a non-recurring charge of $39.4 million (after-tax) for costs related to voluntary enhanced retirement programs. (2) Results for 1994 reflect a net non-recurring charge to earnings of $23.0 million (after-tax) due to a charge for costs related to early retirement programs ($30.4 million); and net interest income from refunds of previously paid federal income taxes related to the tax retirement of TMI-2 ($7.4 million).
F-121 Jersey Central Power & Light Company and Subsidiary Company
QUARTERLY FINANCIAL DATA (UNAUDITED) First Quarter Second Quarter ------------- -------------- In Thousands 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------ Operating revenues $472,334 $510,443 $478,894 $478,226 Operating income 77,842 82,472 65,875 70,651 Net income 52,816 58,320 40,285 35,241 Earnings available for common stock 50,078 55,158 37,720 32,362 Third Quarter Fourth Quarter ------------- -------------- In Thousands 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------ Operating revenues $647,625 $602,900 $470,795 $502,403 Operating income 117,333 102,527 36,564 69,200 Net income 91,607 77,306 37,734 41,147 Earnings available for common stock 89,277 74,709 35,302 38,409
F-122 Jersey Central Power & Light Company and Subsidiary Company REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Jersey Central Power & Light Company In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Jersey Central Power & Light Company and Subsidiary Company at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York February 3, 1999 F-123 Jersey Central Power & Light Company and Subsidiary Company CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1998 1997 - -------------------------------------------------------------------------------- ASSETS Utility Plant: Transmission, distribution, and general plant $3,108,697 $2,914,225 Generation plant 1,646,576 1,757,343 --------- --------- Utility plant in service 4,755,273 4,671,568 Accumulated depreciation (2,217,108) (2,007,427) --------- --------- Net utility plant in service 2,538,165 2,664,141 Construction work in progress 48,126 124,887 Other, net 98,491 92,654 --------- --------- Net utility plant 2,684,782 2,881,682 --------- --------- Other Property and Investments: Nuclear decommissioning trusts, at market (Note 13) 422,277 343,434 Nuclear fuel disposal trust, at market 116,871 108,652 Other, net 9,596 8,951 --------- --------- Total other property and investments 548,744 461,037 --------- --------- Current Assets: Cash and temporary cash investments 1,850 2,994 Special deposits 6,047 6,778 Accounts receivable: Customers, net 152,120 153,753 Other 32,562 18,225 Unbilled revenues 56,391 59,687 Materials and supplies, at average cost or less: Construction and maintenance 79,863 90,037 Fuel 13,144 14,260 Deferred income taxes (Note 8) 20,812 27,536 Prepayments 27,648 14,468 --------- --------- Total current assets 390,437 387,738 --------- --------- Deferred Debits and Other Assets: Regulatory assets, net: (Notes 5 & 13) Other regulatory assets, net 753,885 736,476 Deferred income taxes (Note 8) 179,237 154,708 Other 25,037 19,909 --------- --------- Total deferred debits and other assets 958,159 911,093 --------- --------- Total Assets $4,582,122 $4,641,550 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. F-124 Jersey Central Power & Light Company and Subsidiary Company CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1998 1997 LIABILITIES AND CAPITALIZATION Capitalization: Common stock $ 153,713 $153,713 Capital surplus 510,769 510,769 Retained earnings 893,016 875,639 Accumulated other comprehensive income/(loss) (425) - --------- --------- Total common stockholder's equity (Note 4) 1,557,073 1,540,121 Cumulative preferred stock: (Note 4) With mandatory redemption 86,500 91,500 Without mandatory redemption 37,741 37,741 Company-obligated mandatorily redeemable preferred securities (Note 4) 125,000 125,000 Long-term debt (Note 3) 1,173,532 1,173,304 --------- --------- Total capitalization 2,979,846 2,967,666 --------- --------- Current Liabilities: Securities due within one year (Notes 3 & 4) 2,512 12,511 Notes payable (Note 2) 122,344 115,254 Obligations under capital leases (Note 12) 85,366 79,419 Accounts payable: Affiliates 40,861 27,167 Other 80,233 113,822 Taxes accrued 5,559 3,966 Interest accrued 26,678 26,021 Deferred energy credits 2,411 25,645 Other 104,408 76,529 ------- ------ Total current liabilities 470,372 480,334 ------- ------- Deferred Credits and Other Liabilities: Deferred income taxes (Note 8) 670,961 644,562 Unamortized investment tax credits 50,225 54,675 Nuclear fuel disposal fee 141,270 134,326 Three Mile Island Unit 2 future costs 120,904 112,227 Other 148,544 247,760 ------- ------- Total deferred credits and other liabilities 1,131,904 1,193,550 --------- --------- Commitments and Contingencies (Note 13) Total Liabilities and Capitalization $4,582,122 $4,641,550 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. F-125 Jersey Central Power & Light Company and Subsidiary Company CONSOLIDATED STATEMENTS OF INCOME (In Thousands) For The Years Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------- Operating Revenues $2,069,648 $2,093,972 $2,057,918 Operating Expenses: Fuel 86,431 101,030 101,357 Power purchased and interchanged: Affiliates 57,643 15,979 27,058 Others 658,742 610,792 589,396 Deferral of energy and capacity costs, net (25,542) 6,043 19,441 Other operation and maintenance 485,054 454,991 556,086 Depreciation and amortization 250,675 237,461 207,309 Taxes, other than income taxes 94,586 232,086 228,885 Total operating expenses 1,607,589 1,658,382 1,729,532 Operating Income Before Income Taxes 462,059 435,590 328,836 Income taxes (Note 8) 164,445 110,740 71,080 --------- --------- --------- Operating Income 297,614 324,850 257,306 Other Income and Deductions: Allowance for other funds used during construction 786 - 1,536 Other income, net 13,227 1,919 7,202 Income taxes (Note 8) 19,367 (1,376) (3,357) --------- --------- --------- Total other income and deductions 33,380 543 5,381 Income Before Interest Charges 330,994 325,393 262,687 Interest Charges: Long-term debt 87,261 89,869 89,648 Company-obligated mandatorily redeemable preferred securities 10,700 10,700 10,700 Other interest 12,229 15,129 11,147 Allowance for borrowed funds used during construction (1,638) (2,319) (5,111) Total interest charges 108,552 113,379 106,384 Net Income 222,442 212,014 156,303 Preferred stock dividends 10,065 11,376 13,072 --------- --------- ---------- Earnings Available for Common Stock $ 212,377 $ 200,638 $ 143,231 ========= ========= ========= The accompanying notes are an integral part of the consolidated financial statements. F-126 Jersey Central Power & Light Company and Subsidiary Company CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) For The Years Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------- Net income $222,442 $212,014 $156,303 ------- ------- ------- Other comprehensive income/(loss), net of tax: (Note 4) Minimum pension liability (425) - - ------- ------- ------- Total other comprehensive income/(loss) (425) - - ------- ------- ------- Comprehensive income $222,017 $212,014 $156,303 ======= ======= ======= CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (In Thousands) For The Years Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------ Balance at beginning of year $ 875,639 $ 825,001 $ 816,770 Net income 222,442 212,014 156,303 ------- ------- ------- Total 1,098,081 1,037,015 973,073 --------- --------- ------- Cash dividends on capital stock: Cumulative preferred stock (at the annual rates indicated below): 4% Series ($4.00 a share) (500) (500) (500) 7.88% Series E ($7.88 a share) (1,970) (1,970) (1,970) 8.48% Series I ($8.48 a share) (212) (1,272) (2,968) 8.65% Series J ($8.65 a share) (4,325) (4,325) (4,325) 7.52% Series K ($7.52 a share) (3,058) (3,309) (3,309) Common stock (not declared on a per share basis) (195,000) (150,000) (135,000) -------- -------- -------- Total (205,065) (161,376) (148,072) -------- -------- -------- Balance at end of year $ 893,016 $ 875,639 $ 825,001 ========= ========= ========= The accompanying notes are an integral part of the consolidated financial statements. F-127 Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) For The Years Ended December 31, 1998 1997 1996 - ---------------------------------------------------------------------------------------------- Operating Activities: Net income $ 222,442 $212,014 $ 156,303 Adjustments to reconcile income to cash provided: Depreciation and amortization 277,950 253,278 217,225 Amortization of property under capital leases 26,739 28,703 28,339 Voluntary enhanced retirement programs - - 62,909 Nuclear outage maintenance costs, net (6,640) 11,615 (15,392) Deferred income taxes and investment tax credits, net (41,865) (27,449) 4,056 Deferred energy and capacity costs, net (24,482) 8,193 19,436 Allowance for other funds used during construction (786) - (1,536) Changes in working capital: Receivables (9,407) (6,261) 12,897 Materials and supplies 3,863 7,721 2,624 Special deposits and prepayments (12,450) 6,844 138 Payables and accrued liabilities 1,418 (31,854) (62,157) Nonutility generation contract buyout costs (15,000) (30,500) (65,000) Other, net 13,091 (4,479) (17,944) -------- -------- -------- Net cash provided by operating activities 434,873 427,825 341,898 -------- -------- -------- Investing Activities: Capital expenditures and investments (154,918) (172,243) (199,823) Contributions to decommissioning trusts (28,003) (18,003) (18,004) Other, net (10,720) (10,989) (10,253) -------- -------- -------- Net cash used for investing activities (193,641) (201,235) (228,080) -------- -------- -------- Financing Activities: Issuance of long-term debt - - 79,550 Increase in notes payable, net 7,090 83,454 31,000 Retirement of long-term debt (11) (100,075) (25,710) Capital lease principal payments (29,084) (26,496) (29,763) Redemption of preferred stock (15,000) (20,000) (20,000) Dividends paid on preferred stock (10,371) (11,800) (13,496) Dividends paid on common stock (195,000) (150,000) (135,000) -------- -------- -------- Net cash required by financing activities (242,376) (224,917) (113,419) -------- -------- -------- Net increase/(decrease) in cash and temporary cash investments from above activities (1,144) 1,673 399 Cash and temporary cash investments, beginning of year 2,994 1,321 922 -------- -------- -------- Cash and temporary cash investments, end of year $ 1,850 $ 2,994 $ 1,321 ======== ======== ======== Supplemental Disclosure: Interest and preferred dividends paid $ 116,942 $ 126,223 $ 119,760 ======== ======== ======== Income taxes paid $ 192,335 $ 133,689 $ 90,960 ======== ======== ======== New capital lease obligations incurred $ 32,680 $ 11,048 $ 32,694 ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
F-128 Jersey Central Power & Light Company Subsidiary Company
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In Thousands) - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E - --------------------------- -------- --------------------- ---------- --------- Additions --------------------- Balance (1) (2) at Charged to Charged Balance Beginning Costs and to Other at End Description of Period Expenses Accounts Deductions of Period - --------------------------- --------- -------- -------- ---------- --------- Year ended December 31, 1998 Allowance for doubtful accounts $1,414 $4,670 $1,729(a) $6,049(b) $1,764 Allowance for inventory obsolescence (16) - - 16(c) - Year ended December 31, 1997 Allowance for doubtful accounts $1,670 $4,976 $1,939 $7,171(b) $1,414 Allowance for inventory obsolescence 206 - 1(e) 223(c) (16) Year ended December 31, 1996 Allowance for doubtful accounts $1,958 $5,080 $1,680(a) $7,048(b) $1,670 Allowance for inventory obsolescence 197 - 4(e) 2,194(c) 206 2,199(d) (a) Recovery of accounts previously written off. (b) Accounts receivable written off. (c) Inventory written off. (d) Reestablishment of zero value inventory. (e) Sale of inventory previously written off.
F-129 Metropolitan Edison Company and Subsidiary Companies
COMPANY STATISTICS For The Years Ended December 31, 1998 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------- Capacity at System Peak (in MW): Company owned 1,738 1,738 1,705 1,604 1,602 1,602 Contracted 568 507 853 492 499 676 ----- ------ ------ ------ ------ ------ Total capacity (a) 2,306 2,245 2,558 2,096 2,101 2,278 ===== ====== ====== ====== ====== ====== Hourly Peak Load (in MW): Summer peak 2,176 2,224 2,017 2,186 2,000 1,944 Winter peak 2,082 2,054 2,114 2,012 1,954 1,940 Reserve at company peak (%) 6.0 .9 21.0 (4.1) 5.1 17.2 Load factor (%) (b) 66.1 63.5 66.3 61.4 66.6 67.2 Sources of Energy (in thousands of MWH): Coal 5,363 5,203 4,760 4,334 4,547 4,283 Nuclear 3,529 2,959 3,550 3,194 3,294 2,975 Gas, hydro & oil 329 204 182 253 194 42 ----- ------ ------ ------ ------ ------ Net generation 9,221 8,366 8,492 7,781 8,035 7,300 Utility purchases and interchange 1,671 2,424 2,021 3,087 2,295 3,398 Nonutility purchases 2,389 2,481 2,406 2,066 1,654 1,623 ----- ------ ------ ------ ------ ------ Total sources of energy 3,281 13,271 12,919 12,934 11,984 12,321 Company use, line loss, etc. (387) (790) (718) (856) (660) (884) ----- ------ ------ ------ ------ ------ Total electric energy sales 2,894 12,481 12,201 12,078 11,324 11,437 ===== ====== ====== ====== ====== ====== Fuel Expense (in millions): Coal $71 $72 $69 $61 $71 $64 Nuclear 20 16 20 20 20 16 Gas & oil 8 4 5 6 3 2 -- -- -- -- -- -- Total $99 $92 $94 $87 $94 $82 == == == == == == Power Purchased and Interchanged (in millions): Utility and interchange purchases $ 58 $ 70 $ 54 $ 84 $ 80 $108 Nonutility purchases 174 162 168 131 101 95 Deferred nonutility costs (4) - - - - - Amortization of nonutility buyout costs 10 10 9 - - - --- --- --- --- --- --- Total $238 $242 $231 $215 $181 $203 === === === === === === Electric Energy Sales (in thousands of MWH): Residential 4,040 4,034 4,135 3,925 3,921 3,800 Commercial 3,321 3,209 3,144 3,011 2,921 2,794 Industrial 4,174 4,098 4,033 3,957 3,861 3,664 Other 202 210 213 209 211 284 ----- ------ ------ ------ ------ ------ Sales to customers 1,737 11,551 11,525 11,102 10,914 10,542 Sales to other utilities 1,157 930 676 976 410 895 ----- ------ ------ ------ ------ ------ Total 2,894 12,481 12,201 12,078 11,324 11,437 ===== ====== ====== ====== ====== ====== Operating Revenues (in millions): Residential $361 $368 $365 $339 $327 $322 Commercial 260 259 247 229 215 209 Industrial 244 253 243 228 215 207 Other (13) 14 14 13 12 18 --- --- --- --- --- --- Sales to customers 852 894 869 809 769 756 Sales to other utilities 34 24 20 26 12 27 --- --- --- --- --- --- Total electric energy sales 886 918 889 835 781 783 Other revenues 33 25 21 20 20 18 --- --- --- --- --- --- Total $919 $943 $910 $855 $801 $801 === === === === === === Price per KWH (in cents): Residential 8.88 9.04 8.90 8.54 8.39 8.42 Commercial 7.82 7.93 7.88 7.54 7.38 7.46 Industrial 5.84 6.07 6.04 5.74 5.55 5.68 Total sales to customers 7.46 7.63 7.58 7.23 7.07 7.16 Total electric energy sales 7.05 7.25 7.33 6.86 6.92 6.83 Customers at Year-End (in thousands) 482 477 470 465 458 451 (a)Summer ratings at December 31, 1998 of owned and contracted capacity were 1,738 MW and 954 MW, respectively. (b)The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year.
F-130 Metropolitan Edison Company and Subsidiary Companies
SELECTED FINANCIAL DATA (In Millions) For the Years Ended December 31, 1998(1) 1997 1996(2) 1995(3) 1994(4 1993 - -------------------------------------------------------------------------------------------- Operating revenues $ 919.6 $ 943.1 $ 910.4 $ 854.7 $ 801.3 $ 801.5 Other operation and maintenance expense 247.2 228.3 250.0 229.6 258.7 210.8 Income before extraordinary item 57.7 93.5 69.1 148.5 1.0 77.9 Net income 50.9 93.5 69.1 148.5 1.0 77.9 Earnings/(loss) available for common stock 50.4 93.0 71.8 147.6 (2.2) 70.9 Net utility plant in service 1,239.2 1,492.0 1,455.7 1,477.0 1,437.3 1,361.4 Total assets 4,065.0 2,509.8 2,447.0 2,410.7 2,198.7 2,141.7 Long-term debt 546.9 576.9 563.3 603.3 529.8 546.3 Long-term obligations under capital leases - - 0.4 1.0 2.2 3.6 Company-obligated mandatorily redeemable preferred securities 100.0 100.0 100.0 100.0 100.0 - Capital expenditures and investments 75.1 87.6 76.7 112.6 159.7 142.4 Return on average common equity 7.5% 12.9% 10.3% 23.5% (0.4%) 12.2% Employees (actual) 2,654 2,498 2,093 2,166 2,000 2,322 (1) Results for 1998 include an extraordinary charge of $6.8 million (after-tax) as a result of the PaPUC's Restructuring Order. Also in 1998, as a result of the PaPUC Order, Met-Ed recorded a non-recurring charge of $19 million (after-tax) related to the obligation to refund 1998 revenues; and for the establishment of a sustainable energy fund. (2) Results for 1996 reflect a non-recurring charge of $15.4 million (after-tax) for costs related to voluntary enhanced retirement programs. (3) Results for 1995 reflect the reversal of $72.8 million (after-tax) of certain future TMI-2 retirement costs written off in 1994. The reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that overturned a 1994 lower court order, and restored a 1993 PaPUC order allowing for the recovery of such costs. Partially offsetting this increase was a non-recurring charge to income of $5.7 million (after-tax) of TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. (4) Results for 1994 reflect a net non-recurring charge to earnings of $79.9 million (after-tax) due to the write-off of certain future TMI-2 retirement costs ($72.8 million); a charge for costs related to early retirement programs ($20.1 million); and net interest income from refunds of previously paid federal income taxes related to the tax retirement of TMI-2 ($13.0 million).
F-131 Metropolitan Edison Company and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED) First Quarter Second Quarter ------------- -------------- In Thousands 1998 1997 1998* 1997 - ------------------------------------------------------------------------------------------ Operating revenues $234,748 $255,260 $226,030 $208,554 Operating income 40,312 54,113 38,360 28,303 Income before extraordinary item 24,730 39,685 18,548 14,203 Net income/(loss) 24,730 39,685 (168,732) 14,203 Earnings/(loss) available for common stock 24,609 39,564 (168,853) 14,082 Third Quarter Fourth Quarter ------------- -------------- In Thousands 1998** 1997 1998 1997 - ------------------------------------------------------------------------------------------ Operating revenues $229,051 $248,161 $229,765 $231,134 Operating income 14,395 41,714 31,380 26,021 Income before extraordinary item (3,544) 27,225 17,986 12,404 Net income 176,931 27,225 17,986 12,404 Earnings available for common stock 176,811 27,105 17,865 12,283 * Results for the second quarter of 1998 were affected by an extraordinary charge of $187.3 million after-tax as a result of the Pennsylvania Public Utility Commission's (PaPUC) June 30, 1998 Restructuring Order on Met-Ed's restructuring plans. ** In the third quarter of 1998, as a result of the amended PaPUC Restructuring Order, Met-Ed reversed $183.2 million after-tax of the extraordinary charge taken in the second quarter, primarily related to above-market nonutility generation costs; and recorded an additional extraordinary charge of $3 million after-tax primarily related to the write-off of FERC assets. Also, in the third quarter of 1998, as a result of the amended PaPUC Order, Met-ed recorded a non-recurring charge of $19 million after-tax related to the obligation to refund 1998 revenues; and for the establishment of a sustainable energy fund.
F-132 Metropolitan Edison Company and Subsidiary Companies REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Metropolitan Edison Company In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Metropolitan Edison Company and Subsidiary Companies at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York February 3, 1999 F-133 Metropolitan Edison Company and Subsidiary Companies CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1998 1997 - -------------------------------------------------------------------------------- ASSETS Utility Plant: Transmission, distribution and general plant $1,481,958 $1,413,849 Generation plant 765,669 997,961 --------- --------- Utility plant in service 2,247,627 2,411,810 Accumulated depreciation (1,008,438) (919,771) ---------- --------- Net utility plant in service 1,239,189 1,492,039 Construction work in progress 19,380 45,435 Other, net 27,819 39,056 --------- --------- Net utility plant 1,286,388 1,576,530 --------- --------- Other Property and Investments: Nuclear decommissioning trusts, at market (Note 13) 211,194 168,110 Other, net 11,742 11,958 -------- -------- Total other property and investments 222,936 180,068 -------- -------- Current Assets: Cash and temporary cash investments 442 6,116 Special deposits 1,062 1,055 Accounts receivable: Customers, net 60,012 65,156 Other 41,895 29,399 Unbilled revenues 43,687 39,747 Materials and supplies, at average cost or less: Construction and maintenance 24,727 38,597 Fuel 12,218 11,323 Deferred income taxes (Note 8) 2,945 2,945 Prepayments 20,616 6,762 ------- ------- Total current assets 207,604 201,100 ------- ------- Deferred Debits and Other Assets: Regulatory assets, net: (Notes 5 & 13) Competitive transition charge 680,213 - Other regulatory assets, net 921,934 450,687 Deferred income taxes (Note 8) 714,202 87,332 Other 31,692 14,069 --------- ------- Total deferred debits and other assets 2,348,041 552,088 --------- ------- Total Assets 4,064,969 $2,509,786 ========= ========== The accompanying notes are an integral part of the consolidated financial statements. F-134 Metropolitan Edison Company and Subsidiary Companies CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1998 1997 LIABILITIES AND CAPITALIZATION Capitalization: Common stock $ 66,273 $ 66,273 Capital surplus 370,200 370,200 Retained earnings 234,066 268,634 Accumulated other comprehensive income 16,520 12,487 ------ ------ Total common stockholder's equity (Note 4) 687,059 717,594 Cumulative preferred stock (Note 4) 12,056 12,056 Company-obligated mandatorily redeemable preferred securities (Note 4) 100,000 100,000 Long-term debt (Note 3) 546,904 576,924 - ------- ------- Total capitalization 1,346,019 1,406,574 --------- --------- Current Liabilities: Securities due within one year (Notes 3 & 4) 30,024 22 Notes payable (Note 2) 79,540 67,279 Obligations under capital leases (Note 12) 27,135 38,372 Accounts payable: Affiliates 75,933 62,873 Other 102,390 95,589 Taxes accrued 19,463 21,455 Interest accrued 16,747 15,903 Other 42,598 33,351 ---------- ------- Total current liabilities 393,830 334,844 ---------- ------- Deferred Credits and Other Liabilities: Deferred income taxes (Note 8) 1,010,982 412,692 Unamortized investment tax credits 27,157 29,134 Three Mile Island Unit 2 future costs 241,707 224,354 Nuclear fuel disposal fee 31,912 30,343 Nonutility generation contract loss liability 787,440 - Other 225,922 71,845 ---------- ------- Total deferred credits and other liabilities 2,325,120 768,368 ---------- ------- Commitments and Contingencies (Note 13) Total Liabilities and Capitalization $4,064,969 $2,509,786 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. F-135 Metropolitan Edison Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF INCOME (In Thousands) For The Years Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------- Operating Revenues $919,594 $943,109 $910,408 ------- ------- ------- Operating Expenses: Fuel 99,511 92,726 93,881 Power purchased and interchanged: Affiliates 17,766 17,936 20,724 Others 220,095 223,948 209,831 Deferral of energy costs, net - - (448) Other operation and maintenance 247,189 228,258 249,993 Depreciation and amortization 109,148 106,437 98,364 Taxes, other than income taxes 58,459 59,339 61,319 ------- ------- ------- Total operating expenses 752,168 728,644 733,664 ------- ------- ------- Operating Income Before Income Taxes 167,426 214,465 176,744 Income taxes (Note 8) 42,979 64,314 49,844 ------- ------- ------- Operating Income 124,447 150,151 126,900 ------- ------- ------- Other Income and Deductions: Allowance for other funds used during construction 130 75 540 Other income/(expense), net (13,539) 3,371 1,220 Income taxes (Note 8) 5,556 (1,455) (489) ------- ------- ------- Total other income and deductions (7,853) 1,991 1,271 ------- ------- ------ Income Before Interest Charges 116,594 152,142 128,171 ------- ------- ------- Interest Charges: Long-term debt 42,493 43,885 45,373 Company-obligated mandatorily redeemable preferred securities 9,000 9,000 9,000 Other interest 8,194 6,765 5,436 Allowance for borrowed funds used during construction (813) (1,025) (705) ------- ------- ------- Total interest charges 58,874 58,625 59,104 ------- ------- ------- Income Before Extraordinary Item 57,720 93,517 69,067 Extraordinary item (net of income taxes of $4,708) (Note 5) (6,805) - - ------- ------- -------- Net Income 50,915 93,517 69,067 Preferred stock dividends 483 483 944 Gain on preferred stock reacquisition - - 3,722 ------- ------- ------- Earnings Available for Common Stock $ 50,432 $ 93,034 $ 71,845 ======= ======= ======= The accompanying notes are an integral part of the consolidated financial statements. F-136 Metropolitan Edison Company & Subsidiary Companies CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) For The Years Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------- Net income $ 50,915 $ 93,517 $ 69,067 ------- ------- -------- Other comprehensive income/(loss), net of tax: (Note 4) Net unrealized gain on investments 4,148 4,249 4,027 Minimum pension liability (115) (157) (262) ------- ------- --------- Total other comprehensive income 4,033 4,092 3,765 ------- ------- --------- Comprehensive income $ 54,948 $ 97,609 $ 72,832 ======= ======= ========= CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (In Thousands) For The Years Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------- Balance at beginning of year $268,634 $255,649 $243,804 Net income 50,915 93,517 69,067 ------- ------- ------- Total 319,549 349,166 312,871 ------- ------- ------- Cash dividends on capital stock: Cumulative preferred stock (at the annual rates indicated below): 3.90% Series ($3.90 a share) (251) (251) (459) 4.35% Series ($4.35 a share) (98) (98) (145) 3.85% Series ($3.85 a share) (36) (36) (112) 3.80% Series ($3.80 a share) (30) (30) (69) 4.45% Series ($4.45 a share) (68) (68) (159) Common stock (not declared on a per share basis) (85,000) (80,000) (60,000) ------- ------- ------- Total (85,483) (80,483) (60,944) ------- ------- ------- Gain on preferred stock reacquisition - - 3,722 Other adjustments, net - (49) - ------- ------- ------- Balance at end of year $234,066 $268,634 $255,649 ======= ======= ======= The accompanying notes are an integral part of the consolidated financial statements. F-137 Metropolitan Edison Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) For The Years Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------- Operating Activities: Net income $ 50,915 $93,517 $ 69,067 Extraordinary item (net of income tax benefit of $4,708) 6,805 - - ------- ------- -------- Income before extraordinary item 57,720 93,517 69,067 Adjustments to reconcile income to cash provided: Depreciation and amortization 114,961 113,662 104,820 Amortization of property under capital leases 14,666 11,637 15,704 PaPUC restructuring rate orders 32,900 - - Voluntary enhanced retirement programs - - 26,204 Nuclear outage maintenance costs, net 6,494 (6,169) 6,215 Deferred income taxes and investment tax credits, net (23,152) 3,137 25,168 Deferred energy costs, net - - (448) Allowance for other funds used during construction (130) (75) (540) Changes in working capital: Receivables (11,292) (28,393) 8,490 Materials and supplies (1,911) 845 (1,611) Special deposits and prepayments (13,861) 10,489 (10,501) Payables and accrued liabilities 23,504 47,819 (17,714) Nonutility generation contract buyout costs (32,917) (16,050) (43,318) Other, net 6,566 (17,942) (15,964) ---------- -------- --------- Net cash provided by operating activities 173,548 212,477 165,572 ---------- -------- --------- Investing Activities: Capital expenditures and investments (75,068) (87,613) (76,660) Contributions to decommissioning trusts (17,766) (16,992) (17,057) Other, net 465 (363) (1,087) Net cash used for investing ---------- -------- --------- activities (92,369) (104,968) (94,804) ---------- -------- --------- Financing Activities: Issuance of long-term debt - 13,577 - Increase in notes payable, net 12,261 16,612 28,277 Retirement of long-term debt (22) (40,020) (15,019) Capital lease principal payments (13,609) (12,744) (15,171) Redemption of preferred stock - - (7,820) Dividends paid on preferred stock (483) (719) (944) Dividends paid on common stock (85,000) (80,000) (60,000) Net cash required by financing ---------- -------- --------- activities (86,853) (103,294) (70,677) ---------- -------- --------- Net increase/(decrease) in cash and temporary cash investments from above activities (5,674) 4,215 91 Cash and temporary cash investments, beginning of year 6,116 1,901 1,810 ---------- -------- --------- Cash and temporary cash investments, end of year $ 442 $ 6,116 $ 1,901 ========== ========= ========= Supplemental Disclosure: Interest and preferred dividends paid $ 57,891 $ 60,538 $ 60,641 ========== ========= ========== Income taxes paid $ 77,296 $ 55,375 $ 39,278 ========== ========= ========== New capital lease obligations incurred $ 3,399 $ 19,695 $ 1,417 ========== ========= ========== The accompanying notes are an integral part of the consolidated financial statements. F-138 Pennsylvania Electric Company and Subsidiary Companies SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands) - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ Column A Column B Column C Column D Column E -------- -------- -------------------------- -------- -------- Additions Balance (1) (2) at Charged to Charged Balance Beginning Costs and to Other at End Description of Period Expenses Accounts Deductions of Period - ----------------------------- --------- ---------- -------- ---------- --------- Year ended December 31, 1998 Allowance for doubtful accounts $3,147 $5,673 $1,712(a) $7,197(b) $3,335 Allowance for inventory obsolescence 1,433 - (13)(c) 1,260(d) 160 Year ended December 31, 1997 Allowance for doubtful accounts $3,172 $6,644 $1,944(a) $8,613(b) $3,147 Allowance for inventory obsolescence 1,864 - 7(c) 438(d) 1,433 Year ended December 31, 1996 Allowance for doubtful accounts $3,072 $6,460 $1,651(a) $8,011(b) $3,172 Allowance for inventory obsolescence 3,176 - 4(c) 1,316(d) 1,864 (a) Recovery of accounts previously written off. (b) Accounts receivable written off. (c) Sale of inventory previously written off. (d) Inventory written off.
F-139
Pennsylvania Electric Company and Subsidiary Companies COMPANY STATISTICS For The Years Ended December 31, 1998 1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------- Capacity at System Peak (in MW): Company owned 2,284 2,365 2,365 2,365 2,369 2,369 Contracted 717 867 782 868 778 636 ------ ----- ------ ------ ------ ----- Total capacity (a) 3,001 3,232 3,147 3,233 3,147 3,005 ====== ====== ====== ====== ==== ====== Hourly Peak Load (in MW): Summer peak 2,560 2,535 2,410 2,495 2,309 2,208 Winter peak 2,515 2,652 2,574 2,589 2,514 2,342 Reserve at company peak (%) 17.2 21.9 22.3 24.9 25.2 28.3 Load factor (%) (b) 72.5 69.7 71.1 67.6 69.4 70.5 Sources of Energy (in thousands of MWH): Coal 12,088 11,972 11,268 11,237 10,263 10,703 Nuclear 1,765 1,480 1,775 1,597 1,647 1,488 Gas, hydro & oil 72 48 95 (95) 120 73 ------ ----- ------ ------ ------ ----- Net generation 13,925 13,500 13,138 12,739 12,030 12,264 Utility purchases and interchange 2,439 2,297 2,268 3,071 2,468 2,219 Nonutility purchases 3,292 3,296 3,201 2,796 2,236 1,940 ------ ----- ------ ------ ------ ----- Total sources of energy 19,656 19,093 18,607 18,606 16,734 16,423 Company use, line loss, etc. (2,355) (2,853) (2,932) (2,751) (2,248) (2,256) ------ ----- ------ ------ ------ ----- Total electric energy sales 17,301 16,240 15,675 15,855 14,486 14,167 ====== ====== ====== ====== ======= ====== Fuel Expense (in millions): Coal $165 $168 $164 $164 $163 $174 Nuclear 10 8 10 10 10 8 Gas & oil 2 2 2 1 2 1 ------ ----- ------ ------ ------ ----- Total $177 $178 $176 $175 $175 $183 ====== ===== ====== ====== ====== ===== Power Purchased and Interchanged (in millions): Utility and interchange purchases $ 38 $ 27 $ 18 $ 43 $ 35 $ 31 Nonutility purchases 211 188 192 158 123 104 Deferred nonutility costs (13) - - - - - ------ ----- ------ ------ ------ ----- Total $236 $215 $210 $201 $158 $135 ====== ===== ====== ====== ====== ===== Electric Energy Sales (in thousands of MWH): Residential 3,756 3,801 3,897 3,765 3,773 3,715 Commercial 4,198 4,098 4,044 3,922 3,794 3,651 Industrial 4,996 4,835 4,563 4,463 4,449 4,346 Other 713 821 814 857 958 568 ------ ----- ------ ------ ------ ----- Sales to customers 13,663 13,555 13,318 13,007 12,974 12,280 Sales to other utilities 3,638 2,685 2,357 2,848 1,512 1,887 ------ ----- ------ ------ ------ ----- Total 17,301 16,240 15,675 15,855 14,486 14,167 ====== ====== ====== ====== ====== ====== Operating Revenues (in millions): Residential $ 327 $ 342 $ 339 $322 $321 $308 Commercial 311 316 302 287 279 261 Industrial 263 267 249 237 237 227 Other 2 40 36 39 45 31 ------ ----- ------ ------ ------ ----- Sales to customers 903 965 926 885 882 827 Sales to other utilities 101 54 53 68 36 52 ------ ----- ------ ------ ------ ----- Total electric energy sales 1,004 1,019 979 953 918 879 Other revenues 28 34 41 28 27 29 ------ ----- ------ ------ ------ ----- Total $1,032 $1,053 $1,020 $981 $945 $908 ====== ====== ====== ====== ====== ====== Price per KWH (in cents): Residential 8.74 8.84 8.70 8.52 8.51 8.30 Commercial 7.42 7.58 7.48 7.29 7.34 7.17 Industrial 5.28 5.42 5.44 5.33 5.32 5.24 Total sales to customers 6.85 7.00 6.95 6.79 6.80 6.74 Total electric energy sales 5.99 6.18 6.24 6.00 6.34 6.21 Customers at Year-End (in thousands) 577 575 573 571 567 563 (a) Summer ratings at December 31, 1998 of owned and contracted capacity were 2,284 MW and 794 MW, respectively. (b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year. F-140
Pennsylvania Electric Company and Subsidiary Companies SELECTED FINANCIAL DATA (In Millions) For the Years Ended December 31, 1998(1) 1997 1996(2) 1995(3) 1994(4) 1993 - ------------------------------------------------------------------------------------------------ Operating revenues $1,032.2 $1,052.9 $1,019.6 $ 981.3 $ 944.7 $ 908.3 Other operation and maintenance expense 275.1 258.4 293.9 266.3 294.3 241.3 Income before extraordinary item 58.6 95.0 69.8 111.0 31.8 95.7 Net income 39.6 95.0 69.8 111.0 31.8 95.7 Earnings available for common stock 38.9 94.4 73.9 109.5 28.9 90.7 Net utility plant in service 1,626.5 1,720.8 1,715.7 1,692.9 1,621.8 1,542.3 Total assets 4,524.8 2,563.0 2,503.4 2,439.6 2,338.2 2,261.5 Long-term debt 626.4 676.4 656.5 642.5 616.5 524.5 Long-term obligations under capital leases 2.6 3.3 4.1 5.3 6.7 7.7 Company-obligated mandatorily redeemable preferred securities 105.0 105.0 105.0 105.0 105.0 - Capital expenditures and investments 89.6 99.1 114.7 130.5 174.5 150.3 Return on average common equity 5.0% 12.1% 10.0% 15.8% 4.2% 13.5% Employees (actual) 1,780 1,539 2,071 2,665 3,031 3,539 (1) Results for 1998 include an extraordinary charge of $19 million (after-tax) as a result of the PaPUC's Restructuring Order. Also in 1998, as a result of the PaPUC Order, Penelec recorded a non-recurring charge of $21 million (after-tax) related to the obligation to refund 1998 revenues; and for the establishment of a sustainable energy fund. (2) Results for 1996 reflect a non-recurring charge of $19.7 million (after-tax) for costs related to voluntary enhanced retirement programs. (3) Results for 1995 reflect the reversal of $32.1 million (after-tax) of certain future TMI-2 retirement costs written off in 1994. The reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that overturned a 1994 lower court order, and restored a 1993 PaPUC order allowing for the recovery of such costs. Partially offsetting this increase was a non-recurring charge to income of $2.7 million (after-tax) of TMI-2 monitored storage costs deemed not probable of recovery through ratemaking. (4) Results for 1994 reflect a net non-recurring charge to earnings of $61.8 million (after-tax) due to the write-off of certain future TMI-2 retirement costs ($32.1 million); a charge for costs related to early retirement programs ($25.6 million); a write-off of postretirement benefit costs believed not probable of recovery in rates ($10.6 million); and net interest income from refunds of previously paid federal income taxes related to the tax retirement of TMI-2 ($6.5 million). F-141
Pennsylvania Electric Company and Subsidiary Companies QUARTERLY FINANCIAL DATA (UNAUDITED) First Quarter Second Quarter In Thousands 1998 1997 1998* 1997 - ------------------------------------------------------------------------------------------- Operating revenues $263,655 $289,753 $250,355 $247,862 Operating income 42,820 58,856 34,586 34,255 Income before extraordinary item 26,645 42,894 19,751 18,841 Net income/(loss) 26,645 42,894 (68,079) 18,841 Earnings/(loss) available for common stock 26,529 42,750 (68,310) 18,667 Third Quarter Fourth Quarter In Thousands 1998** 1997 1998 1997 - ------------------------------------------------------------------------------------------- Operating revenues $259,354 $257,569 $258,862 $257,752 Operating income 18,772 35,444 29,445 29,395 Income/(loss) before extraordinary item (5,860) 19,369 18,054 13,919 Net income 63,020 19,369 18,054 13,919 Earnings available for common stock 62,846 19,196 17,880 13,745 * Results for the second quarter of 1998 were affected by an extraordinary charge of $87.8 million after-tax as a result of the Pennsylvania Public Utility Commission's (PaPUC) June 30, 1998 Restructuring Order on Penelec's restructuring plans. ** In the third quarter of 1998, as a result of the amended PaPUC Restructuring Order, Penelec reversed $83.1 million after-tax of the extraordinary charge taken in the second quarter, primarily related to above-market nonutility generation costs; and recorded an additional extraordinary charge of $14 million after-tax primarily related to the write-off of FERC assets. Also, in the third quarter of 1998, as a result of the amended PaPUC Order, Penelec recorded a non-recurring charge of $21 million after-tax related to the obligation to refund 1998 revenues; and for the establishment of a sustainable energy fund. F-142
Pennsylvania Electric Company and Subsidiary Companies REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Pennsylvania Electric Company In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Pennsylvania Electric Company and Subsidiary Companies at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York February 3, 1999 F-143 Pennslvania Electric Company and Subsidiary Companies CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1998 1997 ASSETS Utility Plant: Transmission, distribution and general plant $1,768,621 $1,665,958 Generation plant 1,033,739 1,146,762 ---------- -------- Utility plant in service 2,802,360 2,812,720 Accumulated depreciation (1,175,842) (1,091,965) ---------- -------- Net utility plant in service 1,626,518 1,720,755 Construction work in progress 18,862 69,089 Other, net 19,482 26,110 ---------- -------- Net utility plant 1,664,862 1,815,954 ---------- -------- Other Property and Investments: Nuclear decommissioning trusts, at market (Note 13) 82,803 68,129 Other, net 7,705 7,071 ---------- -------- Total other property and investments 90,508 75,200 ---------- -------- Current Assets: Cash and temporary cash investments 2,750 - Special deposits 2,632 2,449 Accounts receivable: Customers, net 69,887 71,338 Other 28,893 21,051 Unbilled revenues 43,998 47,728 Materials and supplies, at average cost or less: Construction and maintenance 39,452 47,853 Fuel 17,107 14,841 Deferred income taxes (Note 8) 7,589 7,589 Prepayments 31,551 29,856 ---------- -------- Total current assets 243,859 242,705 ---------- -------- Deferred Debits and Other Assets: Regulatory assets, net: (Notes 5 & 13) Competitive transition charge 343,602 - Other regulatory assets, net 1,206,594 360,315 Deferred income taxes (Note 8) 951,471 55,698 Other 23,911 13,118 Total deferred debits and other ---------- -------- assets 2,525,578 429,131 ---------- -------- Total Assets $4,524,807 $2,562,990 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. F-144 Pennsylvania Electric Company and Subsidiary Companies CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, 1998 1997 LIABILITIES AND CAPITALIZATION Capitalization: Common stock $ 105,812 $ 105,812 Capital surplus 285,486 285,486 Retained earnings 367,653 393,708 Accumulated other comprehensive income 8,353 6,332 ---------- --------- Total common stockholder's equity (Note 4) 767,304 791,338 Cumulative preferred stock (Note 4) 16,681 16,681 Company-obligated mandatorily redeemable preferred securities (Note 4) 105,000 105,000 Long-term debt (Note 3) 626,434 676,444 ---------- --------- Total capitalization 1,515,419 1,589,463 ---------- --------- Current Liabilities: Securities due within one year (Notes 3 & 4) 50,012 30,011 Notes payable (Note 2) 86,023 77,581 Obligations under capital leases (Note 12) 13,979 19,939 Accounts payable: Affiliates 47,164 24,811 Other 47,795 62,483 Taxes accrued 32,755 15,966 Interest accrued 19,700 20,902 Other 37,272 19,654 ---------- --------- Total current liabilities 334,700 271,347 ---------- --------- Deferred Credits and Other Liabilities: Deferred income taxes (Note 8) 1,338,235 478,182 Unamortized investment tax credits 36,926 39,353 Three Mile Island Unit 2 future costs 120,904 12,227 Nuclear fuel disposal fee 15,956 15,172 Nonutility generation contract loss liability 1,016,380 - Other 146,287 57,246 Total deferred credits and other ---------- --------- liabilities 2,674,688 702,180 ---------- --------- Commitments and Contingencies (Note 13) Total Liabilities and Capitalization $4,524,807 $2,562,990 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. F-145
Pennsylvania Electric Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF INCOME (In Thousands) For The Years Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------- Operating Revenues $1,032,226 $1,052,936 $1,019,645 --------- ---------- ---------- Operating Expenses: Fuel 176,548 177,256 176,158 Power purchased and interchanged: Affiliates 2,729 3,252 3,529 Others 233,395 212,166 206,403 Deferral of energy costs, net - - 795 Other operation and maintenance 275,107 258,416 293,868 Depreciation and amortization 109,800 107,111 94,580 Taxes, other than income taxes 63,874 66,395 64,955 --------- ---------- ---------- Total operating expenses 861,453 824,596 840,288 --------- ---------- ---------- Operating Income Before Income Taxes 170,773 228,340 179,357 Income taxes (Note 8) 45,150 70,390 45,648 --------- ---------- ---------- Operating Income 125,623 157,950 133,709 --------- ---------- ---------- Other Income and Deductions: Allowance for other funds used during construction - - 173 Other income/(expense), net (6,429) 2,469 (825) Income taxes (Note 8) 2,613 (909) 99 --------- ---------- ---------- Total other income and deductions (3,816) 1,560 (553) --------- ---------- ---------- Income Before Interest Charges 121,807 159,510 133,156 --------- ---------- ---------- Interest Charges: Long-term debt 47,729 49,125 49,654 Company-obligated mandatorily redeemable preferred securities 9,188 9,188 9,188 Other interest 8,197 8,338 7,112 Allowance for borrowed funds used during construction (1,897) (2,164) (2,607) --------- ---------- ---------- Total interest charges 63,217 64,487 63,347 --------- ---------- ---------- Income Before Extraordinary Item 58,590 95,023 69,809 Extraordinary item (net of income taxes of $11,592) (Note 5) (18,950) - - --------- ---------- ---------- Net Income 39,640 95,023 69,809 Preferred stock dividends 695 665 1,503 Gain on preferred stock reacquisition - - 5,566 --------- ---------- ---------- Earnings Available for Common Stock $ 38,945 $ 94,358 $ 73,872 ========= ========== ========== The accompanying notes are an integral part of the consolidated financial statements.
F-146
Pennsylvania Electric Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands) For The Years Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------ Net income $ 39,640 $ 95,023 $ 69,809 --------- ---------- ---------- Other comprehensive income/(loss), net of tax: (Note 4) Net unrealized gain on investments 2,064 2,125 2,014 Minimum pension liability (42) (122) - --------- ---------- ---------- Total other comprehensive income 2,022 2,003 2,014 --------- ---------- ---------- Comprehensive income $ 41,662 $ 97,026 $ 71,823 ========= ========== ========== CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (In Thousands) For The Years Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------ Balance at beginning of year $393,708 $359,373 $325,499 Net income 39,640 95,023 69,809 --------- ---------- ---------- Total 433,348 454,396 395,308 --------- ---------- ---------- Cash dividends on capital stock: Cumulative preferred stock (at the annual rates indicated below): 4.40% Series B ($4.40 a share) (131) (125) (244) 3.70% Series C ($3.70 a share) (183) (174) (351) 4.05% Series D ($4.05 a share) (114) (109) (251) 4.70% Series E ($4.70 a share) (66) (64) (132) 4.50% Series F ($4.50 a share) (77) (74) (188) 4.60% Series G ($4.60 a share) (124) (119) (337) Common stock (not declared on a per share basis) (65,000) (60,000) (40,000) --------- ---------- ---------- Total (65,695) (60,665) (41,503) --------- ---------- ---------- Gain on preferred stock reacquisition - - 5,566 Other adjustments, net - (23) 2 --------- ---------- ---------- Balance at end of year $367,653 $393,708 $359,373 ========= ========== ========== The accompanying notes are an integral part of the consolidated financial statements. F-147
Pennsylvania Electric Company and Subsidiary Companies CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) For The Years Ended December 31, 1998 1997 1996 - ---------------------------------------------------------------------------------------------- Operating Activities: Net income $ 39,640 $ 95,023 $ 69,809 Extraordinary item (net of income tax benefit of $11,592) 18,950 - - --------- ---------- ---------- Income before extraordinary item 58,590 95,023 69,809 Adjustments to reconcile income to cash provided: Depreciation and amortization 107,239 99,688 89,021 Amortization of property under capital leases 7,319 7,954 8,733 PaPUC restructuring rate orders 35,600 - - Voluntary enhanced retirement programs - - 33,626 Nuclear outage maintenance costs, net 3,251 (3,072) 3,099 Deferred income taxes and investment tax credits, net (15,496) 10,193 19,208 Deferred energy costs, net - - 731 Allowance for other funds used during construction - - (173) Changes in working capital: Receivables (2,661) (20,426) 7,648 Materials and supplies (1,310) (3,763) 5,591 Special deposits and prepayments (1,878) 6,973 (26,232) Payables and accrued liabilities 39,061 19,736 (52,958) Nonutility generation contract buyout costs (6,101) (10,000) (11,700) Other, net (31,479) (22,963) (7,746) --------- ---------- ---------- Net cash provided by operating activities 192,135 179,343 138,657 --------- ---------- ---------- Investing Activities: Capital expenditures and investments (89,550) (99,074) (114,672) Contributions to decommissioning trusts (5,270) (5,288) (5,263) Other, net (520) 454 (684) -------- ---------- ---------- Net cash used for investing activities (95,340) (103,908) (120,619) -------- ---------- ---------- Financing Activities: Issuance of long-term debt - 49,875 39,513 Increase/(Decrease) in notes payable, net 8,442 (30,099) 80,580 Retirement of long-term debt (30,011) (26,010) (75,009) Capital lease principal payments (6,781) (8,506) (8,418) Redemption of preferred stock - - (14,527) Dividends paid on preferred stock (695) (695) (1,544) Dividends paid on common stock (65,000) (60,000) (40,000) -------- ---------- ---------- Net cash required by financing activities (94,045) (75,435) (19,405) -------- ---------- ---------- Net increase/(decrease) in cash and temporary cash investments from above activities 2,750 - (1,367) Cash and temporary cash investments, beginning of year - - 1,367 --------- ---------- ---------- Cash and temporary cash investments, end of year $ 2,750 $ - $ - ========= ======== ========== Supplemental Disclosure: Interest and preferred dividends paid $ 64,057 $ 62,514 $ 64,706 ========= ========== ========== Income taxes paid $ 46,732 $ 48,348 $ 43,098 ========= ========== ========== New capital lease obligations incurred $ 1,714 $ 11,155 $ 715 ======== ========== ========== The accompanying notes are an integral part of the consolidated financial statements. F-148
Pennsylvania Electric Company and Subsidiary Companies SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands) - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions -------------------------- Balance (1) (2) at Charged to Charged Balance Beginning Costs and to Other at End Description of Period Expenses Accounts Deductions of Period --------------------------- --------- -------- -------- ---------- ---------- Year ended December 31, 1998 Allowance for doubtful accounts $3,526 $5,826 $2,123(a) $8,240(b) $3,235 Allowance for inventory obsolescence 67 - - 67(c) - Year ended December 31, 1997 Allowance for doubtful accounts $3,818 $6,364 $2,186(a) $8,842(b) $3,526 Allowance for inventory obsolescence 186 - - 119(c) 67 Year ended December 31, 1996 Allowance for doubtful accounts $3,152 $5,961 $1,973(a) $7,268(b) $3,818 Allowance for inventory obsolescence - 650 - 464(c) 186 (a) Recovery of accounts previously written off. (b) Accounts receivable written off. (c) Inventory written off. F-149
EX-99 2 EXHIBIT INDEX Exhibits to be filed with 1998 10-K 10-O GPU, Inc. Restricted Stock Plan for Outside Directors dated June 4, 1998. 10-R Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between Oyster Creek Fuel Corp. and JCP&L. 10-S Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between TMI-1 Fuel Corp. and JCP&L. 10-T Letter Agreement, dated as of November 5, 1998, from JCP&L relating to Oyster Creek Nuclear Material Lease Agreement. 10-U Letter Agreement, dated as of November 5, 1998, from JCP&L relating to JCP&L TMI-1 Nuclear Material Lease Agreement. 10-V Second Amended and Restated Trust Agreement, dated as of November 5, 1998, between United States Trust Company of New York, as Owner Trustee, Lord Fuel Corp., as Trustor and Beneficiary, and JCP&L, Met-Ed and Penelec. 10-W Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between TMI-1 Fuel Corp. and Met-Ed. 10-X Letter Agreement, dated as of November 5, 1998, from Met-Ed relating to Met-Ed TMI-1 Nuclear Material Lease Agreement. 10-Y Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between TMI-1 Fuel Corp. and Penelec. 10-Z Letter Agreement, dated as of November 5, 1998, from Penelec relating to Penelec TMI-1 Nuclear Material Lease Agreement. 10-AA GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries as amended and restated to reflect amendments through March 5, 1998. 10-BB Form of 1998 Stock Option Agreement under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. 10-CC Form of 1998 Performance Units Agreement under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries. 10-KK Homer City Electric Generating Station Asset Purchase Agreement by and among Penelec, NGE Generation, Inc., and New York State Electric & Gas Corporation, as sellers, and Mission Energy Westside, Inc., as buyer, dated as of August 1, 1998. 10-LL Purchase and Sale Agreement by and between JCP&L, as seller, and Sithe Energies, Inc., as buyer, dated as of October 29, 1998. 10-MM Purchase and Sale Agreement by and among JCP&L, Met-Ed as sellers, GPU, Inc, and Sithe Energies, Inc., as buyer, dated as of October 29, 1998. 10-NN Purchase and Sale Agreement by and between Met-Ed, as seller, and Sithe Energies, Inc., as buyer, dated as of October 29, 1998. 10-OO Purchase and Sale Agreement by and between Penelec, as seller, and Sithe Energies, Inc., as buyer, dated as of October 29, 1998. 10-PP Voluntary Enhanced Retirement Program Agreement for Nonbargaining Employees - Robert L. Wise, dated as of September 17, 1998. 12 Statements Showing Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. A - GPU, Inc. and Subsidiary Companies B - JCP&L C - Met-Ed D - Penelec 21 Subsidiaries of the Registrant A - JCP&L B - Met-Ed C - Penelec 23 Consent of Independent Accountants A - GPU B - JCP&L C - Met-Ed D - Penelec 27 Financial Data Schedule A - GPU B - JCP&L C - Met-Ed D - Penelec EX-10 3 EX. 10-O RESTRICTED STOCK PLAN FOR OUTSIDE DIR. EXHIBIT 10-O GPU, INC. RESTRICTED STOCK PLAN FOR OUTSIDE DIRECTORS AS AMENDED AND RESTATED AS OF JUNE 4, 1998 GPU, INC. RESTRICTED STOCK PLAN FOR OUTSIDE DIRECTORS 1. Purpose. The purpose of this restricted Stock Plan for Outside Directors (the "Plan") is to enable GPU, Inc. ("GPU") to attract and retain persons of outstanding competence to serve on its Board of Directors by paying such persons a portion of their compensation in GPU Common Stock ("Common Stock") pursuant to the terms hereof. 2. Definitions. (a) The term "Board of Directors" shall mean the board of directors of GPU. (b) The term "Change in Control" shall mean the occurrence during the term of the Plan of: (1) An acquisition (other than directly from GPU) of any Common Stock or other voting securities of GPU entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of GPU's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) GPU or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by GPU (for purposes of this definition, a "Subsidiary"), (B) GPU or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board of Directors (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board of Directors; provided, however, that if the election, or nomination for election by GPU's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; 2 provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization with or into GPU or in which securities of GPU are issued, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization with or into GPU or in which securities of GPU are issued where: (i) the shareholders of GPU, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) GPU, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by GPU or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or Common Stock, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock; 3 (B) A complete liquidation or dissolution of GPU; or (C) The sale or other disposition of all or substantially all of the assets of GPU to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by GPU which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by GPU, and after such share acquisition by GPU, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. (c) The term "Outside Director" or "Participant" means a member of the Board of Directors who is not an employee (within the meaning of the Employee Retirement Income Security Act of 1974) of GPU or any of its Subsidiaries. A director of GPU who is also an employee of GPU or any of its Subsidiaries shall become eligible to participate in this Plan and shall be entitled to receive an award of restricted stock upon the termination of such employment. (d) The term "Subsidiary" means, for purposes other than Section 2(b), any corporation 50% or more of the outstanding Common Stock of which is owned, directly or indirectly, by GPU. (e) The term "Service" shall mean service as an Outside Director. 3. Eligibility. All Outside Directors of GPU shall receive stock awards hereunder. 4 4. Stock Awards. (a) A total of 33,000(1) shares of GPU Common Stock shall be available for awards under the Plan. Such shares shall be either previously unissued shares or reacquired shares. Any restricted shares awarded under this Plan with respect to which the restrictions do not lapse and which are forfeited as provided herein shall again be available for other awards under the plan. (b) Each Outside Director shall receive an annual award of 300 shares of GPU Common Stock with respect to each calendar year or portion thereof, during which he or she serves as an Outside Director, beginning with the calendar year 1993. Awards shall be made in January of each year. However, for the calendar year in which an Outside Director commences Service, the award of shares to such Outside Director for such year shall be made in the month in which his or her Service commences, if his or her Service commences after January 31 of such year. All awards of shares made hereunder shall be subject to the restrictions set forth in Section 5. (c) Subject to the provisions of Section 5, certificates representing shares of GPU Common Stock awarded hereunder shall be issued in the name of the respective Participants. During the period of time such shares are subject to the restrictions set forth in Section 5, such certificates shall be endorsed with a legend to that effect, and shall be held by GPU or an agent therefor. The Participant shall, nevertheless, have all the other rights of a shareholder, indddddcluding the right to vote and the right to receive all cash dividends paid with respect to such shares. Subject to the requirements of applicable law, certificates representing such shares shall be delivered to the Participant within 30 days after the lapse of the restrictions to which they are subject. - ---------- (1) Initially, 20,000 shares were authorized to be issued under the Plan. On May 29, 1991, GPU effected a two-for-one stock split by way of a stock dividend, leaving 33,000 shares available for issuance under the Plan on and after July 1, 1991 after giving effect to shares previously awarded. 5 (d) If as a result of a stock dividend, stock split, recapitalization (or other adjustment in the stated capital of GPU), or as the result of a merger, consolidation, or other reorganization, the common shares of GPU are increased, reduced, or otherwise changed, the number of shares available and to be awarded hereunder shall be appropriately adjusted, and if by virtue thereof a Participant shall be entitled to new or additional or different shares, such shares to which the Participant shall be entitled shall be subject to the terms, conditions, and restrictions herein contained relating to the original shares. In the event that warrants or rights are awarded with respect to shares awarded hereunder, and the recipient exercises such rights or warrants, the shares or securities issuable upon such exercise shall be likewise subject to the terms, conditions, and restrictions herein contained relating to the original shares. 5. Restrictions. a) Shares are awarded to a Participant on the condition that he or she serves or has served as an Outside Director until: (i) the Participant's death or disability, or (ii) the Participant's retirement not earlier than the first day of the month following the attainment of the Participant's 72nd birthday ; or (iii) the Participant's resignation or retirement prior to the first day of the month following the attainment of the Participant's 72nd birthday with the consent of the Board, i.e., approval thereof by a least 80% of the directors voting thereon, with the affected director abstaining; or (iv) the Participant's failure to be re-elected after being duly nominated. Termination of Service of a Participant for any other reason, including, without limitation, any involuntary termination effected by Board action, shall result in forfeiture of all shares awarded. Notwithstanding the foregoing, upon the occurrence of a Change in Control, the restrictions set forth in Section 5(b) hereof to which any shares awarded to a Participant are then still subject shall lapse, and the termination of the Participant's Service for any reason at any time after the occurrence of such Change in Control shall not result in the forfeiture of any such shares. 6 (b) Shares awarded hereunder may not be sold, exchanged, transferred, pledged, hypothecated, or otherwise disposed of other than to GPU pursuant to Section 5(a) during the period commencing on the date of the award of such shares and ending on the date of termination of the Outside Director's Service (c) Each Participant shall represent and warrant to and agree with GPU that he or she (i) takes any shares awarded under the Plan for investment only and not for purposes of sale or other disposition and will also take for investment only and not for purposes of sale or other disposition any rights, warrants, shares, or securities which may be issued on account of ownership of such shares, and (ii) will not sell or transfer any shares awarded or any shares received upon exercise of any such rights or warrants except in accordance with (A) an opinion of counsel for GPU (or other counsel acceptable to GPU) that such shares, rights, warrants, or other securities may be disposed of without registration under the Securities Act of 1933, or (B) an applicable "no action" letter issued by the Staff of the Commission. 6. Administrative Committee. An Administrative Committee (the "Committee") shall have full power and authority to construe and administer the Plan. Any action taken under the provisions of the Plan by the Committee arising out of or in connection with the administration, construction, or effect of the Plan or any rules adopted thereunder shall, in each case, lie within the discretion of the Committee and shall be conclusive and binding under GPU and upon all Participants, and all persons claiming under or through any of them. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a Change in Control that denies in whole or in part any claim made by any individual for benefits under the Plan shall be subject to judicial review, under a "de novo," rather than a deferential, standard. The Committee shall have as members the Chief Executive Officer of GPU and two officers of GPU or its Subsidiaries designated by the Chief Executive Officer; in the absence of such designation, the other members of the Committee shall be the Chief Financial Officer and the Secretary of GPU. 7. Approval: Effective Date. The Plan is subject to the approval of a majority of the holders of GPU's Common Stock present and entitled to vote at a meeting of shareholders, and of the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935. The Plan shall be effective January 1, 1989. 7 8. Termination and Amendment. The Board of Directors of GPU may suspend, terminate, modify or amend the Plan, provided that no amendment or modification to Section 2(b), to the penultimate sentence of Section 6, to the last sentence of Section 5(a), or to this Section 8, nor any suspension or termination of the Plan, effectuated (I) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, shall be effective if the amendment, modification, suspension or termination adversely affects the rights of any Participant under the Plan. If the Plan is terminated, the terms of the Plan shall, notwithstanding such termination, continue to apply to awards granted prior to such termination. In addition, no amendment, modification, suspension or termination of the Plan shall adversely affect the rights of any Participant with respect to any award (including without limitation any right with respect to the timing and method of payment of any award) granted to the Participant prior to the date of the adoption of such amendment, modification, suspension or termination without such Participant's written consent. 8 EX-10 4 EX. 10-R NUCLEAR MATERIAL LEASE AGREE.-OC & JCP&L EXHIBIT 10-R COUNTERPART NO. SECOND AMENDED AND RESTATED NUCLEAR MATERIAL LEASE AGREEMENT Dated as of November 5, 1998 between OYSTER CREEK FUEL CORP., as Lessor and JERSEY CENTRAL POWER & LIGHT COMPANY as Lessee AS OF THE DATE OF THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, THE LESSOR UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT (THE "LESSOR") HAS GRANTED TO THE SECURED PARTIES, AS DEFINED HEREIN, A SECURITY INTEREST IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT AND IN ALL OF THE LESSOR'S RIGHTS AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, INCLUDING, WITHOUT LIMITATION, ALL OF THE LESSOR'S RIGHTS TO AND INTERESTS IN NUCLEAR MATERIAL AS DEFINED IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT. THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT HAS BEEN MANUALLY EXECUTED IN EIGHTEEN (18) COUNTERPARTS, NUMBERED CONSECUTIVELY FROM 1 TO 18. NO SECURITY INTEREST IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT OR IN ANY OF THE LESSOR'S RIGHTS AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT MAY BE PERFECTED BY THE POSSESSION OF ANY SUCH COUNTERPART OTHER THAN COUNTERPART NO. 1. TABLE OF CONTENTS 1 Definitions 2 2 Notices 2 3 Title to Remain in the Lessor; Quiet Enjoyment; Fuel Management; Location 3 4 Agreement for Lease of Nuclear Material 3 5 Orders for Nuclear Material and Services; Assigned Agreements 4 6 Leasing Records; Payment of Costs of Lessor 5 7 No Warranties or Representation by Lessor 7 8 Lease Term; Early Termination; Termination Of Leasing Record 8 9 Payment of Rent; Payments with Respect to the Lessor's Financing Costs 11 10 Compliance with Laws; Restricted Use of Nuclear Material; Assignments; Permitted Liens; Spent Fuel 11 11 Permitted Contests 15 12 Insurance; Compliance with Insurance Requirements 16 13 Indemnity 18 14 Casualty and Other Events 21 15 Nuclear Material to Remain Personal Property 22 16 Events of Default 22 17 Rights of the Lessor Upon Default of the Lessee 24 18 Termination After Certain Events 26 19 Investment Tax Credit 28 20 Certificates; Information; Financial Statements 29 21 Obligation of the Lessee to Pay Rent 31 22 Miscellaneous 31 SECOND AMENDED AND RESTATED NUCLEAR MATERIAL LEASE AGREEMENT SECOND AMENDED AND RESTATED LEASE AGREEMENT (this "Lease Agreement") dated as of the 5th day of November, 1998, by and between OYSTER CREEK FUEL CORP., a Delaware corporation (herein called the "Lessor"), and JERSEY CENTRAL POWER & LIGHT COMPANY, a Pennsylvania corporation (herein called the "Lessee"). RECITALS A. The Lessor and Lessee entered into a Nuclear Material Lease Agreement dated as of August 1, 1991 ("Original Lease") to provide for the lease of Nuclear Material to the Lessee; B. The Original Lease provided for the Lessor to enter into certain loan agreements and ancillary documents with The Prudential Insurance Company of America and certain affiliates thereof ("Prudential") to provide financing from Prudential for the acquisition of Nuclear Material under the Original Lease; C. Such loan arrangements with Prudential were terminated and Lessor entered into a new credit agreement and related instruments pursuant to which a bank syndicate for which Union Bank of Switzerland, New York Branch ("UBS") acted as agent to provide financing for the acquisition of Nuclear Material being leased hereunder; D. Lessor and Lessee entered into an Amended and Restated Nuclear Material Lease Agreement, dated as of November 17, 1995 ("Amended and Restated Lease") to reflect the necessary modifications consistent with the establishment of the credit facility with UBS; E. Concurrent with the execution and delivery hereof, such credit agreements with UBS are being terminated and Lessor is entering into a new credit agreement and related instruments to which a bank syndicate for which The First National Bank of Chicago and PNC Bank, National Association, will act as agents to provide financing for the acquisition of the Nuclear Material being leased hereunder; F. Accordingly, the Lessor and the Lessee desire to enter into this Second Amended and Restated Lease Agreement in order to reflect necessary modifications consistent with establishment of such new credit facility and other modifications thereof in certain other respects, which agreement shall supercede the Original Lease and the Amended and Restated Lease; NOW, THEREFORE, in consideration of the mutual covenants contained herein and intending to be legally bound hereby, the parties covenant and agree as follows: 1. Definitions. Except as otherwise provided herein, capitalized terms used in this Lease Agreement (including the Exhibits) shall have the respective meanings set forth in Appendix A. 2. Notices. Any notice, demand or other communication which by any provision of this Lease Agreement is required or permitted to be given shall be deemed to have been delivered if in writing and actually delivered by mail, courier, telex or facsimile to the following addresses: (i) If to the Lessor, Oyster Creek Fuel Corp., c/o United States Trust Company of New York, 114 West 47th Street, New York, New York 10036, Attention: Corporate Trust and Agency Division, telecopy number 212-852-1626, or at such other address as the Lessor may have furnished to the Lessee and the Secured Parties in writing; or (ii) If to the Lessee, Jersey Central Power & Light Company c/o GPU Service, Inc., 310 Madison Avenue, Morristown, New Jersey 07962-1957, Attention: Vice President and Treasurer, telecopy number 973-644-4224, or at such other address as the Lessee may have furnished the Lessor and the Secured Parties in writing; or (iii) except as provided in the following sentence or as otherwise requested in writing by any Secured Party, any notice, demand or communication which by any provision of this Lease Agreement is required or permitted to be given to the Secured Parties shall be deemed to have been delivered to all the Secured Parties if a single copy thereof is delivered to The First National Bank of Chicago, One First National Plaza, Mail Suite 0363, Chicago, Illinois 60670, Attention: Kenneth J. Bauer, facsimile number (312) 732-3055; or at such other address as either may have furnished the Lessor and the Lessee in writing. Any Leasing Record or invoice of a Manufacturer or other Person performing services covering the Nuclear Material which is required to be delivered to the Secured Parties pursuant to Section 6(c)(ii) of this Lease Agreement and any Rent Due and SCV Confirmation Schedule which is required to be delivered to the Secured Parties pursuant to Sections 8(g) or 9(d) of this Lease Agreement shall be deemed to have been delivered to all the Secured Parties if a single copy thereof is delivered to Kenneth J. Bauer at the address indicated in this Section 2(iii). 2 3. Title to Remain in the Lessor; Quiet Enjoyment; Fuel Management; Location. (a) The Lessor and the Lessee hereby acknowledge that this Lease Agreement is a lease and is intended to provide for the obligations of the Lessee to pay installments of Rent as the same become due; that, subject to the provisions of Section 10(h), the Lessor has title to and is the owner of the Nuclear Material; and that the relationship between the Lessor and the Lessee shall always be only that of lessor and lessee. (b) The Lessor (including its successors and assigns) agrees and covenants that, so long as the Lessee makes timely payments of Rent and fully performs all other obligations to be performed by the Lessee under this Lease Agreement, the Lessor (including its successors and assigns) shall not hinder or interfere with the Lessee's peaceable and quiet enjoyment of the possession and use of the Nuclear Material, for the term or terms herein provided, subject, however, to the terms of this Lease Agreement. (c) So long as no Lease Event of Default shall have occurred and be continuing and the Lessor shall not have elected to exercise any of its remedies under Section 17 hereof, the Lessee shall have the right to engage in Fuel Management. The Lessee is hereby designated the agent of the Lessor in all dealings with Manufacturers and any regulatory agency having jurisdiction over the ownership or possession of the Nuclear Material for so long as the Lessee shall have the right to engage in Fuel Management. As such agent of the Lessor, the Lessee agrees to make, or cause to be made, all filings and to obtain all consents and permits required as a result of the Lessor's ownership and leasing of the Nuclear Material. (d) The Lessee covenants to the Lessor that the location of Nuclear Material will be limited to: (w) any Manufacturer's facility, (x) transit between one Manufacturer's facility and another Manufacturer's facility or the site of the Generating Facility, (y) the site of the Generating Facility and (z) the Generating Facility. Each assembly of the Nuclear Material will be located during its Heat Production and "cooling-off" stage at the Generating Facility or the site of the Generating Facility. 4. Agreement for Lease of Nuclear Material. From and after the Closing, the Lessor shall lease to the Lessee and the Lessee shall lease from the Lessor such Nuclear Material as may be from time to time mutually agreed upon, provided that the total Stipulated Casualty Value of all Nuclear Material leased under this Lease Agreement shall not exceed at any one time $25,000,000 3 in the aggregate or such other amount as the Lessor and the Lessee may agree to in writing (the "Maximum Stipulated Casualty Value"). The Lessor and the Lessee shall evidence their agreement to lease particular Nuclear Material in accordance with the terms and provisions of this Lease Agreement by signing and delivering to each other, from time to time, Leasing Records, substantially in the forms of Exhibit A or Exhibit B, as applicable, prepared by the Lessee, covering such Nuclear Material. Nothing contained herein shall be deemed to prohibit the Lessee from leasing from other lessors or otherwise obtaining other nuclear material for use in the Generating Facility, subject to the provisions with respect to intermingling of fuel assemblies or sub-assemblies with other fuel assemblies or sub-assemblies contained in Section 6 hereof. 5. Orders for Nuclear Material and Services; Assigned Agreements. a) The Nuclear Material Contracts listed in Exhibit C hereto, relating, among other things, to the purchase of, and services to be performed with respect to, Nuclear Material were entered into by the Lessee prior to the date of this Lease Agreement, and, except as otherwise indicated on Exhibit C, the interests of the Lessee under such Nuclear Material Contracts have been assigned to the Lessor under an Assignment Agreement substantially in the form of Exhibit D. Any further Nuclear Material Contracts which the Lessee deems necessary or desirable may be negotiated by the Lessee and executed by the Lessee in its own name or, where authorized by the Lessor, as agent for the Lessor. (b) So long as no Lease Event of Default shall have occurred and be continuing, and subject to the approval of the Lessor and to the limitation on the Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4, the interests of the Lessee under any further Nuclear Material Contracts (whether executed and delivered before or after the date of this Lease Agreement) pursuant to which the Lessee desires the Lessor to purchase Nuclear Material or have services performed on any Nuclear Material on behalf of the Lessee may be assigned to the Lessor under an Assignment Agreement substantially in the form of Exhibit D, with such changes to Exhibit 2 to Exhibit D as the Secured Parties may consent to in writing, which consent shall not be unreasonably withheld. The Lessee shall use its best efforts to cause the other parties to such agreements to consent to each such assignment. Upon each such assignment and the obtaining of such consents with respect to any Nuclear Material Contract, the Lessor, subject to the limitation on the Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4, shall make all payments which are required under such Assigned Agreements for the 4 purchase of Nuclear Material or for services to be performed on the Nuclear Material in accordance with the procedures set forth in Section 6. (c) So long as no Lease Event of Default shall have occurred and be continuing, the Lessor hereby authorizes the Lessee, at the Lessee's own cost and expense, to assert all rights and claims and to bring suits, actions and proceedings, in its own name or in the name of the Lessor, in respect of any Manufacturer's warranties or undertakings, express or implied, relating to any portion of the Nuclear Material and to retain the proceeds of any such suits, actions and proceedings. 6. Leasing Records; Payment of Costs of Lessor. (a) Interim Leasing Records. An Interim Leasing Record shall be prepared by the Lessee, shall be dated the date that the Lessor first makes any payment with respect to the Acquisition Cost of any Nuclear Material and shall set forth a full description of such Nuclear Material, the Acquisition Cost and location thereof, and such other details with respect to such Nuclear Material upon which the parties may agree. During the period of preparation and processing or reprocessing of Nuclear Material subject to an Interim Leasing Record, if the Lessor shall make any further payment or payments or if the Lessor shall receive any payment or payments representing a credit against the Acquisition Cost previously paid with respect to such Nuclear Material, a supplemental Interim Leasing Record dated the date that the Lessor makes each such further payment or the date of receipt of any such credit shall be signed by the Lessor and the Lessee to record the revised Acquisition Cost, after giving effect to any such payments or credits with respect to such Nuclear Material, any change in location and such additional details upon which the parties may agree. (b) Final Leasing Records. For Nuclear Material previously covered by an Interim Leasing Record, the Final Leasing Record shall be prepared by the Lessee, shall be dated the first day of the month following the date of installation of such Nuclear Material in the Generating Facility, unless such date is the first day of a month, in which case the Final Leasing Record shall be dated such date. For Nuclear Material not previously covered by an Interim Leasing Record, the Final Leasing Record shall be dated the date that the Lessor first makes any payment with respect to the Acquisition Cost of such Nuclear Material. A Final Leasing Record shall set forth a full description of such Nuclear Material, the Acquisition Cost thereof, the BTU Charge, the location, and such other details with respect to such Nuclear Material upon which the parties may agree. 5 (c) Payment of Nuclear Material Costs. (i) On the Closing, the Lessor shall pay UBS pursuant to Section 5.02 of the UBS Credit Agreement the principal amount of all loans outstanding thereunder together with accrued interest thereon to the extent not paid previously, and related costs and expenses in connection therewith. (ii) From time to time after the Closing, invoices of Manufacturers, or of other Persons performing services, covering Nuclear Material shall be forwarded to the Lessor in care of the Lessee at the Lessee's address. Upon receipt by the Lessee of an invoice covering Nuclear Material, the Lessee shall review such invoice and, upon the Lessee's approval thereof, the Lessee shall forward such invoice endorsed with the Lessee's approval to the Lessor, together with a Leasing Record completed and signed by a Lessee Representative covering such Nuclear Material. The Lessee's invoice for any cost incurred by it and includable in the Acquisition Cost of any Nuclear Material shall be forwarded to the Lessor and to the Secured Parties, together with a Leasing Record completed and signed by a Lessee Representative covering such costs. After receipt of such invoice and Leasing Record, in form and substance satisfactory to the Lessor, the Lessor, subject to the limitation on Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4, shall pay such invoice as provided therein or in the related purchase agreement and shall execute the Leasing Record and return a copy of such Leasing Record to the Lessee and the Secured Parties. The Leasing Record shall be dated as provided for in this Lease Agreement. In the event that the Acquisition Cost of the Nuclear Material covered by any Leasing Record has been paid or incurred by the Lessee, the Lessor, subject to the limitation on Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4 shall promptly reimburse the Lessee for the amount of the Acquisition Cost paid or incurred by the Lessee. (iii) The Lessee shall: (A) pay all costs and expenses of freight, packing, insurance, handling, storage, shipment and delivery of the Nuclear Material to the extent that the same have not been included in the Acquisition Cost, and (B) at its own cost and expense, furnish such labor, equipment and other facilities and supplies, if any, as may be required to install and erect the Nuclear Material to the extent that the cost and expense thereof have not been included in the Acquisition Cost. Such installation and erection shall be in accordance with the specifications and 6 requirements of each Manufacturer. The Lessor shall not be liable to the Lessee for any failure or delay in obtaining Nuclear Material or making delivery thereof. (d) Intermingling of Fuel Assemblies. Subject to the provisions of Section 10(h) hereof, the Nuclear Material shall be owned exclusively by the Lessor and leased to the Lessee under this Lease Agreement. Prior to the fabrication of Nuclear Material into a completed fuel assembly or sub-assembly or while such Nuclear Material is being reprocessed, the Lessee will cause or permit such Nuclear Material to be fabricated or assembled only into fuel assemblies or sub-assemblies owned by the Lessor and leased under this Lease Agreement. However, fuel assemblies or sub-assemblies owned by the Lessor and leased to the Lessee hereunder may be intermingled in the Generating Facility with fuel assemblies or sub-assemblies not owned by the Lessor and leased to the Lessee under this Lease Agreement, provided that such assemblies or sub-assemblies owned by the Lessor shall be readily identifiable by serial number or other distinguishing marks. 7. No Warranties or Representation by Lessor. THE NUCLEAR MATERIAL IS LEASED AS-IS, WHERE-IS, IN THE CONDITION THEREOF AND SUBJECT TO THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, THE STATE OF THE TITLE THERETO, THE RIGHTS OF OWNERSHIP THEREIN AND TO ALL APPLICABLE LAWS, RULES, REGULATIONS, ORDERS, WRITS, INJUNCTIONS, DECREES, CONSENTS, APPROVALS, EXEMPTIONS, AUTHORIZATIONS, LICENSES AND WITHHOLDING OF OBJECTIONS OF ANY GOVERNMENTAL OR PUBLIC BODY OR AUTHORITY AND ALL OTHER REQUIREMENTS HAVING THE FORCE OF LAW APPLICABLE AT ANY TIME TO ANY OF THE NUCLEAR MATERIALS OR ANY ACT OR TRANSACTION WITH RESPECT THERETO OR PURSUANT TO THIS LEASE AGREEMENT, IN EACH CASE AS IN EXISTENCE WHEN THE SAME FIRST BECOMES SUBJECT TO THIS LEASE AGREEMENT, WITHOUT REPRESENTATIONS OR WARRANTIES OF ANY KIND BY THE LESSOR OR ANY SECURED PARTY OR ANY PERSON ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY. THE LESSEE ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM NOR ANY OTHER PERSON ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS HAD AT ANY TIME PHYSICAL POSSESSION OF ANY PORTION OF THE NUCLEAR MATERIAL, HAS MADE ANY INSPECTION THEREOF, HAS GIVEN ANY ADVICE TO THE LESSEE OR HAS MADE ANY RECOMMENDATION TO THE LESSEE WITH RESPECT TO THE CHOICE OF THE SUPPLIER, VENDOR OR PROCESSOR OF THE NUCLEAR MATERIAL OR WITH RESPECT TO THE PROCESSING, MILLING, CONVERSION, ENRICHMENT, FABRICATION, CONTAINERIZATION, TRANSPORTATION, UTILIZATION, STORAGE OR REPROCESSING OF THE SAME. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, 7 CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM, NOR ANYONE ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS MADE ANY WARRANTY OR OTHER REPRESENTATION, EXPRESS OR IMPLIED, THAT THE NUCLEAR MATERIAL LEASED OR TO BE LEASED UNDER THIS LEASE AGREEMENT (a) WILL NOT RESULT IN INJURY OR DAMAGE TO PERSONS OR PROPERTY, (b) WILL BE USEABLE BY THE LESSEE OR WILL ACCOMPLISH THE RESULTS WHICH THE LESSEE INTENDS FOR SUCH NUCLEAR MATERIAL OR (c) IS SAFE IN ANY MANNER OR RESPECT. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM, AND ANYONE ACTING ON BEHALF OF ANY OF THEM IS A MANUFACTURER OR ENGAGED IN THE SALE OR DISTRIBUTION OF NUCLEAR MATERIAL AND THAT NONE OF THE FOREGOING PERSONS HAS MADE OR DOES HEREBY MAKE ANY REPRESENTATION, WARRANTY OR COVENANT, EXPRESS OR IMPLIED, WITH RESPECT TO THE MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, CONDITION, QUALITY, USEABILITY, DURABILITY, SUITABILITY OR CONSEQUENCES OF USE OR MISUSE OF THE NUCLEAR MATERIAL IN ANY RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES OR USES OF THE LESSEE, OR ANY OTHER REPRESENTATION OR WARRANTY OF ANY KIND OR CHARACTER WHATSOEVER, EXPRESS OR IMPLIED. 8. Lease Term; Early Termination; Termination of Leasing Record. (a) The Lessor hereby leases to the Lessee, and the Lessee hereby leases from the Lessor, the Nuclear Material for the term provided in this Lease Agreement and subject to the terms and provisions hereof. (b) This Lease Agreement shall become effective at 12:01 A.M., Eastern time, on the Closing, and, unless earlier terminated as provided in Sections 8(c), 17 or 18, the term of this Lease Agreement shall end at the close of business on the later of (i) the date on which there is no outstanding principal of, or interest or premium, if any, on any of the Outstandings or (ii) the Termination Date but in each case in no event later than November 17, 2015. (c) In the event that during the term of this Lease Agreement, the then effective Termination Date is not extended pursuant to Section 4.01 of the Credit Agreement, the Lessee shall have the option, exercisable at any time beginning 180 days before such Termination Date upon written notice to the Lessor and the Secured Parties prior to such Termination Date to purchase all (but not less than all) of the Nuclear Material and any spent fuel related thereto for which title has not been transferred to the Lessee for a purchase price equal to the Stipulated Casualty Value of such Nuclear Material at the time of such purchase plus 8 the Termination Rent. If the Lessee exercises such purchase option, the purchase of the Nuclear Material shall occur on such date, on or prior to such Termination Date, as may be agreed upon by the Lessor and the Lessee and of which the Lessee has given the Secured Parties prior written notice. Upon receipt of payment of the purchase price, the Lessor shall deliver to the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring all right, title, interest and claim of the Lessor to the Nuclear Material and any spent fuel related thereto for which title has not already been transferred to the Lessee, to the Lessee or the Lessee's designee, free and clear of all Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. The later of (i) the date on which there is no outstanding principal of, or interest or premium, if any, on any of the Outstandings or (ii) the date of any sale by the Lessor of all of the Nuclear Material as provided in this Section 8(c) shall constitute the Termination Settlement Date, and this Lease Agreement shall terminate as of such date. (c) In the event that during the term of this Lease Agreement the then effective Termination Date is not extended pursuant to Section 4.01 of the Credit Agreement and the Lessee shall not have exercised its option to purchase pursuant to Section 8(c), the Lessee shall attempt to sell, or if no sale is possible, to otherwise convey, on behalf of the Lessor, ownership of the Nuclear Material to a third party not disqualified by any applicable statute, law, regulation or agreement from acquiring such Nuclear Material, and, upon prior written notice to the Lessor and the Secured Parties of the terms and date of such sale, the Lessor shall furnish title papers as may be necessary to effect such sale or conveyance on an as-is, where-is, non-installment, cash sale basis, without recourse to or warranty or agreement of any kind by the Lessor. The proceeds of such sale or conveyance shall be paid to the Lessor, and any amount so paid shall constitute a credit against the amount of the Stipulated Casualty Value payable by the Lessee under Section 8(e); provided, however, that any proceeds of such sale or conveyance in excess of the amount payable by the Lessee under Section 8(e) shall be retained by the Lessee. (d) On the Termination Date unless the Lessee shall have exercised its purchase option set forth in Section 8(c) and paid the Lessor the purchase price of the Nuclear Material as provided therein, the Lessee shall pay to the Lessor an amount equal to the sum of (i) the Stipulated Casualty Value of all 9 Nuclear Material leased under this Lease Agreement as of such Termination Date and of all Nuclear Material sold or conveyed pursuant to Section 8(d) (less any credit provided in Section 8(d)), and (ii) the Termination Rent as of such Termination Date. Upon receipt of such payment, the Lessor shall deliver to the Lessee or any designee of the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring all right, title, interest and claim of the Lessor to the Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee to the Lessee or the Lessee's designee, free and clear of all Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. (e) In the event that during the term of this Lease Agreement, the then effective Termination Date is not extended pursuant to Section 4.01 of the Credit Agreement, all obligations of the Lessor and Lessee under this Lease Agreement with respect to the Nuclear Material, including the obligation of the Lessee to pay Basic Rent and the obligation of the Lessor to acquire and pay for the Nuclear Material and to lease the same to the Lessee shall terminate on the date on which the Lessor receives the payment specified in Section 8(c) or Section 8(e). (f) The Lessee shall deliver to the Lessor and to the Secured Parties a Rent Due and SCV Confirmation Schedule in the form of Exhibit F within thirty (30) days following the date on which any Nuclear Material or spent fuel resulting from the Nuclear Material is removed from the reactor of the Generating Facility for purposes of "cooling-off" preliminary to reprocessing or permanent on-site safe storage and/or off-site disposal. If the Lessee elects within thirty (30) days following the receipt by the Lessor of such Rent Due and SCV Confirmation Schedule to extend the lease term for the purposes of reprocessing any such Nuclear Material, then the Lessor and the Lessee shall enter into an Interim Leasing Record with respect to such Nuclear Material in its then condition. In all other cases, the Final Leasing Record with respect to any such Nuclear Material or spent fuel resulting from such Nuclear Material shall be terminated and the Lessee shall immediately pay to the Lessor all amounts, including the Stipulated Casualty Value, if any, with respect to such Nuclear Material or spent fuel resulting from such Nuclear Material, and, upon receipt thereof, the Lessor shall deliver to the Lessee or to any designee of the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring all right, title, interest and claim of the 10 Lessor to such Nuclear Material or spent fuel resulting from such Nuclear Material for which title has not already been transferred to the Lessee or the Lessee's designee, free and clear of all Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. 9. Payment of Rent; Payments with Respect to the Lessor's Financing. (a) Basic Rent. The Lessee shall pay Basic Rent monthly in arrears on the first day of the next succeeding month. If such first day of the month is not a Business Day, then payment shall be made on the next succeeding Business Day. (b) Additional Rent. In addition to the Basic Rent, the Lessee will also pay from time to time as provided in this Lease Agreement or on demand of the Lessor, all Additional Rent on the due date thereof. In the event of any failure by the Lessee to pay any Additional Rent, the Lessor shall have all the rights, powers and remedies as in the case of failure to pay Basic Rent. (c) Prepayments of Basic Rent. The Lessee may prepay Basic Rent at any time. Such payment shall be credited against subsequent amounts owed by the Lessee on account of Basic Rent. (d) Wire Payment Procedure for Paying Basic Rent. All payments of Rent and other payments to be made by the Lessee to the Lessor pursuant to this Lease Agreement shall be paid to the Lessor (or, at the Lessor's request, to the Secured Parties) in lawful money of the United States in Collected Funds by wire transfer pursuant to Section 3.03 of the Credit Agreement. The Lessee shall furnish to the Lessor and the Secured Parties each month during the term of the Lease Agreement a summary of the rental calculations for such month covering all outstanding Leasing Records. On each Basic Rent Payment Date, the Lessee shall deliver to the Lessor and the Secured Parties a signed and completed Rent Due and SCV Confirmation Schedule. The Lessee shall be responsible for the accuracy of the matters contained in all such schedules delivered by the Lessee pursuant to the provisions of this Lease Agreement. 10. Compliance with Laws; Restricted Use of Nuclear Material; Assignments; Permitted Liens; Spent Fuel. (a) Compliance with Legal Requirements. Subject to the provisions of Section 11 hereof, the Lessee agrees to comply with all Legal Requirements. 11 (b) Recording of Title. The Lessee shall promptly and duly execute, deliver, file and record all such further counterparts of this Lease Agreement or such certificates, Bills of Sale, financing and continuation statements and other instruments as may be reasonably requested by the Lessor and take such further actions as the Lessor shall from time to time reasonably request, in order to establish, perfect and maintain the rights and remedies created or intended to be created in favor of the Lessor and the Secured Parties under this Lease Agreement and the Lessor's title to and interest in the Nuclear Material as against the Lessee or any third party in any applicable jurisdiction. (c) Exclusive Use of Nuclear Material. So long as no Lease Event Default shall have occurred and be continuing, the Lessee may use the Nuclear Material in the regular course of its business or in the business of any subsidiary or affiliate of the Lessee, and, subject to Section 3(d) and upon thirty (30) days' prior notice in writing to the Lessor and the Secured Parties, or upon such shorter prior notice in writing promptly given upon the Lessee's receipt of notice from any Manufacturer that the Nuclear Material is to be moved, and at the Lessee's sole expense (without limiting the Lessee's rights to request payment by the Lessor of such expense as provided in Section 6 hereof) move such Nuclear Material to any jurisdiction approved in writing by the Lessor in the contiguous forty-eight (48) states of the United States of America and the District of Columbia for the purpose of having services performed on such Nuclear Material in connection with any stage of the Nuclear Material Cycle other than Heat Production and the "cooling off" stage, provided that (i) no such movement of the Nuclear Material shall materially reduce the then fair market value of such Nuclear Material, (ii) such Nuclear Material shall be and remain the property of the Lessor, subject to this Lease Agreement, and (iii) all Legal Requirements (including, without limitation, all necessary government consents, permits and approvals) shall have been met or obtained by the Lessee, on its own behalf and on behalf of the Lessor, and all necessary recordings, filings and registrations or recordings, filings and registrations which the Lessor shall reasonably consider advisable shall have been duly made in order to protect the validity and effectiveness of this Lease Agreement and the security interest created in the Security Agreement. At least once each year, or more frequently if the Lessor reasonably so requests, the Lessee shall advise the Lessor and the Secured Parties in writing where all Nuclear Material as of such date is located. The Lessee shall maintain and make available to the Lessor for examination upon reasonable notice complete and adequate records pertaining to receipt, possession, use, location, movement, physical inventories and any other information reasonably requested by the Lessor with respect to the Nuclear Material. 12 (d) Additional Lessee Covenants. The Lessee agrees to use every reasonable precaution to prevent loss or damage to the Nuclear Material. All individuals handling or operating Nuclear Material in the possession of the Lessee shall be conclusively presumed not to be agents of the Lessor. The Lessee shall cooperate fully with the Lessor and all insurance companies and governmental agencies providing insurance under Section 12 hereof in the investigation and defense of any claims or suits arising from the licensing, acquisition, storage, containerization, transportation, blending, transfer, consumption, leasing, insuring, operating, disposing, fabricating and reprocessing of the Nuclear Material. To the extent required by any applicable law or regulation, the Lessee shall attach to the Nuclear Material the form of required notice to protect or disclose the ownership of the Lessor or that the Nuclear Material is leased. So long as no Lease Event of Default shall have occurred and be continuing, the Lessor will assign or otherwise make available to the Lessee all of its rights under any Manufacturer's warranty on Nuclear Material. The Lessee shall pay all costs, expenses, fees and charges, except Acquisition Costs, incurred by the Lessee in connection with the use and operation of the Nuclear Material during the term of the lease of such Nuclear Material. The Lessee hereby assumes all risks of loss or damage of Nuclear Material however caused and shall, at its own expense, keep the Nuclear Material in good operating condition and repair, reasonable wear and tear, obsolescence and exhaustion excepted. (e) Assignment by Lessor. Except as otherwise herein provided, the Lessor may not, without the prior written consent of the Lessee, sell, assign, transfer or convey the Nuclear Material or any interest therein or in the Lease Agreement, or grant to any party a security interest in, or create a lien or encumbrance upon, all or any part of its right, title and interest in this Lease Agreement and in any Nuclear Material. After receipt by the Lessee of written notice from the Lessor of any assignment by the Lessor of Rents or other sums payable by the Lessee under this Lease Agreement, the Lessee shall make such payments as directed in such notice of assignment, and such payments shall discharge the obligations of the Lessee hereunder to the extent of such payments. The Lessee hereby consents to the security interest and other rights and interests granted to the Secured Parties under the Security Agreement, dated as of the date first above written. (f) Liens; Permitted Liens. The Lessee will not directly or indirectly create or permit to be created or to remain and will discharge any Lien with respect to the Nuclear Material or any portion thereof, or upon the Lessee's leasehold interest therein, or upon the Basic Rent, Additional Rent, or any other sum payable under this Lease Agreement, other than Permitted Liens. 13 (g) Assignment by Lessee. Notwithstanding any provision of this Lease Agreement to the contrary, subject to applicable laws and regulations and so long as no Lease Event of Default shall have occurred and be continuing, the Lessee may sublease the Nuclear Material provided that (i) the Lessee has given prior written notice of such sublease to the Lessor, (ii) such sublease is not inconsistent with, and is expressly subject to, this Lease Agreement and (iii) such sublease does not in any way limit or affect the Lessee's duties and obligations under this Lease Agreement. (h) Transfer of Title to Manufacturers. The parties recognize that, during the processing and reprocessing of Nuclear Material before and after its utilization in the Generating Facility for the production of power, the Manufacturer performing services on the Nuclear Material may require that title thereto be transferred to such Manufacturer and/or that the Nuclear Material be commingled with other nuclear material, with an obligation for the Manufacturer, upon completion of the services, to reconvey a specified amount of nuclear material. The standard enrichment contracts of the Department of Energy contain such provisions. Therefore, the parties agree that (i) Nuclear Material may become subject to such a contract provision and that the action contemplated by such a provision may be taken, notwithstanding any provision of this Lease Agreement to the contrary, (ii) as between the Lessor and the Lessee, such Nuclear Material shall be deemed to remain leased under this Lease Agreement while title thereto is in the Manufacturer, and (iii) the nuclear material exchanged by the Manufacturer upon completion of its services shall be automatically leased under this Lease Agreement in substitution for the Nuclear Material originally delivered to the Manufacturer. (i) Substitution of Nuclear Material. The Lessee shall be permitted to exchange Nuclear Material for other Nuclear Material of equal or greater fair market value provided that the Lessor receives title to such substituted Nuclear Material free and clear of any Lien other than such Liens as may be created by the Security Agreement or permitted under Section 10(h). Any additional costs incurred in order to effect such an exchange shall be paid by the Lessor in accordance with the procedures set forth in Section 6(c) and shall be added to the Acquisition Cost of the Nuclear Material. A supplemental Leasing Record dated the date that the Lessor makes such further payment shall be signed by the Lessor and the Lessee to record the revised Acquisition Cost and shall include a full description of the substituted Nuclear Material, notice of any change in location and such additional details upon which the parties may agree. 14 (j) Spent Fuel. Without the consent of the Lessor, the Lessee shall not permit any Nuclear Material, which shall have been removed from a Generating Facility for the purpose of "cooling-off," storage, repair or reprocessing to be removed from the site of the Generating Facility unless (i) the new site of such Nuclear Material is a facility maintaining liability insurance and indemnification fully insuring and indemnifying the Lessor, the Lessee and the Secured Parties under the Atomic Energy Act and any other applicable law, rule or regulation, and (ii) except if the lease term is extended pursuant to the second sentence of Section 8(g), the lease of such Nuclear Material shall, concurrently with its removal from the Generating Facility, be terminated by the Lessee pursuant to the provisions of Section 8 or 18 hereof, as applicable, with the Lessee acquiring the ownership thereof pursuant to Section 8(e), 8(g) or Section 18(c), as applicable. 11. Permitted Contests. The Lessee at its expense may, in its own name or, if necessary and permitted, in the name of the Lessor (and, if necessary but not so permitted, the Lessee may require the Lessor to) contest after prior notice to the Lessor, by appropriate legal or administrative proceedings conducted in good faith and with due diligence, the amount, validity or application, in whole or in part, of any Imposition or Lien therefor, or any Legal Requirements or Insurance Requirements, or any matter underlying Lessee's indemnity obligations under Section 13 hereof, or any other Lien or contract or agreement referred to in Section 10(f) hereof; provided that (i) in the case of an unpaid Imposition or Lien therefor, such proceedings shall suspend the collection of such Imposition or the enforcement of such Lien against the Lessor, (ii) neither the Lessee's use of the Nuclear Material or any portion thereof nor the taking of any step necessary or proper with respect to such Nuclear Material in any stage of the Nuclear Material Cycle nor the performance of any other act required to be performed by the Lessee under this Lease Agreement would be enjoined, prevented or otherwise interfered with, (iii) the Lessor would not be subject to any additional civil liability (other than interest which the Lessee agrees to pay) or any criminal liability for failure to pay any such Imposition or to comply with any such Legal Requirements or Insurance Requirements or any such other Lien, contract or agreement, and (iv) the Lessee shall have set aside on its books adequate reserves (in accordance with generally accepted accounting principles) and shall have furnished such security, if any, as may be required in the proceedings or reasonably requested by the Lessor. The Lessee will pay, and save the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties harmless against, all losses, judgments, decrees and costs, including attorneys' fees and expenses, in connection with any such contest and will, promptly after the determination of such contest, pay and discharge the amounts which shall be levied, assessed or 15 imposed or determined to be payable, together with all penalties, fines, interest, costs and expenses incurred in connection with such contest. All rights and indemnification obligations under this Section 11 and each other indemnification obligation in favor of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties under this Lease Agreement shall survive any termination of this Lease Agreement or of the lease of any Nuclear Material hereunder. 12. Insurance; Compliance with Insurance Requirements. The Lessee shall comply with all Insurance Requirements and with all Legal Requirements pertaining to insurance. Without limiting the foregoing: (a) Liability and Casualty Insurance. The Lessee shall, at its own cost and expense, procure and maintain, or cause to be procured and maintained, liability insurance and indemnification with respect to the Nuclear Material insuring and indemnifying the Lessor, the Owner Trustee, U.S. Trust, the Lessee, and the Secured Parties to the full extent required or available, whichever may be greater, under the Atomic Energy Act or under any other applicable law, rule or regulation. In the event the provisions of the Atomic Energy Act with respect to liability insurance and the indemnification of owners, licensees and operators of Nuclear Material or any other provisions of the Atomic Energy Act which benefit the Lessor, the Owner Trustee, U.S. Trust or the Secured Parties shall change, then the Lessee shall use its best efforts to obtain equivalent insurance and indemnification agreements from the Nuclear Regulatory Commission or from such other public and/or private sources from which such coverage is available. The Lessee shall also, at its own cost and expense, procure and maintain, or cause to be procured and maintained, physical damage insurance with respect to the Nuclear Material insuring the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties against loss or damage to the Nuclear Material in a manner which is consistent at all times with current prudent utility industry practice in the United States; provided, however, that the Lessee shall in any event maintain physical damage insurance coverage for its Oyster Creek nuclear generating station site, including the Nuclear Material, in an amount not less than $1.11 billion. Such liability and physical damage insurance and indemnification agreements may be subject to deductible amounts which do not exceed in the aggregate $5,000,000, and the Lessee may self-insure with respect to such liability and physical damage insurance and indemnification agreements to the extent of $5,000,000, provided that such deductible amounts and such self-insurance are permitted under all applicable law, rules and regulations. 16 (b) Third Parties; Insurance Requirements. The Lessee shall use its best efforts to provide that the Nuclear Material, while in the possession of third parties, is covered for liability insurance and indemnification to the maximum extent available, and for physical damage insurance in an amount not less than the Stipulated Casualty Value of such Nuclear Material. To the extent that any such third party is maintaining such insurance coverage for the Nuclear Material, the Lessee shall have no obligation to do so under this Lease Agreement. (c) Named Insureds; Loss Payees. The Lessee shall provide for the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent to be named additional insureds where possible, and, with respect to physical damage coverage, named loss payees to the full extent of their interests in all insurance policies and indemnification agreements relating to the Nuclear Material required under this Section. All such policies and, where possible, indemnification agreements, shall provide for at least ten (10) days' prior written notice to the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent of any cancellation or material alteration of such policies. (d) Insurance Certificates. The Lessee shall, upon request of the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, provide the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, as the case may be, with copies of the policies or insurance certificates in respect of the insurance procured pursuant to the provisions of this Section and shall advise the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent of all expirations and renewals of policies and all notices issued by the insurers with respect to such policies. Within a six-month period from the execution of this Lease Agreement and at yearly intervals thereafter, the Lessee shall furnish to the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent a certificate as to the insurance coverage provided pursuant to this Section and shall further give notice as to any material change in the nature or availability of such coverage, including any material change whatsoever in the provisions of the Atomic Energy Act or any other applicable law, rule or regulation with respect to liability insurance and indemnification, or, immediately after the Lessee becomes aware, or should reasonably be expected to become aware, of any material change in the application, interpretation or enforcement thereof. The Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent shall be under no duty to examine such insurance policies or indemnification agreements or to advise the Lessee in case the Lessee is not in compliance with any Insurance Requirements. 17 13. Indemnity. Without limitation of any other provision of this Lease Agreement, including Section 11, the Lessee agrees to indemnify and hold harmless each of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties and all companies, persons or firms controlling, controlled by, or under common control with any of them and the respective shareholders, directors, officers and employees of the foregoing against any and all claims, demands and liabilities of whatever nature and all costs, losses, damages, obligations, penalties, causes of action, judgments and expenses (including attorneys' fees and expenses) directly or indirectly relating to or in any way arising out of: (a) defects in title to Nuclear Material upon acquisition by the Lessor or in ownership of and interest in the Nuclear Material (the term "Nuclear Material" when used in this Section 13 shall include, in addition to all other Nuclear Material, nuclear material the lease of which has been terminated and which is in storage, or is being transported to storage, and which has not been sold or disposed of by the Lessor to the Lessee or to a third party); (b) the ownership, licensing, ordering, rejection, use, nonuse, misuse, possession, control, installation, acquisition, storage, containerization, transportation, blending, transfer, consumption, leasing, insuring, operating, disposing, fabricating, channelling, refining, milling, enriching, conversion, cooling, processing, condition, operation, inspection, repair and reprocessing of the Nuclear Material, or resulting from the condition of the environment including the adjoining and/or underlying land, water, buildings, streets or ways, except to the extent that such costs are included in the Acquisition Cost of such Nuclear Material within the limits specified in Section 4 (or within any change of such limits agreed to in writing by the Lessor and the Lessee) and except for any general administrative expenses of the Secured Parties and of their representatives; (c) the assertion of any claim or demand based upon any infringement or alleged infringement of any patent or other right, by or in respect of any Nuclear Material; provided, however, that the Lessor shall have made available to the Lessee all of the Lessor's rights under any similar indemnification from the Manufacturer of such Nuclear Material under any Nuclear Material Contract; (b) all federal, state, county, municipal, foreign or other fees and taxes of whatever nature including, but not limited to, license, qualification, franchise, sales, use, business, gross receipts, ad valorem, property, excise, and occupation fees and taxes and penalties and 18 interest thereon, whether assessed, levied against or payable by the Lessor or any Secured Party or to which the Lessor or any Secured Party is subject with respect to the Nuclear Material or the Lessor's or any Secured Party's ownership thereof or interest therein or the licensing, ordering, ownership, use, possession, control, acquisition, storage, containerization, transportation, blending, milling, enriching, transfer, consumption, leasing, insuring, operating, disposing, fabricating, channelling, refining, conversion, cooling and reprocessing of Nuclear Material or measured in any way by the value thereof or by the business of investment in, financing of or ownership by the Lessor or any Secured Party with respect thereto; provided, however, that the Lessee shall not be obligated to indemnify any Secured Party for any taxes, whether federal, state or local, based on or measured by net income of any Secured Party where taxable income is computed in substantially the same manner as taxable income is computed under the Code; (e) any injury to or disease, sickness or death of persons or loss of or damage to property occurring through or resulting from any Nuclear Incident involving or connected in any way with the Nuclear Material or any portion thereof; (f) any violation, or alleged violation, of this Lease Agreement by the Lessee or of any contracts or agreements to which the Lessee is a party or by which it is bound or any laws, rules, regulations, orders, writs, injunctions, decrees, consents, approvals, exemptions, authorizations, licenses and withholdings of objection, of any governmental or public body or authority and all other requirements having the force of law applicable at any time to the Nuclear Material or any action or transaction by the Lessee with respect thereto or pursuant to this Lease Agreement; (g) performance of any labor or service or the furnishing of any materials in respect of the Nuclear Material or any portion thereof, except to the extent that such costs are included in the Acquisition Cost of such Nuclear Material within the limits specified in Section 4 (or within any change of such limits agreed to in writing by the Lessor and the Lessee); or (h) liabilities based upon a theory of strict liability in tort, negligence or willful acts to the extent that such liabilities relate to the Nuclear Material or any action or transaction with respect thereto or pursuant to this Lease Agreement. The Lessee shall, upon demand, reimburse the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties, as the case may be, for any sum or sums expended with 19 respect to any of the foregoing or advance such amount, upon request by the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or such other party for payment thereof. With respect solely to the Lessor, the amount of any payment obligation of the Lessee under this Section 13 shall be determined on a net, after-tax basis, taking into account any tax benefit to the Lessor. Notwithstanding the foregoing, the Lessee shall not indemnify or hold harmless the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties for (i) any claims, demands, liabilities, costs or expenses which arise, result from or relate to obligations of such party as an insurer under contracts or agreements of insurance or reinsurance or (ii) any liability arising from the willful misconduct or gross negligence of the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties; provided, however, that the Lessee shall in any event indemnify and hold harmless the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties and other indemnified parties for that part of any such liability to which the Lessee has contributed. Without limiting any of the foregoing provisions of this Section 13, to the extent that the Lessee in fact indemnifies the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or such other party under this indemnity provision, the Lessee shall be subrogated to the rights of the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties and such other party in the affected transaction and shall have a right to determine the settlement of claims with respect to such transaction, provided that any such rights to which the Lessee shall be subrogated shall be subordinate and subject in right of payment to the prior payment in full of all liabilities to the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties of the person or entity in respect of which such rights exist. The Lessor shall claim, on a timely basis, any refund to which it may be entitled with respect to any fees or taxes for which the Lessor has sought indemnification from the Lessee under Section 13(d), shall take all steps necessary to prosecute diligently such claim and shall pay over to the Lessee any refund (together with any interest received thereon) recovered by the Lessor with respect to such fees or taxes as soon as practicable following receipt thereof, provided that the Lessee shall have previously indemnified the Lessor with respect to such fees or taxes. The Owner Trustee, U.S. Trust and the Secured Parties, at the expense of the Lessee, (i) shall cooperate with the Lessee in such manner as the Lessee shall reasonably request in order to claim, on a timely basis, any refund to which the Owner Trustee, U.S. Trust or the Secured Parties may be entitled with respect to any fees or taxes for which the Lessee has indemnified the Owner Trustee, U.S. Trust or any Secured Party or for which the Lessee has an obligation to indemnify the Owner Trustee, U.S. Trust or the Secured Parties under Section 13(d) (provided that the Lessee is not in default of such obligation) if such cooperation is 20 necessary in order to claim such refund, (ii) shall take all steps which the Lessee shall reasonably request which are necessary to prosecute such claim, and (iii) shall pay over to the Lessee any refund (together with any interest received thereon) recovered by the Owner Trustee, U.S. Trust or any Secured Party with respect to such fees or taxes as soon as practicable following receipt thereof, provided that the Lessee shall have previously indemnified the Owner Trustee, U.S. Trust or such Secured Party with respect to such fees or taxes. All rights and indemnification obligations under this Section 13, and each other indemnification obligation in favor of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties under this Agreement, shall survive any termination of this Lease Agreement or of the lease of any Nuclear Material hereunder. 14. Casualty and Other Events. Upon the occurrence of any one ------------------------- or more of the following events: (a) the loss, destruction or damage beyond repair of any Nuclear Material, or (b) the commandeering, condemnation, attachment or loss of use to the Lessee of any Nuclear Material by reason of the act of any third party or governmental instrumentality or the deprivation or loss of use to the Lessee of any Nuclear Material for any other reason, other than by reason of a Lease Event of Default, for a period exceeding ninety (90) days; or (c) a determination by the Lessee in its sole discretion that any Nuclear Material is no longer useful to the Lessee, provided, however, that (i) no Lease Event of Default has occurred and is continuing, and (ii) no such determination may be made by the Lessee with respect to any Nuclear Material prior to November 5, 1999; Then, in any such case, the Lessee promptly shall give written notice to the Lessor and the Secured Parties of any such event, and upon the earlier of (i) ten (10) days following receipt of any insurance or other proceeds paid with respect to the foregoing or (ii) one hundred and twenty (120) days after the occurrence of any such event, the Lessee shall pay to the Lessor an amount equal to the then Stipulated Casualty Value of such Nuclear Material, together with any Basic Rent and Additional Rent then due with respect to such Nuclear Material. The lease of such Nuclear Material hereunder and the obligation of the Lessee to pay Basic Rent and Additional Rent with respect to such Nuclear Material shall continue until the day on which the Lessor receives payment of such Stipulated Casualty Value, Basic Rent and Additional Rent. Upon the giving of written notice of the occurrence of such an event, the Lessee shall promptly use its best efforts to sell, or, 21 if no sale is possible, to otherwise convey, on behalf of the Lessor, ownership of such Nuclear Material to a third party not disqualified by any applicable statute, law, regulation or agreement from acquiring such Nuclear Material, and the Lessor shall furnish title papers as may be necessary to effect such sale or conveyance on an as-is, where-is, non-installment, cash sale basis without recourse to or warranty or agreement of any kind by the Lessor. Any such sale or conveyance shall be effected on or before the date one hundred and twenty (120) days after the date of the occurrence of such event. The proceeds of such sale or conveyance shall be paid to the Lessor, and any amount so paid shall constitute a credit against the amount of the Stipulated Casualty Value payable by the Lessee under this Section 14. 15. Nuclear Material to Remain Personal Property. It is expressly understood and agreed that the Nuclear Material shall be and remain personal property notwithstanding the manner in which it may be attached or affixed to realty and notwithstanding any law or custom or the provisions of any lease, mortgage or other instrument applicable to any such realty. The Lessee agrees to indemnify the Lessor and the Secured Parties against, and to hold the Lessor and the Secured Parties harmless from, all losses, costs and expenses (including reasonable attorneys' fees and expenses) resulting from any of the Nuclear Material becoming part of any realty. Upon termination of the lease of any Nuclear Material, any costs of removal, transportation, storage and delivery of such Nuclear Material shall be paid by the Lessee. The Lessor and the Secured Parties shall not be liable for any physical damage caused to any realty or any building by reason of the removal of the Nuclear Material therefrom. 16. Events of Default. Each of the following events of default by the Lessee shall constitute a "Lease Event of Default" and give rise to the rights on the part of the Lessor described in Section 17 hereof: (i) Default in the payment of Basic Rent or Additional Rent, if any, on the date on which such payment is due and the continuance of such default for five (5) days; (ii) Default in the payment of Termination Rent; (iii) The Lessee shall fail to maintain liability and casualty insurance pursuant to its obligations under Section 12(a) of this Lease Agreement; (iv) The Lessee shall fail to perform its obligations to purchase Nuclear Material pursuant to Section 8(e) of this Lease Agreement; 22 (v) Any representation or warranty or statement made by the Lessee (or any of its officers) herein or in connection with this Lease Agreement shall prove to be incorrect or misleading in any material respect when made; (vi) Default in the payment or performance of any other material liability or obligation or covenant of the Lessee to the Lessor, and the continuance of such default for thirty (30) days after written notice to the Lessee sent by registered or certified mail; (vii) The Lessee suspends or discontinues its business operations or becomes insolvent (however such insolvency may be evidenced) or admits insolvency or bankruptcy or its inability to pay its debts as they mature, makes an assignment for the benefit of creditors or applies for or consents to the appointment of a trustee or receiver for the Lessee or for the major part of its property; (viii) The institution of bankruptcy, reorganization, liquidation or receivership proceedings for relief under any bankruptcy law or similar law for the relief of debtors by or against the Lessee and, if instituted against the Lessee, its consent thereto or the pendency of such proceedings for sixty (60) days; (ix) An event of default (the effect of which is to permit the holder or holders of any instrument, or the trustee or agent on behalf of such holder or holders, to cause the indebtedness evidenced by such instrument to become due prior to its stated maturity) shall occur under the provisions of any instrument evidencing indebtedness for borrowed money of the Lessee in a principal amount equal to at least $20,000,000 or if any obligation of the Lessee for the payment of such indebtedness shall become or be declared to be due and payable prior to its stated maturity, or shall not be paid when due and is not paid within the applicable cure period, if any, provided for the payment of such indebtedness under such instrument; (x) An event of default shall occur under the provisions of any Basic Document and such default shall have continued beyond any applicable cure period. (xi) A final judgment in an amount in excess of $20,000,000 is rendered against the Lessee, and within thirty (30) days after the entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within thirty (30) days after the expiration of any such stay, such judgment is not discharged; or 23 (xii) Other than pursuant to a condemnation proceeding, any court, governmental officer or agency shall, under color of legal authority, take and hold possession of any substantial part of the property or assets of the Lessee. 17. Rights of the Lessor Upon Default of the Lessee. Upon the occurrence of any Lease Event of Default, the Lessor may, in its discretion, and shall, at the direction of the Secured Parties, do one or more of the following: (a) Terminate the lease term of any or all Nuclear Material upon five (5) days written notice to the Lessee sent by registered or certified mail; (b) Whether or not any lease of any Nuclear Material is terminated, and, subject to any applicable law or regulation, take immediate possession of any or all Nuclear Material or cause such Nuclear Material to be taken from the possession of the Lessee, and/or take immediate possession of and remove other property of the Lessor in the possession of the Lessee, wherever situated and for such purpose enter upon any premises without liability for so doing or require the Lessee, at the Lessee's expense, to deliver the Nuclear Material, properly containerized and insulated for shipping to the Lessor or to such other person as the Lessor may designate, in which case the risk of loss shall be upon the Lessee until such delivery is made; (c) Whether or not any action has been taken under (a) or (b) above, and subject to any applicable law or regulation, sell any Nuclear Material (with or without the concurrence and whether or not at the request of the Lessee) at public or private sale, and the Lessee shall be liable for and shall promptly pay to the Lessor all unpaid Rent to the date of receipt by the Lessor of the proceeds of such sale plus any deficiency between the net proceeds of such sale and the Stipulated Casualty Value of such Nuclear Material at the time of such payment by the Lessee; provided, however, that any proceeds of such sale in excess of the sum of such unpaid Rent, the Stipulated Casualty Value of such Nuclear Material and all other amounts payable by the Lessee under this Section 17 shall be received for the benefit of, and shall be paid over to the Lessee, as soon as practicable after receipt thereof; (d) Subject to any applicable law or regulation, sell in a commercially reasonable manner, dispose of, hold, use, operate, remove, lease or keep idle any Nuclear Material as the Lessor in its sole discretion may determine, without any obligation to account to the Lessee with respect to such action or inaction or 24 for any proceeds thereof, except that the net proceeds of any such selling, disposing of, holding, using, operating or leasing shall be credited by the Lessor against any Rent accruing after the Lessor shall have declared this Lease Agreement as to any or all of the Nuclear Material to be in default pursuant to this Section; provided, however, that any net proceeds of any such selling, disposing of, holding, using, operating or leasing in excess of the sum of any such accrued Rent and all other amounts payable by the Lessee under this Section 17 shall be received for the benefit of, and shall be paid over to the Lessee, as soon as practicable after receipt thereof; (e) Terminate this Lease Agreement as to any or all of the Nuclear Material or exercise any other right or remedy which may be available under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof. If the Lessee fails to deliver, promptly after written request, the Nuclear Material pursuant to (b), above, subject to reasonable wear and tear, obsolescence and exhaustion, in good operating condition and repair, or converts or destroys any Nuclear Material, the Lessee shall be liable to the Lessor for all Rent then due and payable on the Nuclear Material, all other amounts then due and payable under this Lease Agreement, the then Stipulated Casualty Value of such Nuclear Material, plus any loss, damage and expense (including without limitation reasonable attorneys' fees and expenses) sustained by the Lessor by reason of such Lease Event of Default and the exercise of the Lessor's remedies with respect thereto, including any costs incurred under the Credit Agreement and the Security Agreement, and any other amounts owed to the Secured Parties with respect to the Notes. If, upon the occurrence of a Lease Event of Default, the Lessee delivers Nuclear Material to the Lessor or to such other person as the Lessor may designate, or if the Lessor repossesses or causes Nuclear Material to be repossessed on its behalf, the Lessee shall be liable for and the Lessor may recover from the Lessee all Rent on the Nuclear Material due and payable to the date of such delivery or repossession, all other amounts due and payable under this Lease Agreement, plus any loss, damage and expense (including without limitation reasonable attorneys' fees and expenses) sustained by the Lessor by reason of such Lease Event of Default and the exercise of the Lessor's remedies with respect thereto. No remedy referred to in this Section 17 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to the Lessor at law or in equity and the exercise in whole or in part by the Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by the Lessor of any or all such other remedies. No waiver by the Lessor of any Lease Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Lease Event of Default. 25 18. Termination After Certain Events. (a) This Lease Agreement may terminate as provided in Section 18(b) below prior to the expiration of its term in connection with any of the following "Terminating Events": (i) The Lessor shall have given notice that the Lessor is not satisfied with any change in the insurers, coverage, amount or terms of any insurance policy or indemnity agreement required to be obtained and maintained by the Lessee pursuant to Section 12; (ii) There shall occur the revocation or material adverse modification of any authorization, consent, exemption or approval theretofore obtained from any regulatory body or governmental authority necessary for the carrying out of the intent and purposes of this Lease Agreement or the actions or transactions contemplated hereby, and the effectiveness of any such revocation or material adverse modification shall not be stayed pending any appeal thereof; (iii) A Nuclear Incident involving or connected in any way with the Nuclear Material shall have occurred, and the Lessor shall have given notice to the Lessee that the Lessor believes such Nuclear Incident may give rise to an aggregate liability, or to damage, destruction or personal injury in excess of $20,000,000; (iv) There shall have occurred a Deemed Loss Event; (v) Any change in, or new interpretation by a governmental authority having jurisdiction relating to, the Price-Anderson Act, as amended, or the Atomic Energy Act, or the regulations of the Nuclear Regulatory Commission thereunder, in each case as in effect on the date of this Lease Agreement, shall have been adopted, and the Lessor shall have given notice to the Lessee that, in the opinion of independent counsel selected by the Lessor and reasonably satisfactory to the Lessee and the Secured Parties as a result of such change or new interpretation the Lessor is prohibited from asserting any material right, protection or defense available under applicable law as of the date of this Lease Agreement with respect to civil or criminal actions brought in connection with a Nuclear Incident; 26 (vi) Any law or regulation or interpretation (judicial, regulatory or otherwise) of any law or regulation shall be adopted or enforced by any Court or governmental authority, and as a result of such adoption or enforcement, approval of the transactions contemplated by this Lease Agreement shall be required and shall not have been obtained within any applicable grace period after such adoption or enforcement or as a result of which adoption or enforcement this Lease Agreement or any transaction contemplated hereby, including any payments to be made by the Lessee or the ownership of the Nuclear Material by the Lessor, shall be or become unlawful, or the performance of this Lease Agreement shall be rendered impracticable in any material way; or (vii) Any governmental licenses, approvals or consents with respect to the Generating Facility, without which the Generating Facility cannot continue to operate, shall have been revoked and the Lessee shall not have, in good faith, within one hundred and eighty (180) days of such revocation, represented in writing to the Lessor that the Lessee has made a good faith determination that such Generating Facility will return to operation within twenty-four (24) months of such revocation, or for any other reason the Generating Facility shall cease to be operated for a period of twenty-four (24) consecutive months. (b) Upon the happening of any of the Terminating Events listed in Section 18(a), Lessor and/or the Secured Parties may, at their option, terminate this Lease Agreement, such termination to be effective upon delivery of the Notice contemplated by paragraph (d)(ii) below, except with respect to obligations and liabilities of the Lessee, actual or contingent, which arose under the Lease Agreement on or prior to the date of termination and except for the Lessee's obligations set forth in Sections 10, 12 and 13, and in this Section 18, all of which obligations will continue until the delivery of documentation by the Lessor and the payment by the Lessee provided for below, and except that after such delivery and payment, the Lessee's obligations under Section 13 shall continue as therein set forth as shall all of Lessee's indemnification obligations set forth in other sections of this Lease Agreement. (c) Upon any such termination, the entire interest of the Lessor in the Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee shall automatically transfer to and be vested in the Lessee, without the necessity of any action by either the Lessor or the Lessee, provided, however, that if the Lessor shall have theretofore approved in writing such Person and the terms of 27 such transfer, the entire interest of the Lessor in such Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee shall, upon such termination, automatically transfer to and be vested in any Person designated by the Lessee. (d) (i) Promptly after either party shall learn of the happening of any Terminating Event, such party shall give notice of the same to the other party and to the Secured Parties. (ii) If the Lessor and/or Secured Parties elect to terminate the Lease Agreement, they shall give notice to the Lessee and the Secured Parties or the Lessor, as the case may be, which notice shall (x) acknowledge that the Lease Agreement has terminated, subject to the continuing obligations of the Lessee mentioned above, and that title to and ownership of such Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee has transferred to and vested in the Lessee or such other Person, and (y) specify a Termination Settlement Date occurring one hundred and fifty (150) days after the giving of such notice. After such termination of this Lease Agreement and until such Termination Settlement Date, the Lessee shall continue to pay Basic Rent and Additional Rent. On such Termination Settlement Date, the Lessee shall be obligated to pay to the Lessor as the purchase price for the Nuclear Material an amount equal to the sum of (x) Stipulated Casualty Value of the Nuclear Material as of the Termination Settlement Date and (y) the Termination Rent on the Termination Settlement Date. The Lessor shall be obligated to deliver to the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, on an as-is, where-is, non-installment, cash sale basis, without recourse to or warranty or agreement of any kind by the Lessor acknowledging the transfer and vesting of title and ownership of the Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee, in accordance with paragraph (c) above and confirming that upon payment by the Lessee of the amounts set forth in the immediately preceding sentence, the Nuclear Material is free and clear of the Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. 19. Investment Tax Credit. To the extent that the Lessee determines the Nuclear Material is or becomes eligible for any investment or similar credit under the Code as now or hereafter in effect, the Lessee shall request in writing that the Lessor elect to treat the Lessee as having acquired such Nuclear Material, and, if permitted to do so under the Code and under any other applicable law, rule or regulation, the Lessor, pursuant to such 28 request of the Lessee, shall provide the Lessee with an appropriate investment credit election and the Lessee shall consent to such election. A condition to the Lessor's making such election will be the provision by the Lessee of a report or statement with respect to all Nuclear Material as to which the investment credit election is applicable. Such report or statement shall contain such information and be in such form as may be required for Internal Revenue Service reporting purposes. The Lessee shall indemnify and hold harmless the Lessor and any affiliates with respect to any adverse tax consequence, other than the loss of the credit, which may result from such election including, but not limited to, any increase in the Lessor's income taxes due to any required reduction of the Lessor's tax basis below the Lessor's cost of the Nuclear Material, and the Lessee agrees to pay to or on behalf of the Lessor, or otherwise make available to the Lessor, funds sufficient to put the Lessor in the same after-tax position (other than by reason of the loss of the investment credit) the Lessor would have been in if such election had not been made. 20. Certificates; Information; Financial Statements. (a) The Lessee will from time to time deliver to the Lessor and the Secured Parties, promptly upon reasonable request (i) a statement executed by any Vice President, Treasurer or Assistant Treasurer or any other assistant officer of the Lessee, certifying the dates to which the sums payable hereunder have been paid, that this Lease Agreement is unmodified and in full effect (or, if there have been modifications, that this Lease Agreement is in full effect as modified, and identifying such modifications) and that no Lease Event of Default or Terminating Event has occurred and is continuing (or specifying the nature and period of existence of any thereof and what action the Lessee is taking or proposes to take with respect thereto), (ii) such information with respect to the Nuclear Material as the Lessor or the Secured Parties may reasonably request, and (iii) such information with respect to the Lessee's operations, business, property, assets, financial condition or litigation as the Lessor or any assignee of the Lessor or the Secured Parties may reasonably request. (b) The Lessee will deliver to the Lessor and the Secured Parties: (i) Quarterly Financial Statements. As soon as practicable and in any event within ninety (90) days after the end of each fiscal quarter (other than the last fiscal quarter in each fiscal year), three (3) copies of a balance sheet of the Lessee (consolidated and consolidating if the Lessee has any subsidiaries) as of the end of such quarter and of statements of income and cash 29 flows of the Lessee (consolidated and consolidating if the Lessee has any subsidiaries) for such quarter, setting forth in each case corresponding figures in comparative form for the corresponding period of the preceding fiscal year, each certified as true and correct by the chief accounting officer thereof; provided, however, that delivery pursuant to clause (iii) below of copies of the Lessee's Quarterly Report on Form 10-Q for such quarter containing such financial statements filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i); (ii) Annual Financial Statements. As soon as practicable and in any event within one hundred and twenty (120) days after the end of each fiscal year, three (3) copies of an annual report of the Lessee consisting of its financial statements, including a balance sheet as of the end of such fiscal year (consolidated and consolidating if the Lessee has any subsidiaries) and statements of income and cash flows for the year then ended (consolidated and consolidating if the Lessee has any subsidiaries), setting forth corresponding figures in comparative form for the preceding fiscal year, with all notes thereto, all in reasonable detail and certified by independent public accountants of recognized standing selected by the Lessee (only with respect to the consolidated financial statements, if applicable); provided, however, that delivery pursuant to clause (iii) below of copies of the Lessee's Annual Report on Form 10-K for such fiscal year containing such financial statements filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii); and (iii) SEC Reports, etc. With reasonable promptness, copies of all notices, reports or materials filed by the Lessee with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission) under the Securities Act of 1933, as amended, other than Registration Statements on Form S-8 or any amendments thereto, or the Securities Exchange Act of 1934, as amended, other than Annual Reports on Form 10-K, and including without limitation, all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Together with each delivery of financial statements required by clause (b)(i) above, the Lessee will deliver to the Lessor and the Secured Parties an Officer's Certificate stating that the Lessee is in compliance with the terms of this Lease Agreement and stating that there exists no Lease Event of Default, or 30 Terminating Event or, if any Lease Event of Default, or Terminating Event exists, specifying the nature and period of existence thereof and what action the Lessee proposes to take with respect thereto. The Lessee also covenants that promptly upon the obtaining of knowledge of a Lease Event of Default by the chief executive officer, principal financial officer or principal accounting officer of the Lessee, it will deliver to the Lessor and the Secured Parties an Officer's Certificate specifying the nature and period of existence thereof and what action the Lessee proposes to take with respect thereto. 21. Obligation of the Lessee to Pay Rent. The Lessee's obligation to pay, as the same becomes due, Basic Rent, Additional Rent, Termination Rent, and all other amounts payable hereunder shall, subject to the covenant of the Lessor contained in Section 3 hereof, be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense or other right which the Lessee may have against the Lessor or anyone else for any reason whatsoever, (ii) any defect in the title, compliance with specifications, condition, design, operation or fitness for use of, or any damage to or loss or destruction of, any Nuclear Material, or (iii) any interruption or cessation in the use or possession of any Nuclear Material by the Lessee for any reason whatsoever. The Lessee hereby waives, to the extent permitted by applicable law, any and all rights which it may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender this Lease Agreement except in accordance with its express terms. Each payment of Rent and each other payment made by the Lessee shall be final, and the Lessee will not seek to recover all or any part of such payment from the Lessor for any reason whatsoever. 22. Miscellaneous. (a) Successors and Assigns. This Lease Agreement shall be binding upon the Lessee and the Lessor and their respective successors and assigns and shall inure to the benefit of the Lessee and the Lessor and their respective successors and assigns; provided that, without the prior written consent of all the Secured Parties, the Lessee shall not be entitled to assign its rights or obligations hereunder. (b) Waiver. Neither party shall by act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder unless such waiver is given in writing. A waiver on one occasion shall not be construed as a waiver on any other occasion. 31 (c) Entire Agreement. This Lease Agreement, together with the written instruments provided for or contemplated hereby, the other Basic Documents and other written agreements between the parties dated as of the date hereof, constitute the entire agreement between the parties with respect to the leasing of Nuclear Material, and no representations, warranties, promises, guaranties or agreements, oral or written, express or implied, have been made by either party or by any one else with respect to this Lease Agreement or the Nuclear Material, except as may be expressly provided for herein or therein. Any change or modification of this Lease Agreement must be in writing and duly executed by the parties. (d) Descriptive Headings. The captions in this Lease Agreement are for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions. (e) Severability. Any provision of this Lease Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. (f) Governing Law. This Lease Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the law of the State of New Jersey. 32 IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease Agreement to be executed and delivered by their duly authorized officers as of the day and year first above written. OYSTER CREEK FUEL CORP. Lessor ATTEST _________________________ By: _____________________________ (Assistant) Secretary Name:____________________________ Title:___________________________ JERSEY CENTRAL POWER & LIGHT COMPANY Lessee ATTEST _________________________ By:______________________________ (Assistant) Secretary Name:____________________________ Title:___________________________ 33 STATE OF ) ----------------------------------- COUNTY OF ) SS: -------------------------- On this ___ day of __________, 1998, before me personally appeared , to me personally known, who, being by me duly sworn, says that he is of Oyster Creek Fuel Corp. and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. ________________________ Notary Public My commission Expires: STATE OF ) ----------------------------------- COUNTY OF ) SS: -------------------------- On this ___ day of ___________, 1998, before me personally appeared __________________, to me personally known, who, being by me duly sworn, says that he is a _______________ of Jersey Central Power & Light Company and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. ________________________ Notary Public My commission Expires: 34 ATTACHMENTS Appendix A -- Definitions Exhibit A -- Form of Interim Leasing Record Exhibit B -- Form of Final Leasing Record Exhibit C -- Nuclear Material Contracts Exhibit D -- Form of Assignment Agreement and Consent Exhibit E -- Form of Lessor's Bill of Sale Exhibit F -- Form of Rent Due and SCV Confirmation Schedule 35 APPENDIX A DEFINITIONS As used in the Basic Documents (as defined below), the following terms shall have the following meanings (such definitions to be applicable to both singular and plural forms of the terms defined), except as otherwise specifically defined therein: "Acquisition Cost" means the purchase price of any Nuclear Material, any progress payments made thereon, costs of milling, conversion, enrichment, fabrication, installation, delivery, redelivery, containerization, storage, reprocessing, any other costs incurred by the Company in acquiring the Nuclear Material (less any discounts or credits actually utilized by the Company), plus in any case (i) any allowance for funds used during construction (including any income tax component associated with such allowance) with respect to Nuclear Material purchased by the Company, (ii) at the option of the Lessee, any Rent relating to costs incurred in the ordinary course of operations but excluding Rent relating to extraordinary costs, including without limitation, indemnification payments, payable by the lessee to the Company with respect to any Nuclear Material prior to the installation of such Nuclear Material for operation in the Generating Facility, (iii) any sales, excise or other taxes or charges payable by the Company with respect to any such payment for such Nuclear Material, (iv) at the option of the Lessee, any Monthly Financing Charge payable by the Lessee to the Company with respect to Nuclear Material during any period in which such Nuclear Material is subject to an Interim Leasing Record, but excluding any interest charges or penalties for late payment by the Company of the purchase price or any portion thereof, if such late payment results from the negligence of the Company, (v) such other costs with respect to any Nuclear Material as may be agreed by the Company and the Lessee and approved by the Administrative Agent, in each case in writing, and, in the case of any Nuclear Material removed from the Generating Facility for the purpose of "cooling off' and repair or reprocessing, shall include the Stipulated Casualty Value thereof at the time of such removal, if any, and (vi) at the option of the Lessee, any Financing Costs. Any amount realized by the Company from the disposition of the by-products (including, but not limited to, plutonium) of Nuclear Material specified in a Leasing Record during the repair or reprocessing of such Nuclear Material while leased hereunder shall be credited against the Acquisition Cost of such Nuclear Material. "Additional Rent" shall mean all legal, accounting, administrative and other operating expenses and taxes incurred by the Company to the extent not paid as part of Basic Rent (including, without limitation, any Cancellation Fees and all other liabilities incurred or owed by the Company pursuant to the Basic Documents) and all amounts (other than Basic Rent) that 36 the Lessee agrees to pay under the Lease Agreement (including, without limitation, indemnification payable under the Lease Agreement, general and administrative expenses of the Company, and, to the extent not included in Acquisition Cost, Financing Costs) and interest at the rate incurred by the Company or any Secured Party as a result of any delay in payment by the Lessee to meet obligations that would have been satisfied out of prompt payment by the Lessee, and the amount of any and all other costs, losses, damages, interest, taxes, deficiencies, liabilities, obligations, actions, judgments, suits, claims, fees (including, without limitation, attorneys' fees and disbursements) and expenses, of every kind, nature, character and description, direct or indirect, that may be imposed on or incurred by the Company as a result of, arising from or relating to, in any manner whatsoever, one or more Basic Documents, or any other document referred to therein, or the transactions contemplated thereby or the enforcement thereof. For purposes of calculating the interest incurred by the Company or any Secured Party as a result of any such delay, it shall be assumed that the Company or any Secured Party, as applicable, incurred interest at the Credit Agreement Default Rate. "Administrative Agent" shall have the meaning specified therefor in the first paragraph of the Credit Agreement. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person. For purposes of this definition, the term "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Aggregate Monthly Rent Component" shall mean the sum of the Monthly Rent Components for all items of Nuclear Material which are installed in the Generating Facility during the relevant period. "Assigned Agreement" means a Nuclear Material Contract which has been assigned to the Company in the manner specified in Section 5 of the Lease Agreement pursuant to a duly executed and delivered Assignment Agreement. The term Assigned Agreement shall include a Partially Assigned Agreement. "Assignment Agreement" means an assignment agreement substantially in the form of Exhibit D to the Lease Agreement. 37 "Atomic Energy Act" means the Atomic Energy Act of 1954, as from time to time amended. "Bank" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Basic Documents" means the Lease Agreement, the Credit Agreement, the Security Agreement, the Commercial Paper, the Notes, the Letter Agreement, the Dealer Agreements, the Assigned Agreements, the Assignment Agreements, the Trust Agreement, the Depositary Agreement, each Bill of Sale, each Leasing Record, each SCV Confirmation Schedule, and other agreements related or incidental thereto which are identified in writing by the Company, the Lessee and the Secured Parties as one of the "Basic Documents," in each case, as such documents may be amended from time to time. "Basic Rent" means, for any Basic Rent Period, the sum of (a) that portion of the Monthly Financing Charge not allocated to Acquisition Cost pursuant to the Lease Agreement plus (b) the Aggregate Monthly Rent Component as shown on a Rent Due and SCV Confirmation Schedule for such Basic Rent Period. "Basic Rent Payment Date" means, for any Basic Rent Period, the first Business Day of the next succeeding calendar month following such Basic Rent Period. "Basic Rent Period" means each calendar month or portion thereof commencing on, in the case of the first such period, the effective date of the Lease Agreement, and in the case of each succeeding period, the first day following the immediately preceding Basic Rent Period, and ending on the earliest of (i) the last day of any calendar month or (ii) the Termination Settlement Date. "BTU Charge" means the dollar amount set forth in the BTU Charge Agreement which is used to calculate the Monthly Rent Component. The BTU Charge initially set forth for any Nuclear Material in any Final Leasing Record shall be the amount agreed upon by the Lessor and the Lessee as set forth in Attachment 1 to Exhibit B to the Lease Agreement based upon the reasonably anticipated operating life, BTU output, and utilization of such Nuclear Material. "BTU Charge Agreement" shall mean an agreement in the form of Attachment 1 to Exhibit B to the Lease Agreement with respect to any Nuclear Material executed by the Lessor and the Lessee on or prior to the date of the Final Leasing Record covering such Nuclear Material. 38 "Business Day" means any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in New York City are authorized by law to close. "Capitalized Lease" means any and all lease obligations which are or should be capitalized on the balance sheet of the Person in question in accordance with generally accepted accounting principles and Statement No. 13 of the Financial Accounting Standards Board or any successor to such pronouncement regarding lease accounting, without regard for the accounting treatment permitted or required under any applicable state or federal public utility regulatory accounting system, unless such treatment controls the determination of the generally accepted accounting principles applicable to such Person. "Cash Collateral" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Closing," means November 5, 1998. "Code" means the Internal Revenue Code of 1986, as from time to time amended. "Collateral" has the meaning set forth in the granting clauses of the Security Agreement and includes all property of the Company described in the Security Agreement as comprising part of the Collateral. "Collateral Agent" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Collateral Agreements" means, collectively, the Security Agreement, all Assignment Agreements, and any other assignment, security agreement or instrument executed and delivered to the Secured Parties hereafter relating to property of the Company which is security for the Notes. "Collected Funds" means funds which are immediately available to the Secured Parties, as the Lessor's assignees, for its use in New York, New York. "Commercial Paper" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Commercial Paper Discount" shall mean, at any time, amounts payable by the Company in respect of the Face Amount of Commercial Paper outstanding in excess of the Acquisition Cost together with any Cash Collateral reduced by the aggregate total amount, if any, of (i) the Monthly Rent 39 Components paid by the Lessee to the Lessor with respect to the Nuclear Material financed thereby and (ii) any Monthly Financing Charge payable by the Lessee to the Company with respect to Nuclear Material during any period in which such Nuclear Material is subject to an Interim Leasing Record ("Excess Face Amount"); provided, however, that any such Excess Face Amount shall not exceed the additional Face Amount of Commercial Paper necessary to be issued by the Company at a discount to face value to purchasers thereof in the commercial paper market in order to obtain proceeds in an amount equal to the Acquisition Cost reduced by the aggregate total amount, if any, of (a) the Monthly Rent Components paid by the Lessee to the Lessor with respect to the Nuclear Material financed thereby and (b) any Monthly Financing Charge payable by the Lessee to the Company with respect to Nuclear Material during any period in which such Nuclear Material is subject to an Interim Lease Record, together with any Cash Collateral. Amounts payable in respect of Commercial Paper Discount during any calendar month or portion thereof shall be paid on the first Business Day of the next succeeding month in which such amounts are incurred. "Company" means the Oyster Creek Fuel Corp., a Delaware corporation. "Consents and Agreements" means the agreements, each substantially in the form attached as Exhibit 2 to Exhibit D to the Lease Agreement, between the Lessee and the various contractors under the Nuclear Material Contracts, with such changes to Exhibit 2 to Exhibit D as the Secured Parties may consent to in writing, which consent shall not be unreasonably withheld. "Controlled Group" means a controlled group of corporations of which the Company is a member within the meaning of Section 414(b) of the Code, any group of corporations or entities under common control with the Company within the meaning of Section 414(c) of the Code or any affiliated service group of which the Company is a member within the meaning of Section 414(m) of the Code. "Credit Agreement" means the Credit Agreement dated as of November 5, 1998 among Oyster Creek Fuel Corp. The First National Bank of Chicago, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, the Banks parties thereto, and First Chicago Capital Markets, Inc. and PNC Capital Markets, Inc., as Arrangers. "Credit Agreement Default" means an event which would, with the lapse of time or the giving of notice or both, constitute a Credit Agreement Event of Default. 40 "Credit Agreement Event of Default" means any one or more of the events specified in Section 10.01 of the Credit Agreement. "Dealer Agreements" mean any agreement pursuant to which any ----------------- Person is at any time acting as a Dealer. "Deemed Loss Event" means the following event: if at any time during the term of the Lease Agreement, (A) the Company, by reason solely of the ownership of the Nuclear Material or any part thereof or the lease of the Nuclear Material to the Lessee under the Lease Agreement, or the Company or any Secured Party, by reason solely of any other transaction contemplated by the Lease Agreement or any of the other Basic Documents, shall be deemed, by any governmental authority having jurisdiction, to be, or to be subject to regulation as an "electric utility" or a "public utility" or a "public utility holding company" or similar type of entity, under any applicable law or deemed a "public utility company" or a "subsidiary company" or a "holding company" within the meaning of the Public Utility Holding Company Act, (B) the Public Utility Holding Company Act shall be amended, applied, or interpreted in a manner, or any rules or regulations shall be adopted under the Public Utility Holding Company Act of 1935, which adversely affect the legality, validity and enforceability of the lease obligations of the Company and the Lessee under the Lease Agreement, or (C) either the Company or any of the Secured Parties, by reason solely of being a party to the Basic Documents, shall be required to obtain any consent, order or approval of, or to make any filing or registration with, or to give any notice to, any governmental authority, or be subject to any liabilities, duties or obligations under the Public Utility Holding Company Act, other than the filing by the Company of a certificate on Form U-7D with the SEC pursuant to SEC Rule 7(d) under the Public Utility Holding Company Act (17 C.F.R. Section 250.7(d)), except in any case if the same shall be solely the result of Nonburdensome Regulation; provided, however, that if in compliance with applicable laws, the Lessee, with the cooperation of the Company, shall have acted diligently and in good faith to contest, or obtain an exemption from the application of the laws, rules or regulations described in clauses (A), (B) or (C) to the Company, the Secured Parties or the Lessee, as the case may be, the application of which would otherwise constitute a Deemed Loss Event, such Deemed Loss Event shall be deemed not to have occurred so long as (I) the Lessee shall have furnished to the Company and the Secured Parties an opinion of counsel reasonably satisfactory to the Company and the Secured Parties to the effect that there exists a reasonable basis for such contest or exemption and that the application of such laws, rules or regulations to the Company, the Secured Parties or the Lessee, as the case may be, 41 shall be effectively stayed during the application for exemption or contest and such laws, rules or regulations shall not be applied retroactively at the conclusion of such contest, (II) the Company or the Secured Parties shall have determined in their sole discretion that such contest or exemption shall not adversely affect their business or involve any danger of the sale, foreclosure or loss of, or creation of a Lien upon, the Collateral, and (III) the Lessee shall have agreed to indemnify the Company or such Secured Parties, as the case may be, for expenses incurred in connection with such contest or exemption; and further provided, that following notice from the Lessee to the Company or the Secured Parties, as the case may be, that the Lessee shall be unable to furnish the opinion described in clause (I) of the next preceding proviso or that any such contest shall not be successful or such exemption shall not be available, a Deemed Loss Event shall be deemed not to have occurred for such period, not to exceed 270 days, as may be approved by any governmental authority having jurisdiction during which application of such law, rule or regulation to the Company, the Secured Parties or the Lessee, as the case may be, shall be suspended to enable the Company to assign or transfer its interest in the Collateral so long as during such period the Company shall use reasonable efforts to assign or transfer its interest in the Collateral upon commercially reasonable terms and conditions, provided that the Company shall not be required to assign or transfer the Nuclear Material for a price which, after deduction of sales tax and expenses of such sale incurred by the Company, shall be less than the sum of (A) Stipulated Casualty Value determined as of the date of such proposed sale, and (B) the Termination Rent determined in accordance with Section 18 of the Lease Agreement. "Depositary Agreement" means the Depositary Agreement, dated as of November 5, 1998, among the Company, Chase Manhattan Bank, as Depositary and The First National Bank of Chicago, as Administrative Agent. "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. "Excepted Payments" means any indemnity, expense, or other payment which by the terms of any of the Basic Documents shall be payable to the Company in order for the Company to satisfy its obligations pursuant to Section 7.8 of the Trust Agreement. "Face Amount" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. 42 "Federal Energy Regulatory Commission" means the independent regulatory commission of the Department of Energy of the United States Government existing under the authority of the Department of Energy Organization Act, as amended, or any successor organization or organizations performing any identical or substantially identical licensing and related regulatory functions. "Federal Power Act" means the Federal Power Act, as amended. "Final Leasing Record" means a Leasing Record which records the leasing of Nuclear Material during any period while such Nuclear Material is installed for operation in the Generating Facility. A Final Leasing Record shall be in the form of Exhibit B to the Lease Agreement. "Financing Costs" means (a) fees and other amounts owing to any Secured Party or to the Owner Trustee under the Trust Agreement, (b) legal fees and disbursements and other amounts referred to in Section 10(b) of the Security Agreement, (c) legal, accounting, and other fees and expenses incurred by the Lessee and/or the Company in connection with the preparation, execution and delivery of Basic Documents or the issuance of the Commercial Paper and/or the Notes, and (d) such other reasonable fees and expenses of the Owner Trustee and the Company as they may be entitled to under the Basic Documents. "Fuel Management" means the design of, contracting for, fixing the price and terms of acquisition of, management, movement, removal, disengagement, storage and other activities in connection with the acquisition, utilization, storage and disposal of the Nuclear Material. "Generating Facility" means the nuclear reactor located at the Oyster Creek Nuclear Generating Station, located in Lacey Township, New Jersey. "Heat Production" means the stage of the Nuclear Material Cycle commencing with the commercial operation of a Generating Facility, during which the Nuclear Material in question is producing thermal energy which results in the production of net positive electrical energy transmitted within the distribution network of any utility and during which the Nuclear Material in question is engaged in the reactor core of such Generating Facility. "Hereof," "herein," "hereunder" and words of similar import when used in a Basic Document refer to such Basic Document as a whole and not to any particular section or provision thereof. 43 "Imposition" means any payment required by a public or governmental authority in respect of any property subject to the Lease Agreement or any transaction pursuant to the Lease Agreement or any right or interest held by virtue of the Lease Agreement; provided, however, that Imposition shall not include any taxes, whether federal, state or local, payable by any Secured Party based on or measured by net income of any Secured Party where taxable income is computed in substantially the same manner as taxable income is computed under the Code. "Insurance Requirements" means all terms of any insurance policy or indemnification agreement covering or applicable to (i) any Nuclear Material or (ii) the Generating Facility or the Lessee in its capacity as licensee of the Generating Facility, in each case insofar as any insurance policy or indemnification agreement directly or indirectly relates to the Nuclear Material or the performance by the Lessee of its obligations under the Basic Documents, and all requirements of the issuer of any such policy or agreement necessary to keep such insurance or agreements in force. "Interim Leasing Record" means a Leasing Record which records the leasing of Nuclear Material (i) prior to installation for operation in the Generating Facility, (ii) after removal from the Generating Facility during the "cooling off" and storage period, and (iii) while being reprocessed. An Interim Leasing Record shall be in the form of Exhibit A to the Lease Agreement. "Investment Company Act" means the Investment Company Act of 1940, as from time to time amended. "Lease Agreement" means the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 between Oyster Creek Fuel Corp., as the Lessor, and Jersey Central Power & Light Company, as the Lessee, as the same may be modified, supplemented or amended from time to time. "Lease Event of Default" has the meaning specified in Section 16 of the Lease Agreement. "Leasing Record" is a form signed by the Lessor and the Lessee to record the leasing under the Lease Agreement of the Nuclear Material specified in such Leasing Record. A Leasing Record shall be either an Interim Leasing Record or a Final Leasing Record. 44 "Legal Requirements" means all applicable provisions of the Atomic Energy Act, all applicable orders, rules, regulations and other requirements of the Nuclear Regulatory Commission and the Federal Energy Regulatory Commission, and all other laws, rules, regulations and orders of any other jurisdiction or regulatory authority relating to (i) the licensing, acquisition, storage, containerization, transportation, blending, transfer, consumption, leasing, insuring, using, operating, disposing, fabricating, channelling and reprocessing of the Nuclear Material, (ii) the Generating Facility or the Lessee in its capacity as licensee of the Generating Facility, in each case insofar as such provisions, orders, rules, regulations, laws and other requirements directly or indirectly relate to the Nuclear Material or the performance by the Lessee of its obligations under the Basic Documents or (iii) the Basic Documents, insofar as any of the foregoing directly or indirectly apply to the Lessee. "Lessee" has the meaning specified in the introduction to the Lease Agreement. "Lessee Representative" means a person at the time designated to act on behalf of the Lessee by a written instrument furnished to the Company and the Secured Parties containing the specimen signature of such person and signed on behalf of the Lessee by any of its officers. The certificate may designate an alternate or alternates. A Lessee Representative may be an employee of the Lessee or of the Owner Trustee. "Lessor" has the meaning specified in the introduction to the Lease Agreement, and its successors and assigns. "Lessor's Bill of Sale" means an instrument substantially in the form of Exhibit E to the Lease Agreement, pursuant to which title to all or any portion of the Nuclear Material is transferred to the Lessee or any designee of the Lessee. "Letter Agreement" means the Lessee's Letter Agreement Regarding Oyster Creek Fuel Corp., dated as of November 5, 1998, between the Lessee, the Company, and the Administrative Agent, as it may be amended from time to time. "Lien" means any mortgage, pledge, lien, security interest, title retention, charge or other encumbrance of any nature whatsoever (including any conditional sale or other title retention agreement, any lease in the nature thereof and the filing of or agreement to execute and deliver any financing statement under the Uniform Commercial Code of any jurisdiction). 45 "Loans" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Majority Secured Parties" means at any time the Secured Parties holding at such time more than 66% of the outstanding principal amount of all Secured Obligations. "Manufacturer" means any supplier of Nuclear Material or of any service (including without limitation, enrichment, fabrication, transportation, storage and processing) in connection therewith, or any agent or licensee of any such supplier. "Manufacturer's Consent" means any consent which may be given by a Manufacturer under a Nuclear Material Contract to the assignment by the Lessee to the Company of all or a portion of the Lessee's rights under such Nuclear Material Contract or of all or a portion of any such rights previously assigned by the Lessee to the Secured Parties. "Monthly Debt Service" for any calendar month means the sum of the Monthly Financing Charge for such calendar month. "Monthly Financing Charge" means, for any calendar month or portion thereof, the sum of: (a) all Commercial Paper Discount payable by the Company with respect to Commercial Paper outstanding during such month and/or all interest payable by the Company during such month with respect to all outstanding Notes and in each case, not included in Acquisition Cost; and (b) the amounts paid or due and payable by the Company with respect to the transactions contemplated by the Basic Documents during such calendar month for the following other fees, costs, charges and expenses incurred or owed by the Company under or in connection with the Lease Agreement or the other Basic Documents: (i) legal, printing, reproduction and closing fees and expenses, (ii) auditors', accountants' and attorneys' fees and expenses, (iii) franchise taxes and income taxes, and (iv) any other fees and expenses incurred by the Company under or in respect of the Basic Documents. Any figure used in the computation of any component of the Monthly Financing Charge shall be stated to five decimal places. 46 "Monthly Rent Component" for any Nuclear Material covered by a Final Leasing Record for each calendar month during the lease of such Nuclear Material shall be as follows: (i) for the first partial calendar month the Monthly Rent Component shall be zero; (ii) for the first full calendar month the Monthly Rent Component shall be zero; (iii) for the second full calendar month the Monthly Rent Component shall be zero; (iv) for the third full calendar month the Monthly Rent Component shall be an amount determined by multiplying (x) the amount of thermal energy in millions of British Thermal Units of heat produced by such Nuclear Material during the first calendar month while covered by the Final Leasing Record and also during the first partial calendar month, if any, such Nuclear Material was covered by an Interim or Final Leasing Record and was engaged in Heat Production by (y) the BTU Charge set forth in the Final Leasing Record covering such Nuclear Material; and (v) for each full calendar month after the third full calendar month, the Monthly Rent Component shall be an amount determined by multiplying (x) the amount of thermal energy in millions of British Thermal Units of heat produced by such Nuclear Material during the second preceding month by (y) the BTU Charge set forth in the Final Leasing Record covering such Nuclear Material. The BTU Charge for any Nuclear Material may be revised by the Lessee at any time during the lease thereof to reflect any reasonably anticipated change in its operating life, BTU output, or utilization. Such revision shall be effected by the Lessee's executing and forwarding to the Lessor a revised Final Leasing Record dated the first day of the following month and setting forth such revised BTU Charge. Upon receipt of such revised Final Leasing Record, the Lessor shall execute and return a copy thereof to the Lessee. Such revised BTU Charge shall be applicable to such Nuclear Material for each month thereafter beginning on the date of the revised Final Leasing Record. "NJBPU" means the New Jersey Board of Public Utilities or any successor agency thereto. 47 "Nonburdensome Regulation" means (i) ministerial regulatory requirements that do not impose limitations or regulatory requirements on the business or activities of, or adversely affect, the Company or any Secured Party and that are deemed, in the reasonable discretion of the Company or any Secured Party, not to be burdensome, or (ii) assuming redelivery of the Nuclear Material in accordance with the Lease Agreement, regulation resulting from any possession of the Nuclear Material (or right thereto) on or after the termination of the Lease Agreement. "Notes" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Nuclear Incident" shall have the meaning specified in the Atomic Energy Act, 42 U.S.C. ss.2014(q), as such definition may be amended from time to time. "Nuclear Material" means those items which have been purchased by or on behalf of the Company for which a duly executed Leasing Record has been delivered to the Company and which continue to be subject to the Lease Agreement consisting of (i) the items described in such Leasing Record and each of the components thereof in the respective forms in which such items exist during each stage of the Nuclear Material Cycle, being substances and equipment which, when fabricated and assembled and loaded into a nuclear reactor, are intended to produce heat, together with all attachments, accessories, parts and additions and all improvements and repairs thereto, and all replacements thereof and substitutions therefor and (ii) the substances and materials underlying the right, title and interest of the Lessee under any Nuclear Material Contract assigned to the Company pursuant to the Lease Agreement; provided, however, that the term Nuclear Material shall not include spent fuel. "Nuclear Material Contract" means any contract, as from time to time amended, modified or supplemented, entered into by the Lessee, either in its own name or as agent for the Lessor, with one or more Manufacturers relating to the acquisition of Nuclear Material or any service in connection with the Nuclear Material. "Nuclear Material Cycle" means the various stages in the process, whether physical or chemical, by which the component parts of the Nuclear Material are designed, mined, milled, processed, converted, enriched, fabricated into assemblies utilizable for Heat Production, loaded or installed into a reactor core, utilized, disengaged from a reactor core or stored, together with all incidental processes with respect to the Nuclear Material at any such stage. 48 "Nuclear Regulatory Commission" means the independent regulatory commission of the United States Government existing under the authority of the Energy Reorganization Act of 1974, as amended, or any successor organization or organizations performing any identical or substantially identical licensing and related regulatory functions. "Obligations" means (i) all items (including, without limitation, Capitalized Leases but excluding shareholders' equity and minority interests) which in accordance with generally accepted accounting principles should be reflected on the liability side of a balance sheet as at the date as of which such obligations are to be determined; (ii) all obligations and liabilities (whether or not reflected upon such balance sheet) secured by any Lien existing on the Property held subject to such Lien, whether or not the obligation or liability secured thereby shall have been assumed; and (iii) all guarantees, endorsements (other than for collection in the ordinary course of business) and contingent obligations in respect of any liabilities of the type described in clauses (i) and (ii) of this definition (whether or not reflected on such balance sheet); provided, however, that the term 'Obligations' shall not include deferred taxes. "Obligations for Borrowed Money or Deferred Purchase Price" means all Obligations in respect of borrowed money or the deferred purchase price of property or services. "Officer's Certificate" means, with respect to any corporation, a certificate signed by the President, any Vice President, the Treasurer, any Assistant Treasurer, the Comptroller, or any Assistant Comptroller of such corporation, and with respect to any other entity, a certificate signed by an individual generally authorized to execute and deliver contracts on behalf of such entity. "Outstandings" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Owner Trust Estate" means all estate, right, title and interest of the Owner Trustee in and to the outstanding stock of the Company and in and to all monies, securities, investments, instruments, documents, rights, claims, contracts, and other property held by the Owner Trustee under the Trust Agreement; provided, however, that there shall be excluded from the Owner Trust Estate all Excepted Payments. "Owner Trustee" means United States Trust Company of New York, not in its individual capacity but solely as trustee under and pursuant to the Trust Agreement, and its permitted successors. 49 "Partially Assigned Agreement" means a Nuclear Material Contract which has been assigned, in part but not in full, to the Company in the manner specified in Section 5 of the Lease Agreement pursuant to a duly executed and delivered Assignment Agreement. "PBGC" means the Pension Benefit Guaranty Corporation, created by Section 4002(a) of ERISA and any successor thereto. "Permitted Liens" means (i) any assignment of the Lease Agreement permitted thereby, and by the Credit Agreement, (ii) liens for Impositions not yet payable, or payable without the addition of any fine, penalty, interest or cost for nonpayment, or being contested by the Lessee as permitted by Section 11 of the Lease Agreement, (iii) liens and security interests created by the Security Agreement, (iv) the title transfer and commingling of the Nuclear Material contemplated by paragraph (h) of Section 10 of the Lease Agreement, and (v) liens of mechanics, laborers, materialmen, suppliers or vendors, or rights thereto, incurred in the ordinary course of business for sums of money which under the terms of the related contracts are not more than 30 days past due or are being contested in good faith by the Lessee as permitted by Section 11 of the Lease Agreement; provided, however, that, in each case, such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made in respect thereto. "Person" means any individual, partnership, joint venture, corporation, trust, unincorporated organization or other business entity or any government or any political subdivision or agency thereof. "Plan" means, with respect to any Person, any plan of a type described in Section 4021(a) of ERISA in respect of which such Person is an "employer" or a "substantial employer" as defined in Sections 3(5) and 4001 (a) (2) of ERISA, respectively. "Proceeds" shall have the meaning assigned to it under the Uniform Commercial Code, as amended, and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Company from time to time with respect to the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to the Company from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. 50 "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Public Utility Holding Company Act" means the Public Utility Holding Company Act of 1935, as from time to time amended. "Qualified Institution" means a commercial bank organized under the laws of, and doing business in, the United States of America or in any State thereof, which has combined capital, surplus and undivided profits of at least $150,000,000 having trust power. "Related Person" means, with respect to any Person, any trade or business, (whether or not incorporated) which, together with such Person, is under common control as described in Section 414(c) of the Code. "Rent" means Basic Rent, Additional Rent and Termination Rent. "Rent Due and SCV Confirmation Schedule" means an instrument, substantially in the form of Exhibit G to the Lease Agreement, which is to be used by the Lessee (i) to calculate Basic Rent for each Basic Rent Period and Other Rent and (ii) to calculate and acknowledge the SCV at the end of each Basic Rent Period. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder. "Responsible Officer" means a duly elected or appointed, authorized, and acting officer, agent or representative of the Person acting. "Secured Obligations" means each and every debt, liability and obligation of every type and description which the Company may now or at any time hereafter owe to any Secured Party under, pursuant to or in connection with the Credit Agreement, any Note, the Letter of Credit or any other Basic Document, whether such debt, liability or obligation now exists or is hereafter created or incurred, and whether it is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or joint, several or joint and several, including, without limitation, the Face Amount of any Commercial Paper, the principal of, interest on and any premium due with respect to any Loan and all indemnifications, costs, expenses, fees and other compensation of the Secured Parties provided for, and all other amounts owed to the Secured Parties, under the Security Agreement, Credit Agreement and the other Basic Documents. 51 "Secured Parties" means the Banks, any other holder from time to time of any Note and any holder from time to time of any Commercial Paper. "Securities Act" means the Securities Act of 1933, as from time to time amended. "Security Agreement" means the Security Agreement and Assignment of Contracts, dated as of November 5, 1998, by and among the Company and The First National Bank of Chicago, as Collateral Agent in favor of the Secured Parties. "Single Employer Plan" means any Plan which is not a multi- employer plan as defined in Section 4001(a) (3) of ERISA "Stipulated Casualty Value" or "SCV" for any Nuclear Material covered by any Leasing Record means an amount equal to the Acquisition Cost for such Nuclear Material reduced by the aggregate total amount, if any, of the Monthly Rent Components paid by the Lessee to the Lessor with respect to such Nuclear Material together with Commercial Paper Discount. "Syndication Agent" shall have the meaning specified therefor in the first paragraph of the Credit Agreement. "Termination Date" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Termination Rent" means an amount which, when added to the Stipulated Casualty Value and Basic Rent then payable by the Lessee, if any, will be sufficient to enable the Company to retire, at their respective maturities, all outstanding Notes and to pay all charges, premiums and fees owed to the holders of Notes and Commercial Paper under the Credit Agreement and to pay all other obligations of the Company incurred in connection with the implementation of the transactions contemplated by the Basic Documents. "Termination Settlement Date" has the meaning specified in Section 8(c), or Section 18(c) of the Lease Agreement. "Terminating Event" has the meaning specified in Section 18 of the Lease Agreement. "Trust" means the TMI-I Fuel Corp. and Oyster Creek Fuel Corp. Trust, a trust formed pursuant to the Trust Agreement. 52 "Trust Agreement" means the Second Amended and Restated Trust Agreement dated as of November 5, 1998 among Lord Fuel Corp., as Trustor, the Owner Trustee, as trustee, Lord Fuel Corp., as beneficiary, and Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, each as lessee under certain lease agreements, as the same may be amended, modified or supplemented from time to time. "Trustor" means the institution designated as such in the Trust Agreement and its permitted successors. "UBS Credit Agreement" means the Credit Agreement dated as of November 17, 1995 among Oyster Creek Fuel Corp., Union Bank of Switzerland, New York Branch, as Arranging Agent, Union Bank of Switzerland, New York Branch, as Issuing Bank, the Banks Party thereto and Union Bank of Switzerland, New York Bank, as Administrative Agent. "UCC" means the Uniform Commercial Code as adopted and in effect in the State of New York. "U.S. Trust" means United States Trust Company of New York. 53 EXHIBIT A INTERIM LEASING RECORD Record No. _____ Name of Lessee: Jersey Central Power & Light Company Date of Record: __________________ Date and No. of prior Interim or Final Leasing Record (if any): Description and location of Nuclear Material covered by this Record: Assembly Serial Nos.: Subassembly Serial Nos.: Acquisition Cost of Nuclear Material under prior Leasing Record (if any): $___________ Acquisition Cost added by this Record: $___________ Total: $___________ Credits to Acquisition Cost: $___________ Total Acquisition Cost under this Record $___________ Specify nature of Acquisition Cost added by this Record and to whom paid: Specify nature of any credits received by Lessor covered by this Record and from whom received: Basic Rent for the Nuclear Material covered by this Record shall be calculated and paid as provided in Section 9 of the Second Amended and Restated Nuclear Material Lease Agreement referred to below. 54 The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear Material described above in accordance with the covenants, terms and conditions of the Second Amended and Restated Nuclear Material Lease Agreement between the undersigned Lessor and Lessee, dated as of November 5, 1998 which covenants, terms and conditions are incorporated herein by reference. OYSTER CREEK FUEL CORP., Lessor JERSEY CENTRAL POWER & LIGHT COMPANY, Lessee By____________________________ By____________________________ Authorized Signature Authorized Signature 55 EXHIBIT B FINAL LEASING RECORD Record No. _____ Name of Lessee: Jersey Central Power & Light Company Date of Record: __________________ Date and No. of prior Interim or Final Leasing Record: Description and location of Nuclear Material covered by this Record: Assembly Serial Nos.: Subassembly Serial Nos.: Acquisition Cost of Nuclear Material under prior Leasing Record (if any): $___________ Acquisition Cost added by this Record: $___________ Total: $___________ Credits (if any) to Acquisition Cost: $___________ Total Acquisition Cost under this Record $___________ BTU Charge: $__________ Specify nature of Acquisition Cost added by this Record and to whom paid: Specify nature of any credits received by Lessor covered by this Record and from whom received: Basic Rent for the Nuclear Material covered by this Record shall be calculated and paid as provided in Section 9 of the Second Amended and Restated Nuclear Material Lease Agreement referred to below. 56 The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear Material described above in accordance with the covenants, terms and conditions of the Second Amended and Restated Nuclear Material Lease Agreement between the undersigned Lessor and Lessee, dated as of November 5, 1998, which covenants, terms and conditions are incorporated herein by reference. OYSTER CREEK FUEL CORP., Lessor JERSEY CENTRAL POWER & LIGHT COMPANY, Lessee By___________________________ By ____________________________ Authorized Signature Authorized Signature 57 Attachment 1 to Exhibit B BRITISH THERMAL UNIT CHARGE AGREEMENT Dated:__________________ The undersigned Lessor and Lessee agree that the initial British Thermal Unit Charge to be used to calculate the Monthly Rent Component for the Nuclear Material pursuant to the Second Amended and Restated Nuclear Material Lease Agreement, dated as of _________ __, 1998, between the undersigned Lessor and Lessee shall be as follows: Description of Nuclear Material British Thermal Unit Charge OYSTER CREEK FUEL CORP. JERSEY CENTRAL POWER & LIGHT COMPANY By: ________________________ By:__________________________ Its:________________________ Its:_________________________ 58 EXHIBIT C NUCLEAR MATERIAL CONTRACTS The Agreements (each as amended and restated) referred to in Section 5 of the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between OYSTER CREEK FUEL CORP. ("Lessor") and JERSEY CENTRAL POWER & LIGHT COMPANY ("Lessee") are: (1) Agreement, dated January 30, 1975, between Sequoyah Fuels Corporation and GPUN, as agent for the Lessee, Met-Ed and Penelec. (2) Agreement, dated February 12, 1996, between United States Enrichment Corporation and Lessee, Met-Ed and Penelec. (3) Agreement, dated as of November 12, 1980 between General Electric Company and the Lessee. 59 EXHIBIT D ASSIGNMENT AGREEMENT KNOW ALL MEN BY THESE PRESENTS THAT: Jersey Central Power & Light Company (the "Assignor"), in consideration of one dollar and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, does hereby sell, grant, bargain, convey and assign to Oyster Creek Fuel Corp. ("Assignee"), all right, title and interest of the Assignor in, to and under the Nuclear Material Contract (the "Nuclear Material Contract") described in Exhibit 1 attached hereto insofar as such Nuclear Material Contract relates to the Nuclear Material described in Exhibit 1 (all of such property, including the items described on Exhibit 1 attached hereto as included with the Property, being herein collectively called the "Property"). Terms not defined herein shall have the meanings given in Exhibit 1 attached hereto. TO HAVE AND TO HOLD the Property unto the Assignee, its successors and assigns, to its and their own use forever. 1. The interest of the Assignor in the Property, and the interest transferred by this Assignment Agreement, is that of absolute ownership. 2. The Assignor hereby warrants that it is the lawful owner of the rights and interests conveyed by this Assignment Agreement and that its title to such rights and interests is hereby conveyed to the Assignee free and clear of all liens, charges, claims and encumbrances of every kind whatsoever, other than (i) the amounts, if any, owing under the Nuclear Material Contract, (ii) other claims, if any, of the Assignor and the Contractor which may exist as between themselves and (iii) Permitted Liens (as defined in the Lease Agreement referred to below); and that the Assignor will warrant and defend such title forever against all claims and demands whatsoever. 3. The Assignor hereby releases and transfers to the Assignee any right, title or interest in the Nuclear Material which may have been acquired by the Assignor under the Nuclear Material Contract prior to the date hereof. 4. This Assignment Agreement is made in accordance with the Second Amended and Restated Nuclear Material Lease Agreement dated as of November 5, 1998, between the Assignor and the Assignee (said Nuclear Material Lease Agreement, as the same may be from time to time amended, modified or supplemented, being herein called the "Lease Agreement"). Pursuant to a Security Agreement and Assignment of Contracts made by Oyster Creek Fuel Corp. dated as of November 5, 1998 (said Security Agreement and Assignment of Contracts, 60 as the same may from time to time be amended, modified or supplemented, being herein called the "Security Agreement") made by Assignee in favor of the Secured Parties, as defined therein, the Assignee is assigning and granting a security interest in the Property and this Assignment Agreement to the Secured Parties, as collateral security for all obligations and liabilities of the Assignee to the Secured Parties, as such obligations are described in the Security Agreement. 5. It is expressly agreed that, anything contained herein to the contrary notwithstanding, (a) the Assignor shall at all times remain liable to the Contractor to observe and perform all of its duties and obligations under the Nuclear Material Contract to the same extent as if this Assignment Agreement and the Security Agreement had not been executed, (b) the exercise by the Assignee or the Secured Parties of any of the rights assigned hereunder or under the Security Agreement, as the case may be, shall not release the Assignor from any of its duties or obligations to the Contractor under the Nuclear Material Contract, and (c) neither the Assignee nor any of the Secured Parties shall have any obligation or liability under the Nuclear Material Contract by reason of or arising out of this Assignment Agreement, the Lease Agreement or the Security Agreement, or be obligated to perform or fulfill any of the duties or obligations of the Assignor under the Nuclear Material Contract, or to make any payment thereunder, or to make any inquiry as to the nature or sufficiency of any Property received by it thereunder, or to present or file any claim, or to take any action to collect or enforce the payment of any amounts or the delivery of any Property which may have been assigned to it or to which it may be entitled at any time or times; provided, however, the Assignee agrees, solely for the benefit of the Assignor, and subject to the terms and conditions of the Lease Agreement, (i) to purchase the Nuclear Material from the Contractor pursuant to the Nuclear Material Contract, (ii) to pay to the Contractor and/or to the Assignor or their order the respective amounts specified in the Lease Agreement with respect to such Nuclear Material and (iii) to lease such Nuclear Material to the Assignor in accordance with and subject to the terms and conditions of the Lease Agreement. The provisions of the Nuclear Material Contract limiting the liability of the Contractor and its suppliers and subcontractors' under that Contract shall remain effective against the Assignee and Secured Parties to the same extent that such provisions are effective against the Assignor. 6. Notwithstanding anything contained herein to the contrary, subject to the terms and conditions of the Lease Agreement, the Assignor may continue to engage in Fuel Management (as such term is defined in the Lease Agreement) with respect to the Property, including, without limitation, all dealings with the Contractor and, subject to such terms and conditions and effective until the occurrence of a Lease Event of Default (as defined in the Lease Agreement), (i) the Assignee reassigns to the Assignor the 61 Assignee's rights under clauses (iii), (iv), (v) and (vi) of subparagraph (b) of Exhibit 1 to this Assignment Agreement (provided, however, that insurance proceeds are reassigned to the Assignor pursuant hereto only to the extent that such proceeds are needed and used to reimburse the Assignor for the cost of repairing damage or destruction to Nuclear Material or are used to purchase Nuclear Material from the Assignee in accordance with the Lease Agreement, and provided further, however, that the Assignee's rights under clause (vi) are reassigned to the Assignor subject in all respects to the limitations set forth in paragraph 8. below), and (ii) the Assignee agrees that the Assignor may, to the extent set forth in clause (i) above, to the exclusion of the Assignee, exercise and enforce such rights. 7. The Assignor shall promptly and duly execute, deliver, file and record all such further counterparts of this Assignment Agreement or such certificates, financing and continuation statements and other instruments as may be reasonably requested by the Assignee, and take such further actions as the Assignee shall from time to time reasonably request, in order to establish, perfect and maintain the rights and remedies created or intended to be created in favor of the Assignee and the Secured Parties hereunder and the Assignee's title to and interest in the Property as against the Assignor or any third party in any applicable jurisdiction. 8. The Assignor hereby agrees that it will not enter into or consent to or permit any cancellation, termination, amendment, supplement or modification of or waiver with respect to the Nuclear Material Contract insofar as it relates to the Nuclear Material except for cancellations, terminations, amendments, supplements, modifications or waivers which do not materially adversely affect the Assignee or the Secured Parties or their respective interests in the Property, nor will the Assignor sell, assign, grant any security interest in or otherwise transfer its rights or other interests in the Property or any part thereof, except as permitted by the Lease Agreement. 9. The Assignor hereby represents and warrants that the Nuclear Material Contract is in full force and effect and represents that it is the only agreement between the Assignor and the Contractor with respect to the Nuclear Material. 10. This Assignment Agreement shall become effective only upon receipt of the written consent of the Contractor to the assignment of the rights and interests conveyed hereunder, if such consent is required under the Nuclear Material Contract. The Assignor hereby agrees to send the Contractor a copy of this Assignment Agreement. 11. This Assignment Agreement shall be governed by and construed in accordance with the laws of the State of New York. 62 IN WITNESS WHEREOF, the Assignor has caused this Assignment Agreement to be duly executed and delivered as of the ____ day of _________, 19__. JERSEY CENTRAL POWER & LIGHT COMPANY By:____________________________ Title:_________________________ The foregoing Assignment Agreement is hereby accepted: OYSTER CREEK FUEL CORP. By:____________________________ Title:_________________________ 63 EXHIBIT 1 to Assignment Agreement (a) The _____________ (as the same may from time to time be amended, modified or supplemented, being herein called the "Nuclear Material Contract"), dated as of _____________, between Jersey Central Power & Light Company and ______________ (the "Contractor), insofar as, and only to the extent that, the Contract relates to _________________ (the "Nuclear Material"); but not insofar as the Contract provides for the provision of other nuclear materials and services to the Assignor; and (b) The Property shall include, without limitation, (i) any and all amendments and supplements to the Nuclear Material Contract from time to time executed and delivered to the extent that any such amendment or supplement relates to the Nuclear Material, (ii) the Nuclear Material, including the right to receive title thereto, (iii) all rights, claims and proceeds, now or hereafter existing, under any insurance, indemnities, warranties and guaranties provided for in or arising out of the Nuclear Material Contract, to the extent that such rights or claims relate to the Nuclear Material, (iv) any claim for damages arising out of or for breach or default by the Contractor under or in connection with the Nuclear Material Contract insofar as it relates to the Nuclear Material, (v) any other amount, whether resulting from refunds or otherwise, from time to time paid or payable by the Contractor under or in connection with the Nuclear Material Contract insofar as it relates to the Nuclear Material and (vi) the right of the Assignor to terminate the Nuclear Material Contract or to perform or to exercise or enforce thereunder, insofar as it or they relate to the Nuclear Material. 64 EXHIBIT 2 to Assignment Agreement CONSENT AND AGREEMENT The undersigned, _________________ (the "Contractor"), has entered into a _______________ (as the same may from tune to time be amended, modified or supplemented, being herein called the "Nuclear Material Contract"), dated as of ____________________ with Jersey Central Power & Light Company (the "Assignor"). The Contractor hereby acknowledges notice that (i) in accordance with the terms of the Second Amended and Restated Nuclear Material Lease Agreement dated as of _________ __, 1998, between the Assignor and Oyster Creek Fuel Corp. (the "Assignee"), the Assignor has assigned to the Assignee a part of the Assignor's rights under the Nuclear Material Contract pursuant to an Assignment Agreement, in the form of Annex A hereto (such Assignment Agreement, as the same may from time to time be amended, modified or supplemented, being herein collectively called the "Assignment"), and (ii) pursuant to a Security Agreement and Assignment of Contracts made by Oyster Creek Fuel Corp. dated as of ___________, 1998 (said Security Agreement and Assignment Contracts, as the same may from time to time be amended, modified or supplemented, being herein called the "Security Agreement") made by the Assignee in favor of the Secured Parties as defined therein (the "Secured Parties"), the Assignee has assigned and granted a security interest in all rights under the Nuclear Material Contract from time to time assigned to it by Assignor, as collateral security for all obligations and liabilities of the Assignee to the Secured Parties. The Contractor hereby consents to (i) the assignment by the Assignor to the Assignee of part of the Assignor's right, title and interest in, to and under the Nuclear Material Contract and the other Property described in the Assignment pursuant to the Assignment and (ii) the assignment and security interest in favor of the Secured Parties as described above. The Contractor further consents to all of the terms and provisions of the Security Agreement. The Contractor agrees that, if requested by either the Assignor or the Assignee, it will acknowledge in writing the Assignment delivered by the Assignor to the Assignee; provided, that neither the lack of notice to nor acknowledgment by the Contractor of the Assignment shall limit or otherwise affect the validity or effectiveness of this consent to such Assignment. The Contractor hereby confirms to the Assignee and the Secured Parties that: 65 (a) all representations, warranties and agreements of the Contractor under the Nuclear Material Contract which relate to the Nuclear Material described in the Assignment shall inure to the benefit of, and shall be enforceable by, the Assignee or any Secured. Party to the same extent as if originally named in the Contract as the purchaser of such Nuclear Material, (b) the Contractor understands that, pursuant to the Lease Agreement, the Assignee has agreed to lease the Nuclear Material described in the Assignment to the Assignor, and consents to the assignment to the Assignor, for so long as the Lease Agreement shall be in effect or until otherwise notified by the Assignee, of the Assignee's rights under clauses (iii), (iv), (v) and (vi) of subparagraph (b) of Exhibit 1 to the Assignment to the extent that such rights are reassigned to the Assignor pursuant to the Assignment, (c) The Contractor is in the business of selling nuclear fuel and related services of the kind described in the Assignment, and the proposed sale of such nuclear fuel under the Nuclear Material Contract will be in the ordinary course of business of the Contractor, and (d) Notwithstanding any provision to the contrary contained in the Nuclear Material Contract, the Contractor agrees that title to any Nuclear Material covered by the Assignment shall pass directly to the Assignee under the Contract and shall not pass to the Assignor; provided that the foregoing shall not apply to any Nuclear Material for which title has already passed from the Contractor prior to the execution and delivery of the Assignment. It is understood that neither the Assignment, the Security Agreement nor this Consent and Agreement shall in any way add to the obligations of the Contractor or the Assignor under the Nuclear Material Contract. This Consent and. Agreement shall be governed by and construed in accordance with the laws of the State of ____________. IN WITNESS WHEREOF, the undersigned has caused this Consent and Agreement to be duly executed and delivered by its duly authorized officer as of the ____ day of ________, 19__. By:____________________________ Title:_________________________ 66 EXHIBIT E BILL OF SALE TO JERSEY CENTRAL POWER & LIGHT COMPANY ------------------------------------ KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Oyster Creek Fuel Corp., a Delaware corporation (the "Seller"), whose post office address is c/o United States Trust Company of New York, 114 West 47th Street, New York, New York 10036, Attention: Corporate Trust and Agency Division, for and in consideration paid to the Seller upon or before the execution and delivery of this Bill of Sale to Jersey Central Power & Light Company (the "Purchaser"), a New Jersey corporation, whose address is 2800 Pottsville Pike, Reading, Pennsylvania 19640, Attention: Comptroller, hereby conveys, transfers, sells and sets over unto the Purchaser all of its right, title and interest in all of the personal property consisting of the assemblies of nuclear fuel or components thereof or other nuclear material described in Annex I hereto (the "Assets"), and by this Bill of Sale does hereby grant, bargain, sell, convey, transfer and deliver the Assets unto the Purchaser, to have and to hold such undivided interest in the Assets unto the Purchaser, for itself, its successors and assigns, forever. The Assets are transferred and conveyed by the Seller AS-IS, WHERE-IS, WITHOUT REPRESENTATIONS OR WARRANTIES (EXPRESS OR IMPLIED) OF ANY KIND WHATSOEVER BY THE SELLER OR ANY PERSON ACTING ON ITS BEHALF except that the Seller represents and warrants that it has not by voluntary act or omission created or granted any lien on the Assets, other than Permitted Liens, as defined in that certain Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 between the Seller and the Purchaser. The Purchaser acknowledges and agrees that neither the Seller, its directors, officers or employees, any company, person or firm controlling, controlled by, or under common control with any of them nor any other person acting on behalf of the Seller is a manufacturer of, or is engaged in the sale or distribution of, nuclear material, has had at any time physical possession of any portion of the Assets sold hereunder, or has made any inspection thereof. The Purchaser further acknowledges and agrees that the Assets sold hereunder have been at all times in the possession of the Purchaser and that the Purchaser has made such inspections thereof as it deems necessary and that the Purchaser has been solely responsible for all decisions made with respect to the choice of the suppliers of such Assets and the enrichment, fabrication, transportation, storage and processing of the same. 67 IN WITNESS WHEREOF, the Seller has caused these presents to be executed by one of its Vice Presidents, this ____ day of ________, 19__. OYSTER CREEK FUEL CORP., Seller By:____________________________ Vice President Acknowledgment and Acceptance The foregoing Bill of Sale is hereby acknowledged and accepted by the undersigned as of the date last above written. JERSEY CENTRAL POWER & LIGHT COMPANY, Purchaser By:______________________________ Its: ____________________________ 68 EXHIBIT F RENT DUE AND SCV CONFIRMATION SCHEDULE ----------------------------- For the Basic Rent Period Ended _______ In accordance with the Second Amended and Restated Lease Agreement dated as of ___________, 1998, between Oyster Creek Fuel Corp., as Lessor, and Jersey Central Power & Light Company, as Lessee, the Lessee certifies that all amounts set forth below are true and correct in all respects, and both Lessor and Lessee certify that this Schedule has been prepared in accordance with the provisions of the Lease Agreement. I. BASIC RENT, ADDITIONAL RENT AND TERMINATION RENT A. Basic Rent Owed 1. Calculation of Portion of Monthly Financing Charge Not Allocated to Acquisition Cost a. Interest Payable with Respect to All Outstanding Notes (See attached summary calculation $_____________ b. Other Amounts Included in Monthly Financing Charge $_____________ c. Total Monthly Financing Charge Not Allocated to Acquisition Cost (Total of I(a) and I(b) $_____________ 2. Aggregate Monthly Rent Component (See attached summary calculation) $_____________ 3. BASIC RENT (total of 1(c) and 2) $ ============= B. Additional Rent Owed (see attached summary calculation) $_____________ C. Termination Rent Owed (see attached summary calculation $_____________ TOTAL RENT DUE (total of A, B and C) $ ============= 69 II. Calculation of Stipulated Casualty Value
Nuclear Material --------------------------------------------------- Installed for Not Installed for Operation in the Operation in the Generating Facility Generating Facility Total ------------------- ------------------- -------- Total A. Stipulated Casualty Value as of ______ $_________________ $________________ $________ B. Add: Acquisition Cost Incurred in Rent Period Covered by This Schedule (exclusive of Monthly Finance Charges) $_________________ $________________ $________ C. Add: Monthly Financing Charge Allocated to Acquisition Cost Incurred in Rent Period Covered by this Schedule $_________________ $________________ $________ D. Less: SVC of Nuclear Material Transferred to the Lessee Pursuant to Section 8(c), 8(g) or 14 of the Lease Agreement during the Basic Rent Period Covered by this Schedule $_________________ $________________ $________ STIPULATED CASUALTY VALUE AS OF _________ $ $ $ ================= ================ ========= Add: Commercial Paper Discount $________ STIPULATED CASUALTY VALUE AS OF _________ $ ========
70 EX-10 5 EX10-S NUCLEAR MATERIAL LEASE AGREE TMI-1 & JCP&L EXHIBIT 10-S COUNTERPART NO. SECOND AMENDED AND RESTATED NUCLEAR MATERIAL LEASE AGREEMENT Dated as of November 5, 1998 between TMI-1 FUEL CORP., as Lessor and JERSEY CENTRAL POWER & LIGHT COMPANY as Lessee AS OF THE DATE OF THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, THE LESSOR UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT (THE "LESSOR") HAS GRANTED TO THE SECURED PARTIES, AS DEFINED HEREIN, A SECURITY INTEREST IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT AND IN ALL OF THE LESSOR'S RIGHTS AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, INCLUDING, WITHOUT LIMITATION, ALL OF THE LESSOR'S RIGHTS TO AND INTERESTS IN NUCLEAR MATERIAL AS DEFINED IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT. THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT HAS BEEN MANUALLY EXECUTED IN EIGHTEEN (18) COUNTERPARTS, NUMBERED CONSECUTIVELY FROM 1 TO 18. NO SECURITY INTEREST IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT OR IN ANY OF THE LESSOR'S RIGHTS AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT MAY BE PERFECTED BY THE POSSESSION OF ANY SUCH COUNTERPART OTHER THAN COUNTERPART NO. 1. TABLE OF CONTENTS 1 Definitions 2 2 Notices 2 3 Title to Remain in the Lessor; Quiet Enjoyment; Fuel Management; Location 3 4 Agreement for Lease of Nuclear Material 3 5 Orders for Nuclear Material and Services; Assigned Agreements 4 6 Leasing Records; Payment of Costs of Lessor 5 7 No Warranties or Representation by Lessor 7 8 Lease Term; Early Termination; Termination Of Leasing Record 8 9 Payment of Rent; Payments with Respect to the Lessor's Financing Costs 10 10 Compliance with Laws; Restricted Use of Nuclear Material; Assignments; Permitted Liens; Spent Fuel 11 11 Permitted Contests 15 12 Insurance; Compliance with Insurance Requirements 15 13 Indemnity 17 14 Casualty and Other Events 20 15 Nuclear Material to Remain Personal Property 21 16 Events of Default 22 17 Rights of the Lessor Upon Default of the Lessee 23 18 Termination After Certain Events 25 19 Investment Tax Credit 28 20 Certificates; Information; Financial Statements 28 21 Obligation of the Lessee to Pay Rent 30 22 Miscellaneous 30 SECOND AMENDED AND RESTATED NUCLEAR MATERIAL LEASE AGREEMENT SECOND AMENDED AND RESTATED LEASE AGREEMENT (this "Lease Agreement") dated as of the 5th day of November, 1998, by and between TMI-1 FUEL CORP., a Delaware corporation (herein called the "Lessor"), and JERSEY CENTRAL POWER & LIGHT COMPANY, a New Jersey corporation (herein called the "Lessee"). RECITALS A. The Lessor and Lessee entered into a Nuclear Material Lease Agreement dated as of August 1, 1991 ("Original Lease") to provide for the lease of Nuclear Material to the Lessee; B. The Original Lease provided for the Lessor to enter into certain loan agreements and ancillary documents with The Prudential Insurance Company of America and certain affiliates thereof ("Prudential") to provide financing from Prudential for the acquisition of Nuclear Material under the Original Lease; C. Such loan arrangements with Prudential were terminated and Lessor entered into a new credit agreement and related instruments pursuant to which a bank syndicate for which Union Bank of Switzerland, New York Branch ("UBS") acted as agent to provide financing for the acquisition of Nuclear Material being leased hereunder; D. Lessor and Lessee entered into an Amended and Restated Nuclear Material Lease Agreement, dated as of November 17, 1995 ("Amended and Restated Lease") to reflect the necessary modifications consistent with the establishment of the credit facility with UBS; E. Concurrent with the execution and delivery hereof, such credit agreements with UBS are being terminated and Lessor is entering into a new credit agreement and related instruments to which a bank syndicate for which The First National Bank of Chicago and PNC Bank, National Association, will act as agents to provide financing for the acquisition of the Nuclear Material being leased hereunder; F. Accordingly, the Lessor and the Lessee desire to enter into this Second Amended and Restated Lease Agreement in order to reflect necessary modifications consistent with establishment of such new credit facility and other modifications thereof in certain other respects, which agreement shall supercede the Original Lease and the Amended and Restated Lease; NOW, THEREFORE, in consideration of the mutual covenants contained herein and intending to be legally bound hereby, the parties covenant and agree as follows: 1. Definitions. Except as otherwise provided herein, capitalized terms used in this Lease Agreement (including the Exhibits) shall have the respective meanings set forth in Appendix A. 2. Notices. Any notice, demand or other communication which by any provision of this Lease Agreement is required or permitted to be given shall be deemed to have been delivered if in writing and actually delivered by mail, courier, telex or facsimile to the following addresses: (i) If to the Lessor, TMI-1 Fuel Corp., c/o United States Trust Company of New York, 114 West 47th Street, New York, New York 10036, Attention: Corporate Trust and Agency Division, telecopy number 212-852-1626, or at such other address as the Lessor may have furnished to the Lessee and the Secured Parties in writing; or (ii) If to the Lessee, Jersey Central Power & Light Company c/o GPU Service, Inc., 310 Madison Avenue, Morristown, New Jersey 07962-1957, Attention: Vice President and Treasurer, telecopy number 973-644-4224, or at such other address as the Lessee may have furnished the Lessor and the Secured Parties in writing; or (iii) except as provided in the following sentence or as otherwise requested in writing by any Secured Party, any notice, demand or communication which by any provision of this Lease Agreement is required or permitted to be given to the Secured Parties shall be deemed to have been delivered to all the Secured Parties if a single copy thereof is delivered to The First National Bank of Chicago, One First National Plaza, Mail Suite 0363, Chicago, Illinois 60670, Attention: Kenneth J. Bauer, facsimile number (312) 732-3055; or at such other address as either may have furnished the Lessor and the Lessee in writing. Any Leasing Record or invoice of a Manufacturer or other Person performing services covering the Nuclear Material which is required to be delivered to the Secured Parties pursuant to Section 6(c)(ii) of this Lease Agreement and any Rent Due and SCV Confirmation Schedule which is required to be delivered to the Secured Parties pursuant to Sections 8(g) or 9(d) of this Lease Agreement shall be deemed to have been delivered to all the Secured Parties if a single copy thereof is delivered to Kenneth J. Bauer at the address indicated in this Section 2(iii). 2 3. Title to Remain in the Lessor; Quiet Enjoyment; Fuel Management; Location. (a) The Lessor and the Lessee hereby acknowledge that this Lease Agreement is a lease and is intended to provide for the obligations of the Lessee to pay installments of Rent as the same become due; that, subject to the provisions of Section 10(h), the Lessor has title to and is the owner of the Nuclear Material; and that the relationship between the Lessor and the Lessee shall always be only that of lessor and lessee. (b) The Lessor (including its successors and assigns) agrees and covenants that, so long as the Lessee makes timely payments of Rent and fully performs all other obligations to be performed by the Lessee under this Lease Agreement, the Lessor (including its successors and assigns) shall not hinder or interfere with the Lessee's peaceable and quiet enjoyment of the possession and use of the Nuclear Material, for the term or terms herein provided, subject, however, to the terms of this Lease Agreement. (c) So long as no Lease Event of Default shall have occurred and be continuing and the Lessor shall not have elected to exercise any of its remedies under Section 17 hereof, the Lessee shall have the right to engage in Fuel Management. The Lessee is hereby designated the agent of the Lessor in all dealings with Manufacturers and any regulatory agency having jurisdiction over the ownership or possession of the Nuclear Material for so long as the Lessee shall have the right to engage in Fuel Management. As such agent of the Lessor, the Lessee agrees to make, or cause to be made, all filings and to obtain all consents and permits required as a result of the Lessor's ownership and leasing of the Nuclear Material. (d) The Lessee covenants to the Lessor that the location of Nuclear Material will be limited to: (w) any Manufacturer's facility, (x) transit between one Manufacturer's facility and another Manufacturer's facility or the site of the Generating Facility, (y) the site of the Generating Facility and (z) the Generating Facility. Each assembly of the Nuclear Material will be located during its Heat Production and "cooling-off" stage at the Generating Facility or the site of the Generating Facility. 4. Agreement for Lease of Nuclear Material. From and after the Closing, the Lessor shall lease to the Lessee and the Lessee shall lease from the Lessor such Nuclear Material as may be from time to time mutually agreed upon, provided that the total Stipulated Casualty Value of all Nuclear Material leased under this Lease 3 agree to in writing (the "Maximum Stipulated Casualty Value"). The Lessor and the Lessee shall evidence their agreement to lease particular Nuclear Material in accordance with the terms and provisions of this Lease Agreement by signing and delivering to each other, from time to time, Leasing Records, substantially in the forms of Exhibit A or Exhibit B, as applicable, prepared by the Lessee, covering such Nuclear Material. Nothing contained herein shall be deemed to prohibit the Lessee from leasing from other lessors or otherwise obtaining other nuclear material for use in the Generating Facility, subject to the provisions with respect to intermingling of fuel assemblies or sub-assemblies with other fuel assemblies or sub-assemblies contained in Section 6 hereof. 5. Orders for Nuclear Material and Services; Assigned Agreements. (a) The Nuclear Material Contracts listed in Exhibit C hereto, relating, among other things, to the purchase of, and services to be performed with respect to, Nuclear Material were entered into by the Lessee prior to the date of this Lease Agreement, and, except as otherwise indicated on Exhibit C, the interests of the Lessee under such Nuclear Material Contracts have been assigned to the Lessor under an Assignment Agreement substantially in the form of Exhibit D. Any further Nuclear Material Contracts which the Lessee deems necessary or desirable may be negotiated by the Lessee and executed by the Lessee in its own name or, where authorized by the Lessor, as agent for the Lessor. (b) So long as no Lease Event of Default shall have occurred and be continuing, and subject to the approval of the Lessor and to the limitation on the Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4, the interests of the Lessee under any further Nuclear Material Contracts (whether executed and delivered before or after the date of this Lease Agreement) pursuant to which the Lessee desires the Lessor to purchase Nuclear Material or have services performed on any Nuclear Material on behalf of the Lessee may be assigned to the Lessor under an Assignment Agreement substantially in the form of Exhibit D, with such changes to Exhibit 2 to Exhibit D as the Secured Parties may consent to in writing, which consent shall not be unreasonably withheld. The Lessee shall use its best efforts to cause the other parties to such agreements to consent to each such assignment. Upon each such assignment and the obtaining of such consents with respect to any Nuclear Material Contract, the Lessor, subject to the limitation on the Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4, shall make all payments which are required under such Assigned Agreements for the purchase of Nuclear Material or for services to be performed on the Nuclear Material in accordance with the procedures set forth in Section 6. 4 (c) So long as no Lease Event of Default shall have occurred and be continuing, the Lessor hereby authorizes the Lessee, at the Lessee's own cost and expense, to assert all rights and claims and to bring suits, actions and proceedings, in its own name or in the name of the Lessor, in respect of any Manufacturer's warranties or undertakings, express or implied, relating to any portion of the Nuclear Material and to retain the proceeds of any such suits, actions and proceedings. 6. Leasing Records; Payment of Costs of Lessor. (a) Interim Leasing Records. An Interim Leasing Record shall be prepared by the Lessee, shall be dated the date that the Lessor first makes any payment with respect to the Acquisition Cost of any Nuclear Material and shall set forth a full description of such Nuclear Material, the Acquisition Cost and location thereof, and such other details with respect to such Nuclear Material upon which the parties may agree. During the period of preparation and processing or reprocessing of Nuclear Material subject to an Interim Leasing Record, if the Lessor shall make any further payment or payments or if the Lessor shall receive any payment or payments representing a credit against the Acquisition Cost previously paid with respect to such Nuclear Material, a supplemental Interim Leasing Record dated the date that the Lessor makes each such further payment or the date of receipt of any such credit shall be signed by the Lessor and the Lessee to record the revised Acquisition Cost, after giving effect to any such payments or credits with respect to such Nuclear Material, any change in location and such additional details upon which the parties may agree. (b) Final Leasing Records. For Nuclear Material previously covered by an Interim Leasing Record, the Final Leasing Record shall be prepared by the Lessee, shall be dated the first day of the month following the date of installation of such Nuclear Material in the Generating Facility, unless such date is the first day of a month, in which case the Final Leasing Record shall be dated such date. For Nuclear Material not previously covered by an Interim Leasing Record, the Final Leasing Record shall be dated the date that the Lessor first makes any payment with respect to the Acquisition Cost of such Nuclear Material. A Final Leasing Record shall set forth a full description of such Nuclear Material, the Acquisition Cost thereof, the BTU Charge, the location, and such other details with respect to such Nuclear Material upon which the parties may agree. (c) Payment of Nuclear Material Costs. 5 (i) On the Closing, the Lessor shall pay UBS pursuant to Section 5.02 of the UBS Credit Agreement the principal amount of all loans outstanding thereunder together with accrued interest thereon to the extent not paid previously, and related costs and expenses in connection therewith. (ii) From time to time after the Closing, invoices of Manufacturers, or of other Persons performing services, covering Nuclear Material shall be forwarded to the Lessor in care of the Lessee at the Lessee's address. Upon receipt by the Lessee of an invoice covering Nuclear Material, the Lessee shall review such invoice and, upon the Lessee's approval thereof, the Lessee shall forward such invoice endorsed with the Lessee's approval to the Lessor, together with a Leasing Record completed and signed by a Lessee Representative covering such Nuclear Material. The Lessee's invoice for any cost incurred by it and includable in the Acquisition Cost of any Nuclear Material shall be forwarded to the Lessor and to the Secured Parties, together with a Leasing Record completed and signed by a Lessee Representative covering such costs. After receipt of such invoice and Leasing Record, in form and substance satisfactory to the Lessor, the Lessor, subject to the limitation on Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4, shall pay such invoice as provided therein or in the related purchase agreement and shall execute the Leasing Record and return a copy of such Leasing Record to the Lessee and the Secured Parties. The Leasing Record shall be dated as provided for in this Lease Agreement. In the event that the Acquisition Cost of the Nuclear Material covered by any Leasing Record has been paid or incurred by the Lessee, the Lessor, subject to the limitation on Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4 shall promptly reimburse the Lessee for the amount of the Acquisition Cost paid or incurred by the Lessee. (iii) The Lessee shall: (A) pay all costs and expenses of freight, packing, insurance, handling, storage, shipment and delivery of the Nuclear Material to the extent that the same have not been included in the Acquisition Cost, and (B) at its own cost and expense, furnish such labor, equipment and other facilities and supplies, if any, as may be required to install and erect the Nuclear Material to the extent that the cost and expense thereof have not been included in the Acquisition Cost. Such installation and erection shall be in accordance with the specifications and requirements of each Manufacturer. The Lessor shall not be liable to the Lessee for any failure or delay in obtaining Nuclear Material or making delivery thereof. 6 (d) Intermingling of Fuel Assemblies. Subject to the provisions of Section 10(h) hereof, the Nuclear Material shall be owned exclusively by the Lessor and leased to the Lessee under this Lease Agreement. Prior to the fabrication of Nuclear Material into a completed fuel assembly or sub-assembly or while such Nuclear Material is being reprocessed, the Lessee will cause or permit such Nuclear Material to be fabricated or assembled only into fuel assemblies or sub-assemblies owned by the Lessor and leased under this Lease Agreement. However, fuel assemblies or sub-assemblies owned by the Lessor and leased to the Lessee hereunder may be intermingled in the Generating Facility with fuel assemblies or sub-assemblies not owned by the Lessor and leased to the Lessee under this Lease Agreement, provided that such assemblies or sub-assemblies owned by the Lessor shall be readily identifiable by serial number or other distinguishing marks. 7. No Warranties or Representation by Lessor. THE NUCLEAR MATERIAL IS LEASED AS-IS, WHERE-IS, IN THE CONDITION THEREOF AND SUBJECT TO THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, THE STATE OF THE TITLE THERETO, THE RIGHTS OF OWNERSHIP THEREIN AND TO ALL APPLICABLE LAWS, RULES, REGULATIONS, ORDERS, WRITS, INJUNCTIONS, DECREES, CONSENTS, APPROVALS, EXEMPTIONS, AUTHORIZATIONS, LICENSES AND WITHHOLDING OF OBJECTIONS OF ANY GOVERNMENTAL OR PUBLIC BODY OR AUTHORITY AND ALL OTHER REQUIREMENTS HAVING THE FORCE OF LAW APPLICABLE AT ANY TIME TO ANY OF THE NUCLEAR MATERIALS OR ANY ACT OR TRANSACTION WITH RESPECT THERETO OR PURSUANT TO THIS LEASE AGREEMENT, IN EACH CASE AS IN EXISTENCE WHEN THE SAME FIRST BECOMES SUBJECT TO THIS LEASE AGREEMENT, WITHOUT REPRESENTATIONS OR WARRANTIES OF ANY KIND BY THE LESSOR OR ANY SECURED PARTY OR ANY PERSON ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY. THE LESSEE ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM NOR ANY OTHER PERSON ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS HAD AT ANY TIME PHYSICAL POSSESSION OF ANY PORTION OF THE NUCLEAR MATERIAL, HAS MADE ANY INSPECTION THEREOF, HAS GIVEN ANY ADVICE TO THE LESSEE OR HAS MADE ANY RECOMMENDATION TO THE LESSEE WITH RESPECT TO THE CHOICE OF THE SUPPLIER, VENDOR OR PROCESSOR OF THE NUCLEAR MATERIAL OR WITH RESPECT TO THE PROCESSING, MILLING, CONVERSION, ENRICHMENT, FABRICATION, CONTAINERIZATION, TRANSPORTATION, UTILIZATION, STORAGE OR REPROCESSING OF THE SAME. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM, NOR ANYONE ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS MADE ANY WARRANTY OR OTHER REPRESENTATION, EXPRESS OR IMPLIED, THAT THE NUCLEAR MATERIAL LEASED OR TO BE LEASED UNDER THIS LEASE AGREEMENT 7 (a) WILL NOT RESULT IN INJURY OR DAMAGE TO PERSONS OR PROPERTY, (b) WILL BE USEABLE BY THE LESSEE OR WILL ACCOMPLISH THE RESULTS WHICH THE LESSEE INTENDS FOR SUCH NUCLEAR MATERIAL OR (c) IS SAFE IN ANY MANNER OR RESPECT. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM, AND ANYONE ACTING ON BEHALF OF ANY OF THEM IS A MANUFACTURER OR ENGAGED IN THE SALE OR DISTRIBUTION OF NUCLEAR MATERIAL AND THAT NONE OF THE FOREGOING PERSONS HAS MADE OR DOES HEREBY MAKE ANY REPRESENTATION, WARRANTY OR COVENANT, EXPRESS OR IMPLIED, WITH RESPECT TO THE MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, CONDITION, QUALITY, USEABILITY, DURABILITY, SUITABILITY OR CONSEQUENCES OF USE OR MISUSE OF THE NUCLEAR MATERIAL IN ANY RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES OR USES OF THE LESSEE, OR ANY OTHER REPRESENTATION OR WARRANTY OF ANY KIND OR CHARACTER WHATSOEVER, EXPRESS OR IMPLIED. 8. Lease Term; Early Termination; Termination of Leasing Record. (a) The Lessor hereby leases to the Lessee, and the Lessee hereby leases from the Lessor, the Nuclear Material for the term provided in this Lease Agreement and subject to the terms and provisions hereof. (b) This Lease Agreement shall become effective at 12:01 A.M., Eastern time, on the Closing, and, unless earlier terminated as provided in Sections 8(c), 17 or 18, the term of this Lease Agreement shall end at the close of business on the later of (i) the date on which there is no outstanding principal of, or interest or premium, if any, on any of the Outstandings or (ii) the Termination Date but in each case in no event later than November 17, 2015. (C) In the event that during the term of this Lease Agreement, the then effective Termination Date is not extended pursuant to Section 4.01 of the Credit Agreement, the Lessee shall have the option, exercisable at any time beginning 180 days before such Termination Date upon written notice to the Lessor and the Secured Parties prior to such Termination Date to purchase (d) All (but not less than all) of the Nuclear Material and any spent fuel related thereto for which title has not been transferred to the Lessee for a purchase price equal to the Stipulated Casualty Value of such Nuclear Material at the time of such purchase plus the Termination Rent. If the Lessee exercises such purchase option, the purchase of the Nuclear Material shall occur on such date, on or prior to such Termination Date, as may be 8 (e) agreed upon by the Lessor and the Lessee and of which the Lessee has given the Secured Parties prior written notice. Upon receipt of payment of the purchase price, the Lessor shall deliver to the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring all right, title, interest and claim of the Lessor to the Nuclear Material and any spent fuel related thereto for which title has not already been transferred to the Lessee, to the Lessee or the Lessee's designee, free and clear of all Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. The later of (i) the date on which there is no outstanding principal of, or interest or premium, if any, on any of the Outstandings or (ii) the date of any sale by the Lessor of all of the Nuclear Material as provided in this Section 8(c) shall constitute the Termination Settlement Date, and this Lease Agreement shall terminate as of such date. (f) In the event that during the term of this Lease Agreement the then effective Termination Date is not extended pursuant to Section 4.01 of the Credit Agreement and the Lessee shall not have exercised its option to purchase pursuant to Section 8(c), the Lessee shall attempt to sell, or if no sale is possible, to otherwise convey, on behalf of the Lessor, ownership of the Nuclear Material to a third party not disqualified by any applicable statute, law, regulation or agreement from acquiring such Nuclear Material, and, upon prior written notice to the Lessor and the Secured Parties of the terms and date of such sale, the Lessor shall furnish title papers as may be necessary to effect such sale or conveyance on an as-is, where-is, non-installment, cash sale basis, without recourse to or warranty or agreement of any kind by the Lessor. The proceeds of such sale or conveyance shall be paid to the Lessor, and any amount so paid shall constitute a credit against the amount of the Stipulated Casualty Value payable by the Lessee under Section 8(e); provided, however, that any proceeds of such sale or conveyance in excess of the amount payable by the Lessee under Section 8(e) shall be retained by the Lessee. (g) On the Termination Date unless the Lessee shall have exercised its purchase option set forth in Section 8(c) and paid the Lessor the purchase price of the Nuclear Material as provided therein, the Lessee shall pay to the Lessor an amount equal to the sum of (i) the Stipulated Casualty Value of all Nuclear Material leased under this Lease Agreement as of such Termination Date and of all Nuclear Material sold or conveyed pursuant to Section 8(d) (less any credit provided in Section 8(d)), and (ii) the Termination Rent as of such Termination Date. Upon receipt of such payment, the Lessor shall deliver to the Lessee or any designee of the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring all right, title, interest and claim of the Lessor to the Nuclear Material and any spent fuel relating thereto for which title has not been 9 transferred to the Lessee to the Lessee or the Lessee's designee, free and clear of all Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. (h) In the event that during the term of this Lease Agreement, the then effective Termination Date is not extended pursuant to Section 4.01 of the Credit Agreement, all obligations of the Lessor and Lessee under this Lease Agreement with respect to the Nuclear Material, including the obligation of the Lessee to pay Basic Rent and the obligation of the Lessor to acquire and pay for the Nuclear Material and to lease the same to the Lessee shall terminate on the date on which the Lessor receives the payment specified in Section 8(c) or Section 8(e). (i) The Lessee shall deliver to the Lessor and to the Secured Parties a Rent Due and SCV Confirmation Schedule in the form of Exhibit F within thirty (30) days following the date on which any Nuclear Material or spent fuel resulting from the Nuclear Material is removed from the reactor of the Generating Facility for purposes of "cooling-off" preliminary to reprocessing or permanent on-site safe storage and/or off-site disposal. If the Lessee elects within thirty (30) days following the receipt by the Lessor of such Rent Due and SCV Confirmation Schedule to extend the lease term for the purposes of reprocessing any such Nuclear Material, then the Lessor and the Lessee shall enter into an Interim Leasing Record with respect to such Nuclear Material in its then condition. In all other cases, the Final Leasing Record with respect to any such Nuclear Material or spent fuel resulting from such Nuclear Material shall be terminated and the Lessee shall immediately pay to the Lessor all amounts, including the Stipulated Casualty Value, if any, with respect to such Nuclear Material or spent fuel resulting from such Nuclear Material, and, upon receipt thereof, the Lessor shall deliver to the Lessee or to any designee of the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring all right, title, interest and claim of the Lessor to such Nuclear Material or spent fuel resulting from such Nuclear Material for which title has not already been transferred to the Lessee or the Lessee's designee, free and clear of all Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. 9. Payment of Rent; Payments with Respect to the Lessor's Financing Costs. (a) Basic Rent. The Lessee shall pay Basic Rent monthly in arrears on the first day of the next succeeding month. If such first day of the month is not a Business Day, then payment shall be made on the next succeeding Business Day. 10 (b) Additional Rent. In addition to the Basic Rent, the Lessee will also pay from time to time as provided in this Lease Agreement or on demand of the Lessor, all Additional Rent on the due date thereof. In the event of any failure by the Lessee to pay any Additional Rent, the Lessor shall have all the rights, powers and remedies as in the case of failure to pay Basic Rent. (c) Prepayments of Basic Rent. The Lessee may prepay Basic Rent at any time. Such payment shall be credited against subsequent amounts owed by the Lessee on account of Basic Rent. (d) Wire Payment Procedure for Paying Basic Rent. All payments of Rent and other payments to be made by the Lessee to the Lessor pursuant to this Lease Agreement shall be paid to the Lessor (or, at the Lessor's request, to the Secured Parties) in lawful money of the United States in Collected Funds by wire transfer pursuant to Section 3.03 of the Credit Agreement. The Lessee shall furnish to the Lessor and the Secured Parties each month during the term of the Lease Agreement a summary of the rental calculations for such month covering all outstanding Leasing Records. On each Basic Rent Payment Date, the Lessee shall deliver to the Lessor and the Secured Parties a signed and completed Rent Due and SCV Confirmation Schedule. The Lessee shall be responsible for the accuracy of the matters contained in all such schedules delivered by the Lessee pursuant to the provisions of this Lease Agreement. 10. Compliance with Laws; Restricted Use of Nuclear Material; Assignments; Permitted Liens; Spent Fuel. (a) Compliance with Legal Requirements. Subject to the provisions of Section 11 hereof, the Lessee agrees to comply with all Legal Requirements. (b) Recording of Title. The Lessee shall promptly and duly execute, deliver, file and record all such further counterparts of this Lease Agreement or such certificates, Bills of Sale, financing and continuation statements and other instruments as may be reasonably requested by the Lessor and take such further actions as the Lessor shall from time to time reasonably request, in order to establish, perfect and maintain the rights and remedies created or intended to be created in favor of the Lessor and the Secured Parties under this Lease Agreement and the Lessor's title to and interest in the Nuclear Material as against the Lessee or any third party in any applicable jurisdiction. 11 (c) Exclusive Use of Nuclear Material. So long as no Lease Event Default shall have occurred and be continuing, the Lessee may use the Nuclear Material in the regular course of its business or in the business of any subsidiary or affiliate of the Lessee, and, subject to Section 3(d) and upon thirty (30) days' prior notice in writing to the Lessor and the Secured Parties, or upon such shorter prior notice in writing promptly given upon the Lessee's receipt of notice from any Manufacturer that the Nuclear Material is to be moved, and at the Lessee's sole expense (without limiting the Lessee's rights to request payment by the Lessor of such expense as provided in Section 6 hereof) move such Nuclear Material to any jurisdiction approved in writing by the Lessor in the contiguous forty-eight (48) states of the United States of America and the District of Columbia for the purpose of having services performed on such Nuclear Material in connection with any stage of the Nuclear Material Cycle other than Heat Production and the "cooling off" stage, provided that (i) no such movement of the Nuclear Material shall materially reduce the then fair market value of such Nuclear Material, (ii) such Nuclear Material shall be and remain the property of the Lessor, subject to this Lease Agreement, and (iii) all Legal Requirements (including, without limitation, all necessary government consents, permits and approvals) shall have been met or obtained by the Lessee, on its own behalf and on behalf of the Lessor, and all necessary recordings, filings and registrations or recordings, filings and registrations which the Lessor shall reasonably consider advisable shall have been duly made in order to protect the validity and effectiveness of this Lease Agreement and the security interest created in the Security Agreement. At least once each year, or more frequently if the Lessor reasonably so requests, the Lessee shall advise the Lessor and the Secured Parties in writing where all Nuclear Material as of such date is located. The Lessee shall maintain and make available to the Lessor for examination upon reasonable notice complete and adequate records pertaining to receipt, possession, use, location, movement, physical inventories and any other information reasonably requested by the Lessor with respect to the Nuclear Material. (d) Additional Lessee Covenants. The Lessee agrees to use every reasonable precaution to prevent loss or damage to the Nuclear Material. All individuals handling or operating Nuclear Material in the possession of the Lessee shall be conclusively presumed not to be agents of the Lessor. The Lessee shall cooperate fully with the Lessor and all insurance companies and governmental agencies providing insurance under Section 12 hereof in the investigation and defense of any claims or suits arising from the licensing, acquisition, storage, containerization, transportation, blending, transfer, consumption, leasing, insuring, operating, disposing, fabricating and reprocessing of the Nuclear Material. To the extent required by any applicable law or regulation, the Lessee shall attach to the Nuclear Material the 12 form of required notice to protect or disclose the ownership of the Lessor or that the Nuclear Material is leased. So long as no Lease Event of Default shall have occurred and be continuing, the Lessor will assign or otherwise make available to the Lessee all of its rights under any Manufacturer's warranty on Nuclear Material. The Lessee shall pay all costs, expenses, fees and charges, except Acquisition Costs, incurred by the Lessee in connection with the use and operation of the Nuclear Material during the term of the lease of such Nuclear Material. The Lessee hereby assumes all risks of loss or damage of Nuclear Material however caused and shall, at its own expense, keep the Nuclear Material in good operating condition and repair, reasonable wear and tear, obsolescence and exhaustion excepted. (e) Assignment by Lessor. Except as otherwise herein provided, the Lessor may not, without the prior written consent of the Lessee, sell, assign, transfer or convey the Nuclear Material or any interest therein or in the Lease Agreement, or grant to any party a security interest in, or create a lien or encumbrance upon, all or any part of its right, title and interest in this Lease Agreement and in any Nuclear Material. After receipt by the Lessee of written notice from the Lessor of any assignment by the Lessor of Rents or other sums payable by the Lessee under this Lease Agreement, the Lessee shall make such payments as directed in such notice of assignment, and such payments shall discharge the obligations of the Lessee hereunder to the extent of such payments. The Lessee hereby consents to the security interest and other rights and interests granted to the Secured Parties under the Security Agreement, dated as of the date first above written. (f) Liens; Permitted Liens. The Lessee will not directly or indirectly create or permit to be created or to remain and will discharge any Lien with respect to the Nuclear Material or any portion thereof, or upon the Lessee's leasehold interest therein, or upon the Basic Rent, Additional Rent, or any other sum payable under this Lease Agreement, other than Permitted Liens. (g) Assignment by Lessee. Notwithstanding any provision of this Lease Agreement to the contrary, subject to applicable laws and regulations and so long as no Lease Event of Default shall have occurred and be continuing, the Lessee may sublease the Nuclear Material provided that (i) the Lessee has given prior written notice of such sublease to the Lessor, (ii) such sublease is not inconsistent with, and is expressly subject to, this Lease Agreement and (iii) such sublease does not in any way limit or affect the Lessee's duties and obligations under this Lease Agreement. (h) Transfer of Title to Manufacturers. The parties recognize that, during the processing and reprocessing of Nuclear Material before and after its utilization in the Generating Facility for the production of power, the Manufacturer performing 13 services on the Nuclear Material may require that title thereto be transferred to such Manufacturer and/or that the Nuclear Material be commingled with other nuclear material, with an obligation for the Manufacturer, upon completion of the services, to reconvey a specified amount of nuclear material. The standard enrichment contracts of the Department of Energy contain such provisions. Therefore, the parties agree that (i) Nuclear Material may become subject to such a contract provision and that the action contemplated by such a provision may be taken, notwithstanding any provision of this Lease Agreement to the contrary, (ii) as between the Lessor and the Lessee, such Nuclear Material shall be deemed to remain leased under this Lease Agreement while title thereto is in the Manufacturer, and (iii) the nuclear material exchanged by the Manufacturer upon completion of its services shall be automatically leased under this Lease Agreement in substitution for the Nuclear Material originally delivered to the Manufacturer. (i) Substitution of Nuclear Material. The Lessee shall be permitted to exchange Nuclear Material for other Nuclear Material of equal or greater fair market value provided that the Lessor receives title to such substituted Nuclear Material free and clear of any Lien other than such Liens as may be created by the Security Agreement or permitted under Section 10(h). Any additional costs incurred in order to effect such an exchange shall be paid by the Lessor in accordance with the procedures set forth in Section 6(c) and shall be added to the Acquisition Cost of the Nuclear Material. A supplemental Leasing Record dated the date that the Lessor makes such further payment shall be signed by the Lessor and the Lessee to record the revised Acquisition Cost and shall include a full description of the substituted Nuclear Material, notice of any change in location and such additional details upon which the parties may agree. (j) Spent Fuel. Without the consent of the Lessor, the Lessee shall not permit any Nuclear Material, which shall have been removed from a Generating Facility for the purpose of "cooling-off," storage, repair or reprocessing to be removed from the site of the Generating Facility unless (i) the new site of such Nuclear Material is a facility maintaining liability insurance and indemnification fully insuring and indemnifying the Lessor, the Lessee and the Secured Parties under the Atomic Energy Act and any other applicable law, rule or regulation, and (ii) except if the lease term is extended pursuant to the second sentence of Section 8(g), the lease of such Nuclear Material shall, concurrently with its removal from the Generating Facility, be terminated by the Lessee pursuant to the provisions of Section 8 or 18 hereof, as applicable, with the Lessee acquiring the ownership thereof pursuant to Section 8(e), 8(g) or Section 18(c), as applicable. 14 11. Permitted Contests. The Lessee at its expense may, in its own name or, if necessary and permitted, in the name of the Lessor (and, if necessary but not so permitted, the Lessee may require the Lessor to) contest after prior notice to the Lessor, by appropriate legal or administrative proceedings conducted in good faith and with due diligence, the amount, validity or application, in whole or in part, of any Imposition or Lien therefor, or any Legal Requirements or Insurance Requirements, or any matter underlying Lessee's indemnity obligations under Section 13 hereof, or any other Lien or contract or agreement referred to in Section 10(f) hereof; provided that (i) in the case of an unpaid Imposition or Lien therefor, such proceedings shall suspend the collection of such Imposition or the enforcement of such Lien against the Lessor, (ii) neither the Lessee's use of the Nuclear Material or any portion thereof nor the taking of any step necessary or proper with respect to such Nuclear Material in any stage of the Nuclear Material Cycle nor the performance of any other act required to be performed by the Lessee under this Lease Agreement would be enjoined, prevented or otherwise interfered with, (iii) the Lessor would not be subject to any additional civil liability (other than interest which the Lessee agrees to pay) or any criminal liability for failure to pay any such Imposition or to comply with any such Legal Requirements or Insurance Requirements or any such other Lien, contract or agreement, and (iv) the Lessee shall have set aside on its books adequate reserves (in accordance with generally accepted accounting principles) and shall have furnished such security, if any, as may be required in the proceedings or reasonably requested by the Lessor. The Lessee will pay, and save the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties harmless against, all losses, judgments, decrees and costs, including attorneys' fees and expenses, in connection with any such contest and will, promptly after the determination of such contest, pay and discharge the amounts which shall be levied, assessed or imposed or determined to be payable, together with all penalties, fines, interest, costs and expenses incurred in connection with such contest. All rights and indemnification obligations under this Section 11 and each other indemnification obligation in favor of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties under this Lease Agreement shall survive any termination of this Lease Agreement or of the lease of any Nuclear Material hereunder. 12. Insurance; Compliance with Insurance Requirements. The Lessee shall comply with all Insurance Requirements and with all Legal Requirements pertaining to insurance. Without limiting the foregoing: (a) Liability and Casualty Insurance. The Lessee shall, at its own cost and expense, procure and maintain, or cause to be procured and maintained, liability insurance and 15 indemnification with respect to the Nuclear Material insuring and indemnifying the Lessor, the Owner Trustee, U.S. Trust, the Lessee, and the Secured Parties to the full extent required or available, whichever may be greater, under the Atomic Energy Act or under any other applicable law, rule or regulation. In the event the provisions of the Atomic Energy Act with respect to liability insurance and the indemnification of owners, licensees and operators of Nuclear Material or any other provisions of the Atomic Energy Act which benefit the Lessor, the Owner Trustee, U.S. Trust or the Secured Parties shall change, then the Lessee shall use its best efforts to obtain equivalent insurance and indemnification agreements from the Nuclear Regulatory Commission or from such other public and/or private sources from which such coverage is available. The Lessee shall also, at its own cost and expense, procure and maintain, or cause to be procured and maintained, physical damage insurance with respect to the Nuclear Material insuring the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties against loss or damage to the Nuclear Material in a manner which is consistent at all times with current prudent utility industry practice in the United States; provided, however, that the Lessee shall in any event maintain physical damage insurance coverage for its Three Mile Island Unit 1 nuclear generating station site, including the Nuclear Material, in an amount not less than $1.11 billion. Such liability and physical damage insurance and indemnification agreements may be subject to deductible amounts which do not exceed in the aggregate $5,000,000, and the Lessee may self-insure with respect to such liability and physical damage insurance and indemnification agreements to the extent of $5,000,000, provided that such deductible amounts and such self-insurance are permitted under all applicable law, rules and regulations. (b) Third Parties; Insurance Requirements. The Lessee shall use its best efforts to provide that the Nuclear Material, while in the possession of third parties, is covered for liability insurance and indemnification to the maximum extent available, and for physical damage insurance in an amount not less than the Stipulated Casualty Value of such Nuclear Material. To the extent that any such third party is maintaining such insurance coverage for the Nuclear Material, the Lessee shall have no obligation to do so under this Lease Agreement. (c) Named Insureds; Loss Payees. The Lessee shall provide for the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent to be named additional insureds where possible, and, with respect to physical damage coverage, named loss payees to the full extent of their interests in all insurance policies and 16 indemnification agreements relating to the Nuclear Material required under this Section. All such policies and, where possible, indemnification agreements, shall provide for at least ten (10) days' prior written notice to the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent of any cancellation or material alteration of such policies. (d) Insurance Certificates. The Lessee shall, upon request of the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, provide the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, as the case may be, with copies of the policies or insurance certificates in respect of the insurance procured pursuant to the provisions of this Section and shall advise the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent of all expirations and renewals of policies and all notices issued by the insurers with respect to such policies. Within a six-month period from the execution of this Lease Agreement and at yearly intervals thereafter, the Lessee shall furnish to the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent a certificate as to the insurance coverage provided pursuant to this Section and shall further give notice as to any material change in the nature or availability of such coverage, including any material change whatsoever in the provisions of the Atomic Energy Act or any other applicable law, rule or regulation with respect to liability insurance and indemnification, or, immediately after the Lessee becomes aware, or should reasonably be expected to become aware, of any material change in the application, interpretation or enforcement thereof. The Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent shall be under no duty to examine such insurance policies or indemnification agreements or to advise the Lessee in case the Lessee is not in compliance with any Insurance Requirements. 13. Indemnity. Without limitation of any other provision of this Lease Agreement, including Section 11, the Lessee agrees to indemnify and hold harmless each of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties and all companies, persons or firms controlling, controlled by, or under common control with any of them and the respective shareholders, directors, officers and employees of the foregoing against any and all claims, demands and liabilities of whatever nature and all costs, losses, damages, obligations, penalties, causes of action, judgments and expenses (including attorneys' fees and expenses) directly or indirectly relating to or in any way arising out of: (a) defects in title to Nuclear Material upon acquisition by the Lessor or in ownership of and interest in the Nuclear Material (the term "Nuclear Material" when used in this Section 13 shall include, in addition to all other Nuclear Material, nuclear material the lease of which has been terminated and which is in storage, or is being transported to storage, and which has not been sold or disposed of by the Lessor to the Lessee or to a third party); 17 (b) the ownership, licensing, ordering, rejection, use, nonuse, misuse, possession, control, installation, acquisition, storage, containerization, transportation, blending, transfer, consumption, leasing, insuring, operating, disposing, fabricating, channelling, refining, milling, enriching, conversion, cooling, processing, condition, operation, inspection, repair and reprocessing of the Nuclear Material, or resulting from the condition of the environment including the adjoining and/or underlying land, water, buildings, streets or ways, except to the extent that such costs are included in the Acquisition Cost of such Nuclear Material within the limits specified in Section 4 (or within any change of such limits agreed to in writing by the Lessor and the Lessee) and except for any general administrative expenses of the Secured Parties and of their representatives; (c) the assertion of any claim or demand based upon any infringement or alleged infringement of any patent or other right, by or in respect of any Nuclear Material; provided, however, that the Lessor shall have made available to the Lessee all of the Lessor's rights under any similar indemnification from the Manufacturer of such Nuclear Material under any Nuclear Material Contract; (d) all federal, state, county, municipal, foreign or other fees and taxes of whatever nature including, but not limited to, license, qualification, franchise, sales, use, business, gross receipts, ad valorem, property, excise, and occupation fees and taxes and penalties and interest thereon, whether assessed, levied against or payable by the Lessor or any Secured Party or to which the Lessor or any Secured Party is subject with respect to the Nuclear Material or the Lessor's or any Secured Party's ownership thereof or interest therein or the licensing, ordering, ownership, use, possession, control, acquisition, storage, containerization, transportation, blending, milling, enriching, transfer, consumption, leasing, insuring, operating, disposing, fabricating, channelling, refining, conversion, cooling and reprocessing of Nuclear Material or measured in any way by the value thereof or by the business of investment in, financing of or ownership by the Lessor or any Secured Party with respect thereto; provided, however, that the Lessee shall not be obligated to indemnify any Secured Party for any taxes, whether federal, state or local, based on or measured by net income of any Secured Party where taxable income is computed in substantially the same manner as taxable income is computed under the Code; (e) any injury to or disease, sickness or death of persons or loss of or damage to property occurring through or resulting from any Nuclear Incident involving or connected in any way with the Nuclear Material or any portion thereof; 18 (f) any violation, or alleged violation, of this Lease Agreement by the Lessee or of any contracts or agreements to which the Lessee is a party or by which it is bound or any laws, rules, regulations, orders, writs, injunctions, decrees, consents, approvals, exemptions, authorizations, licenses and withholdings of objection, of any governmental or public body or authority and all other requirements having the force of law applicable at any time to the Nuclear Material or any action or transaction by the Lessee with respect thereto or pursuant to this Lease Agreement; (g) performance of any labor or service or the furnishing of any materials in respect of the Nuclear Material or any portion thereof, except to the extent that such costs are included in the Acquisition Cost of such Nuclear Material within the limits specified in Section 4 (or within any change of such limits agreed to in writing by the Lessor and the Lessee); or (h) liabilities based upon a theory of strict liability in tort, negligence or willful acts to the extent that such liabilities relate to the Nuclear Material or any action or transaction with respect thereto or pursuant to this Lease Agreement. The Lessee shall, upon demand, reimburse the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties, as the case may be, for any sum or sums expended with respect to any of the foregoing or advance such amount, upon request by the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or such other party for payment thereof. With respect solely to the Lessor, the amount of any payment obligation of the Lessee under this Section 13 shall be determined on a net, after-tax basis, taking into account any tax benefit to the Lessor. Notwithstanding the foregoing, the Lessee shall not indemnify or hold harmless the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties for (i) any claims, demands, liabilities, costs or expenses which arise, result from or relate to obligations of such party as an insurer under contracts or agreements of insurance or reinsurance or (ii) any liability arising from the willful misconduct or gross negligence of the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties; provided, however, that the Lessee shall in any event indemnify and hold harmless the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties and other indemnified parties for that part of any such liability to which the Lessee has contributed. Without limiting any of the foregoing provisions of this Section 13, to the extent that the Lessee in fact indemnifies the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or such other party under this indemnity provision, the Lessee shall be subrogated to the rights of the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties and such other party in the affected transaction and shall have a right to determine the settlement of 19 claims with respect to such transaction, provided that any such rights to which the Lessee shall be subrogated shall be subordinate and subject in right of payment to the prior payment in full of all liabilities to the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties of the person or entity in respect of which such rights exist. The Lessor shall claim, on a timely basis, any refund to which it may be entitled with respect to any fees or taxes for which the Lessor has sought indemnification from the Lessee under Section 13(d), shall take all steps necessary to prosecute diligently such claim and shall pay over to the Lessee any refund (together with any interest received thereon) recovered by the Lessor with respect to such fees or taxes as soon as practicable following receipt thereof, provided that the Lessee shall have previously indemnified the Lessor with respect to such fees or taxes. The Owner Trustee, U.S. Trust and the Secured Parties, at the expense of the Lessee, (i) shall cooperate with the Lessee in such manner as the Lessee shall reasonably request in order to claim, on a timely basis, any refund to which the Owner Trustee, U.S. Trust or the Secured Parties may be entitled with respect to any fees or taxes for which the Lessee has indemnified the Owner Trustee, U.S. Trust or any Secured Party or for which the Lessee has an obligation to indemnify the Owner Trustee, U.S. Trust or the Secured Parties under Section 13(d) (provided that the Lessee is not in default of such obligation) if such cooperation is necessary in order to claim such refund, (ii) shall take all steps which the Lessee shall reasonably request which are necessary to prosecute such claim, and (iii) shall pay over to the Lessee any refund (together with any interest received thereon) recovered by the Owner Trustee, U.S. Trust or any Secured Party with respect to such fees or taxes as soon as practicable following receipt thereof, provided that the Lessee shall have previously indemnified the Owner Trustee, U.S. Trust or such Secured Party with respect to such fees or taxes. All rights and indemnification obligations under this Section 13, and each other indemnification obligation in favor of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties under this Agreement, shall survive any termination of this Lease Agreement or of the lease of any Nuclear Material hereunder. 14. Casualty and Other Events. Upon the occurrence of any one or more of the following events: (a) the loss, destruction or damage beyond repair of any Nuclear Material, or (b) the commandeering, condemnation, attachment or loss of use to the Lessee of any Nuclear Material by reason of the act of any third party or governmental instrumentality or the deprivation or loss of use to the Lessee of any Nuclear Material for any other reason, other than by reason of a Lease Event of Default, for a period exceeding ninety (90) days; or 20 (c) a determination by the Lessee in its sole discretion that any Nuclear Material is no longer useful to the Lessee, provided, however, that (i) no Lease Event of Default has occurred and is continuing, and (ii) no such determination may be made by the Lessee with respect to any Nuclear Material prior to November 5, 1999; Then, in any such case, the Lessee promptly shall give written notice to the Lessor and the Secured Parties of any such event, and upon the earlier of (i) ten (10) days following receipt of any insurance or other proceeds paid with respect to the foregoing or (ii) one hundred and twenty (120) days after the occurrence of any such event, the Lessee shall pay to the Lessor an amount equal to the then Stipulated Casualty Value of such Nuclear Material, together with any Basic Rent and Additional Rent then due with respect to such Nuclear Material. The lease of such Nuclear Material hereunder and the obligation of the Lessee to pay Basic Rent and Additional Rent with respect to such Nuclear Material shall continue until the day on which the Lessor receives payment of such Stipulated Casualty Value, Basic Rent and Additional Rent. Upon the giving of written notice of the occurrence of such an event, the Lessee shall promptly use its best efforts to sell, or, if no sale is possible, to otherwise convey, on behalf of the Lessor, ownership of such Nuclear Material to a third party not disqualified by any applicable statute, law, regulation or agreement from acquiring such Nuclear Material, and the Lessor shall furnish title papers as may be necessary to effect such sale or conveyance on an as-is, where-is, non-installment, cash sale basis without recourse to or warranty or agreement of any kind by the Lessor. Any such sale or conveyance shall be effected on or before the date one hundred and twenty (120) days after the date of the occurrence of such event. The proceeds of such sale or conveyance shall be paid to the Lessor, and any amount so paid shall constitute a credit against the amount of the Stipulated Casualty Value payable by the Lessee under this Section 14. 15. Nuclear Material to Remain Personal Property. It is expressly understood and agreed that the Nuclear Material shall be and remain personal property notwithstanding the manner in which it may be attached or affixed to realty and notwithstanding any law or custom or the provisions of any lease, mortgage or other instrument applicable to any such realty. The Lessee agrees to indemnify the Lessor and the Secured Parties against, and to hold the Lessor and the Secured Parties harmless from, all losses, costs and expenses (including reasonable attorneys' fees and expenses) resulting from any of the Nuclear Material becoming part of any realty. Upon termination of the lease of any Nuclear Material, any costs of removal, transportation, storage and delivery of such Nuclear Material shall be paid by the Lessee. The Lessor and the Secured Parties shall not be liable for any physical damage caused to any realty or any building by reason of the removal of the Nuclear Material therefrom. 21 16. Events of Default. Each of the following events of default by the Lessee shall constitute a "Lease Event of Default" and give rise to the rights on the part of the Lessor described in Section 17 hereof: (i) Default in the payment of Basic Rent or Additional Rent, if any, on the date on which such payment is due and the continuance of such default for five (5) days; (ii) Default in the payment of Termination Rent; (iii) The Lessee shall fail to maintain liability and casualty insurance pursuant to its obligations under Section 12(a) of this Lease Agreement; (iv) The Lessee shall fail to perform its obligations to purchase Nuclear Material pursuant to Section 8(e) of this Lease Agreement; (v) Any representation or warranty or statement made by the Lessee (or any of its officers) herein or in connection with this Lease Agreement shall prove to be incorrect or misleading in any material respect when made; (vi) Default in the payment or performance of any other material liability or obligation or covenant of the Lessee to the Lessor, and the continuance of such default for thirty (30) days after written notice to the Lessee sent by registered or certified mail; (vii) The Lessee suspends or discontinues its business operations or becomes insolvent (however such insolvency may be evidenced) or admits insolvency or bankruptcy or its inability to pay its debts as they mature, makes an assignment for the benefit of creditors or applies for or consents to the appointment of a trustee or receiver for the Lessee or for the major part of its property; (viii) The institution of bankruptcy, reorganization, liquidation or receivership proceedings for relief under any bankruptcy law or similar law for the relief of debtors by or against the Lessee and, if instituted against the Lessee, its consent thereto or the pendency of such proceedings for sixty (60) days; (ix) An event of default (the effect of which is to permit the holder or holders of any instrument, or the trustee or agent on behalf of such holder or holders, to cause the indebtedness evidenced by such instrument to become due prior to its stated maturity) shall occur under the provisions of any instrument evidencing indebtedness for borrowed money 22 of the Lessee in a principal amount equal to at least $20,000,000 or if any obligation of the Lessee for the payment of such indebtedness shall become or be declared to be due and payable prior to its stated maturity, or shall not be paid when due and is not paid within the applicable cure period, if any, provided for the payment of such indebtedness under such instrument; (x) An event of default shall occur under the provisions of any Basic Document and such default shall have continued beyond any applicable cure period. (xi) A final judgment in an amount in excess of $20,000,000 is rendered against the Lessee, and within thirty (30) days after the entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within thirty (30) days after the expiration of any such stay, such judgment is not discharged; or (xii) Other than pursuant to a condemnation proceeding, any court, governmental officer or agency shall, under color of legal authority, take and hold possession of any substantial part of the property or assets of the Lessee. 17. Rights of the Lessor Upon Default of the Lessee. Upon the occurrence of any Lease Event of Default, the Lessor may, in its discretion, and shall, at the direction of the Secured Parties, do one or more of the following: (a) Terminate the lease term of any or all Nuclear Material upon five (5) days written notice to the Lessee sent by registered or certified mail; (b) Whether or not any lease of any Nuclear Material is terminated, and, subject to any applicable law or regulation, take immediate possession of any or all Nuclear Material or cause such Nuclear Material to be taken from the possession of the Lessee, and/or take immediate possession of and remove other property of the Lessor in the possession of the Lessee, wherever situated and for such purpose enter upon any premises without liability for so doing or require the Lessee, at the Lessee's expense, to deliver the Nuclear Material, properly containerized and insulated for shipping to the Lessor or to such other person as the Lessor may designate, in which case the risk of loss shall be upon the Lessee until such delivery is made; (c) Whether or not any action has been taken under (a) or (b) above, and subject to any applicable law or regulation, sell any Nuclear Material (with or without the concurrence and whether or not at the request of the Lessee) at public or private sale, and the Lessee shall be liable for and shall promptly pay to the Lessor all unpaid Rent to the date of receipt by the Lessor of 23 the proceeds of such sale plus any deficiency between the net proceeds of such sale and the Stipulated Casualty Value of such Nuclear Material at the time of such payment by the Lessee; provided, however, that any proceeds of such sale in excess of the sum of such unpaid Rent, the Stipulated Casualty Value of such Nuclear Material and all other amounts payable by the Lessee under this Section 17 shall be received for the benefit of, and shall be paid over to the Lessee, as soon as practicable after receipt thereof; (d) Subject to any applicable law or regulation, sell in a commercially reasonable manner, dispose of, hold, use, operate, remove, lease or keep idle any Nuclear Material as the Lessor in its sole discretion may determine, without any obligation to account to the Lessee with respect to such action or inaction or for any proceeds thereof, except that the net proceeds of any such selling, disposing of, holding, using, operating or leasing shall be credited by the Lessor against any Rent accruing after the Lessor shall have declared this Lease Agreement as to any or all of the Nuclear Material to be in default pursuant to this Section; provided, however, that any net proceeds of any such selling, disposing of, holding, using, operating or leasing in excess of the sum of any such accrued Rent and all other amounts payable by the Lessee under this Section 17 shall be received for the benefit of, and shall be paid over to the Lessee, as soon as practicable after receipt thereof; (e) Terminate this Lease Agreement as to any or all of the Nuclear Material or exercise any other right or remedy which may be available under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof. If the Lessee fails to deliver, promptly after written request, the Nuclear Material pursuant to (b), above, subject to reasonable wear and tear, obsolescence and exhaustion, in good operating condition and repair, or converts or destroys any Nuclear Material, the Lessee shall be liable to the Lessor for all Rent then due and payable on the Nuclear Material, all other amounts then due and payable under this Lease Agreement, the then Stipulated Casualty Value of such Nuclear Material, plus any loss, damage and expense (including without limitation reasonable attorneys' fees and expenses) sustained by the Lessor by reason of such Lease Event of Default and the exercise of the Lessor's remedies with respect thereto, including any costs incurred under the Credit Agreement and the Security Agreement, and any other amounts owed to the Secured Parties with respect to the Notes. If, upon the occurrence of a Lease Event of Default, the Lessee delivers Nuclear Material to the Lessor or to such other person as the Lessor may designate, or if the Lessor repossesses or causes Nuclear Material to be repossessed on its behalf, the Lessee shall be liable for and the Lessor may recover from the Lessee all Rent on the Nuclear Material due and payable to the date of such delivery or repossession, all other amounts due and payable under 24 this Lease Agreement, plus any loss, damage and expense (including without limitation reasonable attorneys' fees and expenses) sustained by the Lessor by reason of such Lease Event of Default and the exercise of the Lessor's remedies with respect thereto. No remedy referred to in this Section 17 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to the Lessor at law or in equity and the exercise in whole or in part by the Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by the Lessor of any or all such other remedies. No waiver by the Lessor of any Lease Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Lease Event of Default. 18. Termination After Certain Events. (a) This Lease Agreement may terminate as provided in Section 18(b) below prior to the expiration of its term in connection with any of the following "Terminating Events": (i) The Lessor shall have given notice that the Lessor is not satisfied with any change in the insurers, coverage, amount or terms of any insurance policy or indemnity agreement required to be obtained and maintained by the Lessee pursuant to Section 12; (ii) There shall occur the revocation or material adverse modification of any authorization, consent, exemption or approval theretofore obtained from any regulatory body or governmental authority necessary for the carrying out of the intent and purposes of this Lease Agreement or the actions or transactions contemplated hereby, and the effectiveness of any such revocation or material adverse modification shall not be stayed pending any appeal thereof; (iii) A Nuclear Incident involving or connected in any way with the Nuclear Material shall have occurred, and the Lessor shall have given notice to the Lessee that the Lessor believes such Nuclear Incident may give rise to an aggregate liability, or to damage, destruction or personal injury in excess of $20,000,000; (iv) There shall have occurred a Deemed Loss Event; (v) Any change in, or new interpretation by a governmental authority having jurisdiction relating to, the Price-Anderson Act, as amended, or the Atomic Energy Act, or the regulations of the Nuclear Regulatory Commission thereunder, in each case as in effect on the date of this Lease Agreement, shall have been adopted, and the Lessor shall 25 have given notice to the Lessee that, in the opinion of independent counsel selected by the Lessor and reasonably satisfactory to the Lessee and the Secured Parties as a result of such change or new interpretation the Lessor is prohibited from asserting any material right, protection or defense available under applicable law as of the date of this Lease Agreement with respect to civil or criminal actions brought in connection with a Nuclear Incident; (vi) Any law or regulation or interpretation (judicial, regulatory or otherwise) of any law or regulation shall be adopted or enforced by any Court or governmental authority, and as a result of such adoption or enforcement, approval of the transactions contemplated by this Lease Agreement shall be required and shall not have been obtained within any applicable grace period after such adoption or enforcement or as a result of which adoption or enforcement this Lease Agreement or any transaction contemplated hereby, including any payments to be made by the Lessee or the ownership of the Nuclear Material by the Lessor, shall be or become unlawful, or the performance of this Lease Agreement shall be rendered impracticable in any material way; or (vii) Any governmental licenses, approvals or consents with respect to the Generating Facility, without which the Generating Facility cannot continue to operate, shall have been revoked and the Lessee shall not have, in good faith, within one hundred and eighty (180) days of such revocation, represented in writing to the Lessor that the Lessee has made a good faith determination that such Generating Facility will return to operation within twenty-four (24) months of such revocation, or for any other reason the Generating Facility shall cease to be operated for a period of twenty-four (24) consecutive months. (b) Upon the happening of any of the Terminating Events listed in Section 18(a), Lessor and/or the Secured Parties may, at their option, terminate this Lease Agreement, such termination to be effective upon delivery of the Notice contemplated by paragraph (d)(ii) below, except with respect to obligations and liabilities of the Lessee, actual or contingent, which arose under the Lease Agreement on or prior to the date of termination and except for the Lessee's obligations set forth in Sections 10, 12 and 13, and in this Section 18, all of which obligations will continue until the delivery of documentation by the Lessor and the payment by the Lessee provided for below, and except that after such delivery and payment, the Lessee's obligations under Section 13 shall continue as therein set forth as shall all of Lessee's indemnification obligations set forth in other sections of this Lease Agreement. 26 (c) Upon any such termination, the entire interest of the Lessor in the Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee shall automatically transfer to and be vested in the Lessee, without the necessity of any action by either the Lessor or the Lessee, provided, however, that if the Lessor shall have theretofore approved in writing such Person and the terms of such transfer, the entire interest of the Lessor in such Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee shall, upon such termination, automatically transfer to and be vested in any Person designated by the Lessee. (d) (i) Promptly after either party shall learn of the happening of any Terminating Event, such party shall give notice of the same to the other party and to the Secured Parties. (ii)If the Lessor and/or Secured Parties elect to terminate the Lease Agreement, they shall give notice to the Lessee and the Secured Parties or the Lessor, as the case may be, which notice shall (x) acknowledge that the Lease Agreement has terminated, subject to the continuing obligations of the Lessee mentioned above, and that title to and ownership of such Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee has transferred to and vested in the Lessee or such other Person, and (y) specify a Termination Settlement Date occurring one hundred and fifty (150) days after the giving of such notice. After such termination of this Lease Agreement and until such Termination Settlement Date, the Lessee shall continue to pay Basic Rent and Additional Rent. On such Termination Settlement Date, the Lessee shall be obligated to pay to the Lessor as the purchase price for the Nuclear Material an amount equal to the sum of (x) Stipulated Casualty Value of the Nuclear Material as of the Termination Settlement Date and (y) the Termination Rent on the Termination Settlement Date. The Lessor shall be obligated to deliver to the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, on an as-is, where-is, non-installment, cash sale basis, without recourse to or warranty or agreement of any kind by the Lessor acknowledging the transfer and vesting of title and ownership of the Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee, in accordance with paragraph (c) above and confirming that upon payment by the Lessee of the amounts set forth in the immediately preceding sentence, the Nuclear Material is free and clear of the Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. 27 19. Investment Tax Credit. To the extent that the Lessee determines the Nuclear Material is or becomes eligible for any investment or similar credit under the Code as now or hereafter in effect, the Lessee shall request in writing that the Lessor elect to treat the Lessee as having acquired such Nuclear Material, and, if permitted to do so under the Code and under any other applicable law, rule or regulation, the Lessor, pursuant to such request of the Lessee, shall provide the Lessee with an appropriate investment credit election and the Lessee shall consent to such election. A condition to the Lessor's making such election will be the provision by the Lessee of a report or statement with respect to all Nuclear Material as to which the investment credit election is applicable. Such report or statement shall contain such information and be in such form as may be required for Internal Revenue Service reporting purposes. The Lessee shall indemnify and hold harmless the Lessor and any affiliates with respect to any adverse tax consequence, other than the loss of the credit, which may result from such election including, but not limited to, any increase in the Lessor's income taxes due to any required reduction of the Lessor's tax basis below the Lessor's cost of the Nuclear Material, and the Lessee agrees to pay to or on behalf of the Lessor, or otherwise make available to the Lessor, funds sufficient to put the Lessor in the same after-tax position (other than by reason of the loss of the investment credit) the Lessor would have been in if such election had not been made. 20. Certificates; Information; Financial Statements. (a) The Lessee will from time to time deliver to the Lessor and the Secured Parties, promptly upon reasonable request (i) a statement executed by any Vice President, Treasurer or Assistant Treasurer or any other assistant officer of the Lessee, certifying the dates to which the sums payable hereunder have been paid, that this Lease Agreement is unmodified and in full effect (or, if there have been modifications, that this Lease Agreement is in full effect as modified, and identifying such modifications) and that no Lease Event of Default or Terminating Event has occurred and is continuing (or specifying the nature and period of existence of any thereof and what action the Lessee is taking or proposes to take with respect thereto), (ii) such information with respect to the Nuclear Material as the Lessor or the Secured Parties may reasonably request, and (iii) such information with respect to the Lessee's operations, business, property, assets, financial condition or litigation as the Lessor or any assignee of the Lessor or the Secured Parties may reasonably request. (b) The Lessee will deliver to the Lessor and the Secured Parties: 28 (i) Quarterly Financial Statements. As soon as practicable and in any event within ninety (90) days after the end of each fiscal quarter (other than the last fiscal quarter in each fiscal year), three (3) copies of a balance sheet of the Lessee (consolidated and consolidating if the Lessee has any subsidiaries) as of the end of such quarter and of statements of income and cash flows of the Lessee (consolidated and consolidating if the Lessee has any subsidiaries) for such quarter, setting forth in each case corresponding figures in comparative form for the corresponding period of the preceding fiscal year, each certified as true and correct by the chief accounting officer thereof; provided, however, that delivery pursuant to clause (iii) below of copies of the Lessee's Quarterly Report on Form 10-Q for such quarter containing such financial statements filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i); (ii) Annual Financial Statements. As soon as practicable and in any event within one hundred and twenty (120) days after the end of each fiscal year, three (3) copies of an annual report of the Lessee consisting of its financial statements, including a balance sheet as of the end of such fiscal year (consolidated and consolidating if the Lessee has any subsidiaries) and statements of income and cash flows for the year then ended (consolidated and consolidating if the Lessee has any subsidiaries), setting forth corresponding figures in comparative form for the preceding fiscal year, with all notes thereto, all in reasonable detail and certified by independent public accountants of recognized standing selected by the Lessee (only with respect to the consolidated financial statements, if applicable); provided, however, that delivery pursuant to clause (iii) below of copies of the Lessee's Annual Report on Form 10-K for such fiscal year containing such financial statements filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii); and (iii) SEC Reports, etc. With reasonable promptness, copies of all notices, reports or materials filed by the Lessee with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission) under the Securities Act of 1933, as amended, other than Registration Statements on Form S-8 or any amendments thereto, or the Securities Exchange Act of 1934, as amended, other than Annual Reports on Form 10-K, and including without limitation, all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. 29 Together with each delivery of financial statements required by clause (b)(i) above, the Lessee will deliver to the Lessor and the Secured Parties an Officer's Certificate stating that the Lessee is in compliance with the terms of this Lease Agreement and stating that there exists no Lease Event of Default, or Terminating Event or, if any Lease Event of Default, or Terminating Event exists, specifying the nature and period of existence thereof and what action the Lessee proposes to take with respect thereto. The Lessee also covenants that promptly upon the obtaining of knowledge of a Lease Event of Default by the chief executive officer, principal financial officer or principal accounting officer of the Lessee, it will deliver to the Lessor and the Secured Parties an Officer's Certificate specifying the nature and period of existence thereof and what action the Lessee proposes to take with respect thereto. 21. Obligation of the Lessee to Pay Rent. The Lessee's obligation to pay, as the same becomes due, Basic Rent, Additional Rent, Termination Rent, and all other amounts payable hereunder shall, subject to the covenant of the Lessor contained in Section 3 hereof, be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense or other right which the Lessee may have against the Lessor or anyone else for any reason whatsoever, (ii) any defect in the title, compliance with specifications, condition, design, operation or fitness for use of, or any damage to or loss or destruction of, any Nuclear Material, or (iii) any interruption or cessation in the use or possession of any Nuclear Material by the Lessee for any reason whatsoever. The Lessee hereby waives, to the extent permitted by applicable law, any and all rights which it may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender this Lease Agreement except in accordance with its express terms. Each payment of Rent and each other payment made by the Lessee shall be final, and the Lessee will not seek to recover all or any part of such payment from the Lessor for any reason whatsoever. 22. Miscellaneous. (a) Successors and Assigns. This Lease Agreement shall be binding upon the Lessee and the Lessor and their respective successors and assigns and shall inure to the benefit of the Lessee and the Lessor and their respective successors and assigns; provided that without the prior written consent of all the Secured Parties, the Lessee shall not be entitled to assign its rights or obligations hereunder. 30 (b) Waiver. Neither party shall by act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder unless such waiver is given in writing. A waiver on one occasion shall not be construed as a waiver on any other occasion. (c) Entire Agreement. This Lease Agreement, together with the written instruments provided for or contemplated hereby, the other Basic Documents and other written agreements between the parties dated as of the date hereof, constitute the entire agreement between the parties with respect to the leasing of Nuclear Material, and no representations, warranties, promises, guaranties or agreements, oral or written, express or implied, have been made by either party or by any one else with respect to this Lease Agreement or the Nuclear Material, except as may be expressly provided for herein or therein. Any change or modification of this Lease Agreement must be in writing and duly executed by the parties. (d) Descriptive Headings. The captions in this Lease Agreement are for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions. (e) Severability. Any provision of this Lease Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. (f) Governing Law. This Lease Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the law of the Commonwealth of Pennsylvania. 31 IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease Agreement to be executed and delivered by their duly authorized officers as of the day and year first above written. TMI-1 FUEL CORP. Lessor ATTEST By: (Assistant) Secretary Name: Title: JERSEY CENTRAL POWER & LIGHT COMPANY Lessee ATTEST By: (Assistant) Secretary Name: Title: 32 STATE OF ) --------------------- COUNTY OF ) SS: -------------- On this ___ day of __________, 1998, before me personally appeared , to me personally known, who, being by me duly sworn, says that he is of TMI-1 Fuel Corp. and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. Notary Public My commission Expires: STATE OF ) --------------------- COUNTY OF ) SS: -------------- On this ___ day of ___________, 1998, before me personally appeared _____________, to me personally known, who, being by me duly sworn, says that he is _______________________ of Jersey Central Power & Light Company and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. Notary Public My commission Expires: 33 ATTACHMENTS Appendix A -- Definitions Exhibit A -- Form of Interim Leasing Record Exhibit B -- Form of Final Leasing Record Exhibit C -- Nuclear Material Contracts Exhibit D -- Form of Assignment Agreement and Consent Exhibit E -- Form of Lessor's Bill of Sale Exhibit F -- Form of Rent Due and SCV Confirmation Schedule 34 APPENDIX A DEFINITIONS As used in the Basic Documents (as defined below), the following terms shall have the following meanings (such definitions to be applicable to both singular and plural forms of the terms defined), except as otherwise specifically defined therein: "Acquisition Cost" means the purchase price of any Nuclear Material, any progress payments made thereon, costs of milling, conversion, enrichment, fabrication, installation, delivery, redelivery, containerization, storage, reprocessing, any other costs incurred by the Company in acquiring the Nuclear Material (less any discounts or credits actually utilized by the Company), plus in any case (i) any allowance for funds used during construction (including any income tax component associated with such allowance) with respect to Nuclear Material purchased by the Company, (ii) at the option of the Lessee, any Rent relating to costs incurred in the ordinary course of operations but excluding Rent relating to extraordinary costs, including without limitation, indemnification payments, payable by the lessee to the Company with respect to any Nuclear Material prior to the installation of such Nuclear Material for operation in the Generating Facility, (iii) any sales, excise or other taxes or charges payable by the Company with respect to any such payment for such Nuclear Material, (iv) at the option of the Lessee, any Monthly Financing Charge payable by the Lessee to the Company with respect to Nuclear Material during any period in which such Nuclear Material is subject to an Interim Leasing Record, but excluding any interest charges or penalties for late payment by the Company of the purchase price or any portion thereof, if such late payment results from the negligence of the Company, (v) such other costs with respect to any Nuclear Material as may be agreed by the Company and the Lessee and approved by the Administrative Agent, in each case in writing, and, in the case of any Nuclear Material removed from the Generating Facility for the purpose of "cooling off' and repair or reprocessing, shall include the Stipulated Casualty Value thereof at the time of such removal, if any, and (vi) at the option of the Lessee, any Financing Costs. Any amount realized by the Company from the disposition of the by-products (including, but not limited to, plutonium) of Nuclear Material specified in a Leasing Record during the repair or reprocessing of such Nuclear Material while leased hereunder shall be credited against the Acquisition Cost of such Nuclear Material. "Additional Rent" shall mean all legal, accounting, administrative and other operating expenses and taxes incurred by the Company to the extent not paid as part of Basic Rent (including, without limitation, any Cancellation Fees and all other 35 liabilities incurred or owed by the Company pursuant to the Basic Documents) and all amounts (other than Basic Rent) that the Lessee agrees to pay under the Lease Agreement (including, without limitation, indemnification payable under the Lease Agreement, general and administrative expenses of the Company, and, to the extent not included in Acquisition Cost, Financing Costs) and interest at the rate incurred by the Company or any Secured Party as a result of any delay in payment by the Lessee to meet obligations that would have been satisfied out of prompt payment by the Lessee, and the amount of any and all other costs, losses, damages, interest, taxes, deficiencies, liabilities, obligations, actions, judgments, suits, claims, fees (including, without limitation, attorneys' fees and disbursements) and expenses, of every kind, nature, character and description, direct or indirect, that may be imposed on or incurred by the Company as a result of, arising from or relating to, in any manner whatsoever, one or more Basic Documents, or any other document referred to therein, or the transactions contemplated thereby or the enforcement thereof. For purposes of calculating the interest incurred by the Company or any Secured Party as a result of any such delay, it shall be assumed that the Company or any Secured Party, as applicable, incurred interest at the Credit Agreement Default Rate. "Administrative Agent" shall have the meaning specified therefor in the first paragraph of the Credit Agreement. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person. For purposes of this definition, the term "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Aggregate Monthly Rent Component" shall mean the sum of the Monthly Rent Components for all items of Nuclear Material which are installed in the Generating Facility during the relevant period. "Assigned Agreement" means a Nuclear Material Contract which has been assigned to the Company in the manner specified in Section 5 of the Lease Agreement pursuant to a duly executed and delivered Assignment Agreement. The term Assigned Agreement shall include a Partially Assigned Agreement. "Assignment Agreement" means an assignment agreement substantially in the form of Exhibit D to the Lease Agreement. 36 "Atomic Energy Act" means the Atomic Energy Act of 1954, as from time to time amended. "Banks" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Basic Documents" means the Lease Agreement, the Credit Agreement, the Security Agreement, the Commercial Paper, the Notes, the Letter Agreement, the Dealer Agreements, the Assigned Agreements, the Assignment Agreements, the Trust Agreement, the Depositary Agreement, each Bill of Sale, each Leasing Record, each SCV Confirmation Schedule, and other agreements related or incidental thereto which are identified in writing by the Company, the Lessee and the Secured Parties as one of the "Basic Documents," in each case, as such documents may be amended from time to time. "Basic Rent" means, for any Basic Rent Period, the sum of (a) that portion of the Monthly Financing Charge not allocated to Acquisition Cost pursuant to the Lease Agreement plus (b) the Aggregate Monthly Rent Component as shown on a Rent Due and SCV Confirmation Schedule for such Basic Rent Period. "Basic Rent Payment Date" means, for any Basic Rent Period, the first Business Day of the next succeeding calendar month following such Basic Rent Period. "Basic Rent Period" means each calendar month or portion thereof commencing on, in the case of the first such period, the effective date of the Lease Agreement, and in the case of each succeeding period, the first day following the immediately preceding Basic Rent Period, and ending on the earliest of (i) the last day of any calendar month or (ii) the Termination Settlement Date. "BTU Charge" means the dollar amount set forth in the BTU Charge Agreement which is used to calculate the Monthly Rent Component. The BTU Charge initially set forth for any Nuclear Material in any Final Leasing Record shall be the amount agreed upon by the Lessor and the Lessee as set forth in Attachment 1 to Exhibit B to the Lease Agreement based upon the reasonably anticipated operating life, BTU output, and utilization of such Nuclear Material. "BTU Charge Agreement" shall mean an agreement in the form of Attachment 1 to Exhibit B to the Lease Agreement with respect to any Nuclear Material executed by the Lessor and the Lessee on or prior to the date of the Final Leasing Record covering such Nuclear Material. 37 "Business Day" means any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in New York City are authorized by law to close. "Capitalized Lease" means any and all lease obligations which are or should be capitalized on the balance sheet of the Person in question in accordance with generally accepted accounting principles and Statement No. 13 of the Financial Accounting Standards Board or any successor to such pronouncement regarding lease accounting, without regard for the accounting treatment permitted or required under any applicable state or federal public utility regulatory accounting system, unless such treatment controls the determination of the generally accepted accounting principles applicable to such Person. "Cash Collateral" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Closing," means November 5, 1998. "Code" means the Internal Revenue Code of 1986, as from time to time amended. "Collateral" has the meaning set forth in the granting clauses of the Security Agreement and includes all property of the Company described in the Security Agreement as comprising part of the Collateral. "Collateral Agent" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Collateral Agreements" means, collectively, the Security Agreement, all Assignment Agreements, and any other assignment, security agreement or instrument executed and delivered to the Secured Parties hereafter relating to property of the Company which is security for the Notes. "Collected Funds" means funds which are immediately available to the Secured Parties, as the Lessor's assignees, for its use in New York, New York. "Commercial Paper" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Commercial Paper Discount" shall mean, at any time, amounts payable by the Company in respect of the Face Amount of Commercial Paper outstanding in excess of the Acquisition Cost together with any Cash Collateral reduced by the aggregate total amount, if any, of (i) the Monthly Rent Components paid by the 38 Lessee to the Lessor with respect to the Nuclear Material financed thereby and (ii) any Monthly Financing Charge payable by the Lessee to the Company with respect to Nuclear Material during any period in which such Nuclear Material is subject to an Interim Leasing Record ("Excess Face Amount"); provided, however, that any such Excess Face Amount shall not exceed the additional Face Amount of Commercial Paper necessary to be issued by the Company at a discount to face value to purchasers thereof in the commercial paper market in order to obtain proceeds in an amount equal to the Acquisition Cost reduced by the aggregate total amount, if any, of (a) the Monthly Rent Components paid by the Lessee to the Lessor with respect to the Nuclear Material financed thereby and (b) any Monthly Financing Charge payable by the Lessee to the Company with respect to Nuclear Material during any period in which such Nuclear Material is subject to an Interim Lease Record, together with any Cash Collateral. Amounts payable in respect of Commercial Paper Discount during any calendar month or portion thereof shall be paid on the first Business Day of the next succeeding month in which such amounts are incurred. "Company" means the TMI-1 Fuel Corp., a Delaware corporation. "Consents and Agreements" means the agreements, each substantially in the form attached as Exhibit 2 to Exhibit D to the Lease Agreement, between the Lessee and the various contractors under the Nuclear Material Contracts, with such changes to Exhibit 2 to Exhibit D as the Secured Parties may consent to in writing, which consent shall not be unreasonably withheld. "Controlled Group" means a controlled group of corporations of which the Company is a member within the meaning of Section 414(b) of the Code, any group of corporations or entities under common control with the Company within the meaning of Section 414(c) of the Code or any affiliated service group of which the Company is a member within the meaning of Section 414(m) of the Code. "Credit Agreement" means the Credit Agreement dated as of November 5, 1998 among TMI-1 Fuel Corp. The First National Bank of Chicago, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, the Banks parties thereto, and First Chicago Capital Markets, Inc. and PNC Capital Markets, Inc., as Arrangers. "Credit Agreement Default" means an event which would, with the lapse of time or the giving of notice or both, constitute a Credit Agreement Event of Default. 39 "Credit Agreement Event of Default" means any one or more of the events specified in Section 10.01 of the Credit Agreement. "Dealer Agreements" means any agreement pursuant to which any Person is at any time acting as a Dealer. "Deemed Loss Event" means the following event: if at any time during the term of the Lease Agreement, (A) the Company, by reason solely of the ownership of the Nuclear Material or any part thereof or the lease of the Nuclear Material to the Lessee under the Lease Agreement, or the Company or any Secured Party, by reason solely of any other transaction contemplated by the Lease Agreement or any of the other Basic Documents, shall be deemed, by any governmental authority having jurisdiction, to be, or to be subject to regulation as an "electric utility" or a "public utility" or a "public utility holding company" or similar type of entity, under any applicable law or deemed a "public utility company" or a "subsidiary company" or a "holding company" within the meaning of the Public Utility Holding Company Act, (B) the Public Utility Holding Company Act shall be amended, applied, or interpreted in a manner, or any rules or regulations shall be adopted under the Public Utility Holding Company Act of 1935, which adversely affect the legality, validity and enforceability of the lease obligations of the Company and the Lessee under the Lease Agreement, or (C) either the Company or any of the Secured Parties, by reason solely of being a party to the Basic Documents, shall be required to obtain any consent, order or approval of, or to make any filing or registration with, or to give any notice to, any governmental authority, or be subject to any liabilities, duties or obligations under the Public Utility Holding Company Act, other than the filing by the Company of a certificate on Form U-7D with the SEC pursuant to SEC Rule 7(d) under the Public Utility Holding Company Act (17 C.F.R. Section 250.7(d)), except in any case if the same shall be solely the result of Nonburdensome Regulation; provided, however, that if in compliance with applicable laws, the Lessee, with the cooperation of the Company, shall have acted diligently and in good faith to contest, or obtain an exemption from the application of the laws, rules or regulations described in clauses (A), (B) or (C) to the Company, the Secured Parties or the Lessee, as the case may be, the application of which would otherwise constitute a Deemed Loss Event, such Deemed Loss Event shall be deemed not to have occurred so long as (I) the Lessee shall have furnished to the Company and the Secured Parties an opinion of counsel reasonably satisfactory to the Company and the Secured Parties to the effect that there exists a reasonable basis for such contest or exemption and that the application of such laws, rules or regulations to the Company, the Secured Parties or the Lessee, as the case may be, 40 shall be effectively stayed during the application for exemption or contest and such laws, rules or regulations shall not be applied retroactively at the conclusion of such contest, (II) the Company or the Secured Parties shall have determined in their sole discretion that such contest or exemption shall not adversely affect their business or involve any danger of the sale, foreclosure or loss of, or creation of a Lien upon, the Collateral, and (III) the Lessee shall have agreed to indemnify the Company or such Secured Parties, as the case may be, for expenses incurred in connection with such contest or exemption; and further provided, that following notice from the Lessee to the Company or the Secured Parties, as the case may be, that the Lessee shall be unable to furnish the opinion described in clause (I) of the next preceding proviso or that any such contest shall not be successful or such exemption shall not be available, a Deemed Loss Event shall be deemed not to have occurred for such period, not to exceed 270 days, as may be approved by any governmental authority having jurisdiction during which application of such law, rule or regulation to the Company, the Secured Parties or the Lessee, as the case may be, shall be suspended to enable the Company to assign or transfer its interest in the Collateral so long as during such period the Company shall use reasonable efforts to assign or transfer its interest in the Collateral upon commercially reasonable terms and conditions, provided that the Company shall not be required to assign or transfer the Nuclear Material for a price which, after deduction of sales tax and expenses of such sale incurred by the Company, shall be less than the sum of (A) Stipulated Casualty Value determined as of the date of such proposed sale, and (B) the Termination Rent determined in accordance with Section 18 of the Lease Agreement. "Depositary Agreement" means the Depositary Agreement, dated as of November 5, 1998, among the Company, Chase Manhattan Bank, as Depositary and The First National Bank of Chicago, as Administrative Agent. "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. "Excepted Payments" means any indemnity, expense, or other payment which by the terms of any of the Basic Documents shall be payable to the Company in order for the Company to satisfy its obligations pursuant to Section 7.8 of the Trust Agreement. "Face Amount" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. 41 "Federal Energy Regulatory Commission" means the independent regulatory commission of the Department of Energy of the United States Government existing under the authority of the Department of Energy Organization Act, as amended, or any successor organization or organizations performing any identical or substantially identical licensing and related regulatory functions. "Federal Power Act" means the Federal Power Act, as amended. "Final Leasing Record" means a Leasing Record which records the leasing of Nuclear Material during any period while such Nuclear Material is installed for operation in the Generating Facility. A Final Leasing Record shall be in the form of Exhibit B to the Lease Agreement. "Financing Costs" means (a) fees and other amounts owing to any Secured Party or to the Owner Trustee under the Trust Agreement, (b) legal fees and disbursements and other amounts referred to in Section 10(b) of the Security Agreement, (c) legal, accounting, and other fees and expenses incurred by the Lessee and/or the Company in connection with the preparation, execution and delivery of Basic Documents or the issuance of the Commercial Paper and/or the Notes, and (d) such other reasonable fees and expenses of the Owner Trustee and the Company as they may be entitled to under the Basic Documents. "Fuel Management" means the design of, contracting for, fixing the price and terms of acquisition of, management, movement, removal, disengagement, storage and other activities in connection with the acquisition, utilization, storage and disposal of the Nuclear Material. "Generating Facility" means the nuclear reactor located at the Three Mile Island Unit 1 Nuclear Generating Station, located in Londonderry Township, Pennsylvania. "Heat Production" means the stage of the Nuclear Material Cycle commencing with the commercial operation of a Generating Facility, during which the Nuclear Material in question is producing thermal energy which results in the production of net positive electrical energy transmitted within the distribution network of any utility and during which the Nuclear Material in question is engaged in the reactor core of such Generating Facility. "Hereof," "herein," "hereunder" and words of similar import when used in a Basic Document refer to such Basic Document as a whole and not to any particular section or provision thereof. 42 "Imposition" means any payment required by a public or governmental authority in respect of any property subject to the Lease Agreement or any transaction pursuant to the Lease Agreement or any right or interest held by virtue of the Lease Agreement; provided, however, that Imposition shall not include any taxes, whether federal, state or local, payable by any Secured Party based on or measured by net income of any Secured Party where taxable income is computed in substantially the same manner as taxable income is computed under the Code. "Insurance Requirements" means all terms of any insurance policy or indemnification agreement covering or applicable to (i) any Nuclear Material or (ii) the Generating Facility or the Lessee in its capacity as licensee of the Generating Facility, in each case insofar as any insurance policy or indemnification agreement directly or indirectly relates to the Nuclear Material or the performance by the Lessee of its obligations under the Basic Documents, and all requirements of the issuer of any such policy or agreement necessary to keep such insurance or agreements in force. "Interim Leasing Record" means a Leasing Record which records the leasing of Nuclear Material (i) prior to installation for operation in the Generating Facility, (ii) after removal from the Generating Facility during the "cooling off" and storage period, and (iii) while being reprocessed. An Interim Leasing Record shall be in the form of Exhibit A to the Lease Agreement. "Investment Company Act" means the Investment Company Act of 1940, as from time to time amended. "Lease Agreement" means the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 between TMI-1 Fuel Corp., as the Lessor, and Jersey Central Power & Light Company, as the Lessee, as the same may be modified, supplemented or amended from time to time. "Lease Event of Default" has the meaning specified in Section 16 of the Lease Agreement. "Leasing Record" is a form signed by the Lessor and the Lessee to record the leasing under the Lease Agreement of the Nuclear Material specified in such Leasing Record. A Leasing Record shall be either an Interim Leasing Record or a Final Leasing Record. 43 "Legal Requirements" means all applicable provisions of the Atomic Energy Act, all applicable orders, rules, regulations and other requirements of the Nuclear Regulatory Commission and the Federal Energy Regulatory Commission, and all other laws, rules, regulations and orders of any other jurisdiction or regulatory authority relating to (i) the licensing, acquisition, storage, containerization, transportation, blending, transfer, consumption, leasing, insuring, using, operating, disposing, fabricating, channelling and reprocessing of the Nuclear Material, (ii) the Generating Facility or the Lessee in its capacity as licensee of the Generating Facility, in each case insofar as such provisions, orders, rules, regulations, laws and other requirements directly or indirectly relate to the Nuclear Material or the performance by the Lessee of its obligations under the Basic Documents or (iii) the Basic Documents, insofar as any of the foregoing directly or indirectly apply to the Lessee. "Lessee" has the meaning specified in the introduction to the Lease Agreement. "Lessee Representative" means a person at the time designated to act on behalf of the Lessee by a written instrument furnished to the Company and the Secured Parties containing the specimen signature of such person and signed on behalf of the Lessee by any of its officers. The certificate may designate an alternate or alternates. A Lessee Representative may be an employee of the Lessee or of the Owner Trustee. "Lessor" has the meaning specified in the introduction to the Lease Agreement, and its successors and assigns. "Lessor's Bill of Sale" means an instrument substantially in the form of Exhibit E to the Lease Agreement, pursuant to which title to all or any portion of the Nuclear Material is transferred to the Lessee or any designee of the Lessee. "Letter Agreement" means the Lessee's Letter Agreement Regarding TMI-1 Fuel Corp., dated as of November 5, 1998, between the Lessee, the Company, and the Administrative Agent, as it may be amended from time to time. "Lien" means any mortgage, pledge, lien, security interest, title retention, charge or other encumbrance of any nature whatsoever (including any conditional sale or other title retention agreement, any lease in the nature thereof and the filing of or agreement to execute and deliver any financing statement under the Uniform Commercial Code of any jurisdiction). 44 "Loans" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Majority Secured Parties" means at any time the Secured Parties holding at such time more than 66% of the outstanding principal amount of all Secured Obligations. "Manufacturer" means any supplier of Nuclear Material or of any service (including without limitation, enrichment, fabrication, transportation, storage and processing) in connection therewith, or any agent or licensee of any such supplier. "Manufacturer's Consent" means any consent which may be given by a Manufacturer under a Nuclear Material Contract to the assignment by the Lessee to the Company of all or a portion of the Lessee's rights under such Nuclear Material Contract or of all or a portion of any such rights previously assigned by the Lessee to the Secured Parties. "Monthly Debt Service" for any calendar month means the sum of the Monthly Financing Charge for such calendar month. "Monthly Financing Charge" means, for any calendar month or portion thereof, the sum of: (a) all Commercial Paper Discount payable by the Company with respect to Commercial Paper outstanding during such month and/or all interest payable by the Company during such month with respect to all outstanding Notes and in each case, not included in Acquisition Cost; and (b) the amounts paid or due and payable by the Company with respect to the transactions contemplated by the Basic Documents during such calendar month for the following other fees, costs, charges and expenses incurred or owed by the Company under or in connection with the Lease Agreement or the other Basic Documents: (i) legal, printing, reproduction and closing fees and expenses, (ii) auditors', accountants' and attorneys' fees and expenses, (iii) franchise taxes and income taxes, and (iv) any other fees and expenses incurred by the Company under or in respect of the Basic Documents. Any figure used in the computation of any component of the Monthly Financing Charge shall be stated to five decimal places. "Monthly Rent Component" for any Nuclear Material covered by a Final Leasing Record for each calendar month during the lease of such Nuclear Material shall be as follows: 45 (i) for the first partial calendar month the Monthly Rent Component shall be zero; (ii) for the first full calendar month the Monthly Rent Component shall be zero; (iii) for the second full calendar month the Monthly Rent Component shall be zero; (iv) for the third full calendar month the Monthly Rent Component shall be an amount determined by multiplying (x) the amount of thermal energy in millions of British Thermal Units of heat produced by such Nuclear Material during the first calendar month while covered by the Final Leasing Record and also during the first partial calendar month, if any, such Nuclear Material was covered by an Interim or Final Leasing Record and was engaged in Heat Production by (y) the BTU Charge set forth in the Final Leasing Record covering such Nuclear Material; and (v) for each full calendar month after the third full calendar month, the Monthly Rent Component shall be an amount determined by multiplying (x) the amount of thermal energy in millions of British Thermal Units of heat produced by such Nuclear Material during the second preceding month by (y) the BTU Charge set forth in the Final Leasing Record covering such Nuclear Material. The BTU Charge for any Nuclear Material may be revised by the Lessee at any time during the lease thereof to reflect any reasonably anticipated change in its operating life, BTU output, or utilization. Such revision shall be effected by the Lessee's executing and forwarding to the Lessor a revised Final Leasing Record dated the first day of the following month and setting forth such revised BTU Charge. Upon receipt of such revised Final Leasing Record, the Lessor shall execute and return a copy thereof to the Lessee. Such revised BTU Charge shall be applicable to such Nuclear Material for each month thereafter beginning on the date of the revised Final Leasing Record. "NJBPU" means the New Jersey Board of Public Utilities or any successor agency thereto. "Nonburdensome Regulation" means (i) ministerial regulatory requirements that do not impose limitations or regulatory requirements on the business or activities of, or adversely affect, the Company or any Secured Party and that are deemed, in the reasonable discretion of the Company or any Secured Party, not to be burdensome, or (ii) assuming redelivery of the 46 Nuclear Material in accordance with the Lease Agreement, regulation resulting from any possession of the Nuclear Material (or right thereto) on or after the termination of the Lease Agreement. "Notes" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Nuclear Incident" shall have the meaning specified in the Atomic Energy Act, 42 U.S.C. ss.2014(q), as such definition may be amended from time to time. "Nuclear Material" means those items which have been purchased by or on behalf of the Company for which a duly executed Leasing Record has been delivered to the Company and which continue to be subject to the Lease Agreement consisting of (i) the items described in such Leasing Record and each of the components thereof in the respective forms in which such items exist during each stage of the Nuclear Material Cycle, being substances and equipment which, when fabricated and assembled and loaded into a nuclear reactor, are intended to produce heat, together with all attachments, accessories, parts and additions and all improvements and repairs thereto, and all replacements thereof and substitutions therefor and (ii) the substances and materials underlying the right, title and interest of the Lessee under any Nuclear Material Contract assigned to the Company pursuant to the Lease Agreement; provided, however, that the term Nuclear Material shall not include spent fuel. "Nuclear Material Contract" means any contract, as from time to time amended, modified or supplemented, entered into by the Lessee, either in its own name or as agent for the Lessor, with one or more Manufacturers relating to the acquisition of Nuclear Material or any service in connection with the Nuclear Material. "Nuclear Material Cycle" means the various stages in the process, whether physical or chemical, by which the component parts of the Nuclear Material are designed, mined, milled, processed, converted, enriched, fabricated into assemblies utilizable for Heat Production, loaded or installed into a reactor core, utilized, disengaged from a reactor core or stored, together with all incidental processes with respect to the Nuclear Material at any such stage. "Nuclear Regulatory Commission" means the independent regulatory commission of the United States Government existing under the authority of the Energy Reorganization Act of 1974, as amended, or any successor organization or organizations performing any identical or substantially identical licensing and related regulatory functions. 47 "Obligations" means (i) all items (including, without limitation, Capitalized Leases but excluding shareholders' equity and minority interests) which in accordance with generally accepted accounting principles should be reflected on the liability side of a balance sheet as at the date as of which such obligations are to be determined; (ii) all obligations and liabilities (whether or not reflected upon such balance sheet) secured by any Lien existing on the Property held subject to such Lien, whether or not the obligation or liability secured thereby shall have been assumed; and (iii) all guarantees, endorsements (other than for collection in the ordinary course of business) and contingent obligations in respect of any liabilities of the type described in clauses (i) and (ii) of this definition (whether or not reflected on such balance sheet); provided, however, that the term 'Obligations' shall not include deferred taxes. "Obligations for Borrowed Money or Deferred Purchase Price" means all Obligations in respect of borrowed money or the deferred purchase price of property or services. "Officer's Certificate" means, with respect to any corporation, a certificate signed by the President, any Vice President, the Treasurer, any Assistant Treasurer, the Comptroller, or any Assistant Comptroller of such corporation, and with respect to any other entity, a certificate signed by an individual generally authorized to execute and deliver contracts on behalf of such entity. "Outstandings" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Owner Trust Estate" means all estate, right, title and interest of the Owner Trustee in and to the outstanding stock of the Company and in and to all monies, securities, investments, instruments, documents, rights, claims, contracts, and other property held by the Owner Trustee under the Trust Agreement; provided, however, that there shall be excluded from the Owner Trust Estate all Excepted Payments. "Owner Trustee" means United States Trust Company of New York, not in its individual capacity but solely as trustee under and pursuant to the Trust Agreement, and its permitted successors. "Partially Assigned Agreement" means a Nuclear Material Contract which has been assigned, in part but not in full, to the Company in the manner specified in Section 5 of the Lease Agreement pursuant to a duly executed and delivered Assignment Agreement. 48 "PBGC" means the Pension Benefit Guaranty Corporation, created by Section 4002(a) of ERISA and any successor thereto. "Permitted Liens" means (i) any assignment of the Lease Agreement permitted thereby, and by the Credit Agreement, (ii) liens for Impositions not yet payable, or payable without the addition of any fine, penalty, interest or cost for nonpayment, or being contested by the Lessee as permitted by Section 11 of the Lease Agreement, (iii) liens and security interests created by the Security Agreement, (iv) the title transfer and commingling of the Nuclear Material contemplated by paragraph (h) of Section 10 of the Lease Agreement, and (v) liens of mechanics, laborers, materialmen, suppliers or vendors, or rights thereto, incurred in the ordinary course of business for sums of money which under the terms of the related contracts are not more than 30 days past due or are being contested in good faith by the Lessee as permitted by Section 11 of the Lease Agreement; provided, however, that, in each case, such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made in respect thereto. "Person" means any individual, partnership, joint venture, corporation, trust, unincorporated organization or other business entity or any government or any political subdivision or agency thereof. "Plan" means, with respect to any Person, any plan of a type described in Section 4021(a) of ERISA in respect of which such Person is an "employer" or a "substantial employer" as defined in Sections 3(5) and 4001 (a) (2) of ERISA, respectively. "Proceeds" shall have the meaning assigned to it under the Uniform Commercial Code, as amended, and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Company from time to time with respect to the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to the Company from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. 49 "Public Utility Holding Company Act" means the Public Utility Holding Company Act of 1935, as from time to time amended. "Qualified Institution" means a commercial bank organized under the laws of, and doing business in, the United States of America or in any State thereof, which has combined capital, surplus and undivided profits of at least $150,000,000 having trust power. "Related Person" means, with respect to any Person, any trade or business, (whether or not incorporated) which, together with such Person, is under common control as described in Section 414(c) of the Code. "Rent" means Basic Rent, Additional Rent and Termination Rent. "Rent Due and SCV Confirmation Schedule" means an instrument, substantially in the form of Exhibit G to the Lease Agreement, which is to be used by the Lessee (i) to calculate Basic Rent for each Basic Rent Period and Other Rent and (ii) to calculate and acknowledge the SCV at the end of each Basic Rent Period. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder. "Responsible Officer" means a duly elected or appointed, authorized, and acting officer, agent or representative of the Person acting. "Secured Obligations" means each and every debt, liability and obligation of every type and description which the Company may now or at any time hereafter owe to any Secured Party under, pursuant to or in connection with the Credit Agreement, any Note, the Letter of Credit or any other Basic Document, whether such debt, liability or obligation now exists or is hereafter created or incurred, and whether it is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or joint, several or joint and several, including, without limitation, the Face Amount of any Commercial Paper, the principal of, interest on and any premium due with respect to any Loan and all indemnifications, costs, expenses, fees and other compensation of the Secured Parties provided for, and all other amounts owed to the Secured Parties, under the Security Agreement, Credit Agreement and the other Basic Documents. 50 "Secured Parties" means the Banks, any other holder from time to time of any Note and any holder from time to time of any Commercial Paper. "Securities Act" means the Securities Act of 1933, as from time to time amended. "Security Agreement" means the Security Agreement and Assignment of Contracts, dated as of November 5, 1998, by and among the Company and The First National Bank of Chicago, as Collateral Agent in favor of the Secured Parties. "Single Employer Plan" means any Plan which is not a multi-employer plan as defined in Section 4001(a) (3) of ERISA "Stipulated Casualty Value" or "SCV" for any Nuclear Material covered by any Leasing Record means an amount equal to the Acquisition Cost for such Nuclear Material reduced by the aggregate total amount, if any, of the Monthly Rent Components paid by the Lessee to the Lessor with respect to such Nuclear Material together with Commercial Paper Discount. "Syndication Agent" shall have the meaning specified therefor in the first paragraph of the Credit Agreement. "Termination Date" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Termination Rent" means an amount which, when added to the Stipulated Casualty Value and Basic Rent then payable by the Lessee, if any, will be sufficient to enable the Company to retire, at their respective maturities, all outstanding Notes and Commercial Paper and to pay all charges, premiums and fees owed to the holders of Notes under the Credit Agreement and to pay all other obligations of the Company incurred in connection with the implementation of the transactions contemplated by the Basic Documents. "Termination Settlement Date" has the meaning specified in Section 8(c), or Section 18(c) of the Lease Agreement. "Terminating Event" has the meaning specified in Section 18 of the Lease Agreement. "Trust" means the TMI-I Fuel Corp. and Oyster Creek Fuel Corp. Trust, a trust formed pursuant to the Trust Agreement. 51 "Trust Agreement" means the Second Amended and Restated Trust Agreement dated as of November 5, 1998 among Lord Fuel Corp., as Trustor, the Owner Trustee, as trustee, Lord Fuel Corp., as beneficiary, and Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, each as lessee under certain lease agreements, as the same may be amended, modified or supplemented from time to time. "Trustor" means the institution designated as such in the Trust Agreement and its permitted successors. "UBS Credit Agreement" means the Credit Agreement dated as of November 17, 1995 among TMI-1 Fuel Corp., Union Bank of Switzerland, New York Branch, as Arranging Agent, Union Bank of Switzerland, New York Branch, as Issuing Bank, the Banks Party thereto and Union Bank of Switzerland, New York Bank, as Administrative Agent. "UCC" means the Uniform Commercial Code as adopted and in effect in the State of New York. "U.S. Trust" means United States Trust Company of New York. 52 EXHIBIT A INTERIM LEASING RECORD Record No. _____ Name of Lessee: Jersey Central Power & Light Company Date of Record: __________________ Date and No. of prior Interim or Final Leasing Record (if any): Description and location of Nuclear Material covered by this Record: Assembly Serial Nos.: Subassembly Serial Nos.: Acquisition Cost of Nuclear Material under prior Leasing Record (if any): $___________ Acquisition Cost added by this Record: $___________ Total: $___________ Credits to Acquisition Cost: $___________ Total Acquisition Cost under this Record $___________ Specify nature of Acquisition Cost added by this Record and to whom paid: Specify nature of any credits received by Lessor covered by this Record and from whom received: 53 Basic Rent for the Nuclear Material covered by this Record shall be calculated and paid as provided in Section 9 of the Second Amended and Restated Nuclear Material Lease Agreement referred to below. The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear Material described above in accordance with the covenants, terms and conditions of the Second Amended and Restated Nuclear Material Lease Agreement between the undersigned Lessor and Lessee, dated as of November 5, 1998 which covenants, terms and conditions are incorporated herein by reference. TMI-1 FUEL CORP., Lessor JERSEY CENTRAL POWER & LIGHT COMPANY, Lessee By By Authorized Signature Authorized Signature 54 EXHIBIT B FINAL LEASING RECORD Record No. _____ Name of Lessee: Jersey Central Power & Light Company Date of Record: __________________ Date and No. of prior Interim or Final Leasing Record: Description and location of Nuclear Material covered by this Record: Assembly Serial Nos.: Subassembly Serial Nos.: Acquisition Cost of Nuclear Material under prior Leasing Record (if any): $___________ Acquisition Cost added by this Record: $___________ Total: $___________ Credits (if any) to Acquisition Cost: $___________ Total Acquisition Cost under this Record $___________ BTU Charge: $__________ Specify nature of Acquisition Cost added by this Record and to whom paid: Specify nature of any credits received by Lessor covered by this Record and from whom received: Basic Rent for the Nuclear Material covered by this Record shall be calculated and paid as provided in Section 9 of the Second Amended and Restated Nuclear Material Lease Agreement referred to below. 55 The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear Material described above in accordance with the covenants, terms and conditions of the Second Amended and Restated Nuclear Material Lease Agreement between the undersigned Lessor and Lessee, dated as of __________ __, 1998, which covenants, terms and conditions are incorporated herein by reference. TMI-1 FUEL CORP., Lessor JERSEY CENTRAL POWER & LIGHT COMPANY, Lessee By By Authorized Signature Authorized Signature The undersigned Lessor and Lessee agree that the initial British Thermal Unit Charge to be used to calculate the Monthly Rent Component for the Nuclear Material pursuant to the Second Amended and Restated Nuclear Material Lease Agreement, dated as of _________ __, 1998, between the undersigned Lessor and Lessee shall be as follows: Description of Nuclear Material British Thermal Unit Charge TMI-1 FUEL CORP. JERSEY CENTRAL POWER & LIGHT COMPANY By: By: Its: Its: 56 EXHIBIT C NUCLEAR MATERIAL CONTRACTS The Agreements (each as amended and restated) referred to in Section 5 of the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between TMI-1 FUEL CORP. ("Lessor") and JERSEY CENTRAL POWER & LIGHT COMPANY ("Lessee") are: (1) Agreement, dated January 30, 1975, between Sequoyah Fuels Corporation and GPUN, as agent for the Lessee, Met-Ed and Penelec. (2) Agreement, dated February 12, 1996, between United States Enrichment Corporation and GPUN, as agent for the Lessee, Met-Ed and Penelec. (3) Agreement, dated as of June 14, 1995 between Framatome Cogema Fuels and GPUN, as agent for the Lessee, Met-Ed and Penelec. 57 EXHIBIT D ASSIGNMENT AGREEMENT KNOW ALL MEN BY THESE PRESENTS THAT: Jersey Central Power & Light Company (the "Assignor"), in consideration of one dollar and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, does hereby sell, grant, bargain, convey and assign to TMI-1 Fuel Corp. ("Assignee"), all right, title and interest of the Assignor in, to and under the Nuclear Material Contract (the "Nuclear Material Contract") described in Exhibit 1 attached hereto insofar as such Nuclear Material Contract relates to the Nuclear Material described in Exhibit 1 (all of such property, including the items described on Exhibit 1 attached hereto as included with the Property, being herein collectively called the "Property"). Terms not defined herein shall have the meanings given in Exhibit 1 attached hereto. TO HAVE AND TO HOLD the Property unto the Assignee, its successors and assigns, to its and their own use forever. 1. The interest of the Assignor in the Property, and the interest transferred by this Assignment Agreement, is that of absolute ownership. 2. The Assignor hereby warrants that it is the lawful owner of the rights and interests conveyed by this Assignment Agreement and that its title to such rights and interests is hereby conveyed to the Assignee free and clear of all liens, charges, claims and encumbrances of every kind whatsoever, other than (i) the amounts, if any, owing under the Nuclear Material Contract, (ii) other claims, if any, of the Assignor and the Contractor which may exist as between themselves and (iii) Permitted Liens (as defined in the Lease Agreement referred to below); and that the Assignor will warrant and defend such title forever against all claims and demands whatsoever. 3. The Assignor hereby releases and transfers to the Assignee any right, title or interest in the Nuclear Material which may have been acquired by the Assignor under the Nuclear Material Contract prior to the date hereof. 4. This Assignment Agreement is made in accordance with the Second Amended and Restated Nuclear Material Lease Agreement dated as of November 5, 1998, between the Assignor and the Assignee (said Nuclear Material Lease Agreement, as the same may be from time to time amended, modified or supplemented, being 58 herein called the "Lease Agreement"). Pursuant to a Security Agreement and Assignment of Contracts made by TMI-1 Fuel Corp. dated as of November 5, 1998 (said Security Agreement and Assignment of Contracts, as the same may from time to time be amended, modified or supplemented, being herein called the "Security Agreement") made by Assignee in favor of the Secured Parties, as defined therein, the Assignee is assigning and granting a security interest in the Property and this Assignment Agreement to the Secured Parties, as collateral security for all obligations and liabilities of the Assignee to the Secured Parties, as such obligations are described in the Security Agreement. 5. It is expressly agreed that, anything contained herein to the contrary notwithstanding, (a) the Assignor shall at all times remain liable to the Contractor to observe and perform all of its duties and obligations under the Nuclear Material Contract to the same extent as if this Assignment Agreement and the Security Agreement had not been executed, (b) the exercise by the Assignee or the Secured Parties of any of the rights assigned hereunder or under the Security Agreement, as the case may be, shall not release the Assignor from any of its duties or obligations to the Contractor under the Nuclear Material Contract, and (c) neither the Assignee nor any of the Secured Parties shall have any obligation or liability under the Nuclear Material Contract by reason of or arising out of this Assignment Agreement, the Lease Agreement or the Security Agreement, or be obligated to perform or fulfill any of the duties or obligations of the Assignor under the Nuclear Material Contract, or to make any payment thereunder, or to make any inquiry as to the nature or sufficiency of any Property received by it thereunder, or to present or file any claim, or to take any action to collect or enforce the payment of any amounts or the delivery of any Property which may have been assigned to it or to which it may be entitled at any time or times; provided, however, the Assignee agrees, solely for the benefit of the Assignor, and subject to the terms and conditions of the Lease Agreement, (i) to purchase the Nuclear Material from the Contractor pursuant to the Nuclear Material Contract, (ii) to pay to the Contractor and/or to the Assignor or their order the respective amounts specified in the Lease Agreement with respect to such Nuclear Material and (iii) to lease such Nuclear Material to the Assignor in accordance with and subject to the terms and conditions of the Lease Agreement. The provisions of the Nuclear Material Contract limiting the liability of the Contractor and its suppliers and subcontractors' under that Contract shall remain effective against the Assignee and Secured Parties to the same extent that such provisions are effective against the Assignor. 59 6. Notwithstanding anything contained herein to the contrary, subject to the terms and conditions of the Lease Agreement, the Assignor may continue to engage in Fuel Management (as such term is defined in the Lease Agreement) with respect to the Property, including, without limitation, all dealings with the Contractor and, subject to such terms and conditions and effective until the occurrence of a Lease Event of Default (as defined in the Lease Agreement), (i) the Assignee reassigns to the Assignor the Assignee's rights under clauses (iii), (iv), (v) and (vi) of subparagraph (b) of Exhibit 1 to this Assignment Agreement (provided, however, that insurance proceeds are reassigned to the Assignor pursuant hereto only to the extent that such proceeds are needed and used to reimburse the Assignor for the cost of repairing damage or destruction to Nuclear Material or are used to purchase Nuclear Material from the Assignee in accordance with the Lease Agreement, and provided further, however, that the Assignee's rights under clause (vi) are reassigned to the Assignor subject in all respects to the limitations set forth in paragraph 8. below), and (ii) the Assignee agrees that the Assignor may, to the extent set forth in clause (i) above, to the exclusion of the Assignee, exercise and enforce such rights. 7. The Assignor shall promptly and duly execute, deliver, file and record all such further counterparts of this Assignment Agreement or such certificates, financing and continuation statements and other instruments as may be reasonably requested by the Assignee, and take such further actions as the Assignee shall from time to time reasonably request, in order to establish, perfect and maintain the rights and remedies created or intended to be created in favor of the Assignee and the Secured Parties hereunder and the Assignee's title to and interest in the Property as against the Assignor or any third party in any applicable jurisdiction. 8. The Assignor hereby agrees that it will not enter into or consent to or permit any cancellation, termination, amendment, supplement or modification of or waiver with respect to the Nuclear Material Contract insofar as it relates to the Nuclear Material except for cancellations, terminations, amendments, supplements, modifications or waivers which do not materially adversely affect the Assignee or the Secured Parties or their respective interests in the Property, nor will the Assignor sell, assign, grant any security interest in or otherwise transfer its rights or other interests in the Property or any part thereof, except as permitted by the Lease Agreement. 9. The Assignor hereby represents and warrants that the Nuclear Material Contract is in full force and effect and represents that it is the only agreement between the Assignor and the Contractor with respect to the Nuclear Material. 60 10. This Assignment Agreement shall become effective only upon receipt of the written consent of the Contractor to the assignment of the rights and interests conveyed hereunder, if such consent is required under the Nuclear Material Contract. The Assignor hereby agrees to send the Contractor a copy of this Assignment Agreement. 11. This Assignment Agreement shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the Assignor has caused this Assignment Agreement to be duly executed and delivered as of the ____ day of ____________, 19__. JERSEY CENTRAL POWER & LIGHT COMPANY By: Title: The foregoing Assignment Agreement is hereby accepted: TMI-1 FUEL CORP. By: Title: 61 EXHIBIT 1 to Assignment Agreement (a) The _____________ (as the same may from time to time be amended, modified or supplemented, being herein called the "Nuclear Material Contract"), dated as of _____________, between Jersey Central Power & Light Company and ______________ (the "Contractor), insofar as, and only to the extent that, the Contract relates to _________________ (the "Nuclear Material"); but not insofar as the Contract provides for the provision of other nuclear materials and services to the Assignor; and (b) The Property shall include, without limitation, (i) any and all amendments and supplements to the Nuclear Material Contract from time to time executed and delivered to the extent that any such amendment or supplement relates to the Nuclear Material, (ii) the Nuclear Material, including the right to receive title thereto, (iii) all rights, claims and proceeds, now or hereafter existing, under any insurance, indemnities, warranties and guaranties provided for in or arising out of the Nuclear Material Contract, to the extent that such rights or claims relate to the Nuclear Material, (iv) any claim for damages arising out of or for breach or default by the Contractor under or in connection with the Nuclear Material Contract insofar as it relates to the Nuclear Material, (v) any other amount, whether resulting from refunds or otherwise, from time to time paid or payable by the Contractor under or in connection with the Nuclear Material Contract insofar as it relates to the Nuclear Material and (vi) the right of the Assignor to terminate the Nuclear Material Contract or to perform or to exercise or enforce thereunder, insofar as it or they relate to the Nuclear Material. 62 EXHIBIT 2 to Assignment Agreement CONSENT AND AGREEMENT The undersigned, _________________ (the "Contractor"), has entered into a _______________ (as the same may from tune to time be amended, modified or supplemented, being herein called the "Nuclear Material Contract"), dated as of ____________________ with Jersey Central Power & Light Company (the "Assignor"). The Contractor hereby acknowledges notice that (i) in accordance with the terms of the Second Amended and Restated Nuclear Material Lease Agreement dated as of _________ __, 1998, between the Assignor and TMI-1 Fuel Corp. (the "Assignee"), the Assignor has assigned to the Assignee a part of the Assignor's rights under the Nuclear Material Contract pursuant to an Assignment Agreement, in the form of Annex A hereto (such Assignment Agreement, as the same may from time to time be amended, modified or supplemented, being herein collectively called the "Assignment"), and (ii) pursuant to a Security Agreement and Assignment of Contracts made by TMI-1 Fuel Corp. dated as of _________ __, 1998 (said Security Agreement and Assignment Contracts, as the same may from time to time be amended, modified or supplemented, being herein called the "Security Agreement") made by the Assignee in favor of the Secured Parties as defined therein (the "Secured Parties"), the Assignee has assigned and granted a security interest in all rights under the Nuclear Material Contract from time to time assigned to it by Assignor, as collateral security for all obligations and liabilities of the Assignee to the Secured Parties. The Contractor hereby consents to (i) the assignment by the Assignor to the Assignee of part of the Assignor's right, title and interest in, to and under the Nuclear Material Contract and the other Property described in the Assignment pursuant to the Assignment and (ii) the assignment and security interest in favor of the Secured Parties as described above. The Contractor further consents to all of the terms and provisions of the Security Agreement. The Contractor agrees that, if requested by either the Assignor or the Assignee, it will acknowledge in writing the Assignment delivered by the Assignor to the Assignee; provided, that neither the lack of notice to nor acknowledgment by the Contractor of the Assignment shall limit or otherwise affect the validity or effectiveness of this consent to such Assignment. 63 The Contractor hereby confirms to the Assignee and the Secured Parties that: (a) all representations, warranties and agreements of the Contractor under the Nuclear Material Contract which relate to the Nuclear Material described in the Assignment shall inure to the benefit of, and shall be enforceable by, the Assignee or any Secured. Party to the same extent as if originally named in the Contract as the purchaser of such Nuclear Material, (b) the Contractor understands that, pursuant to the Lease Agreement, the Assignee has agreed to lease the Nuclear Material described in the Assignment to the Assignor, and consents to the assignment to the Assignor, for so long as the Lease Agreement shall be in effect or until otherwise notified by the Assignee, of the Assignee's rights under clauses (iii), (iv), (v) and (vi) of subparagraph (b) of Exhibit 1 to the Assignment to the extent that such rights are reassigned to the Assignor pursuant to the Assignment, (c) The Contractor is in the business of selling nuclear fuel and related services of the kind described in the Assignment, and the proposed sale of such nuclear fuel under the Nuclear Material Contract will be in the ordinary course of business of the Contractor, and (d) Notwithstanding any provision to the contrary contained in the Nuclear Material Contract, the Contractor agrees that title to any Nuclear Material covered by the Assignment shall pass directly to the Assignee under the Contract and shall not pass to the Assignor; provided that the foregoing shall not apply to any Nuclear Material for which title has already passed from the Contractor prior to the execution and delivery of the Assignment. It is understood that neither the Assignment, the Security Agreement nor this Consent and Agreement shall in any way add to the obligations of the Contractor or the Assignor under the Nuclear Material Contract. This Consent and. Agreement shall be governed by and construed in accordance with the laws of the State of ____________. 64 IN WITNESS WHEREOF, the undersigned has caused this Consent and Agreement to be duly executed and delivered by its duly authorized officer as of the _____ day of __________, 19__. By: Title: 65 EXHIBIT E BILL OF SALE TO JERSEY CENTRAL POWER & LIGHT COMPANY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, TMI-1 Fuel Corp., a Delaware corporation (the "Seller"), whose post office address is c/o United States Trust Company of New York, 114 West 47th Street, New York, New York 10036, Attention: Corporate Trust and Agency Division, for and in consideration paid to the Seller upon or before the execution and delivery of this Bill of Sale to Jersey Central Power & Light Company (the "Purchaser"), a New Jersey corporation, whose address is 2800 Pottsville Pike, Reading, Pennsylvania 19640, Attention: Comptroller, hereby conveys, transfers, sells and sets over unto the Purchaser all of its right, title and interest in all of the personal property consisting of the assemblies of nuclear fuel or components thereof or other nuclear material described in Annex I hereto (the "Assets"), and by this Bill of Sale does hereby grant, bargain, sell, convey, transfer and deliver the Assets unto the Purchaser, to have and to hold such undivided interest in the Assets unto the Purchaser, for itself, its successors and assigns, forever. The Assets are transferred and conveyed by the Seller AS-IS, WHERE-IS, WITHOUT REPRESENTATIONS OR WARRANTIES (EXPRESS OR IMPLIED) OF ANY KIND WHATSOEVER BY THE SELLER OR ANY PERSON ACTING ON ITS BEHALF except that the Seller represents and warrants that it has not by voluntary act or omission created or granted any lien on the Assets, other than Permitted Liens, as defined in that certain Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 between the Seller and the Purchaser. The Purchaser acknowledges and agrees that neither the Seller, its directors, officers or employees, any company, person or firm controlling, controlled by, or under common control with any of them nor any other person acting on behalf of the Seller is a manufacturer of, or is engaged in the sale or distribution of, nuclear material, has had at any time physical possession of any portion of the Assets sold hereunder, or has made any inspection thereof. The Purchaser further acknowledges and agrees that the Assets sold hereunder have been at all times in the possession of the Purchaser and that the Purchaser has made such inspections thereof as it deems necessary and that the Purchaser has been solely responsible for all decisions made with respect to the choice of the suppliers of such Assets and the enrichment, fabrication, transportation, storage and processing of the same. 66 IN WITNESS WHEREOF, the Seller has caused these presents to be executed by one of its Vice Presidents, this _____ day of ____________, 19__. TMI-1 FUEL CORP., Seller By: Vice President Acknowledgment and Acceptance The foregoing Bill of Sale is hereby acknowledged and accepted by the undersigned as of the date last above written. JERSEY CENTRAL POWER & LIGHT COMPANY, Purchaser By: Its: 67 EXHIBIT F RENT DUE AND SCV CONFIRMATION SCHEDULE For the Basic Rent Period Ended _______ In accordance with the Second Amended and Restated Lease Agreement dated as of _________ __, 1998, between TMI-1 Fuel Corp., as Lessor, and Jersey Central Power & Light Company, as Lessee, the Lessee certifies that all amounts set forth below are true and correct in all respects, and both Lessor and Lessee certify that this Schedule has been prepared in accordance with the provisions of the Lease Agreement. I. BASIC RENT, ADDITIONAL RENT AND TERMINATION RENT A. Basic Rent Owed 1. Calculation of Portion of Monthly Financing Charge Not Allocated to Acquisition Cost a. Interest Payable with Respect to All Outstanding Notes (See attached summary calculation $ b. Other Amounts Included in Monthly Financing Charge $ c. Total Monthly Financing Charge Not Allocated to Acquisition Cost (Total of I(a) and I(b) $ 2. Aggregate Monthly Rent Component (See attached summary calculation) $ 3. BASIC RENT (total of 1(c) and 2) $ ========= B. Additional Rent Owed (see attached summary calculation) $ C. Termination Rent Owed (see attached summary calculation $ TOTAL RENT DUE (total of A, B and C) $ ========= 68
II. Calculation of Stipulated Casualty Value Nuclear Material ---------------------------------------------------------- Installed for Not Installed for Operation in the Operation in the Generating Facility Generating Facility Total A. Stipulated Casualty Value as of ______ $--------------- $-------------- $---------- B. Add: Acquisition Cost Incurred in Rent Period Covered by This Schedule (exclusive of Monthly Finance Charges) $--------------- $-------------- $---------- C. Add: Monthly Financing Charge Allocated to Acquisition Cost Incurred in Rent Period Covered by this Schedule $--------------- $-------------- $---------- D. Less: SVC of Nuclear Material Transferred to the Lessee Pursuant to Section 8(c), 8(g) or 14 of the Lease Agreement during the Basic Rent Period Covered by this Schedule $-------------- $-------------- $---------- STIPULATED CASUALTY VALUE AS OF ------- $ $ $ ================ =============== =========== Add: Commercial Paper Discount $---------- STIPULATED CASUALTY VALUE AS OF --------- $ ========== 69
EX-10 6 EX. 10-T LESSEE'S LETTER AGREEMENT OC FUEL CORP. EXHIBIT 10-T JERSEY CENTRAL POWER & LIGHT COMPANY ---------------------------------- LESSEE'S LETTER AGREEMENT Regarding OYSTER CREEK FUEL CORP. ---------------------------------- Dated as of November 5, 1998 TABLE OF CONTENTS Section Page 1. Definitions 1 2. Performance of Fuel Lease and Liens 1 3. Security Interest of Collateral 2 4. Sale of Nuclear Material and Assignment of Rights under Nuclear Material Contracts 2 5. Collateral Equivalence Test; No Additional Collateral or Covenants; Condemnation Statements; Exercise of Rights of Secured Parties 3 6. Fuel Management; Quiet Enjoyment 5 7. Insurance 5 8. Representations and Warranties 6 9. General Covenants of the Lessee 11 10. GPU Events 18 11. Credit Agreements and Notes 18 12. Consent to Assignment; Direct Payment of Payments Under the Fuel Lease 18 13. Severability 19 14. Indemnification 19 15. No Waiver; Amendments 21 16. Successors and Assigns 22 17. Notices 22 18. Set-off 23 19. Waiver of Jury Trail 23 20. Governing Law 23 THIS LESSEE'S LETTER AGREEMENT (the "Letter Agreement") is made as of November 5, 1998, by and between Jersey Central Power & Light Company, a New Jersey corporation (the "Lessee"), Oyster Creek Fuel Corp, a Delaware corporation (the "Company"), and The First National Bank of Chicago, as Administrative Agent (the "Administrative Agent"), for the Banks party to the Credit Agreement referred to below (the "Banks"). WHEREAS, the Lessee has entered into the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 ("Fuel Lease"), with the Company in order to enable the Company to obtain financing for the acquisition, processing and use of Nuclear Material in the Generating Facility; and WHEREAS, pursuant to the Fuel Lease, the Company has agreed to make payments due to Manufacturers and/or to reimburse the Lessee for payments previously made to Manufacturers with respect to Nuclear Material; and WHEREAS, in order to finance the cost of such Nuclear Material, the Company proposes to (i) sell its Commercial Paper, and (ii) obtain the Commitment of each Bank to make Loans from time to time as hereinafter provided; and WHEREAS, the Lessee has agreed to make payments under the Fuel Lease sufficient to enable the Company to meet its obligations under the Company's financing arrangements, including the Company's obligations under the Credit Agreement, dated as of November 5, 1998, among the Company, the Banks and the Administrative Agent (the "Credit Agreement"); NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained and other good and valuable consideration, so long as any of the Loans or the Commercial Paper shall remain outstanding, or the Commitments shall be continuing, notwithstanding any provision of the Fuel Lease or any other agreement of the Lessee to the contrary, the Lessee, the Company, the Administrative Agent and the Banks agree that: 1. Definitions. Unless the context otherwise specifies or requires, each term defined in the Credit Agreement or Appendix A to the Fuel Lease, shall, when used in this Letter Agreement, have the meaning indicated in the Credit Agreement or Appendix / or set forth in the paragraph indicated therein. 2. Performance of Fuel Lease and Liens. The Lessee will perform and comply with all the terms of the Fuel Lease to be performed or complied with by it and will not omit to take an action the omission of which would cause a Lease Event of 2 Default. The Lessee acknowledges that, except as otherwise provided in the Fuel Lease, its obligations as set forth under the Fuel Lease are absolute and unconditional. The Lessee will not directly or indirectly create or permit to be created or remain, and will promptly take such action as may be necessary to discharge, any Lien on any Collateral except Permitted Liens. 3. Security Interest of Collateral. The Lessee represents that no effective financing statement (other than those naming the Secured Parties as a secured party) covering all or any part of the Collateral (as defined in the Security Agreement relating to the Lessee) is on file in any public office. The Lessee shall make, or shall cause to be made, all filings and recordings, and shall take, or cause to be taken, such other actions, including filing all continuation statements, necessary to establish, preserve and perfect the Secured Parties' lien on and security interest in, the Collateral as a legal, valid and enforceable first priority lien and security interest, or purchase money security interest, as the case may be, therein, subject only to the existence or priority of any Permitted Lien, and the Lessee represents that all such filings, recordings and other actions have been duly made. The Lessee shall deliver to the Administrative Agent evidence of the due filings of any continuation statements to be delivered to the Administrative Agent within the time period specified in Section 7.05 of the Credit Agreement. In no event will the Lessee permit the Nuclear Material to enter any jurisdiction in which all necessary action has not been taken to establish, maintain and protect the Secured Parties' first priority perfected lien and security interest in the Nuclear Material under the Security Agreement, subject only to Permitted Liens. 4. Sale of Nuclear Material and Assignment of Rights under Nuclear Material Contracts. (a) In the event that the Lessee desires the Company, on behalf of the Lessee, to purchase Nuclear Material or to have services performed on such Nuclear Material pursuant to any Nuclear Material Contract, the Lessee shall provide the Company with an Assignment Agreement and a Manufacturer's Consent, both substantially in the form of Exhibit D to the Fuel Lease, with such changes to Exhibit 2 to Exhibit D as the Administrative Agent in its reasonable discretion may consent to in writing, which consent shall not be unreasonably withheld, with respect to such Nuclear Material Contract not later than sixty days following the date on which the Company is to purchase such Nuclear Material or to have such services performed pursuant 3 thereto. Notwithstanding the foregoing, the Lessee shall not be required to have obtained a Manufacturer's Consent in any instance where the Manufacturer's obligations under the applicable Nuclear Material Contract have been fully discharged and performed, and the Manufacturer's warranties with respect to such Nuclear Material Contract have expired, and the Lessee has delivered to the Company and the Collateral Agent a certificate to such effect. (b) The Lessee at its expense will perform and comply with all the terms and provisions of each Assigned Agreement to be performed or complied with by it, will maintain each Assigned Agreement in full force and effect, will enforce each of the Assigned Agreements in accordance with their respective terms, and will take all such action to that end as from time to time may reasonably be requested by the Majority Banks. (c) The Lessee shall not enter into or consent to or permit any cancellation, termination, amendment, supplement or modification of or waiver with respect to any Assigned Agreement without the prior written consent of the Majority Banks, unless such cancellation, termination, amendment, supplement or modification could not reasonably be expected to have a Material Adverse Effect on the Company or the Company has through one or more other Assigned Agreements or otherwise arranged for the provision of comparable goods and services on terms not materially more burdensome to the Company. (d) The Lessee will from time to time, upon request of the Administrative Agent, furnish to the Administrative Agent such information concerning the Nuclear Material or any Assigned Agreement, as the Majority Banks may reasonably request. (e) The Lessee will not change its principal place of business or chief executive offices from the location specified in paragraph 8(a) hereof or remove therefrom its records concerning the Assigned Agreements unless it gives the Administrative Agent at least 30 days' prior written notice thereof. 5. Collateral Equivalence Test; No Additional Collateral or Covenants; Condemnation Statements; Exercise of Rights of Secured Parties. 4 (a) The Lessee shall not permit the sum of aggregate Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease and Cash Collateral to be less than Outstandings. (b) The Lessee shall not provide to any Person (other than the Banks), in order to induce such Person to extend credit to the Company, any collateral or any guarantee or other assurance against loss or non-payment, nor shall the Lessee consent to the provision thereof by the Company. (c) The Lessee shall not agree to any affirmative or negative covenant with respect to the condition, financial or otherwise, of the Lessee with any Person in order to induce such Person to extend credit to the Company. (d) The Lessee shall not sell, assign, convey, pledge or otherwise dispose of or encumber in any manner any interest it may have in the Trust or any rights it may have under the Trust Agreement. The Lessee shall not direct the Owner Trustee to liquidate, dissolve, merge or consolidate the Company except if such transaction is consented to in writing by the Banks. The Lessee shall not direct the Owner Trustee to take any action under the Trust Agreement which is inconsistent with the duties imposed upon the Company by the Basic Documents and any other agreements, documents, instruments and articles executed and delivered, and to be executed and delivered, by the Owner Trustee in connection therewith. (e) The Nuclear Material leased under the Fuel Lease shall constitute the Lessee's entire ownership interest in the items used or to be used by it as nuclear fuel in the Generating Facility. The Lessee agrees that 100% of the Lessor's ownership interest in any Nuclear Material which is subject to the Fuel Lease will be leased to the Lessee. The Lessee further agrees not to take any action under the terms of the Fuel Lease, including, but not limited to, the delivery of any Leasing Record, which would result in 100% of the Lessor's ownership interest in any such Nuclear Material not being so leased. (f) As provided in the Security Agreement, (i) the Collateral Agent on behalf of the Secured Parties may, on and after the occurrence of a Credit Agreement Default or Credit Agreement Event of Default, pursuant to Section 10 of the Security Agreement, exercise any and all of the Company's rights under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party, and (ii) if a Lease Event of Default occurs and is continuing, the Collateral 5 Agent on behalf of the Secured Parties may, pursuant to Section 10 of the Security Agreement, enforce and exercise any and all of the Company's rights under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party, or the rights and remedies granted to the Secured Parties under the Security Agreement at its election and in its sole discretion, and, in the event that the Collateral Agent is permitted to exercise such rights pursuant to Section 10 of the Security Agreement, the Lessee agrees that the Collateral Agent may do so either in concert with or in place of the Company, and the Lessee shall assist in, comply with and perform in accordance with all rights or remedies so enforced or exercised by the Collateral Agent for the ratable benefit of the Secured Parties. 6. Fuel Management; Quiet Enjoyment. The occurrence of a Credit Agreement Default, a Credit Agreement Event of Default, Lease Event of Default or an event or condition which would, with the lapse of time or the giving of notice or both, become a Lease Event of Default, shall not affect the Lessee's sole obligation to engage in Fuel Management; provided that, upon the occurrence of a Credit Agreement Event of Default or Lease Event of Default, the Collateral Agent may, if so directed by the Majority Secured Parties, by written notice to the Lessee, elect to revoke such power and authority, in which case the Person from time to time designated by the Majority Secured Parties may (but shall not be obligated to), to the extent that the Majority Secured Parties desire and to the extent permitted by law, engage in Fuel Management and/or remove all or any part of the responsibility for Fuel Management from the Lessee; provided, however, that, subject to the right of the Collateral Agent and the Majority Secured Parties to exercise any or all rights granted to the Secured Parties under the Security Agreement, the rights granted to the Collateral Agent and the Majority Secured Parties under this Section 6 shall not be construed to include the right to direct, whether directly or indirectly, the operation of the Generating Facility. In the event the Majority Secured Parties, in accordance with the preceding sentence, shall revoke the Lessee's power and authority to engage in Fuel Management, all rights conferred by the Company to the Lessee pursuant to Section 3 of the Fuel Lease shall be deemed to be automatically reassigned to the Company and the Lessee shall execute such documents and instruments as the Collateral Agent shall request to further confirm such assignment. 7. Insurance. Each year, the Lessee will furnish the Administrative Agent and each Bank a detailed statement certified by an officer of Lessee setting forth (i) the location of all 6 Nuclear Material and (ii) the insurance policies and indemnification agreements provided pursuant to Sections 14 and 17 of the Fuel Lease and certifying that such insurance policies and indemnification agreements comply with the requirements of the Fuel Lease. In addition, the Lessee shall promptly furnish at any time to the Administrative Agent and any Bank such information as any such Bank shall reasonably request concerning location of Nuclear Material, insurance policies and indemnification agreements and Manufacturers or other third parties with whom arrangements exist with respect to transportation, storage or processing of Nuclear Material. 8. Representations and Warranties. The Lessee hereby represents and warrants to the Company, the Administrative Agent and the Banks that as of the date hereof: (a) Organization and Standing. The Lessee is a corporation duly incorporated, validly existing and in good standing under the laws of the State of New Jersey, and is qualified to do business in each state or other jurisdiction in which the nature of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on its ability to perform its obligations under this Letter Agreement or each other Basic Document to which the Lessee is a party. The Lessee's chief executive office is located at 2800 Pottsville Pike, Reading, Pennsylvania 19605. (b) Corporate Authority. The Lessee has the corporate power and authority to execute and perform this Letter Agreement and the Fuel Lease and to lease the Nuclear Material thereunder. The execution and delivery of this Letter Agreement and the Fuel Lease and the lease of the Nuclear Material thereunder will not have a material adverse effect on the financial condition, results of operations, business, properties or operations of the Lessee. (c) Compliance with Other Instruments, etc. The execution, delivery and performance by the Lessee of this Letter Agreement and each Basic Document to which the Lessee is a party, and other related instruments, documents and agreements, and the compliance by the Lessee with the terms hereof and thereof, (i) have been duly and legally authorized by appropriate corporate action taken by the Lessee, (ii) are not in contravention of, and will not result in a violation or breach of, any of the terms of the Lessee's articles of incorporation, its by-laws or of any provisions relating to shares of the 7 capital stock of the Lessee and (iii) will not violate or constitute a breach of any provision of (x) any applicable law, order, rule or regulation, rule or regulation of any governmental authority (except in those cases where non-compliance with any such law, order, rule or regulation could not reasonably be expected to have a material adverse effect on the financial condition, results of operations, business, properties or operations of the Lessee or its ability to perform its obligations hereunder or under each Basic Document) or (y) any indenture, agreement or other instrument to which the Lessee is party, or by or under which the Lessee or any of the Lessee s property is bound, or be in conflict with, result in breach of, or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement or instrument, or result in the creation or imposition of any Lien upon any of the Lessee's property or assets or any Nuclear Material. (d) Legal Obligations. This Letter Agreement and the Fuel Lease have been executed by a duly authorized officer of the Lessee, and this Letter Agreement and the Fuel Lease constitute, and each Leasing Record, when executed by a duly authorized officer of the Lessee and delivered to the Company, will constitute, the legal, valid and binding obligations of the Lessee, enforceable against the Lessee in accordance with their respective terms, except as the enforceability thereof may be limited by the Atomic Energy Act and the rules, regulations or orders issued pursuant thereto, or by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general, and except as the availability of the remedy of specific performance is subject to general principles of equity (regardless of whether such remedy is sought in a proceeding in equity or at law). (e) Governmental Consents. Neither the execution and delivery of this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee, nor the performance by the Lessee of all of its obligations hereunder or thereunder, requires the consent or approval of, the giving of notice to, or the registration, filing or recording with, or the taking of any other action in respect of, any Federal, state, local or foreign government or governmental authority or agency or any other person except for the order of the Securities and Exchange Commission (the "SEC"), dated October 25, 1995, the filing of the supplemental order of the SEC dated November 3, 1998, the filing of a notice with the New Jersey Board of Public Utilities which notice was filed September 4, 1998, and the filing of any statement or other instrument pursuant to Section 10(b) of the Fuel Lease, and 8 except for the filing of certificates by the Lessee with the SEC pursuant to SEC Rule 24 under the Public Utility Holding Company Act to report on the transactions authorized by such SEC order, the filing of which is not necessary to the execution or delivery of this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee or for the performance by the Lessee of any of its obligations hereunder or thereunder, and the failure to file any of which will not affect the validity or enforceability of any of this Letter Agreement, the Fuel Lease or any Leasing Record. (f) Consents and Permits. The Lessee possesses all material licenses, permits, franchises and certificates which are necessary or appropriate to own or operate its material properties and assets and to conduct its business as now conducted. (g) Litigation. There is no litigation or other proceeding now pending or, to the best of the Lessee's knowledge, threatened, against or affecting the Lessee, before any court, arbitrator or administrative or governmental agency (i) which would adversely affect or impair the title of the Company to the Nuclear Material, (ii) which questions the validity or enforceability of this Letter Agreement, the Fuel Lease, the Assigned Agreements or any other Basic Document to which the Lessee is a party or any action taken or to be taken by the Lessee pursuant to or in connection with this Letter Agreement, or (iii) except as disclosed in the Lessee's Annual Report on Form 10-K for the year ended December 31, 1997 and Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, copies of which have previously been delivered to the Administrative Agent and the Banks, which, if decided adversely to the Lessee, would materially adversely affect the condition, financial or otherwise, of the Lessee. (h) Taxes. The Lessee has filed or caused to be filed all tax returns which are required to be filed, and has paid or caused to be paid all taxes as shown on said returns and all assessments received by it to the extent that such taxes and assessments have become due, except for taxes and assessments which are being contested in good faith and by appropriate proceedings and as to which it has provided reserves which are adequate in connection with generally accepted accounting principles. (i) Reaffirmation and Restatement of Representations and Warranties. The Lessee repeats and reaffirms as of the date hereof for the benefit of the Administrative Agent and each Bank 9 the representations and warranties made by the Lessee in the Fuel Lease as though set forth in full herein with the same effect as though such representations and warranties had been made on and as of the date hereof. In addition, the Lessee represents and warrants that as of the date hereof (i) the Lessee is in compliance with all the terms and provisions set forth in the Fuel Lease on its part to be observed or performed, (ii) no Terminating Event has occurred and no event has occurred which, with the lapse of time or the giving of notice, or both, would constitute such a Terminating Event, and (iii) no Lease Event of Default has occurred and is continuing and no event has occurred and is continuing on such date which, with the lapse of time or the giving of notice, or both, would constitute a Lease Event of Default. (j) First Perfected Security Interest. Except for Permitted Liens, upon the execution and delivery of this Letter Agreement and the Security Agreement and the due filing of the Uniform Commercial Code financing statements required to be executed and filed from time to time, the Secured Parties will have a legal, valid and enforceable first priority security interest (i) in the rights, titles and interests of the Company in and to the Fuel Lease and (ii) in and to the other Collateral. Such security interest will constitute a perfected security interest in the Collateral consisting of Nuclear Material Contracts and the Collateral consisting of Nuclear Material located in the States of Illinois, Kentucky, Ohio, New Jersey and North Carolina, except for any such Collateral which consists of cash, instruments (as defined in the New York Uniform Commercial Code) and other items in which a security interest may only be perfected by possession, enforceable against all third parties as security for the Secured Obligations. (k) No Material Adverse Change. Since June 30, 1998, there has been no material adverse change in the financial condition, results of operations, business, properties or operations of the Lessee or in its ability to perform its obligations under the Basic Documents. (l) No Defaults. The Lessee is not in default under any bond, debenture, note or any other evidence of Obligations for Borrowed Money or Deferred Purchase Price or any mortgage, deed of trust, indenture, loan agreement or other agreement relating thereto, where the amount thereof is in excess of $20,000,000. 10 (m) Pension Plans. No accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any plan (other than a multiemployer plan). No liability to the Pension Benefit Guaranty Corporation has been, or is expected by the Lessee to be, incurred with respect to any plan (other than a multiemployer plan) by the Lessee which is or would be materially adverse to the Lessee. The Lessee has not incurred and presently does not expect to incur any withdrawal liability under Title IV of ERISA with respect to any multiemployer plan which is or would be materially adverse to the Lessee. Neither the execution and delivery by the Company of the Credit Agreement and the other Basic Documents, and the issuance of the Commercial Paper, nor the execution and delivery by the Lessee of this Letter Agreement, the Trust Agreement and each other Basic Document to which the Lessee is a party, will involve any transaction which is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975. As used herein, the term "plan" shall mean an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is and has been established or maintained, or to which contributions are or have been made, by the Lessee or by any trade or business, whether or not incorporated, which, together with the Lessee is under common control as described in Section 414(b) or (c) of the Code, and the term "multiemployer plan" shall mean any plan which is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA). (n) Financial Statements. The audited balance sheet of the Lessee as of December 31, 1997, and the related statements of income and cash flows (including the notes thereto) of the Lessee for the year then ended, copies of which have been delivered to the Company, the Administrative Agent and the Banks, and all other annual or quarterly financial statements including, without limitation, the quarterly statement dated as of June 30, 1998 so delivered fairly present the financial condition of the Lessee on the dates for which, and the results of its operations for the periods for which, the same have been furnished and have been prepared in accordance with generally accepted accounting principles consistently applied. (o) Nuclear Material. The Nuclear Material is free and clear of any Lien in favor of any Person claiming by, through or under the Lessee or any Affiliate thereof, other than Permitted Liens. No default or event which with the giving of notice or lapse of time would constitute a default has occurred and is continuing under any Nuclear Material Contract. 11 (p) Disclosure. Neither the representations in this Letter Agreement, or in any other document, certificate or statement furnished in writing to the Administrative Agent or any Bank by or on behalf of the Lessee in connection with the transactions contemplated hereby, nor the information disclosed in the Lessee's Annual Report on Form 10-K for the year ended December 31, 1997 or Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, contained as of its date, any untrue statement of a material fact or omitted to state a material fact necessary in order to make such representations or information not misleading in light of the circumstances under which they were made. (q) Collateral Equivalence Test Met. The sum of the aggregate Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease and the Cash Collateral equals or exceeds the Outstandings. (r) Year 2000. The Lessee has made a full and complete assessment of its Year 2000 Issues and has a realistic and achievable Year 2000 Program. Based on such assessment and on its Year 2000 Program, the Lessee does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. 9. General Covenants of the Lessee. (a) Information. The Lessee will furnish to the Company and the Administrative Agent in sufficient copies for each Bank: (i) Quarterly Statements. As soon as practicable after the end of each of the first three quarterly fiscal periods in each fiscal year of the Lessee, and in any event within 60 days thereafter, copies of: (A) a balance sheet of the Lessee as at the end of such quarter, and (B) statements of income and cash flows of the Lessee for such quarter and for the twelve-month period ending as of the end of such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with the end of such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail and certified as complete and correct, subject to changes resulting from year-end 12 adjustments, by a principal financial officer of the Lessee; provided that it is understood that the delivery of the Lessee's Quarterly Report on Form 10-Q shall be deemed to satisfy the requirements with respect to such financial statements; (ii) Annual Statements. As soon as practicable after the end of each fiscal year of the Lessee, and in an event within 120 days thereafter, copies of: (A) a balance sheet of the Lessee at the end of such fiscal year, and (B) statements of income and cash flows of the Lessee for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and accompanied by an opinion thereon of independent certified public accountants of recognized national standing selected by the Lessee, which opinion shall state that such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied (except for changes in application in which such accountants concur) and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards; provided that it is understood that the delivery of the Lessee's Annual Report on Form 10-K shall be deemed to satisfy the requirement with respect to such financial statements; (iii) Officer's Compliance Certificate. Simultaneously with the financial statements referred to in Sections 9(a)(i) and (ii), a certificate of an authorized officer of the Lessee stating that such officer has reviewed the relevant terms and conditions of the Fuel Lease and other Basic Documents to which the Lessee is a party, and has made, or caused to be made, under such officer's supervision, a review of the transactions and financial condition of the Lessee from the beginning of the accounting period covered by the income statements being delivered therewith to the date of the certificate, and that the Lessee has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Letter Agreement, the Fuel Lease and any other Basic Document to which the Lessee is a party, and no Terminating Event, Lease Event of Default or default or event of default under any such Basic Document has occurred and is continuing 13 and no event has occurred and is continuing which, with the lapse of time or the giving of notice, or both, would constitute a Terminating Event, Lease Event of Default or a default or event of default under any such Basic Document or, if such condition or event has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto; (iv) Auditor's Compliance Certificate. Simultaneously with the financial statements referred to in Section 9(a)(ii), a certificate of the independent public accountants who audited such statements stating that such accountants have reviewed the relevant terms and conditions of the Fuel Lease and other Basic Agreements to which the Lessee is a party, and that, in making the examination necessary for the audit of such statements, they have obtained no knowledge of any condition or event which constitutes or which with notice or lapse of time or both would constitute a Terminating Event, Lease Event of Default or default or event of default under any such Basic Document, or if such accountants shall have obtained knowledge of any such condition or event, specifying in such certificate each such condition or event of which they have knowledge and the nature and status thereof; (v) Notices Required under the Basic Documents. Immediately upon delivery to the Lessee or the Company, all notices, consents, documents, certificates or instruments of any kind relating to the Lessee required pursuant to the Fuel Lease; (vi) Defaults. (A) Promptly upon becoming aware of the occurrence thereof, notice of any Terminating Event, Lease Event of Default or any event which, with the lapse of time or the giving of notice, or both, would constitute a Terminating Event or a Lease Event of Default, or of any other development, financial or otherwise (including, without limitation, developments with respect to Year 2000 Issues), which could reasonably be expected to have a Material Adverse Effect, and (B) within 10 days of becoming aware of the occurrence thereof, notice of any other material event affecting the Lessee's obligations under any Basic Document or any Nuclear Material Contract (except to the extent such event has previously been disclosed in the Lessee's SEC reports delivered pursuant to clause (viii) below); 14 (vii) Notice of Claimed Default. Immediately upon becoming aware that the holder or holders of any evidence of Obligations for Borrowed Money or Deferred Purchase Price or other security of the Lessee or any subsidiary exceeding $20,000,000 in the aggregate have given notice (or taken any other action) with respect to a claimed default, breach or event of default, a notice describing the notice given (or action taken) and the nature of the claimed default, breach, or event of default; (viii) SEC and Other Reports. Promptly after filing thereof, copies of all regular and periodic reports and registration statements which the Lessee may file with the SEC or any governmental agency substituted therefor and, promptly upon written request therefor, copies of the financial statements which the Lessee may file annually with any state regulatory agency or agencies; and (ix) Requested Information. With reasonable promptness, such other data and information with respect to the Lessee, including, without limitation, information regarding Nuclear Material or any Nuclear Material Contract or the Lessee's Year 2000 Program, as from time to time may be reasonably requested by the Administrative Agent or any Bank. (b) Notice of Litigation. Immediately upon the Lessee becoming aware thereof, written notice of (i) any litigation or proceedings which would be required to be disclosed as an exception to the representations and warranties contained herein or in the Fuel Lease in order that such representations and warranties would be true and correct on a continuing basis; and (ii) any dispute between the Lessee and any governmental authority or other party relating to any part of the transactions contemplated by this Letter Agreement or any of the other Basic Documents to which the Lessee is a party which would have a material adverse effect on the ability of the Lessee to carry out its obligations hereunder or under any other Basic Document to which the Lessee is a party; provided, however, that the notice requirement in this Section 9(b) shall be satisfied if the Lessee furnishes the Company and the Administrative Agent in sufficient copies for each Bank a Current Report on Form 8-K regarding the event requiring notice by the time that the Current Report is required to be filed with the Securities and Exchange Commission. (c) General Obligations. Subject to the last sentence of this Section 9(c), the Lessee will: 15 (i) duly comply with all laws, rules, orders, regulations or other valid requirements (including, without limitation, any of the foregoing which are applicable to Nuclear Material or the operation of the Generating Facility) of any governmental authority necessary to the conduct of its business or to its properties or assets, noncompliance with which could reasonably be expected to have a material adverse effect upon the transactions contemplated by this Letter Agreement or any other Basic Document, or upon the financial condition, results of operations, business, properties or operations of the Lessee, or the ability of the Lessee to carry out its obligations under any Basic Document or this Letter Agreement); (ii) continue to engage principally in the electric utility business; (iii) obtain, maintain and keep in full force and effect all consents, permits, licenses and approvals, the absence of which would have a material adverse effect upon the transactions contemplated by this Letter Agreement or any other Basic Document to which the Lessee is a party, or upon the financial condition, results of operations, business, properties or operations of the Lessee, or the ability of the Lessee to carry out its obligations under this Letter Agreement or any other Basic Document to which the Lessee is a party; (iv) maintain its material operating properties used or useful in its business in good repair, working order and condition consistent with prudent utility practice; provided, however, that the Lessee shall not be prevented from discontinuing the operation and maintenance of any of its properties if it shall determine that the continued operation and maintenance of such properties is no longer necessary, desirable or permissible; (v) pay when due all fees, taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any property 16 belonging to it, and maintain appropriate reserves for the accrual of the same in accordance with generally accepted accounting principles; (vi) except as permitted by clause (vii) below, at all times maintain its corporate existence, privileges, franchises and rights to carry on business, and duly procure all renewals and extensions thereof, if and when any shall be necessary; (vii) not consolidate or merge with, or sell or otherwise dispose of all or substantially all of its properties and assets to any Person unless (i) the surviving or resulting entity is the Lessee hereunder, (ii) immediately after giving effect thereto no Credit Agreement Event of Default, Credit Agreement Default, Lease Event of Default or event which with the giving of notice or passage of time would constitute a Lease Event of Default shall have occurred and be continuing, and (iii) the senior unsecured debt of the surviving or resulting Lessee shall be rated at least investment grade by Standard & Poor's Ratings Group ("S&P") or Moody's Investor Service, Inc. ("Moody's"); (viii) perform and comply with each of the material provisions of each material indenture, credit agreement, contract or other agreement by which the Lessee is bound, non-performance or non-compliance with which would have a material adverse effect upon its business or credit or in any way affect its ability to perform its obligations hereunder except material contracts or other agreements being contested in good faith; (ix) preserve and maintain its corporate existence in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in good standing in each jurisdiction in which such qualification is necessary or desirable in view of its business and operations or the ownership of its properties, except where the failure to be so qualified would not materially adversely affect its financial condition, operations, properties or 17 business, and preserve its material rights, franchises and privileges to conduct its business substantially as conducted on the date hereof; (x) maintain insurance in effect at all times in such amounts as are available to the Lessee and covering such risks as is usually carried by companies of a similar size, engaged in similar businesses and owning similar properties (including, without limitation, the operation and ownership of nuclear generating facilities) in the same general geographical area in which the Lessee operates, either with responsible and reputable insurance companies or associations, or, in whole or in part, by establishing reserves of one or more insurance funds, either alone or with other corporations or associations; (xi) at any reasonable time and from time to time, permit the Administrative Agent or any Bank or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Lessee and discuss the affairs, finances and accounts of the Lessee with any of its officers or directors; (xii) not sell, transfer, lease, assign or otherwise convey or dispose of more than 25% of its assets (whether now owned or hereafter acquired), in any single or series of transactions, whether or not related, except for dispositions of its fossil and hydroelectric generating stations and associated facilities and dispositions of its current assets in the ordinary course of business as presently conducted, if immediately prior to such sale, transfer, lease, assignment, conveyance or disposition or as a result of such sale, transfer, lease, assignment, conveyance or disposition, the senior unsecured debt of the Lessee shall not be rated at least investment grade by S&P or Moody's. (xiii) comply with this Letter Agreement and such other Basic Documents to which the Lessee is a party in accordance with the respective terms and conditions set forth herein and therein; and 18 (xiv) except for Permitted Liens, permit the creation of any Liens on the Collateral. Notwithstanding the foregoing provisions of this Section 9(c), the Lessee may contest by appropriate proceedings conducted in good faith and due diligence, the amount, validity or application, in whole or in part of any fee, tax, assessment or government charge or levy, or any legal requirement, provided that the Lessee shall have set aside on its books adequate reserves, if required in accordance with generally accepted accounting principles with respect thereto and shall furnish such security, if any, as may be required in the proceeding. 10. GPU Events. It shall be a default hereunder if GPU, Inc. fails to maintain at all times beneficial ownership of at least 75% of all outstanding shares of common stock of each of the Lessee, Met-Ed and PE; or pledges, grants options on, creates any charge on or security interest in, or otherwise subjects to any charge or encumbrance, any of the common stock of the Lessee, Met-Ed or PE unless the obligations hereunder are secured ratably and with equal priority, in form and substance reasonably satisfactory to the Majority Banks. 11. Credit Agreement and Notes. The Lessee hereby acknowledges receipt of executed counterparts of the Credit Agreement and photostatic copies of the Notes evidencing the Loans, and consents to all of the terms and provisions of the Credit Agreement and the Notes. 12. Consent to Assignment; Direct Payment of Payments Under the Fuel Lease. (a) Consent to Assignment. The Lessee hereby acknowledges notice of and consents to all the terms and provisions of the Security Agreement and hereby confirms to and agrees with the Secured Parties that all representations, warranties, indemnities and agreements of the Lessee contained in this Letter Agreement and each other Basic Document to which the Lessee is a party shall inure to the benefit of, and shall be enforceable by, the Secured Parties to the same extent as if such Secured Parties were originally parties to or named in such documents and agreements. The Lessee further acknowledges and consents to the assignment and transfer, and any future assignments and transfers, to the Secured Parties by the Company of the Company's right to exercise any and all of its rights, remedies, powers and privileges (but none of its obligations, duties or liabilities) under the Fuel Lease, the Assigned 19 Agreements and each other Basic Document to which the Lessee is a party. The Lessee hereby agrees with the Secured Parties to comply with any exercise by the Secured Parties, either directly or through the Company, of any rights, remedies, powers or privileges pursuant to the Security Agreement. The Secured Parties acknowledge that neither the Security Agreement nor this Section 2 shall in any way add to the obligations of the Lessee (except those obligations of the Lessee to any Person, which, if not previously so, hereby become enforceable directly by the Secured Parties) under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party. Notwithstanding the foregoing, so long as no Lease Event of Default shall have occurred and be continuing, the Lessee shall have exclusive right to possession and use of the Nuclear Material in accordance with the Fuel Lease and may use such Nuclear Material for any lawful purpose consistent with the Fuel Lease. (b) Direct Payment of Payments Under the Fuel Lease. The Lessee acknowledges that it has been directed by the Company to, and agrees that it will, make all payments of monies due and to become due to the Company under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party, directly to the Collateral Agent, including, without limitation, Basic Rent, Additional Rent, the purchase price of Nuclear Material pursuant to Section 8(c), 8(d), 8(e) and 8(g) of the Fuel Lease, payments pursuant to Sections 9(e), 14, 17 and 18 of the Fuel Lease in the manner and to the accounts of the Secured Parties as specified in Section 3.03 of the Credit Agreement. 13. Severability. Any provision of this Letter Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability, without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. 14. Indemnification. The Lessee shall pay and indemnify and hold harmless the Administrative Agent and each Bank, and their respective officers, directors, incorporators, shareholders, partners, employees, agents and servants from and against any and all liabilities (other than liabilities arising 20 out of the gross negligence or willful misconduct of such Person), taxes, (excluding, however, taxes measured solely by the net income of any Person indemnified or intended to be indemnified pursuant to this Section 14, except as otherwise provided in Section 14 hereof), losses, obligations, claims, damages, penalties, causes of action, suits, costs and expenses (including, without limitation, reasonable attorneys' and accountants' fees and expenses) and judgments of any nature arising from or in any way relating to any and all of the following during the term of the Fuel Lease and thereafter: (a) any injury to or disease, sickness or death of Persons, or loss of or damage to property, occurring through or resulting from any nuclear incident (as that term is defined in the Atomic Energy Act, 42 U.S.C. section 2011 et seq.) involving or connected in any way with the Nuclear Material or any portion thereof, (b) the acquisition, ownership (including strict liability of an owner or liability without fault), possession, disposition, sale, use, nonuse, misuse, leasing, fabrication, design, cycling, recycling, transportation, containerization, cooling, processing, reprocessing, storing, condition, management, operation, construction, maintenance, repair or rebuilding of the Nuclear Material or any portion thereof or resulting from the condition of adjoining and underlying land, buildings, streets or ways, (c) any use, nonuse or condition of, or any other matter of circumstance relating to, the Generating Facility, any other property associated therewith or any adjoining and underlying land, buildings, streets and ways, (d) any violation or default, or alleged violation or default, of the Fuel Lease or this Letter Agreement by or on behalf of Lessee, or of any contracts or agreements to which the Lessee is a party or by which it is bound, or any Legal Requirements, (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Nuclear Material or any portion thereof, (f) any infringement or alleged infringement of any patent, copyright, trade secret or other similar right relating to the Nuclear Material or any portion thereof, (g) Lessee's agreements or obligations contained in the Fuel Lease or this Letter Agreement, (h) any claim arising out of loss of damage to the environment, (i) any claim arising out of strict or absolute liability in tort, or (j) the offering and sale of Commercial Paper. The Lessee also indemnifies each indemnitee, as aforesaid, from and against all other liabilities, taxes, losses, obligations, claims, damages, penalties, causes of action, suits, costs and expenses (including, without limitation, reasonable attorneys' and accountants' fees and expenses) and judgments of any nature which may be imposed on, incurred by, or asserted at any time against any indemnitee in any way relating to or arising out of 21 the performance of this Letter Agreement, the Fuel Lease or any other Basic Document to which Lessee is a party, provided, except for claims of a nature contemplated by (i) above, that the Lessee shall not be required to indemnify any indemnitee with respect to any liability relating to or arising out of indemnitee's gross negligence or willful misconduct and provided, further, that the foregoing immunity shall not limit the terms of any indemnity that the Lessee may grant separately to any indemnitee pursuant to any separate agreement. In the event that any action, suit or proceeding is brought against the Company or any other Person indemnified or intended to be indemnified pursuant to this Section 14 by reason of any such occurrence, the Lessee shall, at the Lessee's expense, resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel designated by the Lessee and reasonably acceptable to the Person or Persons indemnified or intended to be indemnified under this Section 14 provided there is no conflict of interest with the Person or Persons indemnified or intended to be indemnified under this Section 14. In the event a conflict of interest contemplated by the proviso of the immediately preceding sentence shall exist, then the Person or Persons as to which such conflict exists may be defended by counsel of its or their choice at Lessee's expense, provided Lessee's obligation for such expense shall be limited to one firm for all such Persons as to which such a conflict exists. The obligations of the Lessee under this Section 14 shall survive any termination of this Letter Agreement, the Credit Agreement, the Fuel Lease or the Security Agreement, in whole or in part. 15. No Waiver; Amendments. Neither the Administrative Agent, the Collateral Agent, the Banks, the Company nor the Lessee shall, by any act, delay, omission or otherwise, be deemed to have waived any of its rights and remedies hereunder, and no waiver shall be valid unless in writing signed by the party or parties sought to be bound thereby. A waiver by the Administrative Agent, the Collateral Agent, the Banks, the Company or the Lessee of any of their respective rights or remedies hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent, the Banks, the Company or the Lessee, as applicable, would otherwise have had on any future occasion. No failure to exercise nor any delay in exercise of any such right or remedy hereunder shall preclude any other or future exercise or partial exercise of any other right or remedy. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies 22 provided by law. None of the terms or provisions of this Letter Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by the party or parties sought to be bound thereby. 16. Successors and Assigns. This Letter Agreement shall bind the successors and assigns of the Lessee and the Company and shall inure to the benefit of permitted successors and assigns of either. The Letter Agreement shall not be assignable by the Lessee or the Company, either voluntarily or by operation of law, unless consented to by the Administrative Agent and the Majority Banks. No permitted assignment by the Lessee or the Company shall release the Lessee or the Company from any of its obligations hereunder. This Letter Agreement shall inure to and shall be binding upon the successors and assigns of the Administrative Agent and the Banks. 17. Notices. Any notice, demand or other communication which by any provision of this Letter Agreement is required or provided to be given shall be deemed to have been delivered if in writing addressed as provided below and actually delivered by mail, courier or facsimile to the following addresses: (a) except as otherwise requested in writing by the Administrative Agent or any Bank, any notice, demand or communication which by any provision of this Letter Agreement is required or provided to be given to the Administrative Agent or any Bank shall be deemed to have been delivered to the Administrative Agent or any Bank if a single copy thereof is delivered to the Administrative Agent at its address set forth in Section 11.01 of the Credit Agreement or at such other address as either may have furnished the Company and the Lessee in writing; (b) if to the Company (with copies to the Lessee at the address listed below), Oyster Creek Fuel Corp c/o United States Trust Company of New York, 114 West 47th Street, New York, New York 10036, marked for the attention of the Corporate Trust and Agency Division, telecopy number 212-852-1626, or at such other address as it may have furnished in writing to the Administrative Agent and the Lessee; or (c) if to the Lessee, to Jersey Central Power & Light Company, c/o GPU Service Inc., 310 Madison Avenue, Morristown, New Jersey 07962, marked for the attention 23 of the Vice President and Treasurer, Telecopier: (973) 644-4224, or at such other address or addresses as the Lessee may have furnished to the Administrative Agent and the Company. 18. Set-off. (a) Lessee hereby acknowledges and agrees to set-off rights against it as provided for in Section 11.08 of the Credit Agreement. (b) Lessee agrees that it shall have no right of set-off, deduction or counterclaim in respect of its obligations hereunder, and that the obligations of the Banks hereunder and under the Credit Agreement are several and not joint. Nothing contained herein shall constitute a relinquishment or waiver of the Lessee's rights to any independent claim that the Lessee may have against the Administrative Agent or any Bank for the Administrative Agent's or such Bank's, as the case may be, gross negligence or willful misconduct, but no Bank shall be liable for the conduct of the Administrative Agent or any Bank, and the Administrative Agent shall not be liable for the conduct of any Bank. 19. Waiver of Jury Trial. Lessee irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Letter Agreement, the Credit Agreement, the other Basic Documents or any instrument or document delivered hereunder or thereunder, except that the foregoing shall not preclude any party hereto from submitting to a jury for determination in any such action, proceeding or counterclaim any dispute involving (a) the accuracy or completeness of any representation or warranty made under the Basic Documents by Lessee, (b) the performance by Lessee of any affirmative or negative covenant or agreement contained in the Basic Documents, or (c) questions of materiality, or the reasonableness of, or good faith basis for, any action taken, or determination made, by any other party hereto (other than in respect of any calculation of principal, interest, fees, or increased costs payable by the Lessee under the Basic Documents). 20. Governing Law. This Letter Agreement shall be governed by, and be construed and interpreted in accordance with the laws of the State of New York. S-1 IN WITNESS WHEREOF, the undersigned have caused this Letter Agreement to be executed as of the date first above written. JERSEY CENTRAL POWER & LIGHT COMPANY By ___________________________________ Vice President OYSTER CREEK FUEL CORP. By ___________________________________ Title ________________________________ THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent By ___________________________________ Title ________________________________ By ___________________________________ Title ________________________________ SIGNATURE PAGE TO LESSEE'S LETTER AGREEMENT EX-10 7 EX. 10-U LESSEE'S LTR AGREE. TMI-1 FUEL CORP. EXHIBIT 10-U JERSEY CENTRAL POWER & LIGHT COMPANY ---------------------------------- LESSEE'S LETTER AGREEMENT Regarding TMI-1 FUEL CORP. ---------------------------------- Dated as of November 5, 1998 TABLE OF CONTENTS Section Page 1. Definitions 1 2. Performance of Fuel Lease and Liens 1 3. Security Interest of Collateral 2 4. Sale of Nuclear Material and Assignment of Rights Under Nuclear Material Contracts 2 5. Collateral Equivalence Test; No Additional Collateral or Covenants; Condemnation Statements; Exercise of Rights of Secured Parties 3 6. Fuel Management; Quiet Enjoyment 5 7. Insurance 6 8. Representations and Warranties 6 9. General Covenants of the Lessee 11 10. GPU Events 18 11. Credit Agreements and Notes 18 12. Consent to Assignment; Direct Payment of Payments Under the Fuel Lease 18 13. Severability 19 14. Indemnification 20 15. No Waiver; Amendments 21 16. Successors and Assigns 22 17. Notices 22 18. Set-off 23 19. Waiver of Jury Trial 23 20. Governing Law 23 THIS LESSEE'S LETTER AGREEMENT (the "Letter Agreement") is made as of November 5, 1998, by and between Jersey Central Power & Light Company, a New Jersey corporation (the "Lessee"), TMI-1 Fuel Corp, a Delaware corporation (the "Company"), and The First National Bank of Chicago, as Administrative Agent (the "Administrative Agent"), for the Banks party to the Credit Agreement referred to below (the "Banks"). WHEREAS, the Lessee has entered into the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 ("Fuel Lease"), with the Company in order to enable the Company to obtain financing for the acquisition, processing and use of Nuclear Material in the Generating Facility; and WHEREAS, pursuant to the Fuel Lease, the Company has agreed to make payments due to Manufacturers and/or to reimburse the Lessee for payments previously made to Manufacturers with respect to Nuclear Material; and WHEREAS, in order to finance the cost of such Nuclear Material, the Company proposes to (i) sell its Commercial Paper, and (ii) obtain the Commitment of each Bank to make Loans from time to time as hereinafter provided; and WHEREAS, the Lessee has agreed to make payments under the Fuel Lease sufficient to enable the Company to meet its obligations under the Company's financing arrangements, including the Company's obligations under the Credit Agreement, dated as of November 5, 1998, among the Company, the Banks and the Administrative Agent (the "Credit Agreement"); NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained and other good and valuable consideration, so long as any of the Loans or the Commercial Paper shall remain outstanding, or the Commitments shall be continuing, notwithstanding any provision of the Fuel Lease or any other agreement of the Lessee to the contrary, the Lessee, the Company, the Administrative Agent and the Banks agree that: 1. Definitions. Unless the context otherwise specifies or requires, each term defined in the Credit Agreement or Appendix A to the Fuel Lease, shall, when used in this Letter Agreement, have the meaning indicated in the Credit Agreement or Appendix A or set forth in the paragraph indicated therein. 2. Performance of Fuel Lease and Liens. The Lessee will perform and comply with all the terms of the Fuel Lease to be performed or complied with by it and will not omit to take an action the omission of which would cause a Lease Event of 2 Default. The Lessee acknowledges that, except as otherwise provided in the Fuel Lease, its obligations as set forth under the Fuel Lease are absolute and unconditional. The Lessee will not directly or indirectly create or permit to be created or remain, and will promptly take such action as may be necessary to discharge, any Lien on any Collateral except Permitted Liens. 3. Security Interest of Collateral. The Lessee represents that no effective financing statement (other than those naming the Secured Parties as a secured party) covering all or any part of the Collateral (as defined in the Security Agreement relating to the Lessee) is on file in any public office. The Lessee shall make, or shall cause to be made, all filings and recordings, and shall take, or cause to be taken, such other actions, including filing all continuation statements, necessary to establish, preserve and perfect the Secured Parties' lien on and security interest in, the Collateral as a legal, valid and enforceable first priority lien and security interest, or purchase money security interest, as the case may be, therein, subject only to the existence or priority of any Permitted Lien, and the Lessee represents that all such filings, recordings and other actions have been duly made. The Lessee shall deliver to the Administrative Agent evidence of the due filings of any continuation statements to be delivered to the Administrative Agent within the time period specified in Section 7.05 of the Credit Agreement. In no event will the Lessee permit the Nuclear Material to enter any jurisdiction in which all necessary action has not been taken to establish, maintain and protect the Secured Parties' first priority perfected lien and security interest in the Nuclear Material under the Security Agreement, subject only to Permitted Liens. 4. Sale of Nuclear Material and Assignment of Rights under Nuclear Material Contracts. (a) In the event that the Lessee desires the Company, on behalf of the Lessee, to purchase Nuclear Material or to have services performed on such Nuclear Material pursuant to any Nuclear Material Contract, the Lessee shall provide the Company with an Assignment Agreement and a Manufacturer's Consent, both substantially in the form of Exhibit D to the Fuel Lease, with such changes to Exhibit 2 to Exhibit D as the Administrative Agent in its reasonable discretion may consent to in writing, which consent shall not be unreasonably withheld, with respect to such Nuclear Material Contract not later than sixty days following the date on which the Company is to purchase such 3 Nuclear Material or to have such services performed pursuant thereto. Notwithstanding the foregoing, the Lessee shall not be required to have obtained a Manufacturer's Consent in any instance where the Manufacturer's obligations under the applicable Nuclear Material Contract have been fully discharged and performed, and the Manufacturer's warranties with respect to such Nuclear Material Contract have expired, and the Lessee has delivered to the Company and the Collateral Agent a certificate to such effect. (b) The Lessee at its expense will perform and comply with all the terms and provisions of each Assigned Agreement to be performed or complied with by it, will maintain each Assigned Agreement in full force and effect, will enforce each of the Assigned Agreements in accordance with their respective terms, and will take all such action to that end as from time to time may reasonably be requested by the Majority Banks. (c) The Lessee shall not enter into or consent to or permit any cancellation, termination, amendment, supplement or modification of or waiver with respect to any Assigned Agreement without the prior written consent of the Majority Banks, unless such cancellation, termination, amendment, supplement or modification could not reasonably be expected to have a Material Adverse Effect on the Company or the Company has through one or more other Assigned Agreements or otherwise arranged for the provision of comparable goods and services on terms not materially more burdensome to the Company. (d) The Lessee will from time to time, upon request of the Administrative Agent, furnish to the Administrative Agent such information concerning the Nuclear Material or any Assigned Agreement, as the Majority Banks may reasonably request. (e) The Lessee will not change its principal place of business or chief executive offices from the location specified in paragraph 8(a) hereof or remove therefrom its records concerning the Assigned Agreements unless it gives the Administrative Agent at least 30 days' prior written notice thereof. 5. Collateral Equivalence Test; No Additional Collateral or Covenants; Condemnation Statements; Exercise of Rights of Secured Parties. 4 (a) The Lessee shall not permit the sum of aggregate Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease and the Lessee's Percentage of Cash Collateral to be less than the Lessee's Percentage of Outstandings. (b) The Lessee shall not provide to any Person (other than the Banks), in order to induce such Person to extend credit to the Company, any collateral or any guarantee or other assurance against loss or non-payment, nor shall the Lessee consent to the provision thereof by the Company. (c) The Lessee shall not agree to any affirmative or negative covenant with respect to the condition, financial or otherwise, of the Lessee with any Person in order to induce such Person to extend credit to the Company. (d) The Lessee shall not sell, assign, convey, pledge or otherwise dispose of or encumber in any manner any interest it may have in the Trust or any rights it may have under the Trust Agreement. The Lessee shall not direct the Owner Trustee to liquidate, dissolve, merge or consolidate the Company except if such transaction is consented to in writing by the Banks. The Lessee shall not direct the Owner Trustee to take any action under the Trust Agreement which is inconsistent with the duties imposed upon the Company by the Basic Documents and any other agreements, documents, instruments and articles executed and delivered, and to be executed and delivered, by the Owner Trustee in connection therewith. (e) The Nuclear Material leased under the Fuel Lease shall constitute the Lessee's entire ownership interest in the items used or to be used by it as nuclear fuel in the Generating Facility. The Lessee agrees that 25% of the Lessor's ownership interest in any Nuclear Material which is subject to the Fuel Lease will be leased to the Lessee. The Lessee further agrees not to take any action under the terms of the Fuel Lease, including, but not limited to, the delivery of any Leasing Record, which would result in less than 25% of the Lessor's ownership interest in any such Nuclear Material being so leased. (f) As provided in the Security Agreement, (i) the Collateral Agent on behalf of the Secured Parties may, on and after the occurrence of a Credit Agreement Default, Credit Agreement Event of Default, Lessee Default or Lessee Event of Default, pursuant to Section 10 of the Security Agreement, exercise any and all of the Company's rights under the Fuel Lease, the Assigned Agreements and each other Basic Document to 5 which the Lessee is a party, and (ii) if a Lease Event of Default occurs and is continuing, the Collateral Agent on behalf of the Secured Parties may, pursuant to Section 10 of the Security Agreement, enforce and exercise any and all of the Company's rights under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party, or the rights and remedies granted to the Secured Parties under the Security Agreement at its election and in its sole discretion, and, in the event that the Collateral Agent is permitted to exercise such rights pursuant to Section 10 of the Security Agreement, the Lessee agrees that the Collateral Agent may do so either in concert with or in place of the Company, and the Lessee shall assist in, comply with and perform in accordance with all rights or remedies so enforced or exercised by the Collateral Agent for the ratable benefit of the Secured Parties. 6. Fuel Management; Quiet Enjoyment. The occurrence of a Credit Agreement Default, a Credit Agreement Event of Default, Lease Event of Default, Lessee Default, Lessee Event of Default or an event or condition which would, with the lapse of time or the giving of notice or both, become a Lease Event of Default, shall not affect the Lessee's sole obligation to engage in Fuel Management; provided that, upon the occurrence of a Credit Agreement Event of Default, Lessee Event of Default or Lease Event of Default, the Collateral Agent may, if so directed by the Majority Secured Parties, by written notice to the Lessee, elect to revoke such power and authority, in which case the Person from time to time designated by the Majority Secured Parties may (but shall not be obligated to), to the extent that the Majority Secured Parties desire and to the extent permitted by law, engage in Fuel Management and/or remove all or any part of the responsibility for Fuel Management from the Lessee; provided, however, that, subject to the right of the Collateral Agent and the Majority Secured Parties to exercise any or all rights granted to the Secured Parties under the Security Agreement, the rights granted to the Collateral Agent and the Majority Secured Parties under this Section 6 shall not be construed to include the right to direct, whether directly or indirectly, the operation of the Generating Facility. In the event the Majority Secured Parties, in accordance with the preceding sentence, shall revoke the Lessee's power and authority to engage in Fuel Management, all rights conferred by the Company to the Lessee pursuant to Section 3 of the Fuel Lease shall be deemed to be automatically reassigned to the Company and the Lessee shall execute such documents and instruments as the Collateral Agent shall request to further confirm such assignment. 6 7. Insurance. Each year, the Lessee will furnish the Administrative Agent and each Bank a detailed statement certified by an officer of Lessee setting forth (i) the location of all Nuclear Material and (ii) the insurance policies and indemnification agreements provided pursuant to Sections 14 and 17 of the Fuel Lease and certifying that such insurance policies and indemnification agreements comply with the requirements of the Fuel Lease. In addition, the Lessee shall promptly furnish at any time to the Administrative Agent and any Bank such information as any such Bank shall reasonably request concerning location of Nuclear Material, insurance policies and indemnification agreements and Manufacturers or other third parties with whom arrangements exist with respect to transportation, storage or processing of Nuclear Material. 8. Representations and Warranties. The Lessee hereby represents and warrants to the Company, the Administrative Agent and the Banks that as of the date hereof: (a) Organization and Standing. The Lessee is a corporation duly incorporated, validly existing and in good standing under the laws of the State of New Jersey, and is qualified to do business in each state or other jurisdiction in which the nature of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on its ability to perform its obligations under this Letter Agreement or each other Basic Document to which the Lessee is a party. The Lessee's chief executive office is located at 2800 Pottsville Pike, Reading, Pennsylvania 19605. (b) Corporate Authority. The Lessee has the corporate power and authority to execute and perform this Letter Agreement and the Fuel Lease and to lease the Nuclear Material thereunder. The execution and delivery of this Letter Agreement and the Fuel Lease and the lease of the Nuclear Material thereunder will not have a material adverse effect on the financial condition, results of operations, business, properties or operations of the Lessee. (c) Compliance with Other Instruments, etc. The execution, delivery and performance by the Lessee of this Letter Agreement and each Basic Document to which the Lessee is a party, and other related instruments, documents and agreements, and the compliance by the Lessee with the terms hereof and thereof, (i) have been duly and legally authorized by appropriate 7 corporate action taken by the Lessee, (ii) are not in contravention of, and will not result in a violation or breach of, any of the terms of the Lessee's articles of incorporation, its by-laws or of any provisions relating to shares of the capital stock of the Lessee and (iii) will not violate or constitute a breach of any provision of (x) any applicable law, order, rule or regulation, rule or regulation of any governmental authority (except in those cases where non-compliance with any such law, order, rule or regulation could not reasonably be expected to have a material adverse effect on the financial condition, results of operations, business, properties or operations of the Lessee or its ability to perform its obligations hereunder or under each Basic Document) or (y) any indenture, agreement or other instrument to which the Lessee is party, or by or under which the Lessee or any of the Lessee's property is bound, or be in conflict with, result in breach of, or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement or instrument, or result in the creation or imposition of any Lien upon any of the Lessee's property or assets or any Nuclear Material. (d) Legal Obligations. This Letter Agreement and the Fuel Lease have been executed by a duly authorized officer of the Lessee, and this Letter Agreement and the Fuel Lease constitute, and each Leasing Record, when executed by a duly authorized officer of the Lessee and delivered to the Company, will constitute, the legal, valid and binding obligations of the Lessee, enforceable against the Lessee in accordance with their respective terms, except as the enforceability thereof may be limited by the Atomic Energy Act and the rules, regulations or orders issued pursuant thereto, or by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general, and except as the availability of the remedy of specific performance is subject to general principles of equity (regardless of whether such remedy is sought in a proceeding in equity or at law). (e) Governmental Consents. Neither the execution and delivery of this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee, nor the performance by the Lessee of all of its obligations hereunder or thereunder, requires the consent or approval of, the giving of notice to, or the registration, filing or recording with, or the taking of any other action in respect of, any Federal, state, local or foreign government or governmental authority or agency or any other person except for the order of the Securities and Exchange Commission (the "SEC"), dated October 25, 1995, the filing of the supplemental order of 8 the SEC dated November 3, 1998, the filing of a notice with the New Jersey Board of Public Utilities which notice was filed September 4, 1998, and the filing of any statement or other instrument pursuant to Section 10(b) of the Fuel Lease, and except for the filing of certificates by the Lessee with the SEC pursuant to SEC Rule 24 under the Public Utility Holding Company Act to report on the transactions authorized by such SEC order, the filing of which is not necessary to the execution or delivery of this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee or for the performance by the Lessee of any of its obligations hereunder or thereunder, and the failure to file any of which will not affect the validity or enforceability of any of this Letter Agreement, the Fuel Lease or any Leasing Record. (f) Consents and Permits. The Lessee possesses all material licenses, permits, franchises and certificates which are necessary or appropriate to own or operate its material properties and assets and to conduct its business as now conducted. (g) Litigation. There is no litigation or other proceeding now pending or, to the best of the Lessee's knowledge, threatened, against or affecting the Lessee, before any court, arbitrator or administrative or governmental agency (i) which would adversely affect or impair the title of the Company to the Nuclear Material, (ii) which questions the validity or enforceability of this Letter Agreement, the Fuel Lease, the Assigned Agreements or any other Basic Document to which the Lessee is a party or any action taken or to be taken by the Lessee pursuant to or in connection with this Letter Agreement, or (iii) except as disclosed in the Lessee's Annual Report on Form 10-K for the year ended December 31, 1997 and Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, copies of which have previously been delivered to the Administrative Agent and the Banks, which, if decided adversely to the Lessee, would materially adversely affect the condition, financial or otherwise, of the Lessee. (h) Taxes. The Lessee has filed or caused to be filed all tax returns which are required to be filed, and has paid or caused to be paid all taxes as shown on said returns and all assessments received by it to the extent that such taxes and assessments have become due, except for taxes and assessments which are being contested in good faith and by appropriate proceedings and as to which it has provided reserves which are adequate in connection with generally accepted accounting principles. 9 (i) Reaffirmation and Restatement of Representations and Warranties. The Lessee repeats and reaffirms as of the date hereof for the benefit of the Administrative Agent and each Bank the representations and warranties made by the Lessee in the Fuel Lease as though set forth in full herein with the same effect as though such representations and warranties had been made on and as of the date hereof. In addition, the Lessee represents and warrants that as of the date hereof (i) the Lessee is in compliance with all the terms and provisions set forth in the Fuel Lease on its part to be observed or performed, (ii) no Terminating Event has occurred and no event has occurred which, with the lapse of time or the giving of notice, or both, would constitute such a Terminating Event, and (iii) no Lease Event of Default has occurred and is continuing and no event has occurred and is continuing on such date which, with the lapse of time or the giving of notice, or both, would constitute a Lease Event of Default. (j) First Perfected Security Interest. Except for Permitted Liens, upon the execution and delivery of this Letter Agreement and the Security Agreement and the due filing of the Uniform Commercial Code financing statements required to be executed and filed from time to time, the Secured Parties will have a legal, valid and enforceable first priority security interest (i) in the rights, titles and interests of the Company in and to the Fuel Lease and (ii) in and to the other Collateral. Such security interest will constitute a perfected security interest in the Collateral consisting of Nuclear Material Contracts and the Collateral consisting of Nuclear Material located in the States of Illinois, Kentucky, Ohio, Pennsylvania and Virginia, except for any such Collateral which consists of cash, instruments (as defined in the New York Uniform Commercial Code) and other items in which a security interest may only be perfected by possession, enforceable against all third parties as security for the Secured Obligations. (k) No Material Adverse Change. Since June 30, 1998, there has been no material adverse change in the financial condition, results of operations, business, properties or operations of the Lessee or in its ability to perform its obligations under the Basic Documents. (l) No Defaults. The Lessee is not in default under any bond, debenture, note or any other evidence of Obligations for Borrowed Money or Deferred Purchase Price or any mortgage, deed of trust, indenture, loan agreement or other agreement relating thereto, where the amount thereof is in excess of $20,000,000. 10 (m) Pension Plans. No accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any plan (other than a multiemployer plan). No liability to the Pension Benefit Guaranty Corporation has been, or is expected by the Lessee to be, incurred with respect to any plan (other than a multiemployer plan) by the Lessee which is or would be materially adverse to the Lessee. The Lessee has not incurred and presently does not expect to incur any withdrawal liability under Title IV of ERISA with respect to any multiemployer plan which is or would be materially adverse to the Lessee. Neither the execution and delivery by the Company of the Credit Agreement and the other Basic Documents, and the issuance of the Commercial Paper, nor the execution and delivery by the Lessee of this Letter Agreement, the Trust Agreement and each other Basic Document to which the Lessee is a party, will involve any transaction which is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975. As used herein, the term "plan" shall mean an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is and has been established or maintained, or to which contributions are or have been made, by the Lessee or by any trade or business, whether or not incorporated, which, together with the Lessee is under common control as described in Section 414(b) or (c) of the Code, and the term "multiemployer plan" shall mean any plan which is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA). (n) Financial Statements. The audited balance sheet of the Lessee as of December 31, 1997, and the related statements of income and cash flows (including the notes thereto) of the Lessee for the year then ended, copies of which have been delivered to the Company, the Administrative Agent and the Banks, and all other annual or quarterly financial statements including, without limitation, the quarterly statement dated as of June 30, 1998 so delivered fairly present the financial condition of the Lessee on the dates for which, and the results of its operations for the periods for which, the same have been furnished and have been prepared in accordance with generally accepted accounting principles consistently applied. (o) Nuclear Material. The Nuclear Material is free and clear of any Lien in favor of any Person claiming by, through or under the Lessee or any Affiliate thereof, other than Permitted Liens. No default or event which with the giving of notice or lapse of time would constitute a default has occurred and is continuing under any Nuclear Material Contract. 11 (p) Disclosure. Neither the representations in this Letter Agreement, or in any other document, certificate or statement furnished in writing to the Administrative Agent or any Bank by or on behalf of the Lessee in connection with the transactions contemplated hereby, nor the information disclosed in the Lessee's Annual Report on Form 10-K for the year ended December 31, 1997 or Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, contained as of its date, any untrue statement of a material fact or omitted to state a material fact necessary in order to make such representations or information not misleading in light of the circumstances under which they were made. (q) Collateral Equivalence Test Met. The sum of the aggregate Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease and the Lessee's Percentage of the Cash Collateral equals or exceeds the Lessee's Percentage of the Outstandings. (r) Year 2000. The Lessee has made a full and complete assessment of its Year 2000 Issues and has a realistic and achievable Year 2000 Program. Based on such assessment and on its Year 2000 Program, the Lessee does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. 9. General Covenants of the Lessee. (a) Information. The Lessee will furnish to the Company and the Administrative Agent in sufficient copies for each Bank: (i) Quarterly Statements. As soon as practicable after the end of each of the first three quarterly fiscal periods in each fiscal year of the Lessee, and in any event within 60 days thereafter, copies of: (A) a balance sheet of the Lessee as at the end of such quarter, and (B) statements of income and cash flows of the Lessee for such quarter and for the twelve-month period ending as of the end of such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with the end of such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail and certified as complete and 12 correct, subject to changes resulting from year-end adjustments, by a principal financial officer of the Lessee; provided that it is understood that the delivery of the Lessee's Quarterly Report on Form 10-Q shall be deemed to satisfy the requirements with respect to such financial statements; (ii) Annual Statements. As soon as practicable after the end of each fiscal year of the Lessee, and in any event within 120 days thereafter, copies of: (A) a balance sheet of the Lessee at the end of such fiscal year, and (B) statements of income and cash flows of the Lessee for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and accompanied by an opinion thereon of independent certified public accountants of recognized national standing selected by the Lessee, which opinion shall state that such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied (except for changes in application in which such accountants concur) and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards; provided that it is understood that the delivery of the Lessee's Annual Report on Form 10-K shall be deemed to satisfy the requirement with respect to such financial statements; (iii) Officer's Compliance Certificate. Simultaneously with the financial statements referred to in Sections 9(a)(i) and (ii), a certificate of an authorized officer of the Lessee stating that such officer has reviewed the relevant terms and conditions of the Fuel Lease and other Basic Documents to which the Lessee is a party, and has made, or caused to be made, under such officer's supervision, a review of the transactions and financial condition of the Lessee from the beginning of the accounting period covered by the income statements being delivered therewith to the date of the certificate, and that the Lessee has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Letter Agreement, the Fuel Lease and any other Basic Document to which the Lessee is a party, and no Terminating Event, Lessee Default, Lessee Event of Default, Lease Event 13 of Default or default or event of default under any such Basic Document has occurred and is continuing and no event has occurred and is continuing which, with the lapse of time or the giving of notice, or both, would constitute a Terminating Event, Lessee Default, Lessee Event of Default, Lease Event of Default or a default or event of default under any such Basic Document or, if such condition or event has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto; (iv) Auditor's Compliance Certificate. Simultaneously with the financial statements referred to in Section 9(a)(ii), a certificate of the independent public accountants who audited such statements stating that such accountants have reviewed the relevant terms and conditions of the Fuel Lease and other Basic Agreements to which the Lessee is a party, and that, in making the examination necessary for the audit of such statements, they have obtained no knowledge of any condition or event which constitutes or which with notice or lapse of time or both would constitute a Terminating Event, Lessee Default, Lessee Event of Default, Lease Event of Default or default or event of default under any such Basic Document, or if such accountants shall have obtained knowledge of any such condition or event, specifying in such certificate each such condition or event of which they have knowledge and the nature and status thereof; (v) Notices Required under the Basic Documents. Immediately upon delivery to the Lessee or the Company, all notices, consents, documents, certificates or instruments of any kind relating to the Lessee required pursuant to the Fuel Lease; (vi) Defaults. (A) Promptly upon becoming aware of the occurrence thereof, notice of any Terminating Event, Lessee Default, Lessee Event of Default, Lease Event of Default or any event which, with the lapse of time or the giving of notice, or both, would constitute a Terminating Event or a Lease Event of Default, or of any other development, financial or otherwise (including, without limitation, developments with respect to Year 2000 Issues), which could reasonably be expected to have a Material Adverse Effect, and (B) within 10 days of becoming aware of the occurrence thereof, notice of any other material event affecting the Lessee's obligations under any Basic Document or any Nuclear 14 Material Contract (except to the extent such event has previously been disclosed in the Lessee's SEC reports delivered pursuant to clause (viii) below); (vii) Notice of Claimed Default. Immediately upon becoming aware that the holder or holders of any evidence of Obligations for Borrowed Money or Deferred Purchase Price or other security of the Lessee or any subsidiary exceeding $20,000,000 in the aggregate have given notice (or taken any other action) with respect to a claimed default, breach or event of default, a notice describing the notice given (or action taken) and the nature of the claimed default, breach, or event of default; (viii) SEC and Other Reports. Promptly after filing thereof, copies of all regular and periodic reports and registration statements which the Lessee may file with the SEC or any governmental agency substituted therefor and, promptly upon written request therefor, copies of the financial statements which the Lessee may file annually with any state regulatory agency or agencies; and (ix) Requested Information. With reasonable promptness, such other data and information with respect to the Lessee, including, without limitation, information regarding Nuclear Material or any Nuclear Material Contract or the Lessee's Year 2000 Program, as from time to time may be reasonably requested by the Administrative Agent or any Bank. (b) Notice of Litigation. Immediately upon the Lessee becoming aware thereof, written notice of (i) any litigation or proceedings which would be required to be disclosed as an exception to the representations and warranties contained herein or in the Fuel Lease in order that such representations and warranties would be true and correct on a continuing basis; and (ii) any dispute between the Lessee and any governmental authority or other party relating to any part of the transactions contemplated by this Letter Agreement or any of the other Basic Documents to which the Lessee is a party which would have a material adverse effect on the ability of the Lessee to carry out its obligations hereunder or under any other Basic Document to which the Lessee is a party; provided, however, that the notice requirement in this Section 9(b) shall be satisfied if the Lessee furnishes the Company and the Administrative Agent in sufficient copies for each Bank a Current Report on Form 8-K regarding the 15 event requiring notice by the time that the Current Report is required to be filed with the Securities and Exchange Commission. (c) General Obligations. Subject to the last sentence of this Section 9(c), the Lessee will: (i) duly comply with all laws, rules, orders, regulations or other valid requirements (including, without limitation, any of the foregoing which are applicable to Nuclear Material or the operation of the Generating Facility) of any governmental authority necessary to the conduct of its business or to its properties or assets, noncompliance with which could reasonably be expected to have a material adverse effect upon the transactions contemplated by this Letter Agreement or any other Basic Document, or upon the financial condition, results of operations, business, properties or operations of the Lessee, or the ability of the Lessee to carry out its obligations under any Basic Document or this Letter Agreement); (ii) continue to engage principally in the electric utility business; (iii) obtain, maintain and keep in full force and effect all consents, permits, licenses and approvals, the absence of which would have a material adverse effect upon the transactions contemplated by this Letter Agreement or any other Basic Document to which the Lessee is a party, or upon the financial condition, results of operations, business, properties or operations of the Lessee, or the ability of the Lessee to carry out its obligations under this Letter Agreement or any other Basic Document to which the Lessee is a party; (iv) maintain its material operating properties used or useful in its business in good repair, working order and condition consistent with prudent utility practice; provided, however, that the Lessee shall not be prevented from discontinuing the operation and maintenance of any of its properties if it shall determine that the continued operation and maintenance of such properties is no longer necessary, desirable or permissible; 16 (v) pay when due all fees, taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any property belonging to it, and maintain appropriate reserves for the accrual of the same in accordance with generally accepted accounting principles; (vi) except as permitted by clause (vii) below, at all times maintain its corporate existence, privileges, franchises and rights to carry on business, and duly procure all renewals and extensions thereof, if and when any shall be necessary; (vii) not consolidate or merge with, or sell or otherwise dispose of all or substantially all of its properties and assets to any Person unless (i) the surviving or resulting entity is the Lessee hereunder, (ii) immediately after giving effect thereto no Credit Agreement Event of Default, Credit Agreement Default, Lease Event of Default, Lessee Default, Lessee Event of Default or event which with the giving of notice or passage of time would constitute a Lease Event of Default shall have occurred and be continuing, and (iii) the senior unsecured debt of the surviving or resulting Lessee shall be rated at least investment grade by Standard & Poor's Ratings Group ("S&P") or Moody's Investor Service, Inc. ("Moody's"); (viii) perform and comply with each of the material provisions of each material indenture, credit agreement, contract or other agreement by which the Lessee is bound, non-performance or non-compliance with which would have a material adverse effect upon its business or credit or in any way affect its ability to perform its obligations hereunder except material contracts or other agreements being contested in good faith; (ix) preserve and maintain its corporate existence in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in good standing in each jurisdiction in which such qualification is necessary or desirable in view of its business and operations or the ownership of 17 its properties, except where the failure to be so qualified would not materially adversely affect its financial condition, operations, properties or business, and preserve its material rights, franchises and privileges to conduct its business substantially as conducted on the date hereof; (x) maintain insurance in effect at all times in such amounts as are available to the Lessee and covering such risks as is usually carried by companies of a similar size, engaged in similar businesses and owning similar properties (including, without limitation, the operation and ownership of nuclear generating facilities) in the same general geographical area in which the Lessee operates, either with responsible and reputable insurance companies or associations, or, in whole or in part, by establishing reserves of one or more insurance funds, either alone or with other corporations or associations; (xi) at any reasonable time and from time to time, permit the Administrative Agent or any Bank or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Lessee and discuss the affairs, finances and accounts of the Lessee with any of its officers or directors; (xii) not sell, transfer, lease, assign or otherwise convey or dispose of more than 25% of its assets (whether now owned or hereafter acquired), in any single or series of transactions, whether or not related, except for dispositions of its fossil and hydroelectric generating stations and associated facilities and dispositions of its current assets in the ordinary course of business as presently conducted, if immediately prior to such sale, transfer, lease, assignment, conveyance or disposition or as a result of such sale, transfer, lease, assignment, conveyance or disposition, the senior unsecured debt of the Lessee shall not be rated at least investment grade by S&P or Moody's. 18 (xiii) comply with this Letter Agreement and such other Basic Documents to which the Lessee is a party in accordance with the respective terms and conditions set forth herein and therein; and (xiv) except for Permitted Liens, permit the creation of any Liens on the Collateral. Notwithstanding the foregoing provisions of this Section 9(c), the Lessee may contest by appropriate proceedings conducted in good faith and due diligence, the amount, validity or application, in whole or in part of any fee, tax, assessment or government charge or levy, or any legal requirement, provided that the Lessee shall have set aside on its books adequate reserves, if required in accordance with generally accepted accounting principles with respect thereto and shall furnish such security, if any, as may be required in the proceeding. 10. GPU Events. It shall be a default hereunder if GPU, Inc. (a) fails to maintain at all times beneficial ownership of at least 75% of all outstanding shares of common stock of each of the Lessee, Met-Ed and Penelec; or (b) pledges, grants options on, creates any charge on or security interest in, or otherwise subjects to any charge or encumbrance, any of the common stock of the Lessee, Met-Ed or Penelec unless the obligations hereunder are secured ratably and with equal priority, in form and substance reasonably satisfactory to the Majority Banks. 11. Credit Agreement and Notes. The Lessee hereby acknowledges receipt of executed counterparts of the Credit Agreement and photostatic copies of the Notes evidencing the Loans, and consents to all of the terms and provisions of the Credit Agreement and the Notes. 12. Consent to Assignment; Direct Payment of Payments Under the Fuel Lease. (a) Consent to Assignment. The Lessee hereby acknowledges notice of and consents to all the terms and provisions of the Security Agreement and hereby confirms to and agrees with the Secured Parties that all representations, warranties, indemnities and agreements of the Lessee contained in this Letter Agreement and each other Basic Document to which the Lessee is a party shall inure to the benefit of, and shall be enforceable by, the Secured Parties to the same extent as if such Secured Parties were originally parties to or named in such documents and agreements. The Lessee further acknowledges and 19 consents to the assignment and transfer, and any future assignments and transfers, to the Secured Parties by the Company of the Company's right to exercise any and all of its rights, remedies, powers and privileges (but none of its obligations, duties or liabilities) under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party. The Lessee hereby agrees with the Secured Parties to comply with any exercise by the Secured Parties, either directly or through the Company, of any rights, remedies, powers or privileges pursuant to the Security Agreement. The Secured Parties acknowledge that neither the Security Agreement nor this Section 12 shall in any way add to the obligations of the Lessee (except those obligations of the Lessee to any Person, which, if not previously so, hereby become enforceable directly by the Secured Parties) under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party. Notwithstanding the foregoing, so long as no Lease Event of Default shall have occurred and be continuing, the Lessee shall have exclusive right to possession and use of the Nuclear Material in accordance with the Fuel Lease and may use such Nuclear Material for any lawful purpose consistent with the Fuel Lease. (b) Direct Payment of Payments Under the Fuel Lease. The Lessee acknowledges that it has been directed by the Company to, and agrees that it will, make all payments of monies due and to become due to the Company under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party, directly to the Collateral Agent, including, without limitation, Basic Rent, Additional Rent, the purchase price of Nuclear Material pursuant to Section 8(c), 8(d), 8(e) and 8(g) of the Fuel Lease, payments pursuant to Sections 9(e), 14, 17 and 18 of the Fuel Lease in the manner and to the accounts of the Secured Parties as specified in Section 3.03 of the Credit Agreement. 13. Severability. Any provision of this Letter Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability, without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. 20 14. Indemnification. The Lessee shall pay and indemnify and hold harmless the Administrative Agent and each Bank, and their respective officers, directors, incorporators, shareholders, partners, employees, agents and servants from and against any and all liabilities (other than liabilities arising out of the gross negligence or willful misconduct of such Person), taxes, (excluding, however, taxes measured solely by the net income of any Person indemnified or intended to be indemnified pursuant to this Section 14, except as otherwise provided in Section 14 hereof), losses, obligations, claims, damages, penalties, causes of action, suits, costs and expenses (including, without limitation, reasonable attorneys' and accountants' fees and expenses) and judgments of any nature arising from or in any way relating to any and all of the following during the term of the Fuel Lease and thereafter: (a) any injury to or disease, sickness or death of Persons, or loss of or damage to property, occurring through or resulting from any nuclear incident (as that term is defined in the Atomic Energy Act, 42 U.S.C. section 2011 et seq.) involving or connected in any way with the Nuclear Material or any portion thereof, (b) the acquisition, ownership (including strict liability of an owner or liability without fault), possession, disposition, sale, use, nonuse, misuse, leasing, fabrication, design, cycling, recycling, transportation, containerization, cooling, processing, reprocessing, storing, condition, management, operation, construction, maintenance, repair or rebuilding of the Nuclear Material or any portion thereof or resulting from the condition of adjoining and underlying land, buildings, streets or ways, (c) any use, nonuse or condition of, or any other matter of circumstance relating to, the Generating Facility, any other property associated therewith or any adjoining and underlying land, buildings, streets and ways, (d) any violation or default, or alleged violation or default, of the Fuel Lease or this Letter Agreement by or on behalf of Lessee, or of any contracts or agreements to which the Lessee is a party or by which it is bound, or any Legal Requirements, (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Nuclear Material or any portion thereof, (f) any infringement or alleged infringement of any patent, copyright, trade secret or other similar right relating to the Nuclear Material or any portion thereof, (g) Lessee's agreements or obligations contained in the Fuel Lease or this Letter Agreement, (h) any claim arising out of loss of damage to the environment, (i) any claim arising out of strict or absolute liability in tort, or (j) the offering and sale of Commercial Paper. The Lessee also indemnifies each indemnitee, as aforesaid, from and against all other liabilities, taxes, losses, obligations, 21 claims, damages, penalties, causes of action, suits, costs and expenses (including, without limitation, reasonable attorneys' and accountants' fees and expenses) and judgments of any nature which may be imposed on, incurred by, or asserted at any time against any indemnitee in any way relating to or arising out of the performance of this Letter Agreement, the Fuel Lease or any other Basic Document to which Lessee is a party, provided, except for claims of a nature contemplated by (i) above, that the Lessee shall not be required to indemnify any indemnitee with respect to any liability relating to or arising out of indemnitee's gross negligence or willful misconduct and provided, further, that the foregoing immunity shall not limit the terms of any indemnity that the Lessee may grant separately to any indemnitee pursuant to any separate agreement. In the event that any action, suit or proceeding is brought against the Company or any other Person indemnified or intended to be indemnified pursuant to this Section 14 by reason of any such occurrence, the Lessee shall, at the Lessee's expense, resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel designated by the Lessee and reasonably acceptable to the Person or Persons indemnified or intended to be indemnified under this Section 14 provided there is no conflict of interest with the Person or Persons indemnified or intended to be indemnified under this Section 14. In the event a conflict of interest contemplated by the proviso of the immediately preceding sentence shall exist, then the Person or Persons as to which such conflict exists may be defended by counsel of its or their choice at Lessee's expense, provided Lessee's obligation for such expense shall be limited to one firm for all such Persons as to which such a conflict exists. The obligations of the Lessee under this Section 14 shall survive any termination of this Letter Agreement, the Credit Agreement, the Fuel Lease or the Security Agreement, in whole or in part. 15. No Waiver; Amendments. Neither the Administrative Agent, the Collateral Agent, the Banks, the Company nor the Lessee shall, by any act, delay, omission or otherwise, be deemed to have waived any of its rights and remedies hereunder, and no waiver shall be valid unless in writing signed by the party or parties sought to be bound thereby. A waiver by the Administrative Agent, the Collateral Agent, the Banks, the Company or the Lessee of any of their respective rights or remedies hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent, the Banks, the Company or the Lessee, as applicable, would otherwise have had on any future occasion. No failure to exercise nor any delay in exercise of any such right or remedy hereunder shall 22 preclude any other or future exercise or partial exercise of any other right or remedy. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Letter Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by the party or parties sought to be bound thereby. 16. Successors and Assigns. This Letter Agreement shall bind the successors and assigns of the Lessee and the Company and shall inure to the benefit of permitted successors and assigns of either. The Letter Agreement shall not be assignable by the Lessee or the Company, either voluntarily or by operation of law, unless consented to by the Administrative Agent and the Majority Banks. No permitted assignment by the Lessee or the Company shall release the Lessee or the Company from any of its obligations hereunder. This Letter Agreement shall inure to and shall be binding upon the successors and assigns of the Administrative Agent and the Banks. 17. Notices. Any notice, demand or other communication which by any provision of this Letter Agreement is required or provided to be given shall be deemed to have been delivered if in writing addressed as provided below and actually delivered by mail, courier or facsimile to the following addresses: (a) except as otherwise requested in writing by the Administrative Agent or any Bank, any notice, demand or communication which by any provision of this Letter Agreement is required or provided to be given to the Administrative Agent or any Bank shall be deemed to have been delivered to the Administrative Agent or any Bank if a single copy thereof is delivered to the Administrative Agent at its address set forth in Section 11.01 of the Credit Agreement or at such other address as either may have furnished the Company and the Lessee in writing; (b) if to the Company (with copies to the Lessee at the address listed below), TMI-1 Fuel Corp c/o United States Trust Company of New York, 114 West 47th Street, New York, New York 10036, marked for the attention of the Corporate Trust and Agency Division, telecopy number 212-852-1626, or at such other address as it may have furnished in writing to the Administrative Agent and the Lessee; or 23 (c) if to the Lessee, to Jersey Central Power & Light Company, c/o GPU Service Inc., 310 Madison Avenue, Morristown, New Jersey 07962, marked for the attention of the Vice President and Treasurer, Telecopier: (973) 644-4224, or at such other address or addresses as the Lessee may have furnished to the Administrative Agent and the Company. 18. Set-off. (a) Lessee hereby acknowledges and agrees to set-off rights against it as provided for in Section 11.08 of the Credit Agreement. (b) Lessee agrees that it shall have no right of set-off, deduction or counterclaim in respect of its obligations hereunder, and that the obligations of the Banks hereunder and under the Credit Agreement are several and not joint. Nothing contained herein shall constitute a relinquishment or waiver of the Lessee's rights to any independent claim that the Lessee may have against the Administrative Agent or any Bank for the Administrative Agent's or such Bank's, as the case may be, gross negligence or willful misconduct, but no Bank shall be liable for the conduct of the Administrative Agent or any Bank, and the Administrative Agent shall not be liable for the conduct of any Bank. 19. Waiver of Jury Trial. Lessee irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Letter Agreement, the Credit Agreement, the other Basic Documents or any instrument or document delivered hereunder or thereunder, except that the foregoing shall not preclude any party hereto from submitting to a jury for determination in any such action, proceeding or counterclaim any dispute involving (a) the accuracy or completeness of any representation or warranty made under the Basic Documents by Lessee, (b) the performance by Lessee of any affirmative or negative covenant or agreement contained in the Basic Documents, or (c) questions of materiality, or the reasonableness of, or good faith basis for, any action taken, or determination made, by any other party hereto (other than in respect of any calculation of principal, interest, fees, or increased costs payable by the Lessee under the Basic Documents). 20. Governing Law. This Letter Agreement shall be governed by, and be construed and interpreted in accordance with the laws of the State of New York. S-1 IN WITNESS WHEREOF, the undersigned have caused this Letter Agreement to be executed as of the date first above written. JERSEY CENTRAL POWER & LIGHT COMPANY By __________________________________ Vice President TMI-1 FUEL CORP. By __________________________________ Title _______________________________ THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent By __________________________________ Title _______________________________ By __________________________________ Title _______________________________ SIGNATURE PAGE TO LESSEE'S LETTER AGREEMENT EX-10 8 EXHIBIT 10-V -2ND AMENDED AND RESTATED TRUST - 1 - EXHIBIT 10-V SECOND AMENDED AND RESTATED TRUST AGREEMENT Dated as of November 5, 1998 Among LORD FUEL CORP., as Trustor and UNITED STATES TRUST COMPANY OF NEW YORK, as Owner Trustee and JERSEY CENTRAL POWER & LIGHT COMPANY, METROPOLITAN EDISON COMPANY AND PENNSYLVANIA ELECTRIC COMPANY, each as Lessees under certain lease agreements and LORD FUEL CORP., as Trust Beneficiary ---------------- TMI-1 FUEL CORP. AND OYSTER CREEK FUEL CORP. TRUST --------------- 45909v4 TRUST AGREEMENT TABLE OF CONTENTS 1 DEFINITION 2 2 AUTHORITY TO EXECUTE AND PERFORM DOCUMENTS; DECLARATION OF TRUST 2 2.1 Execution of Documents and Performance of Duties 2 2.2 Declaration of Trust 3 2.3 Name of Trust 3 2.4 No Other Business or Obligation 3 2.5 No Disposition of Owner Trust Estate 3 3 TRUSTOR'S INTEREST 4 3.1 Investment by Trustor 4 3.2 Payment from Proceeds of Owner Trust Estate Only 4 3.3 Manner of Payment 4 4 ACQUISITION AND FINANCING OF NUCLEAR MATERIAL 4 4.1 Authorization of Transactions 4 4.2 Closing Procedures 7 4.3 Conditions to Effecting Transactions 8 5 RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME FROM THE OWNER TRUST ESTATE 8 5.1 Application of Proceeds of Financings and Specific Payments 8 5.2 Amounts Payable to the Banks 8 5.3 Other Amounts 8 5.4 Excepted Payments 8 6 DUTIES OF THE OWNER TRUSTEE 9 6.1 Documents 9 6.2 Notice of Default 9 6.3 Indemnification; Legal Action 9 6.4 No Implied Duties 10 6.5 No Unauthorized Transaction 10 7 THE OWNER TRUSTEE 11 7.1 Acceptance of Trust, Etc. 11 7.2 Limitation of Duties 12 7.3 Representations and Warranties of Owner Trustee 12 7.4 Deposit of Funds 13 7.5 Reliance on Documents; Agents; Right to Consult with Counsel and Others; Etc. 13 7.6 Not Acting in Individual Capacity 14 7.7 Interpretation of Trust Agreement 14 7.8 Compensation 14 7.9 Books, Records and Tax Returns 15 7.10 Effect of Sales by a Company 16 7.11 Exculpatory Provisions 16 8 INDEMNIFICATION OF THE OWNER TRUSTEE 17 9 CO-TRUSTEE, SEPARATE TRUSTEE 19 10 SUCCESSOR TRUSTEES 21 11 SUPPLEMENTS AND AMENDMENTS TO THIS TRUST AGREEMENT AND THE BASIC DOCUMENTS 23 11.1 Supplements Upon Request of the Lessee 23 11.2 Amendments and Supplements Affecting Owner Trustee 24 12 TERMINATION OF TRUST, ETC. 24 13 MISCELLANEOUS 25 13.1 Legal Title to Owner Trust Estate 25 13.2 Validity of Sale of Owner Trustee 25 13.3 Trust Agreement for Benefit of Parties thereto 26 13.4 Notices 26 13.5 Severability 26 13.6 Waivers, Etc. 26 13.7 Counterparts 27 13.8 Successors and Assigns 27 13.9 Headings 27 13.10 Self-Dealing 27 13.11 Governing Law 27 13.12 No Unauthorized Transactions 28 13.13 Rights and Remedies 28 SECOND AMENDED AND RESTATED TRUST AGREEMENT, dated as of November 5, 1998 (this "Trust Agreement"), among Lord Fuel Corp., a Delaware corporation, as trustor (herein, together with its successors and assigns hereunder, called the "Trustor"), United States Trust Company of New York, a New York corporation, as trustee (herein, together with its successors and assigns hereunder, called the "Owner Trustee"), and Jersey Central Power & Light Company, a New Jersey corporation, Metropolitan Edison Company, a Pennsylvania corporation, and Pennsylvania Electric Company, a Pennsylvania corporation, each as lessees under the Lease Agreements as defined herein (each a "Lessee", together with their successors and assigns hereunder, called the "Lessees") and Lord Fuel Corp., as trust beneficiary (herein, together with its successors and assigns hereunder, called the "Trust Beneficiary"). RECITALS A. The Trustor, the Owner Trustee, the Lessees and the Trust Beneficiary are parties to a certain Trust Agreement dated as of August 1, 1991 ("Original Trust Agreement") under which a trust was created for the purpose of enabling the Owner Trustee to acquire as part of the Trust Estate all of the outstanding stock of each of TMI-1 Fuel Corp. and Oyster Creek Fuel Corp., each Delaware corporations (each, a "Company"; together, the "Companies") and the Owner Trustee caused the Companies to each acquire certain Nuclear Material. B. Under the Original Trust Agreement, the Lessees have provided for the direction of the Owner Trustee with respect to actions to be taken by the Companies pursuant to the Basic Documents, as defined in the Original Trust Agreement, to provide for the lease of Nuclear Material thereunder and certain transactions related thereto. C. The Original Trust Agreement provided that the Companies enter into certain loan agreements and ancillary documents with The Prudential Insurance Company of America and affiliates thereof ("Prudential") to provide financing from Prudential for the acquisition of Nuclear Material leased under the Lease Agreements. D. The Companies entered into credit agreements and related instruments pursuant to which a bank syndicate, for which Union Bank of Switzerland, New York Branch ("UBS") acted as agent, provided financing for the acquisition of Nuclear Material being leased under the Lease Agreements. E. The parties to the Original Trust Agreement entered into an Amended and Restated Trust Agreement to reflect necessary modifications consistent with the establishment of the credit facility with UBS. F. Concurrent with the execution and delivery hereof, The Companies are entering into new credit agreement and related instruments pursuant to which a bank syndicate, for which The First National Bank of Chicago and PNC Bank, National Association, will act as agents, will provide financing for the acquisition of the Nuclear Material being leased under the Lease Agreements. G. The parties to the Amended and Restated Trust Agreement desire to amend and restate such Agreement to reflect necessary modifications consistent with the establishment of such new credit facility. H. The Owner Trustee is willing to accept the duties and obligations imposed hereby subject to the terms and conditions as provided herein. NOW, THEREFORE, the parties thereby agree as follows: 1. DEFINITIONS. For all purposes of this Trust Agreement, unless the context requires otherwise, capitalized terms used herein which are defined in Exhibit A hereto, which is hereby incorporated by reference for all purposes, shall have the respective meanings assigned in said Exhibit A. 2. AUTHORITY TO EXECUTE AND PERFORM DOCUMENTS; DECLARATION OF TRUST. 2.1 Execution of Documents and Performance of Duties. The Trustor hereby authorizes and directs the Owner Trustee (without any further action, approval, authorization or consent by Trustor), and the Owner Trustee hereby agrees (a) to maintain its ownership of all of the authorized capital stock of each of the Companies, (b) to cause each of the Companies, on such date(s) as the applicable Lessees shall specify to the Owner Trustee, to execute and deliver, or accept, as the case may be, the Basic Documents or amendments thereto to which each of the Companies shall be a party, in such respective forms as the applicable Lessees shall approve and as are acceptable to the Owner Trustee, and thereafter, but only upon written instruction of the applicable Lessees or in accordance with Section 6 hereof, to cause 2 each of the Companies to exercise rights, make payments and expenditures, and perform their duties under such Basic Documents or amendments thereto, subject to the terms of this Trust Agreement, and (c) upon written instruction of the applicable Lessees to the Owner Trustee requesting action by the Owner Trustee, and only upon such instructions, to do all such things, and to take all such actions, as may be necessary, appropriate or convenient to consummate the transactions contemplated hereby or to effect the Owner Trustee's performance of its duties and obligations as the Owner Trustee as contemplated hereby; provided that such actions are reasonably satisfactory to the Owner Trustee and its counsel. 2.2 Declaration of Trust. The Owner Trustee hereby declares that it will hold the Owner Trust Estate in trust upon the terms and conditions hereinafter set forth for the use and benefit of the Trust Beneficiary. 2.3 Name of Trust. For convenience of reference, the trust created hereby may be referred to as the TMI-1 Fuel Corp. and Oyster Creek Fuel Corp. Fuel Trust. This Trust is also referred to as the Trust in the Basic Documents. 2.4 No Other Business or Obligation. The Trust shall not engage in any business or enter in any Obligations other than the Basic Documents and the transactions and Obligations contemplated by the Basic Documents. 2.5 No Disposition of Owner Trust Estate. Except to exercise and carry out the rights, duties and obligations of the Owner Trustee under this Trust Agreement, including its rights to obtain payment of compensation and indemnification to which it may be entitled hereunder, the Owner Trustee shall not sell, assign, transfer, convey, pledge, or otherwise dispose of or encumber in any manner the Owner Trust Estate, including but not limited to the stock of each of the Companies, or approve, vote for, consent to or otherwise agree to the liquidation, dissolution, merger or consolidation of either of the Companies except upon the written direction of the applicable Lessees or, if at such time there are any Outstandings, any Commitments shall not have been terminated. The Owner Trustee shall cause each of the Companies to engage solely in the business of acquiring the Nuclear Material and consummating the transactions contemplated by the Basic Documents. The Owner Trustee shall not accept from or permit either of the Companies to pay or to distribute to it as dividends, or otherwise, any funds or property of either of the Companies except as provided in Section 5.3 hereof. 3 3. TRUSTOR'S INTEREST. 3.1 Investment by Trustor. Prior to the date of execution and delivery hereof, the Trustor has made a cash conveyance to the Trust of $10.00. 3.2 Payment from Proceeds of Owner Trust Estate Only. Any and all amounts payable by the Owner Trustee with respect to the Owner Trust Estate and under this Trust Agreement shall be payable only from the Owner Trust Estate. The Owner Trustee shall not be personally liable to any Person for any amounts payable under this Trust Agreement or the Basic Documents or, except as expressly provided in this Trust Agreement or the Basic Documents, for any liability under this Trust Agreement and the Basic Documents. 3.3 Manner of Payment. Amounts payable to the Trust Beneficiary pursuant to or under this Trust Agreement shall be paid by the Owner Trustee, in funds of the type received by the Owner Trustee, in such manner and at such place as the Trust Beneficiary shall from time to time request in writing, subject in all events to the terms and conditions of this Trust Agreement and the Basic Documents. 4. ACQUISITION AND FINANCING OF NUCLEAR MATERIAL. 4.1 Authorization of Transactions. Without limiting the generality of the authorization and directions contained in Section 2.1 hereof, the Owner Trustee is hereby authorized and directed to, and the Owner Trustee agrees that it will, upon the written direction of the applicable Lessees or in accordance with Section 6 hereof and subject to compliance with Section 4.3 hereof, cause the Companies to: (a) Accept, execute and deliver the Lease Agreements relating to them and any modification thereof or supplement thereto and perform all of the obligations and duties, and exercise all of the rights, of each of the Companies thereunder (including the giving of notice of termination under Section 8(c) thereof pursuant to written instructions of the Lessees); (b) Accept, execute and deliver the Credit Agreements relating to them and perform all of the obligations and duties, and exercise, pursuant to written instructions of the Lessees, all of the rights, of each of the Companies thereunder; 4 (c) Accept, execute and deliver the Basic Documents relating to them and perform all of the obligations and duties, and exercise, pursuant to written instructions of the Lessees, all of the rights, of each of the Companies thereunder; (d) Accept, execute and deliver any agreements which are entered into in accordance with the terms of the Basic Documents relating to them, and perform all of the obligations and duties, and exercise, pursuant to written instructions of the Lessees, all of the rights, of each of the Companies thereunder; (e) Issue, execute and deliver their Commercial Paper to the Depositary and issue, execute and deliver their Notes to the Banks pursuant to the Credit Agreements relating to them, and apply the proceeds thereof as permitted by the Basic Documents to which they shall be a party; (f) Apply the proceeds received from issuance of their Commercial Paper and Notes as provided in the Basic Documents to which they shall be a party; (g) Acquire, pay for, and hold such title to and/or interest in the Nuclear Material as shall be conveyed to them pursuant to the Basic Documents to which they shall be a party; (h) Lease the Nuclear Material relating to them to the Lessees pursuant to the Lease Agreements to which they shall be a party; (i) Grant to the Secured Parties the security interests provided for in the Security Agreements; (j) Execute and deliver to their Lessees such agreements, documents, instruments, pledges, chattel mortgages, security agreements, financing statements and certificates prepared and submitted to them by their Lessees and perform all such other acts which (i) each of the Companies is obligated to execute, deliver or perform, and record or file, under any of the provisions of the Basic Documents relating to them, or (ii) are in accordance with written instructions of the applicable Lessees are necessary or advisable in connection with the transactions contemplated by the Basic Documents to which they shall be a party, or are incidental to or necessary or appropriate to consummate any such transactions; 5 (k) Borrow such amounts, including, without limitation, amounts in respect of the Credit Agreements to which they shall be a party, and upon such terms and conditions, issue such drafts, bills of exchange, promissory notes, obligations or evidences of indebtedness as may be necessary or desirable to perform their obligations under the Lease Agreements to which they shall be a party, all as provided under or permitted by the terms of the Basic Documents to which they shall be a party, and perform all of the obligations and duties of each of the Companies thereunder; (l) Execute and deliver from time to time, such notes, drafts, instruments, financing statements, continuation statements, endorsements and certificates as may be required pursuant to the terms and conditions of the Credit Agreements, or Collateral Agreements to which they shall be a party; (m) Perform each of the Companies' duties and, pursuant to written instructions of the Lessees, pay each of the Companies' obligations and exercise each of their rights under each of the aforesaid agreements and documents, including, without limitation, from time to time, to: (i) acquire title and dispose of title to Nuclear Material pursuant to the terms of the Lease Agreements relating to them and accept invoices and Bills of Sale and assignments and partial assignments of Nuclear Material Contracts and other contracts in respect thereof; (ii) make payments for Nuclear Material pursuant to the terms of the Lease Agreements; and (iii) take such action as may be reasonably requested by any Secured Party under the Collateral Agreements to perfect or maintain the security interests thereby created or intended to so be created; (n) Accept, execute and deliver all other instruments, documents and agreements presented to each of the Companies by the applicable Lessees; provided that such instruments, documents and agreements are reasonably satisfactory to the Owner Trustee and its counsel, and, upon the written instructions of the applicable Lessees and only upon such instructions, do all such things and take all such action as may be necessary, appropriate or convenient to consummate the transactions contemplated herein and to perform their duties and obligations as contemplated by the documents referred to herein, provided that such doing, taking and performing shall be reasonably satisfactory to the Owner Trustee; 6 (o) Execute and deliver such other agreements, accept the assignment of such other agreements or rights, and acquire and dispose of such properties and enter into such transactions, as the applicable Lessees may lawfully request; provided that such agreements, assignments, acquisitions and transactions are reasonably satisfactory to the Owner Trustee and to its counsel; and perform all of the obligations and duties, and exercise all of the rights, of the Companies under any such agreements, assignments, rights or transactions; (p) Deliver to their Lessees copies of any notices received by the Companies under any Basic Documents or otherwise relating to the transactions contemplated thereby; and (q) Agree to execute and deliver amendments, modifications, and changes in any Basic Documents when requested by the applicable Lessees or when requested by the parties hereto other than the applicable Lessees with and only with the written consent of the applicable Lessees. The documents referred to in clauses (a) through (q) of this Section 4.1 shall be executed in substantially the forms delivered to the Owner Trustee or the Companies by the applicable Lessees on or after the date hereof, with such changes as shall be approved by the applicable Lessees. 4.2 Closing Procedures. The Owner Trustee understands and agrees that at the direction of the applicable Lessees, it may be obligated to cause either of the Companies from time to time to take certain action and execute the documents and instruments to be executed by them (including Commercial Paper and Notes) prior to the actual issuance of such Commercial Paper and Notes and deliver such documents and instruments, some of which shall be undated, to a law firm representing one of the Lessees or the Banks, to be held in escrow, which law firm shall, at the time of closing of such transaction, date all undated documents and instruments so held by it (including Commercial Paper and Notes) and deliver them to the appropriate Persons, such delivery to constitute delivery by the Companies or a Company, as the case may be, at such time. The Owner Trustee also agrees that it will cause each of the Companies to take such other action as may be reasonably requested by the applicable Lessees in order to effect transactions contemplated by the Basic Documents. 7 4.3 Conditions to Effecting Transactions. The authority and obligation of the Owner Trustee to take the action required by Section 4.1 hereof shall be subject to the fulfillment to the satisfaction of the Owner Trustee of each of the conditions precedent to the action specified in the applicable Basic Documents. 5. RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME FROM THE OWNER TRUST ESTATE. 5.1 Application of Proceeds of Financings and Specific Payments. The Owner Trustee shall cause each of the Companies to promptly pay all amounts received by them from the issuance of Commercial Paper and Notes as provided in the Basic Documents to which they shall be a party and to apply all payments received by them for which provision as to the application thereof is made in such Basic Documents forthwith to the purpose for which such payments were made in accordance with the terms of such Basic Documents. 5.2 Amounts Payable to the Banks. Unless and until all Outstandings have been paid in full, the Owner Trustee shall cause the Companies to pay over upon receipt thereof all amounts received by them pursuant to the Basic Documents to which they shall be a party (other than Excepted Payments and amounts received and applied pursuant to Section 5.4) to the Banks. 5.3 Other Amounts. Except as otherwise provided in Section 5.4 hereof with respect to Excepted Payments, the Owner Trustee shall cause each of the Companies to distribute or pay over all amounts received by them pursuant to the Basic Documents to which they shall be a party that are not applied pursuant to Section 5.1 hereof or that are not payable to the Banks pursuant to Section 5.2 hereof in the following order of priority: First -- such amounts as may be due and owing to the Owner Trustee hereunder to the Owner Trustee in reimbursement therefor; and Second -- the remainder of such amounts shall be promptly distributed and paid over to the Trust Beneficiary. 5.4 Excepted Payments. Notwithstanding anything to the contrary contained in this Section 5, each Excepted Payment shall be promptly distributed to the Person to whom such Excepted Payment is owed in accordance with the Basic Documents. 8 6. DUTIES OF THE OWNER TRUSTEE. 6.1 Documents. The Owner Trustee agrees, subject to the terms of this Trust Agreement, to cause each of the Companies pursuant to Section 2.1 or 4.1 hereof to perform the duties imposed upon them by the Basic Documents to which they shall be a party and the other agreements, documents, instruments and certificates executed and delivered, and to be executed and delivered, by them. 6.2 Notice of Default. In the event the Owner Trustee shall have knowledge of a default or an event of default, or any event ("potential default event") which would, with the lapse of time or the giving of notice or both, constitute an event of default under any Basic Document, the Owner Trustee shall give prompt telex, telegraphic or telephonic notice thereof (followed by prompt written notice in the manner provided in Section 13.4 hereof) to the Trustor, the Lessees and the Secured Parties. Subject to Section 6.3, the Owner Trustee shall cause each of the Companies to take such action, and only such action, not inconsistent with the terms of the Basic Documents to which they shall be a party, with respect to such default, event of default or potential default event, as the Owner Trustee or the applicable Company shall be instructed in writing pursuant to the Security Agreement to which it is a party. For all purposes of this Trust Agreement, in the absence of actual knowledge of an officer in the Corporate Trust Department of the Owner Trustee who is also an officer or director of either of such Companies, the Owner Trustee shall not be deemed to have knowledge of a default, event of default or potential default event, unless and until notified thereof in writing by the Administrative Agent, a Secured Party or the Lessee. The Owner Trustee shall have no duty to inquire as to whether a default, event of default or potential default event has occurred. 6.3 Indemnification; Legal Action. The Owner Trustee shall not be required to take any action or refrain from taking any action under Section 6.2 hereof, or any action which in its opinion may involve expense or liability to the Owner Trustee, unless it and each of the applicable Companies, if required, and the directors, officers, employees and agents of the Owner Trustee and each of the applicable Companies, if required, shall have been indemnified by the Banks, in manner and form satisfactory to the Owner Trustee, against any liability, cost or expense (including reasonable counsel fees) which may be incurred in connection with such action or inaction. The Owner Trustee shall not take any action under Section 6.2 hereof, nor shall any other provision of this Trust Agreement be deemed to impose a duty on the Owner 9 Trustee to take any action, if the Owner Trustee shall reasonably determine, or shall have been advised by counsel, that such action is contrary to the provisions of this Trust Agreement or any other Basic Document, or is contrary to law. 6.4 No Implied Duties. The Owner Trustee shall not have any duty or obligation to cause either of the Companies to manage, control, use, sell, dispose of or otherwise deal with the Nuclear Material or any part thereof or any other part of its property, or, either in its individual capacity or as trustee, otherwise to cause either of the Companies to take or refrain from taking any action under or in connection with this Trust Agreement or any other Basic Document to which they shall be a party, except as expressly provided by the provisions of this Trust Agreement or any other Basic Document to which they shall be a party, or as expressly provided in written instructions pursuant to this Section 6 or Section 7.7 hereof and reasonably satisfactory to the Owner Trustee and its counsel, and shall not cause either of the Companies to take or refrain from taking any such action unless expressly so provided or instructed; and no implied duties or obligations which are additional to the obligations and duties contained in such Basic Documents shall be read into this Trust Agreement or the other Basic Documents against the Owner Trustee. The United States Trust Company of New York, in its individual capacity, nevertheless agrees that it will, at its own cost and expense, promptly take such action as may be necessary duly to discharge any Liens other than Permitted Liens or any part of the property of either Company or the Owner Trust Estate (a) resulting from any claim against the Owner Trustee in its individual capacity arising out of events or conditions not related to or connected with the ownership of the Owner Trust Estate, the administration of the Owner Trust Estate or any other transaction contemplated by any of the Basic Documents or (b) resulting from any voluntary action of the Owner Trustee which (i) is taken other than pursuant to the instructions of either of the Lessees or the Secured Parties and (ii) is not taken as the result of any default by any of the Lessees under any Basic Documents or in the performance of the obligations of either of the Companies under any Basic Document to which either of the Companies shall be a party. Nothing in this Section 6.4 shall be construed to affect the legality, validity or enforceability of the obligations of either of the Companies under the Basic Documents to which they shall be a party or to restrict the rights and remedies available against either of the Companies under such Basic Documents. 10 6.5 No Unauthorized Transactions. The Owner Trustee agrees that it will not cause or permit either of the Companies to manage, control, use, sell, dispose of or otherwise deal with any part of the Nuclear Material or any other part of its property except (a) as expressly permitted or required by the terms of any Basic Document to which they shall be a party, (b) in accordance with the powers granted to or the authority conferred on the Owner Trustee pursuant to this Trust Agreement or (c) in accordance with written instructions pursuant to this Section 6 or Section 7.7 hereof. 7. THE OWNER TRUSTEE. 7.1 Acceptance of Trust, Etc. (a) The Owner Trustee accepts the trusts hereby created and agrees to perform the same upon the terms of this Trust Agreement, and agrees to disburse any and all moneys and property received by it constituting part of the Owner Trust Estate in accordance with the terms of this Trust Agreement. (b) The Owner Trustee and any of its officers, employees, agents or representatives serving as an officer or director of either of the Companies shall not be answerable or accountable under any circumstances except for their or such Person's own willful misconduct or gross negligence. The Owner Trustee shall not be liable for any loss, damage, liability, claim, cost or expense (including reasonable counsel fees and expenses) incurred by or asserted against the Trustor, the Trust Beneficiary, any Lessee, or either of the Companies (whether resulting from any diminution of the Owner Trust Estate by reason of a claim against the Owner Trust Estate or otherwise) except for such losses, damages, liability, claims, costs, or expenses caused by (i) the willful misconduct or gross negligence of the Owner Trustee, (ii) the Owner Trustee's failure to discharge Liens pursuant to the penultimate sentence of Section 6.4 hereof, (iii) the inaccuracy of any of the representations or warranties contained in Section 7.3 of this Trust Agreement, (iv) taxes, fees or other governmental charges imposed on the Owner Trustee, based on or measured by any fees, commissions or compensation received by it for services rendered in connection with any of the transactions contemplated by the Basic Documents and (v) its failure to use the degree of care of a reasonable corporate trustee to disburse moneys actually received by it in accordance with the terms hereof. 11 (c) Whether or not expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Owner Trustee shall be subject to the provisions of Section 7.1(b) hereof. 7.2 Limitation of Duties. The Owner Trustee shall have no duty itself and no duty to cause either Company (i) to see to any recording or filing of this Trust Agreement or of any Basic Document or of any other document referred to herein or therein or with respect to any security interest or lien, or to see to the maintenance of any such recording or filing, (ii) to see to any insurance on the Nuclear Material or to effect or maintain any such insurance, whether or not the Lessee shall be in default with respect thereto, other than to receive and forward to the Collateral Agent any notices, policies, certificates or binders received by the Owner Trustee or either of the Companies pursuant to the Lease Agreements, (iii) except as provided in the penultimate sentence of Section 6.4 hereof, to see to the payment or discharge of any tax, assessment or other governmental charge or any Lien of any kind owing with respect to, assessed or levied against any part of the Owner Trust Estate or property of either Company, or any fees or charges in connection therewith, other than to forward notice of such tax, assessment or other governmental charge or Lien received by the Owner Trustee to the applicable Lessees, (iv) to monitor the receipt of or confirm or verify any financial statements of a Lessee or (v) to inspect the Nuclear Material at any time or ascertain or inquire as to the performance or observance of any of a Lessee's covenants under the Lease Agreement or any other Basic Documents. Notwithstanding the foregoing, the Owner Trustee will furnish to the applicable Lessees, promptly upon receipt thereof, duplicates of all reports, notices, requests, demands, certificates and other instruments furnished to the Owner Trustee or either of the Companies under any of the Basic Documents to which they shall be a party unless any such document or accompanying documentation shall state that such document has previously been furnished directly to such Lessees. 7.3 Representations and Warranties of Owner Trustee. THE OWNER TRUSTEE MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE VALUE, CONDITION, DESIGN, OPERATION, QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY PART OF THE NUCLEAR MATERIAL, OR AS TO THE OWNER TRUSTEE'S OR A COMPANY'S 12 TITLE THERETO, OR LEASEHOLD INTEREST THEREIN, OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE NUCLEAR MATERIAL WHATSOEVER, EXCEPT that the Owner Trustee hereby represents, warrants and covenants to the applicable Lessees that the Owner Trustee shall have caused each of the Companies to have accepted whatever title to or leasehold interest in the Nuclear Material as was conveyed to it. 7.4 Deposit of Funds. Moneys received by the Owner Trustee or a Company may be deposited with the Owner Trustee under such general conditions as may be prescribed by law in the general banking department of the Owner Trustee and the Owner Trustee shall not be liable for any interest thereon except as may be agreed to by it. 7.5 Reliance on Documents; Agents; Right to Consult with Counsel and Others; Etc. (a) The Owner Trustee shall not be liable to the Trustor, Lessees, the Beneficiary or others who are or may be parties to agreements with the Owner Trustee in acting upon any writing or oral notification; including but not limited to, instructions from the Beneficiary, the applicable Lessee (pursuant to the Lease Agreements), or such other parties and certificates of any officer thereof, letters, facsimile transmissions, telexes, telegrams and cablegrams, in assuming the truth and correctness of any statement, opinion or assertion of any nature therein, provided, however, that any such writing or oral notification is believed by the Owner Trustee to be genuine and to have been sent or communicated by or on behalf of a party or parties to the Basic Documents. (b) The Owner Trustee shall not incur any liability to anyone in acting in reliance upon any signature, instrument, notice, resolution, request, consent, telegram, order, certificate, report, opinion, bond or other document or paper believed by it in good faith to be genuine and believed by it in good faith to be signed by the proper party or parties. The Owner Trustee may accept a copy of a resolution of the Board of Directors (or the Executive Committee thereof) of any party, certified by the Secretary or an Assistant Secretary of the same as duly adopted and in full force and effect as conclusive evidence that such resolution has been duly adopted by said Board of Directors (or Executive Committee thereof) and that such resolution is in full force and effect. As to any fact or matter the manner of ascertainment of which is not specifically prescribed herein, the 13 Owner Trustee may for all purposes hereof rely as to such fact or matter on an Officer's Certificate as to such fact or matter, and such an Officer's Certificate shall constitute full protection to the Owner Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon. In the administration of the trusts hereunder the Owner Trustee may execute any of the trusts or powers hereof and perform its powers and duties hereunder directly or through agents or attorneys and may, at the expense of the Owner Trust Estate (unless such person is regularly in the Owner Trustee's employ), consult with counsel, accountants and other skilled persons of generally accepted competence to be selected and retained by it, and the Owner Trustee shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the advice or opinion of any such counsel, accountants or other skilled persons (unless such person is regularly in the Owner Trustee's employ), provided such thing is not contrary to this Trust Agreement and such advice or opinion interprets or applies to this Trust Agreement. 7.6 Not Acting in Individual Capacity. In accepting the trusts hereby created, the Owner Trustee acts solely as trustee hereunder and not in its individual capacity and all Persons, other than as provided in Section 7.1(b) herein, having any claim against the Owner Trustee by reason of the transactions contemplated hereby shall look only to the Owner Trust Estate for payment or satisfaction thereof. 7.7 Interpretation of Trust Agreement. In the event that the Owner Trustee is uncertain as to the application of any provision of this Trust Agreement, or such provision is ambiguous as to its application or is, or appears to be, in conflict with any other applicable provision hereof, or in the event that this Trust Agreement permits any determination by the Owner Trustee or is silent or incomplete as to the course of action which the Owner Trustee is required to take with respect to a particular set of facts, the Owner Trustee may seek instructions from the applicable Lessees and shall not be liable to any Person to the extent that its acts in good faith in accordance with the instructions of such Lessees. 7.8 Compensation. The applicable Lessees shall pay to the Owner Trustee, and the Owner Trustee shall be entitled to receive from the applicable Lessees, reasonable compensation for its services, including without limitation, services in causing each of the Companies to take actions hereunder, and reimbursement for its expenses hereunder, which fees shall not be limited by any provisions of law with respect to the trustee of an express trust. No separate fee shall be chargeable to a Company except as provided in the Basic Documents to which they shall be a party. 14 7.9 Books, Records and Tax Returns. (a) Except for financial statements and tax returns, the Owner Trustee shall be responsible for the keeping of all books and records relating to the receipt and disbursement of all moneys under this Trust Agreement. The Owner Trustee agrees to prepare, sign and/or file and to cause each of the Companies to prepare, sign and/or file all returns and reports with respect to taxes (including but not limited to tax returns and any information, returns or reports for each of the Companies and the Trust, if any) as the applicable Lessees shall direct with respect to all transactions encompassed by the Basic Documents as provided in this Section 7.9. The Owner Trustee shall keep copies of all returns delivered to it or filed by it. The Owner Trustee shall not be personally liable for any tax due and payable in connection with this Trust Agreement or any other Basic Document except for any such tax arising from its own willful misconduct or gross negligence and except for any tax based on or measured by amounts paid to the Owner Trustee as fees or compensation in connection with the transactions contemplated hereby pursuant to Section 7.8 hereof or otherwise. (b) In addition, the Owner Trustee shall be responsible for certain administrative activities to be performed on behalf of the Companies including (i) receiving and causing the Company to countersign Leasing Records; (ii) receiving invoices relating to Nuclear Material Contracts; (iii) receiving and causing the Company to approve administrative invoices relating to the Companies; (iv) receiving monthly rate notices from the Banks with respect to the payment of Outstandings and causing the Company to forward copies to Lessees; (v) receiving periodic reports from Lessee as described in Section 20 of the Lease Agreements; (vi) maintaining records of the Stipulated Casualty Value of Nuclear Material under the Lease Agreements and the limitations on such Stipulated Casualty Value as set forth in Section 4 of the Lease Agreements; (vii) preparing and maintaining all books of account of the Companies; and (viii) performing any other duties as may be agreed upon in writing with the applicable Lessees. (c) The Owner Trustee shall retain PricewaterhouseCoopers L.L.P. or another firm of certified accountants of nationally recognized standing to prepare financial statements for the Companies and to prepare and file with all appropriate governmental authorities all returns and reports with respect to taxes (including but not limited to tax returns and any 15 information, returns or reports for each of the Companies and the Trust, if any) as the applicable Lessees shall direct with respect to all transactions encompassed by the Basic Documents on behalf of the Companies and the Trust. The applicable Lessees shall be responsible for payment of such firm in connection with the performance of such services. 7.10 Effect of Sales by a Company. Any sale of all or part of the Nuclear Material or other property owned by either of the Companies which the Owner Trustee causes such Company to make shall bind the Trust and the Trust Beneficiary and shall be effective for the benefit of the purchasers thereof and their respective successors and assigns to divest and transfer all right, title and interest in the property so sold, and no such purchasers shall be required to inquire as to compliance by the Owner Trustee with any of the terms of this Trust Agreement or to see to the application of any consideration paid for such property; provided, however, that, except in the case of the security interest in the Nuclear Material granted by either of the Companies to the Secured Parties, the Owner Trustee shall not cause or permit such Company to make any sale or other transfer of title to or right to possession or use of any part of the Nuclear Material (other than pursuant to the Lease Agreements to which it shall be a party) unless and until the Owner Trustee shall have received from the proposed transferee an opinion of counsel, satisfactory to the Owner Trustee, that such transferee has obtained all permits, licenses, consents, approvals and authorizations necessary for such sale or other transfer, and that such sale or other transfer will not otherwise violate any applicable law or regulations; provided, further, that notice of such sale and a copy of such opinion of counsel shall be given to the Secured Parties; and provided, further, that, except as expressly permitted by the Collateral Agreements to which they shall be a party, the Owner Trustee shall have no right or power itself and shall not cause or permit either Company to sell or otherwise transfer title to or the right to possession or use of any part of the Nuclear Material other than to their Lessees or the designees thereof pursuant to the Lease Agreements to which they shall be a party. 7.11 Exculpatory Provisions. Except for those set forth in Section 7.3, the Owner Trustee shall not be responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties contained herein or in the Basic Documents, all of which are made solely by each of the Companies. The Owner Trustee makes no representations as to the value or 16 condition of the Collateral or any part thereof, or as to the title of either Company to the Collateral (other than as provided in Section 7.3) or as to the security afforded by the Collateral Agreements, or as to the validity, execution, enforceability, legality or sufficiency hereof or of the Collateral Agreements, and the Owner Trustee shall incur no liability or responsibility in respect of any such matters. The Trust Agreement and any other document executed and delivered by the Owner Trustee in connection herewith is intended to be a corporate obligation of the Owner Trustee only. Therefore, anything contained in the Trust Agreement, the Lease Agreements, the Credit Agreements, the Security Agreements and any other document to the contrary notwithstanding, no recourse may be made by the Trust Beneficiary, the Lessees, any of the Secured Parties or any other Person against any incorporator, shareholder (direct or indirect), Affiliate, director, officer, employee or agent of the Owner Trustee with respect to claims against the Owner Trustee arising under or relating to this Trust Agreement; provided, however, that nothing in this Section 7.11 shall relieve the Owner Trustee from its corporate obligations under this Trust Agreement. 8. INDEMNIFICATION OF THE OWNER TRUSTEE, THE TRUSTOR AND THE TRUST BENEFICIARY. The Lessees agree (whether or not any of the transactions contemplated hereby are consummated) to assume liability for, and do hereby indemnify, protect, save and keep harmless the Owner Trustee, the Trustor and the Trust Beneficiary and each of the successors, assigns, agents, representatives and servants, in the case of the Owner Trustee including but not limited to the employees, agents, representatives or designees acting as officers or directors of either of the Companies, (the Owner Trustee, the Trustor and the Trust Beneficiary and such others being collectively referred to as the "Indemnified Persons") from and against, any and all liabilities, obligations, losses, damages, taxes (except as set forth below), penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees and disbursements) of any kind and nature whatsoever (for purposes of this Section 8, collectively referred to as "Liabilities") which may be imposed on, incurred by or asserted at any time against the Indemnified Persons (whether or not also indemnified against by any other Person under any other document) in any way relating to or arising out of the administration of the Owner Trust Estate or the action or inaction of the Indemnified Persons in connection with the provisions hereof or (a) the manufacture, design, 17 acquisition, construction, installation, ownership, purchase, acceptance, nonacceptance, possession, use, operation, condition, sale, lease, sublease or other disposition of the Nuclear Material or Owner Trust Estate property or any part thereof, including, without limitation, (i) latent and other defects, whether or not discoverable, (ii) any claim, for patent, trademark or copyright infringement, (iii) loss of or damage to any property or the environment, (iv) death of or injury to any person and (v) tort claims of any kind; or (b) this Trust Agreement or any of the Basic Documents or any other document referred to herein or therein pertaining to the transactions contemplated hereby and thereby, or the enforcement of any of the terms hereof or thereof; except only that the Lessees shall not be required to indemnify the Indemnified Persons for: (A) Liabilities resulting solely from willful misconduct or gross negligence on the part of the Indemnified Persons; and (B) Liabilities resulting from matters from which the Owner Trustee is not exculpated pursuant to the last sentence of Section 7.1(b) hereof. Notwithstanding anything in this Trust Agreement to the contrary, the Lessees shall have no obligation whatsoever to the Indemnified Persons for any Liabilities with respect to, or resulting from, any taxes based on or measured by amounts paid to the Owner Trustee as fees or compensation in connection with the transactions contemplated hereby pursuant to Section 7.8 hereof or otherwise. With respect to any taxes for which the Lessees are liable to the Indemnified Persons under this Section 8 (the "Indemnified Taxes"), the Indemnified Persons shall be obligated to claim, on a timely basis, any refund to which they may be entitled with respect to any Indemnified Taxes, to take all steps necessary to diligently prosecute such claim, and to pay over to the Lessees any refund (and any interest thereon) recovered by them as soon as practicable after receipt thereof. The indemnities, rights and obligations contained in this Section 8 shall survive the termination of this Trust Agreement. The Owner Trustee shall be entitled to indemnification from the Owner Trust Estate for any Liabilities indemnified against pursuant to this Section 8 to the extent not reimbursed by the applicable Lessees or any other Person; and to secure the same the Owner Trustee shall have a lien on the Owner Trust Estate prior to any interest therein of the Trust Beneficiary but subject and subordinate to the lien of the Collateral Documents upon the Nuclear Material and other property of the Companies. 18 9. CO-TRUSTEES, SEPARATE TRUSTEES. (a) At any time, for the purposes of conforming to the legal requirements or restrictions of any jurisdiction in which any part of the Owner Trust Estate (owned directly or indirectly) may at the time be located and subject to the prior receipt of all necessary governmental approvals and consents, the Owner Trustee shall have the power to appoint one or more Persons approved by the Lessees either to act as a co-trustee or co-trustees, jointly with the Owner Trustee, of all or any part of the Owner Trust Estate, or to act as separate trustee or trustees of any property constituting part of the Owner Trust Estate, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons, in the capacity as aforesaid, any property, title, right or power deemed necessary or desirable, subject to the remaining provisions of this Section 9. (b) Every co-trustee or separate trustee shall, to the extent permitted by law, be appointed subject to the following terms: (i) All rights, powers, duties and obligations conferred upon the Owner Trustee in respect of the receipt, custody and payment of moneys shall be exercised solely by the Owner Trustee; (ii) All other rights, powers, duties and obligations conferred or imposed upon the Owner Trustee hereby or by any Basic Document to which the Owner Trustee shall be a party shall be conferred or imposed upon and exercised or performed by the Owner Trustee or by the Owner Trustee and such co-trustee or co-trustees or separate trustee or separate trustees jointly, as shall be provided in the instrument appointing such co-trustee or co-trustees or separate trustee or separate trustees, except to the extent that, under the law of any jurisdiction in which any particular act or acts are to be performed, the Owner Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or co-trustees or separate trustee or separate trustees; 19 (iii) The Owner Trustee at any time, by an instrument in writing executed by it, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section 9, and a successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section 9; (iv) No trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder except, in the case of the Owner Trustee, if a co-trustee or separate trustee is an employee of the Owner Trustee; (v) No power given hereby to any such co-trustee or separate trustee shall be separately exercised hereunder by such co-trustee or separate trustee except with the consent in writing of the Owner Trustee, anything herein contained to the contrary notwithstanding. The power to vote or appoint proxies to vote with respect to any shares of the capital stock of the Company shall be exercised solely by the Owner Trustee itself or its successor Owner Trustees hereunder. (c) Any notice, request or other writing delivered to the Owner Trustee shall be deemed to have been delivered to all of the then co-trustees or separate trustees as effectively as if delivered to each of them. Every instrument appointing any trustee or trustees other than a successor to the original Owner Trustee shall refer to this Section 9 and the conditions expressed herein. Upon the acceptance in writing of such appointment by any such co-trustee or separate trustee, he, she or it shall be vested with the estate or property specified in the instrument of appointment jointly with the Owner Trustee (except insofar as local law makes it necessary for any such co-trustee or separate trustee to act alone) subject to all the provisions of this Trust Agreement. Each such acceptance shall be filed with the Owner Trustee with copies to the Trust Beneficiary, the Lessees and the Secured Parties. Any co-trustee or separate trustee may, at any time by an instrument in writing, constitute the Owner Trustee his or its agent and attorney-in-fact, with full power and authority to do all acts and things and to exercise all discretion on his or its behalf and in his or its name. In case any co-trustee or separate trustee shall 20 die or be dissolved, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of said co-trustee or separate trustee, as far as permitted by law, shall vest in and be exercised by the Owner Trustee without the appointment of a new trustee as successor to such co-trustee or separate trustee. (d) Any and all exculpatory provisions, immunities and indemnities in favor of the Owner Trustee under this Trust Agreement or under any other agreement, document or instrument described or referred to which apply to the Owner Trustee shall also apply to any co-trustees and separate trustees appointed pursuant to this Section 9. 10. SUCCESSOR TRUSTEES. (a) The Owner Trustee or any successor thereto may resign without cause at any time by giving at least 90 days' prior written notice to the Trust Beneficiary, the Lessees and the Secured Parties. Any such resignation shall become effective upon acceptance of appointment by the successor Owner Trustee under Section 10(c) hereof. In addition, the Lessees may at any time remove the Owner Trustee with or without cause by an instrument in writing delivered to the aforesaid Persons and to the Owner Trustee, such removal to be effective upon the acceptance of appointment by the successor Owner Trustee under Section 10(c) hereof; provided, however, that if an Event of Default under the Lease Agreements has occurred and is continuing, such removal shall be effective only with the consent of the Secured Parties. In the case of the resignation or removal of the Owner Trustee, the Lessees may appoint, by an instrument in writing, with copies to the Secured Parties, a successor Owner Trustee. If a successor Owner Trustee shall not have been appointed and accepted its appointment under Section 10(c) hereof within 60 days after such written notice of such resignation or such delivery of the notice relating to such removal, the Owner Trustee or the Lessees may apply to any court of competent jurisdiction to appoint a successor Owner Trustee to act until such time, if any, as a successor Owner Trustee shall have accepted its appointment as above provided. Any successor Owner Trustee so appointed by such court shall immediately and without further act be superseded by any successor Owner Trustee appointed by the Lessees as above provided. (b) Should the Person then serving as Owner Trustee hereunder (a) cease its activities or cease doing business as a going concern (other than pursuant to a transaction described in Section 10(e) hereof), or (b) become incapable of acting as such, 21 or (c) make an assignment for the benefit of creditors, or (d) admit in writing his or its inability to pay its debts as they become due or (e) file a voluntary petition in bankruptcy, or (f) be adjudicated a bankrupt or insolvent or have an order for relief entered against it in any proceeding under the Bankruptcy Reform Act of 1978, as amended, or any law with respect to bankruptcy, insolvency or reorganization that is a successor thereto, or (g) file a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation, or (h) file an answer admitting the material allegations of such a petition filed against it in any such proceeding, or (i) consent to or acquiesce in the appointment of a trustee, receiver or liquidator of him or it or all or any substantial part of its assets or properties, or (j) take any action looking to its dissolution or liquidation, or (k) be subject to any proceeding against it seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, which proceeding is not dismissed within forty-five (45) days after commencement thereof, or (1) be subject to the appointment, without its consent or acquiescence, of any trustee, receiver or liquidator of it or all or any substantial part of its assets or properties, which appointment is not vacated within forty-five (45) days after the date thereof, then such Person shall be deemed to have resigned as Owner Trustee hereunder effective immediately prior to the occurrence of any matter specified in items (a) through (j) above, or, in the event of the occurrence of any of the matters specified in items (k) or (l) above, immediately prior to the expiration of the 45-day period specified therein. Upon any resignation of the Owner Trustee, the Lessees shall appoint a successor trustee hereunder. (c) Any successor Owner Trustee, whether appointed by a court or by the Lessees or otherwise, shall execute and deliver to the predecessor Owner Trustee an instrument accepting such appointment, and thereupon such successor Owner Trustee, without further act, shall become vested with all the estates, properties, rights, powers, duties, obligations and trusts of the predecessor Owner Trustee with like effect as if originally named as Owner Trustee herein; but nevertheless, upon the written request of such successor Owner Trustee, such predecessor Owner Trustee shall execute and deliver an instrument transferring to such successor Owner Trustee, subject to its lien pursuant to Section 8 of this Trust Agreement and payment of any amounts due the predecessor Owner Trustee, upon the trusts herein expressed, all the estates, 22 properties, rights, powers and trusts of such predecessor Owner Trustee hereunder (including, without limitation, all such instruments, in proper form for recording where appropriate as may be necessary or appropriate to transfer the Owner Trust Estate to such successor Owner Trustee), and such predecessor Owner Trustee shall duly assign, transfer, deliver and pay over to such successor Owner Trustee certificates representing all of the issued and outstanding capital stock of each of the Companies registered in the name of the Owner Trustee and all moneys or other property then held by such predecessor Owner Trustee upon the trusts herein expressed, and shall deliver to such successor Owner Trustee any and all records or copies thereof, in respect of the Trust or the Owner Trust Estate which it may have. (d) Any successor Owner Trustee, however appointed, shall be a Qualified Institution if there be such an institution willing, able and legally qualified to perform the duties of the Owner Trustee hereunder upon reasonable or customary terms; provided, however, that the appointment of such Qualified Institution as successor Owner Trustee shall not violate any provision of any law or regulation or create a relationship which would be in violation thereof, and that all consents and approvals of, and filings and declarations with, any governmental authority which are necessary in connection with such appointment shall have been obtained or made and shall be in full force and effect. (e) Any corporation into which the Owner Trustee in its individual capacity may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Owner Trustee in its individual capacity shall be a party, or any corporation to which all or substantially all the corporate trust business of the Owner Trustee in its individual capacity may be transferred, shall, subject to the terms of Section 10(d) hereof, be Owner Trustee under this Agreement without further act. 11. SUPPLEMENTS AND AMENDMENTS TO THIS TRUST AGREEMENT AND THE BASIC DOCUMENTS. 11.1 Supplements Upon Request of the Lessee. Subject to Section 11.2 hereof and any applicable provision of the Basic Documents (including but not limited to the Credit Agreements), at any time and from time to time, upon the written request of the Lessees, (a) the Owner Trustee together with the Lessees, with the consent of the Trustor, shall execute an amendment or supplement 23 hereto for the purpose of adding provisions to, or changing or eliminating provisions of, this Trust Agreement as specified in such request and (b) the Owner Trustee shall cause either of the Companies to enter into such written amendment of or supplement to any of the Basic Documents to which they shall be a party or other documents referred to in any thereof as the other party or parties to any such instrument may agree to and as may be specified in such request, or execute and delivery such written waiver or modification of the terms of any such instrument as may be specified in such request; provided, however, that no such amendment or supplement shall extend the maximum term of this Trust beyond the term provided for by Section 12 hereof. It shall not be necessary for any such written request to specify the particular form of the proposed document to be executed, but it shall be sufficient if such request shall indicate the substance thereof. Except as expressly provided herein, the Owner Trustee and the Trustor need not consent to, approve, or join in any such amendment or supplement for it to be valid and effective; provided, however, that no such amendment or supplement may increase any duties or responsibilities of the Owner Trustee or affect any immunity or indemnity in its favor under this Trust Agreement or any of the Basic Documents or increase its duties or obligations hereunder or thereunder without the Owner Trustee's written consent. 11.2 Amendments and Supplements Affecting Owner Trustee. If in the opinion of the Owner Trustee any document required to be executed pursuant to the terms of Section 11.1 hereof affects any immunity or indemnity in its favor under this Trust Agreement or any of the Basic Documents or increases its duties or obligations hereunder or thereunder, the Owner Trustee may in its discretion decline to execute such document. 12.TERMINATION OF TRUST, ETC. This Trust Agreement and the Trust created hereby shall terminate and this Trust Agreement shall be of no further force and effect upon the earlier of (i) the payment in full of all Outstandings under the Credit Agreements and the expiration or termination of all Commitments, and the sale or other final disposition by the Secured Parties and/or the Owner Trustee and each of the Companies, as the case may be, of all property consisting of the Owner Trust Estate and property of each of the Companies and the final distribution by the Secured Parties and/or the Owner Trustee and each of the Companies, as the case may be, of all moneys and other property or proceeds constituting a part of the Owner Trust Estate and property of each of the 24 Companies in accordance with the terms of this Trust Agreement and/or the Collateral Agreements, as the case may be; provided that at such time the Lessee shall have fully complied with all of the terms of the Basic Documents, or (ii) twenty-one years less one day after the death of the life of the last survivor of the members of the Board of Directors of GPU, Inc. now in office and their children, living on the date hereof. Otherwise, this Trust Agreement and the Trust created hereby shall continue in full force and effect in accordance with the terms hereof. If the Trust shall terminate by operation of law prior to its intended termination, the Owner Trustee and the Trustor agree to take all reasonable actions to extend or reform the Trust. Upon termination of the Trust, the funds held in the Owner Trust Estate shall be distributed as provided in Section 5 of this Trust Agreement and all other property in the Owner Trust Estate including but not limited to all of the stock of the Companies, shall be assigned and distributed to the Trust Beneficiary, or as otherwise then directed in writing by the Trust Beneficiary. 13. MISCELLANEOUS. 13.1 Legal Title to Owner Trust Estate. No Person other than the Owner Trustee shall have legal title to any part of the Owner Trust Estate. No transfer, by operation of law or otherwise, of any right, title or interest of any Person in and to the Owner Trust Estate or hereunder shall operate to terminate this Trust Agreement or the trusts hereunder to entitle any successor or transferee of such Person to an accounting or to the transfer to it of legal title to any part of the Owner Trust Estate. 13.2 Validity of Sale of Owner Trustee. Any sale or other conveyance of the Nuclear Material or other property of either Company or Owner Trust Estate property or any part thereof by such Company or the Owner Trustee made pursuant to the terms of this Trust Agreement or the Lease Agreement or any other Basic Documents to which such Company is a party shall bind each Person having any right, title or interest in such Nuclear Material, other property, or Owner Trust Estate, and shall be effective to transfer or convey all right, title and interest of either Company, the Owner Trustee and such Persons in and to the Nuclear Material or leasehold interest or any part thereof. No purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency or regularity of such sale or conveyance or as to the application of any sale or other proceeds with respect thereto by either Company or the Owner Trustee. 25 13.3 Trust Agreement for Benefit of Parties thereto. Nothing in this Trust Agreement, whether expressed or implied, shall be construed to give to any Person, other than the Owner Trustee, the Trustor, the Lessees and the Trust Beneficiary any legal or equitable right, remedy or claim under or in respect of this Trust Agreement or the Owner Trust Estate, and this Trust Agreement shall be for the sole and exclusive benefit of such Persons. Notwithstanding the foregoing sentence, the Companies shall be third party beneficiaries of Section 7.1(b). 13.4 Notices. Unless otherwise expressly specified or permitted by the terms hereof, all notices and other communications hereunder shall be in writing, personally delivered or mailed by certified mail, postage prepaid or telegraphed, telecopied or telexed and (a) if to the Trustor, addressed to it at c/o Lord Securities Corporation, 2 Wall Street, 19th Floor, New York, New York 10005, Fax: (212) 316-9012, Attention: Vice President; (b) if to the Owner Trustee, addressed to it at the principal office of the Owner Trustee at United States Trust Company of New York, 114 West 47th Street, New York, New York 10036, Attention: Corporate Trust and Agency Division, Fax: (212) 852-1625; (c) if to the Lessees, addressed to them at Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, 2800 Pottsville Pike, Reading, Pennsylvania 19640, Attention: Comptroller; with a copy to GPU Service, Inc., 310 Madison Avenue, Morristown, New Jersey 07962-1957, Attention: Assistant Treasurer; (d) if to the Trust Beneficiary, addressed to it at the same address as the Trustor; and (e) if to the Secured Parties, addressed to them as described in the Security Agreements or (f) as to any such party, at such other address as such party shall have furnished to the other party. Each notice shall be deemed received when personally delivered, five days after sent by certified mail or one day after sent by telecopy. 13.5 Severability. Any provision of this Trust Agreement which is prohibited or unenforceable in any jurisdiction shall, as to each jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13.6 Waivers, Etc. No term or provision of this Trust Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought, and any waiver of the terms hereof shall be effective only in the specific instance and for the specific purpose given. 26 13.7 Counterparts. This Trust Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 13.8 Successors and Assigns. All covenants and agreements contained herein shall be binding upon and shall inure to the benefit of the Owner Trustee and its successors and the Trustor and its successors, and the Lessees and Trust Beneficiary and its successors. The Trustor and the Trust Beneficiary shall not transfer nor assign (otherwise than by merger or consolidation or transfer by the Trust Beneficiary otherwise permitted by the Lease Agreement with respect to the Trust Beneficiary's interest thereunder) any or all interests hereunder. 13.9 Headings. The headings of the various Sections herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. 13.10 Self-Dealing. The Owner Trustee in its individual capacity or any corporation in or with which the Owner Trustee in its individual capacity or its shareholders may be interested or affiliated, including but not limited to the Companies, or any officer or director of the Owner Trustee in its individual capacity or of any other such corporation, or any agent appointed by the Owner Trustee, may have commercial relations and otherwise deal with the Trustor, the Trust Beneficiary, any Secured Party, the Companies, and the Lessees or with any other corporation having relations with the Trustor, the Trust Beneficiary, the Banks, the Companies, or the Lessees and with any other corporation or entity, whether or not affiliated with the Owner Trustee. 13.11 Governing Law. THIS TRUST AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, EXCEPT TO THE EXTENT THAT THE DELAWARE GENERAL CORPORATION LAW GOVERNS THE COMPANIES' RELATIONSHIP WITH THE TRUST AS ITS SOLE STOCKHOLDER. 27 13.12 No Unauthorized Transactions. The Trustor agrees that it will not take or refrain from taking any action under this Trust Agreement or in connection with the Owner Trust Estate except as expressly required by the terms of this Trust Agreement. 13.13 Rights and Remedies. (a) Pursuit of any remedy shall not be deemed a waiver of any other remedy hereunder or at law or equity; and (b) The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of the rights, remedies, powers and privileges permitted by law. 28 IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed as of the day and year first above written in the presence of the undersigned witnesses. TRUSTOR AND TRUST BENEFICIARY ----------------------------- Witnesses: LORD FUEL CORP., AS TRUSTOR AND TRUST BENEFICIARY - ---------------------- By: -------------------------- - --------------------- Name: ----------------------------- Title: ----------------------------- OWNER TRUSTEE ------------- Witnesses: UNITED STATES TRUST COMPANY OF NEW YORK, as trustee - ---------------------- By: - ---------------------- -------------------------------- Name: -------------------------------- Title: -------------------------------- LESSEES ------- Witnesses: JERSEY CENTRAL POWER & LIGHT COMPANY - ---------------------- By: - ---------------------- -------------------------------- Name: -------------------------------- Title: -------------------------------- 29 Witnesses: METROPOLITAN EDISON COMPANY - ---------------------- ______________________ By: ______________________________ Name: _____________________________ Title: _____________________________ Witnesses: PENNSYLVANIA ELECTRIC COMPANY - ---------------------- By: - ---------------------- -------------------------------- Name: -------------------------------- Title: -------------------------------- 30 STATE OF ------------ ) : ss: COUNTY OF ------------) On this 5th day of November, 1998, before me personally appeared - --------------------, to me personally known, who, being by me duly sworn, says that he is a --------------------- of Lord Fuel Corp. and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. -------------------------------- Notary Public My Commission Expires: 31 STATE OF -------------) : ss: COUNTY OF ------------) On this 5th day of November, 1998, before me personally appeared - --------------------, to me personally known, who, being by me duly sworn, says that he is a --------------------- of United States Trust Company of New York and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. -------------------------------- Notary Public My Commission Expires: 32 STATE OF NEW JERSEY) : ss: COUNTY OF MORRIS ) On this 5th day of November, 1998, before me personally appeared - -----------------, to me personally known, who, being by me duly sworn, says that he is a --------------- of Jersey Central Power & Light Company and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. -------------------------------- Notary Public My Commission Expires: 33 STATE OF NEW JERSEY) : ss: COUNTY OF MORRIS ) On this 5th day of November, 1998, before me personally appeared - ------------------, to me personally known, who, being by me duly sworn, says that he is a --------------- of Metropolitan Edison Company and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. -------------------------------- Notary Public My Commission Expires: 34 STATE OF NEW JERSEY) : ss: COUNTY OF MORRIS ) On this 5th day of November, 1998, before me personally appeared - -----------------, to me personally known, who, being by me duly sworn, says that he is a -------------- of Pennsylvania Electric Company and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. -------------------------------- Notary Public My Commission Expires: 35 EXHIBIT A DEFINITIONS As used in the Trust Agreement (as defined below) the following terms shall have the following meanings (such definitions to be applicable to both singular and plural forms of the terms defined), except as otherwise specifically defined therein: "Administrative Agent" shall have the meaning specified therefor in the first paragraph of the Credit Agreements. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person. For purposes of this definition, the term "control" as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Assigned Agreement" means a Nuclear Material Contract which has been assigned to a Company in the manner specified in Section 5 of the Lease Agreements pursuant to a duly executed and delivered Assignment Agreement. The term Assigned Agreement shall include a Partially Assigned Agreement. "Assignment Agreement" means an assignment agreement substantially in the forms of Exhibit D to the Lease Agreements. "Bank" shall have the meaning specified therefor in Section 1.02 of the Credit Agreements. "Basic Documents" means the Lease Agreements, the Credit Agreements, the Security Agreements, the Commercial Paper, the Notes, the Letter Agreements, the Assigned Agreements, the Assignment Agreements, the Trust Agreement, the Depositary Agreements, each Bill of Sale, each Leasing Record, each Rent Due and SCV Confirmation Schedule, and other agreements related or incidental thereto which are identified in writing by either Company, the Lessees and the Secured Parties as one of the "Basic Documents", in each case, as such documents may be amended from time to time. "Basic Rent Period" means each calendar month or portion thereof commencing on, in the case of the first such period, the effective date of the Lease Agreements, and in case of each succeeding period, the first day following the immediately preceding Basic Rent Period, and ending on the earliest of (i) the last day of any calendar month or (ii) the Termination Settlement Date. 36 "Bill of Sale" means a bill of sale substantially in the forms of Exhibit E to the Lease Agreements, pursuant to which title to all or any portion of the Nuclear Material is transferred to a Lessee or any designee of a Lessee. "Capitalized Lease" means any and all lease obligations which are or should be capitalized on the balance sheet of the Person in question in accordance with generally accepted accounting principles and Statement No. 13 of the Financial Accounting Standards Board or any successor to such pronouncement regarding lease accounting, without regard for the accounting treatment permitted or required under any applicable state or federal public utility regulatory accounting system, unless such treatment controls the determination of the generally accepted accounting principles applicable to such Person. "Closing" means November 5, 1998. "Collateral" has the meaning set forth in the granting clauses of a Security Agreement and includes all property of a Company described in a Security Agreement as comprising part of the Collateral. "Collateral Agent" shall have the meaning specified therefor in Section 1.02 of the Credit Agreements. "Collateral Agreements" means, collectively, the Security Agreements, all Assignment Agreements, and any other assignment, security agreement or instrument executed and delivered to the Secured Parties hereafter relating to property of a Company which is security for the Notes. "Commercial Paper" shall have the meaning set forth in Section 1.2 of the Credit Agreements. "Commitment" means the commitment of the Banks to make Loans from time to time under any Credit Agreement. "Companies" means TMI-1 Fuel Corp. and Oyster Creek Fuel Corp., each Delaware corporations. "Company" means TMI-1 Fuel Corp. or Oyster Creek Fuel Corp., each Delaware corporations. 37 "Credit Agreements" means (i) the Credit Agreement, dated as of November 5, 1998, between TMI-1 Fuel Corp. (ii) the Credit Agreement, dated as of November 5, 1998 between Oyster Creek Fuel Corp. and The First National Bank of Chicago, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, the Banks parties thereto and First Chicago Capital Markets, Inc. and PNC Capital Markets Inc., as Arrangers, and, as each may be amended from time to time. "Depositary Agreements" means (i) the Depositary Agreement, dated as of November 5, 1998 among TMI-1 Fuel Corp., The Chase Manhattan Bank and The First National Bank of Chicago. "Excepted Payments" means (i) any indemnity, expense, or other payment which by the terms of any of the Basic Documents shall be payable to a Company in order for such Company to satisfy its obligations pursuant to Section 7.8 of the Trust Agreement, (ii) any payment by any Company pursuant to Section 7.8 of the Trust Agreement, or (iii) a payment by any Lessee pursuant to Section 8 of the Trust Agreement. "Final Leasing Record" means a Leasing Record which records the leasing of Nuclear Material during any period when such Nuclear Material is installed for operation in a Generating Facility. A Final Leasing Record shall be in the forms of Exhibit B to the Lease Agreements. "Generating Facility" means each of Unit No. 1 of Three Mile Island Nuclear Generating Station, located in Londonderry Township, Pennsylvania and Oyster Creek Nuclear Generating Station, located in Lacey Township, New Jersey. "Hereof", "herein", "hereunder" and words of similar import when used in a Basic Document refer to such Basic Document as a whole and not to any particular section or provision thereof. "Impositions" means all payments required by a public or governmental authority in respect of any property subject to a Lease Agreement or any transaction pursuant to a Lease Agreement or any right or interest held by virtue of a Lease Agreement. "Interim Leasing Record" means a Leasing Record which records the leasing of Nuclear Material (i) prior to installation for operation in a Generating Facility, (ii) after removal from a Generating Facility during the "cooling off" and storage period, and (iii) while being reprocessed. An Interim Leasing Record shall be in the form of Exhibit A to the Lease Agreements. 38 "Lease Agreements" means (i) the Second Amended and Restated Nuclear Material Lease Agreements each dated as of November 5, 1998 between TMI-1 Fuel Corp., as Lessor, and Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, respectively, as Lessees, in connection with the Three Mile Island Unit 1 Nuclear Generating Facility, and (ii) the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 between Oyster Creek Fuel Corp. as Lessor and Jersey Central Power & Light Company, as Lessee, in connection with the Oyster Creek Nuclear Generating Facility, as each of the same may be modified, supplemented or amended from time to time. "Leasing Record" is a form signed by a Lessor and its Lessee to record the leasing under a Lease Agreement of the Nuclear Material specified in such Leasing Record. A Leasing Record shall be either an Interim Leasing Record or a Final Leasing Record. "Lessee" or "Lessees" shall have the meanings specified therefor in the introduction to the Lease Agreements. "Lessor" or "Lessors" shall have the meanings specified therefor in the introduction to the Lease Agreements and its successors and assigns. "Letter Agreements" means the Letter Agreements, each dated as of November 5, 1998 between the Lessees, the Companies and The First National Bank of Chicago, as Administrative Agent, as the same may be amended from time to time. "Lien" means any mortgage, pledge, lien, security interest, title retention, charge or other encumbrance of any nature whatsoever (including any conditional sale or other title retention agreement, any lease in the nature thereof and the filing of or agreement to execute and deliver any financing statement under the Uniform Commercial Code of any jurisdiction). "Loans" shall have the meaning specified therefor in Section 1.02 of the Credit Agreements. "Manufacturer" means any supplier of Nuclear Material or of any service (including without limitation, enrichment, fabrication, transportation, storage and processing) in connection therewith, or any agent or licensee of any such supplier. 39 "Notes" shall have the meaning specified therefor in Section 1.02 of the Credit Agreements. "Nuclear Material" means those items which have been purchased by or on behalf of a Company for which a duly executed Leasing Record has been delivered to a Company and which continue to be subject to a Lease Agreement consisting of (i) the items described in such Leasing Record and each of the components thereof in the respective forms in which such items exist during each stage of the Nuclear Material Cycle, being substances and equipment which, when fabricated and assembled and loaded into a nuclear reactor, are intended to produce heat, together with all attachments, accessories, parts and additions and all improvements and repairs thereto, and all replacements thereof and substitutions therefor and (ii) the substances and materials underlying the right, title and interest of a Lessee under any Nuclear Material Contract assigned to a Company pursuant to a Lease Agreement; provided, however, that the term Nuclear Material shall not include spent fuel. "Nuclear Material Contract" means any contract, as from time to time amended, modified or supplemented, entered into by a Lessee with one or more Manufacturers relating to the acquisition of Nuclear Material or any service in connection with the Nuclear Material. "Nuclear Material Cycle" means the various stages in the process, whether physical or chemical, by which the component parts of the Nuclear Material are designed, mined, milled, processed, converted, enriched, fabricated into assemblies utilizable for Heat Production, loaded or installed into a reactor core, utilized, disengaged from a reactor core or stored, together with all incidental processes with respect to the Nuclear Material at any such stage. "Obligations" means (i) all items (including, without limitation, Capitalized Leases but excluding shareholders' equity and minority interests) which in accordance with generally accepted accounting principles should be reflected on the liability side of a balance sheet as at the date as of which such obligations are to be determined; (ii) all obligations and liabilities (whether or not reflected upon such balance sheet) secured by any Lien existing on the Property held subject to such Lien, whether or not the obligation or liability secured thereby shall have been assumed; 40 and (iii) all guarantees, endorsements (other than for collection in the ordinary course of business) and contingent obligations in respect of any liabilities of the type described in clauses (i) and (ii) of this definition (whether or not reflected on such balance sheet); provided, however, that the term "Obligations" shall not include deferred taxes. "Officer's Certificate" means, with respect to any corporation, a certificate signed by the President, any Vice President, the Treasurer or any Assistant Treasurer, the Comptroller or any Assistant Comptroller of such corporation, and with respect to any other entity, a certificate signed by an individual generally authorized to execute and deliver contracts on behalf of such entity. "Original Trust Agreement" means the Trust Agreement dated as of August 1, 1991, among Lord Fuel Corp., as Trustor, United States Trust Company of New York, as Owner Trustee, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, as Lessees, and Lord Fuel Corp., as Trust Beneficiary, as the same may be amended, modified or supplemented from time to time. "Outstandings" shall have the meaning specified therefor in Section 1.02 of the Credit Agreements. "Owner Trust Estate" means all estate, right, title and interest of the Owner Trustee in and to the outstanding stock of the Companies and in and to all monies, securities, investments, instruments, documents, rights, claims, contracts, and other property held by the Owner Trustee under the Trust Agreement; provided, however, that there shall be excluded from the Owner Trust Estate all Excepted Payments. "Owner Trustee" means the United States Trust Company of New York, not in its individual capacity but solely acting as trustee under and pursuant to the Trust Agreement, and its permitted successors. "Partially Assigned Agreement" means a Nuclear Material Contract which has been assigned, in part but not in full, to a Company in the manner specified in Section 5 of each Lease Agreement pursuant to a duly executed and delivered Assignment Agreement. 41 "Permitted Liens" means (i) any assignment of a Lease Agreement permitted thereby, by a Note Agreement and by a Credit Agreement, (ii) liens for Impositions not yet payable, or payable without the addition of any fine, penalty, interest or cost for nonpayment, or being contested by a Lessee as permitted by Section 11 of the Lease Agreements, (iii) liens and security interests created by a Security Agreement, (iv) the title transfer and commingling of the Nuclear Material contemplated by paragraph (h) of Section 10 of the Lease Agreements and (v) liens of mechanics, laborers, materialmen, suppliers or vendors, or rights thereto, incurred in the ordinary course of business for sums of money which under the terms of the related contracts are not more than 30 days past due or are being contested in good faith by a Lessee as permitted by Section 11 of the Lease Agreements; provided, however, that, in each case, such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made in respect thereto. "Person" means any individual, partnership, joint venture, corporation, trust, unincorporated organization or other business entity or any government or any political subdivision or agency thereof. "Proceeds" shall have the meaning assigned to it under the Uniform Commercial Code, as amended, and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to a Company from time to time with respect to the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to a Company from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or part of any part of the Collateral by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Qualified Institution" means a commercial bank organized under the laws of, and doing business in, the United States of America or in any State thereof, which has combined capital, surplus and undivided profits of at least $150,000,000 having trust power. 42 "Rent Due and SCV Confirmation Schedule" means an instrument substantially in the form of Exhibit F to the Lease Agreements which is to be completed by a Lessee for the purpose of calculating and acknowledging the SCV at the end of each Basic Rent Period. "Secured Parties" means the Banks and any other holder from time to time of any Note. "Security Agreements" means the (i) Jersey Central Power & Light Company Security Agreement and Assignment of Contracts dated as of November 5, 1998, (ii) Metropolitan Edison Company Security Agreement and Assignment of Contracts dated as of ------------, 1998 and (iii) Pennsylvania Electric Company Security Agreement and Assignment of Contract dated as of November 5, 1998 between TMI-1 Fuel Corp. and the Secured Parties and (iv) the Security Agreement and Assignment of Contracts, dated as of November 5, 1998, between Oyster Creek Fuel Corp. and the Secured Parties. "Terminating Event" shall have the meaning set forth in Section 18 of the Lease Agreements. "Termination Settlement Date" shall have the meaning specified therefor in Section 8(c) or 18(c) of the Lease Agreements. "Trust" means the TMI-1 Fuel Corp. and Oyster Creek Fuel Corp. Trust, a trust formed pursuant to the Trust Agreement. "Trust Agreement" means the Second Amended and Restated Trust Agreement dated as of November 5, 1998, among Lord Fuel Corp., as Trustor, United States Trust Company of New York, as Owner Trustee, Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, as Lessees, and Lord Fuel Corp., as Trust Beneficiary, as the same may be amended, modified or supplemented from time to time. "Trust Beneficiary" means Lord Fuel Corp., a Delaware corporation, and its permitted successors. "Trustor" means the institution designated as such in the Trust Agreement and its permitted successors. 43 EX-10 9 EXHIBIT 10-W EXHIBIT 10-W COUNTERPART NO. SECOND AMENDED AND RESTATED NUCLEAR MATERIAL LEASE AGREEMENT Dated as of November 5, 1998 between TMI-1 FUEL CORP., as Lessor and METROPOLITAN EDISON COMPANY as Lessee AS OF THE DATE OF THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, THE LESSOR UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT (THE "LESSOR") HAS GRANTED TO THE SECURED PARTIES, AS DEFINED HEREIN, A SECURITY INTEREST IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT AND IN ALL OF THE LESSOR'S RIGHTS AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, INCLUDING, WITHOUT LIMITATION, ALL OF THE LESSOR'S RIGHTS TO AND INTERESTS IN NUCLEAR MATERIAL AS DEFINED IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT. THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT HAS BEEN MANUALLY EXECUTED IN EIGHTEEN (18) COUNTERPARTS, NUMBERED CONSECUTIVELY FROM 1 TO 18. NO SECURITY INTEREST IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT OR IN ANY OF THE LESSOR'S RIGHTS AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT MAY BE PERFECTED BY THE POSSESSION OF ANY SUCH COUNTERPART OTHER THAN COUNTERPART NO. 1. - 3 - TABLE OF CONTENTS 1 Definitions 2 2 Notices 2 3 Title to Remain in the Lessor; Quiet Enjoyment; Fuel Management; Location 3 4 Agreement for Lease of Nuclear Material 3 5 Orders for Nuclear Material and Services; Assigned Agreements 4 6 Leasing Records; Payment of Costs of Lessor 5 7 No Warranties or Representation by Lessor 7 8 Lease Term; Early Termination; Termination Of Leasing Record 8 9 Payment of Rent; Payments with Respect to the Lessor's Financing Costs 11 10 Compliance with Laws; Restricted Use of Nuclear Material; Assignments; Permitted Liens; Spent Fuel 12 11 Permitted Contests 15 12 Insurance; Compliance with Insurance Requirements 16 13 Indemnity 18 14 Casualty and Other Events 21 15 Nuclear Material to Remain Personal Property 22 16 Events of Default 22 17 Rights of the Lessor Upon Default of the Lessee 24 18 Termination After Certain Events 26 19 Investment Tax Credit 28 20 Certificates; Information; Financial Statements 29 21 Obligation of the Lessee to Pay Rent 31 22 Miscellaneous 32 SECOND AMENDED AND RESTATED NUCLEAR MATERIAL LEASE AGREEMENT SECOND AMENDED AND RESTATED LEASE AGREEMENT (this "Lease Agreement") dated as of the 5th day of November, 1998, by and between TMI-1 FUEL CORP., a Delaware corporation (herein called the "Lessor"), and METROPOLITAN EDISON COMPANY, a Pennsylvania corporation (herein called the "Lessee"). RECITALS A. The Lessor and Lessee entered into a Nuclear Material Lease Agreement dated as of August 1, 1991 ("Original Lease") to provide for the lease of Nuclear Material to the Lessee; B. The Original Lease provided for the Lessor to enter into certain loan agreements and ancillary documents with The Prudential Insurance Company of America and certain affiliates thereof ("Prudential") to provide financing from Prudential for the acquisition of Nuclear Material under the Original Lease; C. Such loan arrangements with Prudential were terminated and Lessor entered into a new credit agreement and related instruments pursuant to which a bank syndicate for which Union Bank of Switzerland, New York Branch ("UBS") acted as agent to provide financing for the acquisition of Nuclear Material being leased hereunder; D. Lessor and Lessee entered into an Amended and Restated Nuclear Material Lease Agreement, dated as of November 17, 1995 ("Amended and Restated Lease") to reflect the necessary modifications consistent with the establishment of the credit facility with UBS; E. Concurrent with the execution and delivery hereof, such credit agreements with UBS are being terminated and Lessor is entering into a new credit agreement and related instruments to which a bank syndicate for which The First National Bank of Chicago and PNC Bank, National Association, will act as agents to provide financing for the acquisition of the Nuclear Material being leased hereunder; F. Accordingly, the Lessor and the Lessee desire to enter into this Second Amended and Restated Lease Agreement in order to reflect necessary modifications consistent with establishment of such new credit facility and other modifications thereof in certain other respects, which agreement shall supercede the Original Lease and the Amended and Restated Lease; NOW, THEREFORE, in consideration of the mutual covenants contained herein and intending to be legally bound hereby, the parties covenant and agree as follows: 1. Definitions. Except as otherwise provided herein, capitalized terms used in this Lease Agreement (including the Exhibits) shall have the respective meanings set forth in Appendix A. 2. Notices. Any notice, demand or other communication which by any provision of this Lease Agreement is required or permitted to be given shall be deemed to have been delivered if in writing and actually delivered by mail, courier, telex or facsimile to the following addresses: (i) If to the Lessor, TMI-1 Fuel Corp., c/o United States Trust Company of New York, 114 West 47th Street, New York, New York 10036, Attention: Corporate Trust and Agency Division, telecopy number 212-852-1626, or at such other address as the Lessor may have furnished to the Lessee and the Secured Parties in writing; or (ii) If to the Lessee, Metropolitan Edison Company c/o GPU Service, Inc., 310 Madison Avenue, Morristown, New Jersey 07962-1957, Attention: Vice President and Treasurer, telecopy number 973-644-4224, or at such other address as the Lessee may have furnished the Lessor and the Secured Parties in writing; or (iii) except as provided in the following sentence or as otherwise requested in writing by any Secured Party, any notice, demand or communication which by any provision of this Lease Agreement is required or permitted to be given to the Secured Parties shall be deemed to have been delivered to all the Secured Parties if a single copy thereof is delivered to The First National Bank of Chicago, One First National Plaza, Mail Suite 0363, Chicago, Illinois 60670, Attention: Kenneth J. Bauer, facsimile number (312) 732-3055; or at such other address as either may have furnished the Lessor and the Lessee in writing. Any Leasing Record or invoice of a Manufacturer or other Person performing services covering the Nuclear Material which is required to be delivered to the Secured Parties pursuant to Section 6(c)(ii) of this Lease Agreement and any Rent Due and SCV Confirmation Schedule which is required to be delivered to the Secured Parties pursuant to Sections 8(g) or 9(d) of this Lease Agreement shall be deemed to have been delivered to all the Secured Parties if a single copy thereof is delivered to Kenneth J. Bauer at the address indicated in this Section 2(iii). 2 3. Title to Remain in the Lessor; Quiet Enjoyment; Fuel Management; Location. (a) The Lessor and the Lessee hereby acknowledge that this Lease Agreement is a lease and is intended to provide for the obligations of the Lessee to pay installments of Rent as the same become due; that, subject to the provisions of Section 10(h), the Lessor has title to and is the owner of the Nuclear Material; and that the relationship between the Lessor and the Lessee shall always be only that of lessor and lessee. (b) The Lessor (including its successors and assigns) agrees and covenants that, so long as the Lessee makes timely payments of Rent and fully performs all other obligations to be performed by the Lessee under this Lease Agreement, the Lessor (including its successors and assigns) shall not hinder or interfere with the Lessee's peaceable and quiet enjoyment of the possession and use of the Nuclear Material, for the term or terms herein provided, subject, however, to the terms of this Lease Agreement. (c) So long as no Lease Event of Default shall have occurred and be continuing and the Lessor shall not have elected to exercise any of its remedies under Section 17 hereof, the Lessee shall have the right to engage in Fuel Management. The Lessee is hereby designated the agent of the Lessor in all dealings with Manufacturers and any regulatory agency having jurisdiction over the ownership or possession of the Nuclear Material for so long as the Lessee shall have the right to engage in Fuel Management. As such agent of the Lessor, the Lessee agrees to make, or cause to be made, all filings and to obtain all consents and permits required as a result of the Lessor's ownership and leasing of the Nuclear Material. (d) The Lessee covenants to the Lessor that the location of Nuclear Material will be limited to: (w) any Manufacturer's facility, (x) transit between one Manufacturer's facility and another Manufacturer's facility or the site of the Generating Facility, (y) the site of the Generating Facility and (z) the Generating Facility. Each assembly of the Nuclear Material will be located during its Heat Production and "cooling-off" stage at the Generating Facility or the site of the Generating Facility. 4. Agreement for Lease of Nuclear Material. From and after the Closing, the Lessor shall lease to the Lessee and the Lessee shall lease from the Lessor such Nuclear Material as may be from time to time mutually agreed upon, provided that the total Stipulated Casualty Value of all Nuclear Material leased under this Lease Agreement shall not exceed at any one time $50,000,000 in the aggregate or such other amount as the Lessor and the Lessee may 3 agree to in writing (the "Maximum Stipulated Casualty Value"). The Lessor and the Lessee shall evidence their agreement to lease particular Nuclear Material in accordance with the terms and provisions of this Lease Agreement by signing and delivering to each other, from time to time, Leasing Records, substantially in the forms of Exhibit A or Exhibit B, as applicable, prepared by the Lessee, covering such Nuclear Material. Nothing contained herein shall be deemed to prohibit the Lessee from leasing from other lessors or otherwise obtaining other nuclear material for use in the Generating Facility, subject to the provisions with respect to intermingling of fuel assemblies or sub-assemblies with other fuel assemblies or sub-assemblies contained in Section 6 hereof. 5. Orders for Nuclear Material and Services; Assigned Agreements. (a) The Nuclear Material Contracts listed in Exhibit C hereto, relating, among other things, to the purchase of, and services to be performed with respect to, Nuclear Material were entered into by the Lessee prior to the date of this Lease Agreement, and, except as otherwise indicated on Exhibit C, the interests of the Lessee under such Nuclear Material Contracts have been assigned to the Lessor under an Assignment Agreement substantially in the form of Exhibit D. Any further Nuclear Material Contracts which the Lessee deems necessary or desirable may be negotiated by the Lessee and executed by the Lessee in its own name or, where authorized by the Lessor, as agent for the Lessor. (b) So long as no Lease Event of Default shall have occurred and be continuing, and subject to the approval of the Lessor and to the limitation on the Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4, the interests of the Lessee under any further Nuclear Material Contracts (whether executed and delivered before or after the date of this Lease Agreement) pursuant to which the Lessee desires the Lessor to purchase Nuclear Material or have services performed on any Nuclear Material on behalf of the Lessee may be assigned to the Lessor under an Assignment Agreement substantially in the form of Exhibit D, with such changes to Exhibit 2 to Exhibit D as the Secured Parties may consent to in writing, which consent shall not be unreasonably withheld. The Lessee shall use its best efforts to cause the other parties to such agreements to consent to each such assignment. Upon each such assignment and the obtaining of such consents with respect to any Nuclear Material Contract, the Lessor, subject to the limitation on the Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4, shall make all payments which are required under such Assigned Agreements for the 4 purchase of Nuclear Material or for services to be performed on the Nuclear Material in accordance with the procedures set forth in Section 6. (c) So long as no Lease Event of Default shall have occurred and be continuing, the Lessor hereby authorizes the Lessee, at the Lessee's own cost and expense, to assert all rights and claims and to bring suits, actions and proceedings, in its own name or in the name of the Lessor, in respect of any Manufacturer's warranties or undertakings, express or implied, relating to any portion of the Nuclear Material and to retain the proceeds of any such suits, actions and proceedings. 6. Leasing Records; Payment of Costs of Lessor. (a) Interim Leasing Records. An Interim Leasing Record shall be prepared by the Lessee, shall be dated the date that the Lessor first makes any payment with respect to the Acquisition Cost of any Nuclear Material and shall set forth a full description of such Nuclear Material, the Acquisition Cost and location thereof, and such other details with respect to such Nuclear Material upon which the parties may agree. During the period of preparation and processing or reprocessing of Nuclear Material subject to an Interim Leasing Record, if the Lessor shall make any further payment or payments or if the Lessor shall receive any payment or payments representing a credit against the Acquisition Cost previously paid with respect to such Nuclear Material, a supplemental Interim Leasing Record dated the date that the Lessor makes each such further payment or the date of receipt of any such credit shall be signed by the Lessor and the Lessee to record the revised Acquisition Cost, after giving effect to any such payments or credits with respect to such Nuclear Material, any change in location and such additional details upon which the parties may agree. (b) Final Leasing Records. For Nuclear Material previously covered by an Interim Leasing Record, the Final Leasing Record shall be prepared by the Lessee, shall be dated the first day of the month following the date of installation of such Nuclear Material in the Generating Facility, unless such date is the first day of a month, in which case the Final Leasing Record shall be dated such date. For Nuclear Material not previously covered by an Interim Leasing Record, the Final Leasing Record shall be dated the date that the Lessor first makes any payment with respect to the Acquisition Cost of such Nuclear Material. A Final Leasing Record shall set forth a full description of such Nuclear Material, the Acquisition Cost thereof, the BTU Charge, the location, and such other details with respect to such Nuclear Material upon which the parties may agree. 5 (c) Payment of Nuclear Material Costs. (i) On the Closing, the Lessor shall pay UBS pursuant to Section 5.02 of the UBS Credit Agreement the principal amount of all loans outstanding thereunder together with accrued interest thereon to the extent not paid previously, and related costs and expenses in connection therewith. (ii) From time to time after the Closing, invoices of Manufacturers, or of other Persons performing services, covering Nuclear Material shall be forwarded to the Lessor in care of the Lessee at the Lessee's address. Upon receipt by the Lessee of an invoice covering Nuclear Material, the Lessee shall review such invoice and, upon the Lessee's approval thereof, the Lessee shall forward such invoice endorsed with the Lessee's approval to the Lessor, together with a Leasing Record completed and signed by a Lessee Representative covering such Nuclear Material. The Lessee's invoice for any cost incurred by it and includable in the Acquisition Cost of any Nuclear Material shall be forwarded to the Lessor and to the Secured Parties, together with a Leasing Record completed and signed by a Lessee Representative covering such costs. After receipt of such invoice and Leasing Record, in form and substance satisfactory to the Lessor, the Lessor, subject to the limitation on Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4, shall pay such invoice as provided therein or in the related purchase agreement and shall execute the Leasing Record and return a copy of such Leasing Record to the Lessee and the Secured Parties. The Leasing Record shall be dated as provided for in this Lease Agreement. In the event that the Acquisition Cost of the Nuclear Material covered by any Leasing Record has been paid or incurred by the Lessee, the Lessor, subject to the limitation on Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4 shall promptly reimburse the Lessee for the amount of the Acquisition Cost paid or incurred by the Lessee. (iii) The Lessee shall: (A) pay all costs and expenses of freight, packing, insurance, handling, storage, shipment and delivery of the Nuclear Material to the extent that the same have not been included in the Acquisition Cost, and (B) at its own cost and expense, furnish such labor, equipment and other facilities and supplies, if any, as may be required to install and erect the Nuclear Material to the extent that the cost and expense thereof have not been included in the Acquisition Cost. Such installation and 6 erection shall be in accordance with the specifications and requirements of each Manufacturer. The Lessor shall not be liable to the Lessee for any failure or delay in obtaining Nuclear Material or making delivery thereof. (d) Intermingling of Fuel Assemblies. Subject to the provisions of Section 10(h) hereof, the Nuclear Material shall be owned exclusively by the Lessor and leased to the Lessee under this Lease Agreement. Prior to the fabrication of Nuclear Material into a completed fuel assembly or sub-assembly or while such Nuclear Material is being reprocessed, the Lessee will cause or permit such Nuclear Material to be fabricated or assembled only into fuel assemblies or sub-assemblies owned by the Lessor and leased under this Lease Agreement. However, fuel assemblies or sub-assemblies owned by the Lessor and leased to the Lessee hereunder may be intermingled in the Generating Facility with fuel assemblies or sub-assemblies not owned by the Lessor and leased to the Lessee under this Lease Agreement, provided that such assemblies or sub-assemblies owned by the Lessor shall be readily identifiable by serial number or other distinguishing marks. 7. No Warranties or Representation by Lessor. THE NUCLEAR MATERIAL IS LEASED AS-IS, WHERE-IS, IN THE CONDITION THEREOF AND SUBJECT TO THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, THE STATE OF THE TITLE THERETO, THE RIGHTS OF OWNERSHIP THEREIN AND TO ALL APPLICABLE LAWS, RULES, REGULATIONS, ORDERS, WRITS, INJUNCTIONS, DECREES, CONSENTS, APPROVALS, EXEMPTIONS, AUTHORIZATIONS, LICENSES AND WITHHOLDING OF OBJECTIONS OF ANY GOVERNMENTAL OR PUBLIC BODY OR AUTHORITY AND ALL OTHER REQUIREMENTS HAVING THE FORCE OF LAW APPLICABLE AT ANY TIME TO ANY OF THE NUCLEAR MATERIALS OR ANY ACT OR TRANSACTION WITH RESPECT THERETO OR PURSUANT TO THIS LEASE AGREEMENT, IN EACH CASE AS IN EXISTENCE WHEN THE SAME FIRST BECOMES SUBJECT TO THIS LEASE AGREEMENT, WITHOUT REPRESENTATIONS OR WARRANTIES OF ANY KIND BY THE LESSOR OR ANY SECURED PARTY OR ANY PERSON ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY. THE LESSEE ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM NOR ANY OTHER PERSON ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS HAD AT ANY TIME PHYSICAL POSSESSION OF ANY PORTION OF THE NUCLEAR MATERIAL, HAS MADE ANY INSPECTION THEREOF, HAS GIVEN ANY ADVICE TO THE LESSEE OR HAS MADE ANY RECOMMENDATION TO THE LESSEE WITH RESPECT TO THE CHOICE OF THE SUPPLIER, VENDOR OR PROCESSOR OF THE NUCLEAR MATERIAL OR WITH RESPECT TO THE PROCESSING, MILLING, CONVERSION, ENRICHMENT, FABRICATION, CONTAINERIZATION, TRANSPORTATION, UTILIZATION, STORAGE OR REPROCESSING OF THE SAME. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS 7 AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM, NOR ANYONE ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS MADE ANY WARRANTY OR OTHER REPRESENTATION, EXPRESS OR IMPLIED, THAT THE NUCLEAR MATERIAL LEASED OR TO BE LEASED UNDER THIS LEASE AGREEMENT (a) WILL NOT RESULT IN INJURY OR DAMAGE TO PERSONS OR PROPERTY, (b) WILL BE USEABLE BY THE LESSEE OR WILL ACCOMPLISH THE RESULTS WHICH THE LESSEE INTENDS FOR SUCH NUCLEAR MATERIAL OR (c) IS SAFE IN ANY MANNER OR RESPECT. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM, AND ANYONE ACTING ON BEHALF OF ANY OF THEM IS A MANUFACTURER OR ENGAGED IN THE SALE OR DISTRIBUTION OF NUCLEAR MATERIAL AND THAT NONE OF THE FOREGOING PERSONS HAS MADE OR DOES HEREBY MAKE ANY REPRESENTATION, WARRANTY OR COVENANT, EXPRESS OR IMPLIED, WITH RESPECT TO THE MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, CONDITION, QUALITY, USEABILITY, DURABILITY, SUITABILITY OR CONSEQUENCES OF USE OR MISUSE OF THE NUCLEAR MATERIAL IN ANY RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES OR USES OF THE LESSEE, OR ANY OTHER REPRESENTATION OR WARRANTY OF ANY KIND OR CHARACTER WHATSOEVER, EXPRESS OR IMPLIED. 8. Lease Term; Early Termination; Termination of Leasing Record. (a) The Lessor hereby leases to the Lessee, and the Lessee hereby leases from the Lessor, the Nuclear Material for the term provided in this Lease Agreement and subject to the terms and provisions hereof. (b) This Lease Agreement shall become effective at 12:01 A.M., Eastern time, on the Closing, and, unless earlier terminated as provided in Sections 8(c), 17 or 18, the term of this Lease Agreement shall end at the close of business on the later of (i) the date on which there is no outstanding principal of, or interest or premium, if any, on any of the Outstandings or (ii) the Termination Date but in each case in no event later than November 17, 2015. (c) In the event that during the term of this Lease Agreement, the then effective Termination Date is not extended pursuant to Section 4.01 of the Credit Agreement, the Lessee shall have the option, exercisable at any time beginning 180 days before such Termination Date upon written notice to the Lessor and the Secured Parties prior to such Termination Date to purchase all (but not less than all) of the Nuclear Material and any spent fuel related thereto for which title has not been transferred to the Lessee for a purchase price equal to the Stipulated Casualty 8 Value of such Nuclear Material at the time of such purchase plus the Termination Rent. If the Lessee exercises such purchase option, the purchase of the Nuclear Material shall occur on such date, on or prior to such Termination Date, as may be agreed upon by the Lessor and the Lessee and of which the Lessee has given the Secured Parties prior written notice. Upon receipt of payment of the purchase price, the Lessor shall deliver to the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring all right, title, interest and claim of the Lessor to the Nuclear Material and any spent fuel related thereto for which title has not already been transferred to the Lessee, to the Lessee or the Lessee's designee, free and clear of all Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. The later of (i) the date on which there is no outstanding principal of, or interest or premium, if any, on any of the Outstandings or (ii) the date of any sale by the Lessor of all of the Nuclear Material as provided in this Section 8(c) shall constitute the Termination Settlement Date, and this Lease Agreement shall terminate as of such date. (d) In the event that during the term of this Lease Agreement the then effective Termination Date is not extended pursuant to Section 4.01 of the Credit Agreement and the Lessee shall not have exercised its option to purchase pursuant to Section 8(c), the Lessee shall attempt to sell, or if no sale is possible, to otherwise convey, on behalf of the Lessor, ownership of the Nuclear Material to a third party not disqualified by any applicable statute, law, regulation or agreement from acquiring such Nuclear Material, and, upon prior written notice to the Lessor and the Secured Parties of the terms and date of such sale, the Lessor shall furnish title papers as may be necessary to effect such sale or conveyance on an as-is, where-is, non-installment, cash sale basis, without recourse to or warranty or agreement of any kind by the Lessor. The proceeds of such sale or conveyance shall be paid to the Lessor, and any amount so paid shall constitute a credit against the amount of the Stipulated Casualty Value payable by the Lessee under Section 8(e); provided, however, that any proceeds of such sale or conveyance in excess of the amount payable by the Lessee under Section 8(e) shall be retained by the Lessee. 9 (e) On the Termination Date unless the Lessee shall have exercised its purchase option set forth in Section 8(c) and paid the Lessor the purchase price of the Nuclear Material as provided therein, the Lessee shall pay to the Lessor an amount equal to the sum of (i) the Stipulated Casualty Value of all Nuclear Material leased under this Lease Agreement as of such Termination Date and of all Nuclear Material sold or conveyed pursuant to Section 8(d) (less any credit provided in Section 8(d)), and (ii) the Termination Rent as of such Termination Date. Upon receipt of such payment, the Lessor shall deliver to the Lessee or any designee of the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring all right, title, interest and claim of the Lessor to the Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee to the Lessee or the Lessee's designee, free and clear of all Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. (f) In the event that during the term of this Lease Agreement, the then effective Termination Date is not extended pursuant to Section 4.01 of the Credit Agreement, all obligations of the Lessor and Lessee under this Lease Agreement with respect to the Nuclear Material, including the obligation of the Lessee to pay Basic Rent and the obligation of the Lessor to acquire and pay for the Nuclear Material and to lease the same to the Lessee shall terminate on the date on which the Lessor receives the payment specified in Section 8(c) or Section 8(e). (g) The Lessee shall deliver to the Lessor and to the Secured Parties a Rent Due and SCV Confirmation Schedule in the form of Exhibit F within thirty (30) days following the date on which any Nuclear Material or spent fuel resulting from the Nuclear Material is removed from the reactor of the Generating Facility for purposes of "cooling-off" preliminary to reprocessing or permanent on-site safe storage and/or off-site disposal. If the Lessee elects within thirty (30) days following the receipt by the Lessor of such Rent Due and SCV Confirmation Schedule to extend the lease term for the purposes of reprocessing any such Nuclear Material, then the Lessor and the Lessee shall enter into an Interim Leasing Record with respect to such Nuclear Material in its then condition. In all other cases, the Final Leasing Record with respect to any such Nuclear Material or spent fuel resulting from such Nuclear Material shall be terminated and the Lessee shall immediately pay to the Lessor all amounts, including the Stipulated Casualty Value, if any, with respect to such Nuclear Material or spent fuel resulting from such Nuclear Material, and, upon receipt thereof, the Lessor shall deliver to the Lessee or to any designee of the 10 Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring all right, title, interest and claim of the Lessor to such Nuclear Material or spent fuel resulting from such Nuclear Material for which title has not already been transferred to the Lessee or the Lessee's designee, free and clear of all Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. 9. Payment of Rent; Payments with Respect to the Lessor's Financing Costs. (a) Basic Rent. The Lessee shall pay Basic Rent monthly in arrears on the first day of the next succeeding month. If such first day of the month is not a Business Day, then payment shall be made on the next succeeding Business Day. (b) Additional Rent. In addition to the Basic Rent, the Lessee will also pay from time to time as provided in this Lease Agreement or on demand of the Lessor, all Additional Rent on the due date thereof. In the event of any failure by the Lessee to pay any Additional Rent, the Lessor shall have all the rights, powers and remedies as in the case of failure to pay Basic Rent. (c) Prepayments of Basic Rent. The Lessee may prepay Basic Rent at any time. Such payment shall be credited against subsequent amounts owed by the Lessee on account of Basic Rent. (d) Wire Payment Procedure for Paying Basic Rent. All payments of Rent and other payments to be made by the Lessee to the Lessor pursuant to this Lease Agreement shall be paid to the Lessor (or, at the Lessor's request, to the Secured Parties) in lawful money of the United States in Collected Funds by wire transfer pursuant to Section 3.03 of the Credit Agreement. The Lessee shall furnish to the Lessor and the Secured Parties each month during the term of the Lease Agreement a summary of the rental calculations for such month covering all outstanding Leasing Records. On each Basic Rent Payment Date, the Lessee shall deliver to the Lessor and the Secured Parties a signed and completed Rent Due and SCV Confirmation Schedule. The Lessee shall be responsible for the accuracy of the matters contained in all such schedules delivered by the Lessee pursuant to the provisions of this Lease Agreement. 11 10. Compliance with Laws; Restricted Use of Nuclear Material; Assignments; Permitted Liens; Spent Fuel. (a) Compliance with Legal Requirements. Subject to the provisions of Section 11 hereof, the Lessee agrees to comply with all Legal Requirements. (b) Recording of Title. The Lessee shall promptly and duly execute, deliver, file and record all such further counterparts of this Lease Agreement or such certificates, Bills of Sale, financing and continuation statements and other instruments as may be reasonably requested by the Lessor and take such further actions as the Lessor shall from time to time reasonably request, in order to establish, perfect and maintain the rights and remedies created or intended to be created in favor of the Lessor and the Secured Parties under this Lease Agreement and the Lessor's title to and interest in the Nuclear Material as against the Lessee or any third party in any applicable jurisdiction. (c) Exclusive Use of Nuclear Material. So long as no Lease Event Default shall have occurred and be continuing, the Lessee may use the Nuclear Material in the regular course of its business or in the business of any subsidiary or affiliate of the Lessee, and, subject to Section 3(d) and upon thirty (30) days' prior notice in writing to the Lessor and the Secured Parties, or upon such shorter prior notice in writing promptly given upon the Lessee's receipt of notice from any Manufacturer that the Nuclear Material is to be moved, and at the Lessee's sole expense (without limiting the Lessee's rights to request payment by the Lessor of such expense as provided in Section 6 hereof) move such Nuclear Material to any jurisdiction approved in writing by the Lessor in the contiguous forty-eight (48) states of the United States of America and the District of Columbia for the purpose of having services performed on such Nuclear Material in connection with any stage of the Nuclear Material Cycle other than Heat Production and the "cooling off" stage, provided that (i) no such movement of the Nuclear Material shall materially reduce the then fair market value of such Nuclear Material, (ii) such Nuclear Material shall be and remain the property of the Lessor, subject to this Lease Agreement, and (iii) all Legal Requirements (including, without limitation, all necessary government consents, permits and approvals) shall have been met or obtained by the Lessee, on its own behalf and on behalf of the Lessor, and all necessary recordings, filings and registrations or recordings, filings and registrations which the Lessor shall reasonably consider advisable shall have been duly made in order to protect the validity and effectiveness of this Lease Agreement and the security interest created in the Security Agreement. At least once each year, or more frequently if the 12 Lessor reasonably so requests, the Lessee shall advise the Lessor and the Secured Parties in writing where all Nuclear Material as of such date is located. The Lessee shall maintain and make available to the Lessor for examination upon reasonable notice complete and adequate records pertaining to receipt, possession, use, location, movement, physical inventories and any other information reasonably requested by the Lessor with respect to the Nuclear Material. (d) Additional Lessee Covenants. The Lessee agrees to use every reasonable precaution to prevent loss or damage to the Nuclear Material. All individuals handling or operating Nuclear Material in the possession of the Lessee shall be conclusively presumed not to be agents of the Lessor. The Lessee shall cooperate fully with the Lessor and all insurance companies and governmental agencies providing insurance under Section 12 hereof in the investigation and defense of any claims or suits arising from the licensing, acquisition, storage, containerization, transportation, blending, transfer, consumption, leasing, insuring, operating, disposing, fabricating and reprocessing of the Nuclear Material. To the extent required by any applicable law or regulation, the Lessee shall attach to the Nuclear Material the form of required notice to protect or disclose the ownership of the Lessor or that the Nuclear Material is leased. So long as no Lease Event of Default shall have occurred and be continuing, the Lessor will assign or otherwise make available to the Lessee all of its rights under any Manufacturer's warranty on Nuclear Material. The Lessee shall pay all costs, expenses, fees and charges, except Acquisition Costs, incurred by the Lessee in connection with the use and operation of the Nuclear Material during the term of the lease of such Nuclear Material. The Lessee hereby assumes all risks of loss or damage of Nuclear Material however caused and shall, at its own expense, keep the Nuclear Material in good operating condition and repair, reasonable wear and tear, obsolescence and exhaustion excepted. (e) Assignment by Lessor. Except as otherwise herein provided, the Lessor may not, without the prior written consent of the Lessee, sell, assign, transfer or convey the Nuclear Material or any interest therein or in the Lease Agreement, or grant to any party a security interest in, or create a lien or encumbrance upon, all or any part of its right, title and interest in this Lease Agreement and in any Nuclear Material. After receipt by the Lessee of written notice from the Lessor of any assignment by the Lessor of Rents or other sums payable by the Lessee under this Lease Agreement, the Lessee shall make such payments as directed in such notice of assignment, and such payments shall discharge the obligations of the Lessee hereunder to the extent of such payments. The Lessee hereby consents to the security interest and other rights and interests granted to the Secured Parties under the Security Agreement, dated as of the date first above written. 13 (f) Liens; Permitted Liens. The Lessee will not directly or indirectly create or permit to be created or to remain and will discharge any Lien with respect to the Nuclear Material or any portion thereof, or upon the Lessee's leasehold interest therein, or upon the Basic Rent, Additional Rent, or any other sum payable under this Lease Agreement, other than Permitted Liens. (g) Assignment by Lessee. Notwithstanding any provision of this Lease Agreement to the contrary, subject to applicable laws and regulations and so long as no Lease Event of Default shall have occurred and be continuing, the Lessee may sublease the Nuclear Material provided that (i) the Lessee has given prior written notice of such sublease to the Lessor, (ii) such sublease is not inconsistent with, and is expressly subject to, this Lease Agreement and (iii) such sublease does not in any way limit or affect the Lessee's duties and obligations under this Lease Agreement. (h) Transfer of Title to Manufacturers. The parties recognize that, during the processing and reprocessing of Nuclear Material before and after its utilization in the Generating Facility for the production of power, the Manufacturer performing services on the Nuclear Material may require that title thereto be transferred to such Manufacturer and/or that the Nuclear Material be commingled with other nuclear material, with an obligation for the Manufacturer, upon completion of the services, to reconvey a specified amount of nuclear material. The standard enrichment contracts of the Department of Energy contain such provisions. Therefore, the parties agree that (i) Nuclear Material may become subject to such a contract provision and that the action contemplated by such a provision may be taken, notwithstanding any provision of this Lease Agreement to the contrary, (ii) as between the Lessor and the Lessee, such Nuclear Material shall be deemed to remain leased under this Lease Agreement while title thereto is in the Manufacturer, and (iii) the nuclear material exchanged by the Manufacturer upon completion of its services shall be automatically leased under this Lease Agreement in substitution for the Nuclear Material originally delivered to the Manufacturer. (i) Substitution of Nuclear Material. The Lessee shall be permitted to exchange Nuclear Material for other Nuclear Material of equal or greater fair market value provided that the Lessor receives title to such substituted Nuclear Material free and clear of any Lien other than such Liens as may be created by the Security Agreement or permitted under Section 10(h). Any additional costs incurred in order to effect such an exchange shall be paid by the Lessor in accordance with the procedures set forth in Section 6(c) and shall be added to the Acquisition Cost of the 14 Nuclear Material. A supplemental Leasing Record dated the date that the Lessor makes such further payment shall be signed by the Lessor and the Lessee to record the revised Acquisition Cost and shall include a full description of the substituted Nuclear Material, notice of any change in location and such additional details upon which the parties may agree. (j) Spent Fuel. Without the consent of the Lessor, the Lessee shall not permit any Nuclear Material, which shall have been removed from a Generating Facility for the purpose of "cooling-off," storage, repair or reprocessing to be removed from the site of the Generating Facility unless (i) the new site of such Nuclear Material is a facility maintaining liability insurance and indemnification fully insuring and indemnifying the Lessor, the Lessee and the Secured Parties under the Atomic Energy Act and any other applicable law, rule or regulation, and (ii) except if the lease term is extended pursuant to the second sentence of Section 8(g), the lease of such Nuclear Material shall, concurrently with its removal from the Generating Facility, be terminated by the Lessee pursuant to the provisions of Section 8 or 18 hereof, as applicable, with the Lessee acquiring the ownership thereof pursuant to Section 8(e), 8(g) or Section 18(c), as applicable. 11. Permitted Contests. The Lessee at its expense may, in its own name or, if necessary and permitted, in the name of the Lessor (and, if necessary but not so permitted, the Lessee may require the Lessor to) contest after prior notice to the Lessor, by appropriate legal or administrative proceedings conducted in good faith and with due diligence, the amount, validity or application, in whole or in part, of any Imposition or Lien therefor, or any Legal Requirements or Insurance Requirements, or any matter underlying Lessee's indemnity obligations under Section 13 hereof, or any other Lien or contract or agreement referred to in Section 10(f) hereof; provided that (i) in the case of an unpaid Imposition or Lien therefor, such proceedings shall suspend the collection of such Imposition or the enforcement of such Lien against the Lessor, (ii) neither the Lessee's use of the Nuclear Material or any portion thereof nor the taking of any step necessary or proper with respect to such Nuclear Material in any stage of the Nuclear Material Cycle nor the performance of any other act required to be performed by the Lessee under this Lease Agreement would be enjoined, prevented or otherwise interfered with, (iii) the Lessor would not be subject to any additional civil liability (other than interest which the Lessee agrees to pay) or any criminal liability for failure to pay any such Imposition or to comply with any such Legal Requirements or Insurance Requirements or any such other Lien, contract or agreement, and (iv) the Lessee shall have set aside on its books adequate reserves (in accordance with generally accepted accounting 15 principles) and shall have furnished such security, if any, as may be required in the proceedings or reasonably requested by the Lessor. The Lessee will pay, and save the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties harmless against, all losses, judgments, decrees and costs, including attorneys' fees and expenses, in connection with any such contest and will, promptly after the determination of such contest, pay and discharge the amounts which shall be levied, assessed or imposed or determined to be payable, together with all penalties, fines, interest, costs and expenses incurred in connection with such contest. All rights and indemnification obligations under this Section 11 and each other indemnification obligation in favor of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties under this Lease Agreement shall survive any termination of this Lease Agreement or of the lease of any Nuclear Material hereunder. 12. Insurance; Compliance with Insurance Requirements. The Lessee shall comply with all Insurance Requirements and with all Legal Requirements pertaining to insurance. Without limiting the foregoing: (a) Liability and Casualty Insurance. The Lessee shall, at its own cost and expense, procure and maintain, or cause to be procured and maintained, liability insurance and indemnification with respect to the Nuclear Material insuring and indemnifying the Lessor, the Owner Trustee, U.S. Trust, the Lessee, and the Secured Parties to the full extent required or available, whichever may be greater, under the Atomic Energy Act or under any other applicable law, rule or regulation. In the event the provisions of the Atomic Energy Act with respect to liability insurance and the indemnification of owners, licensees and operators of Nuclear Material or any other provisions of the Atomic Energy Act which benefit the Lessor, the Owner Trustee, U.S. Trust or the Secured Parties shall change, then the Lessee shall use its best efforts to obtain equivalent insurance and indemnification agreements from the Nuclear Regulatory Commission or from such other public and/or private sources from which such coverage is available. The Lessee shall also, at its own cost and expense, procure and maintain, or cause to be procured and maintained, physical damage insurance with respect to the Nuclear Material insuring the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties against loss or damage to the Nuclear Material in a manner which is consistent at all times with current prudent utility industry practice in the United States; provided, however, that the Lessee shall in any event maintain physical damage insurance coverage for its Three Mile Island Unit 1 nuclear generating station site, including the Nuclear Material, in an amount not less than $1.11 billion. Such liability and physical damage insurance and indemnification agreements may be subject to deductible amounts 16 which do not exceed in the aggregate $5,000,000, and the Lessee may self-insure with respect to such liability and physical damage insurance and indemnification agreements to the extent of $5,000,000, provided that such deductible amounts and such self-insurance are permitted under all applicable law, rules and regulations. (b) Third Parties; Insurance Requirements. The Lessee shall use its best efforts to provide that the Nuclear Material, while in the possession of third parties, is covered for liability insurance and indemnification to the maximum extent available, and for physical damage insurance in an amount not less than the Stipulated Casualty Value of such Nuclear Material. To the extent that any such third party is maintaining such insurance coverage for the Nuclear Material, the Lessee shall have no obligation to do so under this Lease Agreement. (c) Named Insureds; Loss Payees. The Lessee shall provide for the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent to be named additional insureds where possible, and, with respect to physical damage coverage, named loss payees to the full extent of their interests in all insurance policies and indemnification agreements relating to the Nuclear Material required under this Section. All such policies and, where possible, indemnification agreements, shall provide for at least ten (10) days' prior written notice to the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent of any cancellation or material alteration of such policies. (d) Insurance Certificates. The Lessee shall, upon request of the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, provide the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, as the case may be, with copies of the policies or insurance certificates in respect of the insurance procured pursuant to the provisions of this Section and shall advise the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent of all expirations and renewals of policies and all notices issued by the insurers with respect to such policies. Within a six-month period from the execution of this Lease Agreement and at yearly intervals thereafter, the Lessee shall furnish to the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent a certificate as to the insurance coverage provided pursuant to this Section and shall further give notice as to any material change in the nature or availability of such coverage, including any material change whatsoever in the provisions of the Atomic Energy Act or any other applicable law, rule or regulation with respect to liability insurance and indemnification, or, immediately after the Lessee becomes aware, or should reasonably be expected to become aware, of any material change in the application, interpretation or 17 enforcement thereof. The Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent shall be under no duty to examine such insurance policies or indemnification agreements or to advise the Lessee in case the Lessee is not in compliance with any Insurance Requirements. 13. Indemnity. Without limitation of any other provision of this Lease Agreement, including Section 11, the Lessee agrees to indemnify and hold harmless each of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties and all companies, persons or firms controlling, controlled by, or under common control with any of them and the respective shareholders, directors, officers and employees of the foregoing against any and all claims, demands and liabilities of whatever nature and all costs, losses, damages, obligations, penalties, causes of action, judgments and expenses (including attorneys' fees and expenses) directly or indirectly relating to or in any way arising out of: (a) defects in title to Nuclear Material upon acquisition by the Lessor or in ownership of and interest in the Nuclear Material (the term "Nuclear Material" when used in this Section 13 shall include, in addition to all other Nuclear Material, nuclear material the lease of which has been terminated and which is in storage, or is being transported to storage, and which has not been sold or disposed of by the Lessor to the Lessee or to a third party); (b) the ownership, licensing, ordering, rejection, use, nonuse, misuse, possession, control, installation, acquisition, storage, containerization, transportation, blending, transfer, consumption, leasing, insuring, operating, disposing, fabricating, channelling, refining, milling, enriching, conversion, cooling, processing, condition, operation, inspection, repair and reprocessing of the Nuclear Material, or resulting from the condition of the environment including the adjoining and/or underlying land, water, buildings, streets or ways, except to the extent that such costs are included in the Acquisition Cost of such Nuclear Material within the limits specified in Section 4 (or within any change of such limits agreed to in writing by the Lessor and the Lessee) and except for any general administrative expenses of the Secured Parties and of their representatives; (c) the assertion of any claim or demand based upon any infringement or alleged infringement of any patent or other right, by or in respect of any Nuclear Material; provided, however, that the Lessor shall have made available to the Lessee all of the Lessor's rights under any similar indemnification from the Manufacturer of such Nuclear Material under any Nuclear Material Contract; 18 (d) all federal, state, county, municipal, foreign or other fees and taxes of whatever nature including, but not limited to, license, qualification, franchise, sales, use, business, gross receipts, ad valorem, property, excise, and occupation fees and taxes and penalties and interest thereon, whether assessed, levied against or payable by the Lessor or any Secured Party or to which the Lessor or any Secured Party is subject with respect to the Nuclear Material or the Lessor's or any Secured Party's ownership thereof or interest therein or the licensing, ordering, ownership, use, possession, control, acquisition, storage, containerization, transportation, blending, milling, enriching, transfer, consumption, leasing, insuring, operating, disposing, fabricating, channelling, refining, conversion, cooling and reprocessing of Nuclear Material or measured in any way by the value thereof or by the business of investment in, financing of or ownership by the Lessor or any Secured Party with respect thereto; provided, however, that the Lessee shall not be obligated to indemnify any Secured Party for any taxes, whether federal, state or local, based on or measured by net income of any Secured Party where taxable income is computed in substantially the same manner as taxable income is computed under the Code; (e) any injury to or disease, sickness or death of persons or loss of or damage to property occurring through or resulting from any Nuclear Incident involving or connected in any way with the Nuclear Material or any portion thereof; (f) any violation, or alleged violation, of this Lease Agreement by the Lessee or of any contracts or agreements to which the Lessee is a party or by which it is bound or any laws, rules, regulations, orders, writs, injunctions, decrees, consents, approvals, exemptions, authorizations, licenses and withholdings of objection, of any governmental or public body or authority and all other requirements having the force of law applicable at any time to the Nuclear Material or any action or transaction by the Lessee with respect thereto or pursuant to this Lease Agreement; (g) performance of any labor or service or the furnishing of any materials in respect of the Nuclear Material or any portion thereof, except to the extent that such costs are included in the Acquisition Cost of such Nuclear Material within the limits specified in Section 4 (or within any change of such limits agreed to in writing by the Lessor and the Lessee); or 19 (h) liabilities based upon a theory of strict liability in tort, negligence or willful acts to the extent that such liabilities relate to the Nuclear Material or any action or transaction with respect thereto or pursuant to this Lease Agreement. The Lessee shall, upon demand, reimburse the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties, as the case may be, for any sum or sums expended with respect to any of the foregoing or advance such amount, upon request by the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or such other party for payment thereof. With respect solely to the Lessor, the amount of any payment obligation of the Lessee under this Section 13 shall be determined on a net, after-tax basis, taking into account any tax benefit to the Lessor. Notwithstanding the foregoing, the Lessee shall not indemnify or hold harmless the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties for (i) any claims, demands, liabilities, costs or expenses which arise, result from or relate to obligations of such party as an insurer under contracts or agreements of insurance or reinsurance or (ii) any liability arising from the willful misconduct or gross negligence of the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties; provided, however, that the Lessee shall in any event indemnify and hold harmless the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties and other indemnified parties for that part of any such liability to which the Lessee has contributed. Without limiting any of the foregoing provisions of this Section 13, to the extent that the Lessee in fact indemnifies the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or such other party under this indemnity provision, the Lessee shall be subrogated to the rights of the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties and such other party in the affected transaction and shall have a right to determine the settlement of claims with respect to such transaction, provided that any such rights to which the Lessee shall be subrogated shall be subordinate and subject in right of payment to the prior payment in full of all liabilities to the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties of the person or entity in respect of which such rights exist. The Lessor shall claim, on a timely basis, any refund to which it may be entitled with respect to any fees or taxes for which the Lessor has sought indemnification from the Lessee under Section 13(d), shall take all steps necessary to prosecute diligently such claim and shall pay over to the Lessee any refund (together with any interest received thereon) recovered by the Lessor with respect to such fees or taxes as soon as practicable following receipt thereof, provided that the Lessee shall have previously indemnified the Lessor with respect to 20 such fees or taxes. The Owner Trustee, U.S. Trust and the Secured Parties, at the expense of the Lessee, (i) shall cooperate with the Lessee in such manner as the Lessee shall reasonably request in order to claim, on a timely basis, any refund to which the Owner Trustee, U.S. Trust or the Secured Parties may be entitled with respect to any fees or taxes for which the Lessee has indemnified the Owner Trustee, U.S. Trust or any Secured Party or for which the Lessee has an obligation to indemnify the Owner Trustee, U.S. Trust or the Secured Parties under Section 13(d) (provided that the Lessee is not in default of such obligation) if such cooperation is necessary in order to claim such refund, (ii) shall take all steps which the Lessee shall reasonably request which are necessary to prosecute such claim, and (iii) shall pay over to the Lessee any refund (together with any interest received thereon) recovered by the Owner Trustee, U.S. Trust or any Secured Party with respect to such fees or taxes as soon as practicable following receipt thereof, provided that the Lessee shall have previously indemnified the Owner Trustee, U.S. Trust or such Secured Party with respect to such fees or taxes. All rights and indemnification obligations under this Section 13, and each other indemnification obligation in favor of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties under this Agreement, shall survive any termination of this Lease Agreement or of the lease of any Nuclear Material hereunder. 14. Casualty and Other Events. Upon the occurrence of any one or more of the following events: (a) the loss, destruction or damage beyond repair of any Nuclear Material, or (b) the commandeering, condemnation, attachment or loss of use to the Lessee of any Nuclear Material by reason of the act of any third party or governmental instrumentality or the deprivation or loss of use to the Lessee of any Nuclear Material for any other reason, other than by reason of a Lease Event of Default, for a period exceeding ninety (90) days; or (c) a determination by the Lessee in its sole discretion that any Nuclear Material is no longer useful to the Lessee, provided, however, that (i) no Lease Event of Default has occurred and is continuing, and (ii) no such determination may be made by the Lessee with respect to any Nuclear Material prior to November 5, 1999; Then, in any such case, the Lessee promptly shall give written notice to the Lessor and the Secured Parties of any such event, and upon the earlier of (i) ten (10) days following receipt of any insurance or other proceeds paid with respect to the foregoing or (ii) one hundred and twenty (120) days after the 21 occurrence of any such event, the Lessee shall pay to the Lessor an amount equal to the then Stipulated Casualty Value of such Nuclear Material, together with any Basic Rent and Additional Rent then due with respect to such Nuclear Material. The lease of such Nuclear Material hereunder and the obligation of the Lessee to pay Basic Rent and Additional Rent with respect to such Nuclear Material shall continue until the day on which the Lessor receives payment of such Stipulated Casualty Value, Basic Rent and Additional Rent. Upon the giving of written notice of the occurrence of such an event, the Lessee shall promptly use its best efforts to sell, or, if no sale is possible, to otherwise convey, on behalf of the Lessor, ownership of such Nuclear Material to a third party not disqualified by any applicable statute, law, regulation or agreement from acquiring such Nuclear Material, and the Lessor shall furnish title papers as may be necessary to effect such sale or conveyance on an as-is, where-is, non-installment, cash sale basis without recourse to or warranty or agreement of any kind by the Lessor. Any such sale or conveyance shall be effected on or before the date one hundred and twenty (120) days after the date of the occurrence of such event. The proceeds of such sale or conveyance shall be paid to the Lessor, and any amount so paid shall constitute a credit against the amount of the Stipulated Casualty Value payable by the Lessee under this Section 14. 15. Nuclear Material to Remain Personal Property. It is expressly understood and agreed that the Nuclear Material shall be and remain personal property notwithstanding the manner in which it may be attached or affixed to realty and notwithstanding any law or custom or the provisions of any lease, mortgage or other instrument applicable to any such realty. The Lessee agrees to indemnify the Lessor and the Secured Parties against, and to hold the Lessor and the Secured Parties harmless from, all losses, costs and expenses (including reasonable attorneys' fees and expenses) resulting from any of the Nuclear Material becoming part of any realty. Upon termination of the lease of any Nuclear Material, any costs of removal, transportation, storage and delivery of such Nuclear Material shall be paid by the Lessee. The Lessor and the Secured Parties shall not be liable for any physical damage caused to any realty or any building by reason of the removal of the Nuclear Material therefrom. 16. Events of Default. Each of the following events of default by the Lessee shall constitute a "Lease Event of Default" and give rise to the rights on the part of the Lessor described in Section 17 hereof: (i) Default in the payment of Basic Rent or Additional Rent, if any, on the date on which such payment is due and the continuance of such default for five (5) days; 22 (ii) Default in the payment of Termination Rent; (iii) The Lessee shall fail to maintain liability and casualty insurance pursuant to its obligations under Section 12(a) of this Lease Agreement; (iv) The Lessee shall fail to perform its obligations to purchase Nuclear Material pursuant to Section 8(e) of this Lease Agreement; (v) Any representation or warranty or statement made by the Lessee (or any of its officers) herein or in connection with this Lease Agreement shall prove to be incorrect or misleading in any material respect when made; (vi) Default in the payment or performance of any other material liability or obligation or covenant of the Lessee to the Lessor, and the continuance of such default for thirty (30) days after written notice to the Lessee sent by registered or certified mail; (vii) The Lessee suspends or discontinues its business operations or becomes insolvent (however such insolvency may be evidenced) or admits insolvency or bankruptcy or its inability to pay its debts as they mature, makes an assignment for the benefit of creditors or applies for or consents to the appointment of a trustee or receiver for the Lessee or for the major part of its property; (viii) The institution of bankruptcy, reorganization, liquidation or receivership proceedings for relief under any bankruptcy law or similar law for the relief of debtors by or against the Lessee and, if instituted against the Lessee, its consent thereto or the pendency of such proceedings for sixty (60) days; (ix) An event of default (the effect of which is to permit the holder or holders of any instrument, or the trustee or agent on behalf of such holder or holders, to cause the indebtedness evidenced by such instrument to become due prior to its stated maturity) shall occur under the provisions of any instrument evidencing indebtedness for borrowed money of the Lessee in a principal amount equal to at least $20,000,000 or if any obligation of the Lessee for the payment of such indebtedness shall become or be declared to be due and payable prior to its stated maturity, or shall not be paid 23 when due and is not paid within the applicable cure period, if any, provided for the payment of such indebtedness under such instrument; (x) An event of default shall occur under the provisions of any Basic Document and such default shall have continued beyond any applicable cure period. (xi) A final judgment in an amount in excess of $20,000,000 is rendered against the Lessee, and within thirty (30) days after the entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within thirty (30) days after the expiration of any such stay, such judgment is not discharged; or (xii) Other than pursuant to a condemnation proceeding, any court, governmental officer or agency shall, under color of legal authority, take and hold possession of any substantial part of the property or assets of the Lessee. 17. Rights of the Lessor Upon Default of the Lessee. Upon the occurrence of any Lease Event of Default, the Lessor may, in its discretion, and shall, at the direction of the Secured Parties, do one or more of the following: (a) Terminate the lease term of any or all Nuclear Material upon five (5) days written notice to the Lessee sent by registered or certified mail; (b) Whether or not any lease of any Nuclear Material is terminated, and, subject to any applicable law or regulation, take immediate possession of any or all Nuclear Material or cause such Nuclear Material to be taken from the possession of the Lessee, and/or take immediate possession of and remove other property of the Lessor in the possession of the Lessee, wherever situated and for such purpose enter upon any premises without liability for so doing or require the Lessee, at the Lessee's expense, to deliver the Nuclear Material, properly containerized and insulated for shipping to the Lessor or to such other person as the Lessor may designate, in which case the risk of loss shall be upon the Lessee until such delivery is made; (c) Whether or not any action has been taken under (a) or (b) above, and subject to any applicable law or regulation, sell any Nuclear Material (with or without the concurrence and whether or not at the request of the Lessee) at public or private sale, and the Lessee shall be liable for and shall promptly pay to the Lessor all unpaid Rent to the date of receipt by the Lessor of 24 the proceeds of such sale plus any deficiency between the net proceeds of such sale and the Stipulated Casualty Value of such Nuclear Material at the time of such payment by the Lessee; provided, however, that any proceeds of such sale in excess of the sum of such unpaid Rent, the Stipulated Casualty Value of such Nuclear Material and all other amounts payable by the Lessee under this Section 17 shall be received for the benefit of, and shall be paid over to the Lessee, as soon as practicable after receipt thereof; (d) Subject to any applicable law or regulation, sell in a commercially reasonable manner, dispose of, hold, use, operate, remove, lease or keep idle any Nuclear Material as the Lessor in its sole discretion may determine, without any obligation to account to the Lessee with respect to such action or inaction or for any proceeds thereof, except that the net proceeds of any such selling, disposing of, holding, using, operating or leasing shall be credited by the Lessor against any Rent accruing after the Lessor shall have declared this Lease Agreement as to any or all of the Nuclear Material to be in default pursuant to this Section; provided, however, that any net proceeds of any such selling, disposing of, holding, using, operating or leasing in excess of the sum of any such accrued Rent and all other amounts payable by the Lessee under this Section 17 shall be received for the benefit of, and shall be paid over to the Lessee, as soon as practicable after receipt thereof; (e) Terminate this Lease Agreement as to any or all of the Nuclear Material or exercise any other right or remedy which may be available under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof. If the Lessee fails to deliver, promptly after written request, the Nuclear Material pursuant to (b), above, subject to reasonable wear and tear, obsolescence and exhaustion, in good operating condition and repair, or converts or destroys any Nuclear Material, the Lessee shall be liable to the Lessor for all Rent then due and payable on the Nuclear Material, all other amounts then due and payable under this Lease Agreement, the then Stipulated Casualty Value of such Nuclear Material, plus any loss, damage and expense (including without limitation reasonable attorneys' fees and expenses) sustained by the Lessor by reason of such Lease Event of Default and the exercise of the Lessor's remedies with respect thereto, including any costs incurred under the Credit Agreement and the Security Agreement, and any other amounts owed to the Secured Parties with respect to the Notes. If, upon the occurrence of a Lease Event of Default, the Lessee delivers Nuclear Material to the Lessor or to such other person as the Lessor may designate, or if the Lessor repossesses or causes Nuclear Material to be repossessed on its behalf, the Lessee 25 shall be liable for and the Lessor may recover from the Lessee all Rent on the Nuclear Material due and payable to the date of such delivery or repossession, all other amounts due and payable under this Lease Agreement, plus any loss, damage and expense (including without limitation reasonable attorneys' fees and expenses) sustained by the Lessor by reason of such Lease Event of Default and the exercise of the Lessor's remedies with respect thereto. No remedy referred to in this Section 17 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to the Lessor at law or in equity and the exercise in whole or in part by the Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by the Lessor of any or all such other remedies. No waiver by the Lessor of any Lease Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Lease Event of Default. 18. Termination After Certain Events. (a) This Lease Agreement may terminate as provided in Section 18(b) below prior to the expiration of its term in connection with any of the following "Terminating Events": (i) The Lessor shall have given notice that the Lessor is not satisfied with any change in the insurers, coverage, amount or terms of any insurance policy or indemnity agreement required to be obtained and maintained by the Lessee pursuant to Section 12; (ii) There shall occur the revocation or material adverse modification of any authorization, consent, exemption or approval theretofore obtained from any regulatory body or governmental authority necessary for the carrying out of the intent and purposes of this Lease Agreement or the actions or transactions contemplated hereby, and the effectiveness of any such revocation or material adverse modification shall not be stayed pending any appeal thereof; (iii) A Nuclear Incident involving or connected in any way with the Nuclear Material shall have occurred, and the Lessor shall have given notice to the Lessee that the Lessor believes such Nuclear Incident may give rise to an aggregate liability, or to damage, destruction or personal injury in excess of $20,000,000; (iv) There shall have occurred a Deemed Loss Event; 26 (v) Any change in, or new interpretation by a governmental authority having jurisdiction relating to, the Price-Anderson Act, as amended, or the Atomic Energy Act, or the regulations of the Nuclear Regulatory Commission thereunder, in each case as in effect on the date of this Lease Agreement, shall have been adopted, and the Lessor shall have given notice to the Lessee that, in the opinion of independent counsel selected by the Lessor and reasonably satisfactory to the Lessee and the Secured Parties as a result of such change or new interpretation the Lessor is prohibited from asserting any material right, protection or defense available under applicable law as of the date of this Lease Agreement with respect to civil or criminal actions brought in connection with a Nuclear Incident; (vi) Any law or regulation or interpretation (judicial, regulatory or otherwise) of any law or regulation shall be adopted or enforced by any Court or governmental authority, and as a result of such adoption or enforcement, approval of the transactions contemplated by this Lease Agreement shall be required and shall not have been obtained within any applicable grace period after such adoption or enforcement or as a result of which adoption or enforcement this Lease Agreement or any transaction contemplated hereby, including any payments to be made by the Lessee or the ownership of the Nuclear Material by the Lessor, shall be or become unlawful, or the performance of this Lease Agreement shall be rendered impracticable in any material way; or (vii) Any governmental licenses, approvals or consents with respect to the Generating Facility, without which the Generating Facility cannot continue to operate, shall have been revoked and the Lessee shall not have, in good faith, within one hundred and eighty (180) days of such revocation, represented in writing to the Lessor that the Lessee has made a good faith determination that such Generating Facility will return to operation within twenty-four (24) months of such revocation, or for any other reason the Generating Facility shall cease to be operated for a period of twenty-four (24) consecutive months. (b) Upon the happening of any of the Terminating Events listed in Section 18(a), Lessor and/or the Secured Parties may, at their option, terminate this Lease Agreement, such termination to be effective upon delivery of the Notice contemplated by paragraph (d)(ii) below, except with respect to obligations and liabilities of the Lessee, actual or contingent, which arose under the Lease Agreement on or prior to the date of 27 termination and except for the Lessee's obligations set forth in Sections 10, 12 and 13, and in this Section 18, all of which obligations will continue until the delivery of documentation by the Lessor and the payment by the Lessee provided for below, and except that after such delivery and payment, the Lessee's obligations under Section 13 shall continue as therein set forth as shall all of Lessee's indemnification obligations set forth in other sections of this Lease Agreement. (c) Upon any such termination, the entire interest of the Lessor in the Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee shall automatically transfer to and be vested in the Lessee, without the necessity of any action by either the Lessor or the Lessee, provided, however, that if the Lessor shall have theretofore approved in writing such Person and the terms of such transfer, the entire interest of the Lessor in such Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee shall, upon such termination, automatically transfer to and be vested in any Person designated by the Lessee. (d) (i) Promptly after either party shall learn of the happening of any Terminating Event, such party shall give notice of the same to the other party and to the Secured Parties. (ii) If the Lessor and/or Secured Parties elect to terminate the Lease Agreement, they shall give notice to the Lessee and the Secured Parties or the Lessor, as the case may be, which notice shall (x) acknowledge that the Lease Agreement has terminated, subject to the continuing obligations of the Lessee mentioned above, and that title to and ownership of such Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee has transferred to and vested in the Lessee or such other Person, and (y) specify a Termination Settlement Date occurring one hundred and fifty (150) days after the giving of such notice. After such termination of this Lease Agreement and until such Termination Settlement Date, the Lessee shall continue to pay Basic Rent and Additional Rent. On such Termination Settlement Date, the Lessee shall be obligated to pay to the Lessor as the purchase price for the Nuclear Material an amount equal to the sum of (x) Stipulated Casualty Value of the Nuclear Material as of the Termination Settlement Date and (y) the Termination Rent on the Termination Settlement Date. The Lessor shall be obligated to deliver to the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, on an as-is, where-is, non-installment, cash sale basis, without recourse to or warranty or agreement of any kind 28 by the Lessor acknowledging the transfer and vesting of title and ownership of the Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee, in accordance with paragraph (c) above and confirming that upon payment by the Lessee of the amounts set forth in the immediately preceding sentence, the Nuclear Material is free and clear of the Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. 19. Investment Tax Credit. To the extent that the Lessee determines the Nuclear Material is or becomes eligible for any investment or similar credit under the Code as now or hereafter in effect, the Lessee shall request in writing that the Lessor elect to treat the Lessee as having acquired such Nuclear Material, and, if permitted to do so under the Code and under any other applicable law, rule or regulation, the Lessor, pursuant to such request of the Lessee, shall provide the Lessee with an appropriate investment credit election and the Lessee shall consent to such election. A condition to the Lessor's making such election will be the provision by the Lessee of a report or statement with respect to all Nuclear Material as to which the investment credit election is applicable. Such report or statement shall contain such information and be in such form as may be required for Internal Revenue Service reporting purposes. The Lessee shall indemnify and hold harmless the Lessor and any affiliates with respect to any adverse tax consequence, other than the loss of the credit, which may result from such election including, but not limited to, any increase in the Lessor's income taxes due to any required reduction of the Lessor's tax basis below the Lessor's cost of the Nuclear Material, and the Lessee agrees to pay to or on behalf of the Lessor, or otherwise make available to the Lessor, funds sufficient to put the Lessor in the same after-tax position (other than by reason of the loss of the investment credit) the Lessor would have been in if such election had not been made. 29 20. Certificates; Information; Financial Statements. (a) The Lessee will from time to time deliver to the Lessor and the Secured Parties, promptly upon reasonable request (i) a statement executed by any Vice President, Treasurer or Assistant Treasurer or any other assistant officer of the Lessee, certifying the dates to which the sums payable hereunder have been paid, that this Lease Agreement is unmodified and in full effect (or, if there have been modifications, that this Lease Agreement is in full effect as modified, and identifying such modifications) and that no Lease Event of Default or Terminating Event has occurred and is continuing (or specifying the nature and period of existence of any thereof and what action the Lessee is taking or proposes to take with respect thereto), (ii) such information with respect to the Nuclear Material as the Lessor or the Secured Parties may reasonably request, and (iii) such information with respect to the Lessee's operations, business, property, assets, financial condition or litigation as the Lessor or any assignee of the Lessor or the Secured Parties may reasonably request. (b) The Lessee will deliver to the Lessor and the Secured Parties: (i) Quarterly Financial Statements. As soon as practicable and in any event within ninety (90) days after the end of each fiscal quarter (other than the last fiscal quarter in each fiscal year), three (3) copies of a balance sheet of the Lessee (consolidated and consolidating if the Lessee has any subsidiaries) as of the end of such quarter and of statements of income and cash flows of the Lessee (consolidated and consolidating if the Lessee has any subsidiaries) for such quarter, setting forth in each case corresponding figures in comparative form for the corresponding period of the preceding fiscal year, each certified as true and correct by the chief accounting officer thereof; provided, however, that delivery pursuant to clause (iii) below of copies of the Lessee's Quarterly Report on Form 10-Q for such quarter containing such financial statements filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i); (ii) Annual Financial Statements. As soon as practicable and in any event within one hundred and twenty (120) days after the end of each fiscal year, three (3) copies of an annual report of the Lessee consisting of its financial statements, including a balance sheet as of the end of such fiscal year (consolidated and consolidating if the Lessee has 30 any subsidiaries) and statements of income and cash flows for the year then ended (consolidated and consolidating if the Lessee has any subsidiaries), setting forth corresponding figures in comparative form for the preceding fiscal year, with all notes thereto, all in reasonable detail and certified by independent public accountants of recognized standing selected by the Lessee (only with respect to the consolidated financial statements, if applicable); provided, however, that delivery pursuant to clause (iii) below of copies of the Lessee's Annual Report on Form 10-K for such fiscal year containing such financial statements filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii); and (iii) SEC Reports, etc. With reasonable promptness, copies of all notices, reports or materials filed by the Lessee with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission) under the Securities Act of 1933, as amended, other than Registration Statements on Form S-8 or any amendments thereto, or the Securities Exchange Act of 1934, as amended, other than Annual Reports on Form 10-K, and including without limitation, all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Together with each delivery of financial statements required by clause (b)(i) above, the Lessee will deliver to the Lessor and the Secured Parties an Officer's Certificate stating that the Lessee is in compliance with the terms of this Lease Agreement and stating that there exists no Lease Event of Default, or Terminating Event or, if any Lease Event of Default, or Terminating Event exists, specifying the nature and period of existence thereof and what action the Lessee proposes to take with respect thereto. The Lessee also covenants that promptly upon the obtaining of knowledge of a Lease Event of Default by the chief executive officer, principal financial officer or principal accounting officer of the Lessee, it will deliver to the Lessor and the Secured Parties an Officer's Certificate specifying the nature and period of existence thereof and what action the Lessee proposes to take with respect thereto. 21. Obligation of the Lessee to Pay Rent. The Lessee's obligation to pay, as the same becomes due, Basic Rent, Additional Rent, Termination Rent, and all other amounts payable hereunder shall, subject to the covenant of the Lessor contained in Section 3 hereof, be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense or other right which the Lessee 31 may have against the Lessor or anyone else for any reason whatsoever, (ii) any defect in the title, compliance with specifications, condition, design, operation or fitness for use of, or any damage to or loss or destruction of, any Nuclear Material, or (iii) any interruption or cessation in the use or possession of any Nuclear Material by the Lessee for any reason whatsoever. The Lessee hereby waives, to the extent permitted by applicable law, any and all rights which it may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender this Lease Agreement except in accordance with its express terms. Each payment of Rent and each other payment made by the Lessee shall be final, and the Lessee will not seek to recover all or any part of such payment from the Lessor for any reason whatsoever. 22. Miscellaneous. (a) Successors and Assigns. This Lease Agreement shall be binding upon the Lessee and the Lessor and their respective successors and assigns and shall inure to the benefit of the Lessee and the Lessor and their respective successors and assigns.; provided that, without the prior written consent of all the Secured Parties, the Lessee shall not be entitled to assign its rights or obligations hereunder. (b) Waiver. Neither party shall by act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder unless such waiver is given in writing. A waiver on one occasion shall not be construed as a waiver on any other occasion. (c) Entire Agreement. This Lease Agreement, together with the written instruments provided for or contemplated hereby, the other Basic Documents and other written agreements between the parties dated as of the date hereof, constitute the entire agreement between the parties with respect to the leasing of Nuclear Material, and no representations, warranties, promises, guaranties or agreements, oral or written, express or implied, have been made by either party or by any one else with respect to this Lease Agreement or the Nuclear Material, except as may be expressly provided for herein or therein. Any change or modification of this Lease Agreement must be in writing and duly executed by the parties. (d) Descriptive Headings. The captions in this Lease Agreement are for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions. 32 (e) Severability. Any provision of this Lease Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. (f) Governing Law. This Lease Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the law of the Commonwealth of Pennsylvania. 33 IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease Agreement to be executed and delivered by their duly authorized officers as of the day and year first above written. TMI-1 FUEL CORP. Lessor ATTEST By: - ----------------------- -------------------------------- (Assistant) Secretary Name: -------------------------------- Title: -------------------------------- METROPOLITAN EDISON COMPANY Lessee ATTEST By: - ----------------------- -------------------------------- (Assistant) Secretary Name: -------------------------------- Title: -------------------------------- 34 STATE OF ) --------------------- COUNTY OF ) SS: -------------- On this --- day of ----------, 1998, before me personally appeared , to me personally known, who, being by me duly sworn, says that he is of TMI-1 Fuel Corp. and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. -------------------------------- Notary Public My commission Expires: STATE OF ) --------------------- COUNTY OF ) SS: -------------- On this --- day of -----------, 1998, before me personally appeared - --------------, to me personally known, who, being by me duly sworn, says that he is a --------------- of Metropolitan Edison Company and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. --------------------------------- Notary Public My commission Expires: 35 ATTACHMENTS Appendix A -- Definitions Exhibit A -- Form of Interim Leasing Record Exhibit B -- Form of Final Leasing Record Exhibit C -- Nuclear Material Contracts Exhibit D -- Form of Assignment Agreement and Consent Exhibit E -- Form of Lessor's Bill of Sale Exhibit F -- Form of Rent Due and SCV Confirmation Schedule 36 APPENDIX A DEFINITIONS As used in the Basic Documents (as defined below), the following terms shall have the following meanings (such definitions to be applicable to both singular and plural forms of the terms defined), except as otherwise specifically defined therein: "Acquisition Cost" means the purchase price of any Nuclear Material, any progress payments made thereon, costs of milling, conversion, enrichment, fabrication, installation, delivery, redelivery, containerization, storage, reprocessing, any other costs incurred by the Company in acquiring the Nuclear Material (less any discounts or credits actually utilized by the Company), plus in any case (i) any allowance for funds used during construction (including any income tax component associated with such allowance) with respect to Nuclear Material purchased by the Company, (ii) at the option of the Lessee, any Rent relating to costs incurred in the ordinary course of operations but excluding Rent relating to extraordinary costs, including without limitation, indemnification payments, payable by the lessee to the Company with respect to any Nuclear Material prior to the installation of such Nuclear Material for operation in the Generating Facility, (iii) any sales, excise or other taxes or charges payable by the Company with respect to any such payment for such Nuclear Material, (iv) at the option of the Lessee, any Monthly Financing Charge payable by the Lessee to the Company with respect to Nuclear Material during any period in which such Nuclear Material is subject to an Interim Leasing Record, but excluding any interest charges or penalties for late payment by the Company of the purchase price or any portion thereof, if such late payment results from the negligence of the Company, (v) such other costs with respect to any Nuclear Material as may be agreed by the Company and the Lessee and approved by the Administrative Agent, in each case in writing, and, in the case of any Nuclear Material removed from the Generating Facility for the purpose of "cooling off' and repair or reprocessing, shall include the Stipulated Casualty Value thereof at the time of such removal, if any, and (vi) at the option of the Lessee, any Financing Costs. Any amount realized by the Company from the disposition of the by-products (including, but not limited to, plutonium) of Nuclear Material specified in a Leasing Record during the repair or reprocessing of such Nuclear Material while leased hereunder shall be credited against the Acquisition Cost of such Nuclear Material. "Additional Rent" shall mean all legal, accounting, administrative and other operating expenses and taxes incurred by the Company to the extent not paid as part of Basic Rent (including, without limitation, any Cancellation Fees and all other 37 liabilities incurred or owed by the Company pursuant to the Basic Documents) and all amounts (other than Basic Rent) that the Lessee agrees to pay under the Lease Agreement (including, without limitation, indemnification payable under the Lease Agreement, general and administrative expenses of the Company, and, to the extent not included in Acquisition Cost, Financing Costs) and interest at the rate incurred by the Company or any Secured Party as a result of any delay in payment by the Lessee to meet obligations that would have been satisfied out of prompt payment by the Lessee, and the amount of any and all other costs, losses, damages, interest, taxes, deficiencies, liabilities, obligations, actions, judgments, suits, claims, fees (including, without limitation, attorneys' fees and disbursements) and expenses, of every kind, nature, character and description, direct or indirect, that may be imposed on or incurred by the Company as a result of, arising from or relating to, in any manner whatsoever, one or more Basic Documents, or any other document referred to therein, or the transactions contemplated thereby or the enforcement thereof. For purposes of calculating the interest incurred by the Company or any Secured Party as a result of any such delay, it shall be assumed that the Company or any Secured Party, as applicable, incurred interest at the Credit Agreement Default Rate. "Administrative Agent" shall have the meaning specified therefor in the first paragraph of the Credit Agreement. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person. For purposes of this definition, the term "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Aggregate Monthly Rent Component" shall mean the sum of the Monthly Rent Components for all items of Nuclear Material which are installed in the Generating Facility during the relevant period. "Assigned Agreement" means a Nuclear Material Contract which has been assigned to the Company in the manner specified in Section 5 of the Lease Agreement pursuant to a duly executed and delivered Assignment Agreement. The term Assigned Agreement shall include a Partially Assigned Agreement. "Assignment Agreement" means an assignment agreement substantially in the form of Exhibit D to the Lease Agreement. 38 "Atomic Energy Act" means the Atomic Energy Act of 1954, as from time to time amended. "Banks" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Basic Documents" means the Lease Agreement, the Credit Agreement, the Security Agreement, the Commercial Paper, the Notes, the Letter Agreement, the Dealer Agreements, the Assigned Agreements, the Assignment Agreements, the Trust Agreement, the Depositary Agreement, each Bill of Sale, each Leasing Record, each SCV Confirmation Schedule, and other agreements related or incidental thereto which are identified in writing by the Company, the Lessee and the Secured Parties as one of the "Basic Documents," in each case, as such documents may be amended from time to time. "Basic Rent" means, for any Basic Rent Period, the sum of (a) that portion of the Monthly Financing Charge not allocated to Acquisition Cost pursuant to the Lease Agreement plus (b) the Aggregate Monthly Rent Component as shown on a Rent Due and SCV Confirmation Schedule for such Basic Rent Period. "Basic Rent Payment Date" means, for any Basic Rent Period, the first Business Day of the next succeeding calendar month following such Basic Rent Period. "Basic Rent Period" means each calendar month or portion thereof commencing on, in the case of the first such period, the effective date of the Lease Agreement, and in the case of each succeeding period, the first day following the immediately preceding Basic Rent Period, and ending on the earliest of (i) the last day of any calendar month or (ii) the Termination Settlement Date. "BTU Charge" means the dollar amount set forth in the BTU Charge Agreement which is used to calculate the Monthly Rent Component. The BTU Charge initially set forth for any Nuclear Material in any Final Leasing Record shall be the amount agreed upon by the Lessor and the Lessee as set forth in Attachment 1 to Exhibit B to the Lease Agreement based upon the reasonably anticipated operating life, BTU output, and utilization of such Nuclear Material. "BTU Charge Agreement" shall mean an agreement in the form of Attachment 1 to Exhibit B to the Lease Agreement with respect to any Nuclear Material executed by the Lessor and the Lessee on or prior to the date of the Final Leasing Record covering such Nuclear Material. 39 "Business Day" means any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in New York City are authorized by law to close. "Capitalized Lease" means any and all lease obligations which are or should be capitalized on the balance sheet of the Person in question in accordance with generally accepted accounting principles and Statement No. 13 of the Financial Accounting Standards Board or any successor to such pronouncement regarding lease accounting, without regard for the accounting treatment permitted or required under any applicable state or federal public utility regulatory accounting system, unless such treatment controls the determination of the generally accepted accounting principles applicable to such Person. "Cash Collateral" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Closing," means November 5, 1998. "Code" means the Internal Revenue Code of 1986, as from time to time amended. "Collateral" has the meaning set forth in the granting clauses of the Security Agreement and includes all property of the Company described in the Security Agreement as comprising part of the Collateral. "Collateral Agent" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Collateral Agreements" means, collectively, the Security Agreement, all Assignment Agreements, and any other assignment, security agreement or instrument executed and delivered to the Secured Parties hereafter relating to property of the Company which is security for the Notes. "Collected Funds" means funds which are immediately available to the Secured Parties, as the Lessor's assignees, for its use in New York, New York. "Commercial Paper" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Commercial Paper Discount" shall mean, at any time, amounts payable by the Company in respect of the Face Amount of Commercial Paper outstanding in excess of the Acquisition Cost together with any Cash Collateral reduced by the aggregate total 40 amount, if any, of (i) the Monthly Rent Components paid by the Lessee to the Lessor with respect to the Nuclear Material financed thereby and (ii) any Monthly Financing Charge payable by the Lessee to the Company with respect to Nuclear Material during any period in which such Nuclear Material is subject to an Interim Leasing Record ("Excess Face Amount"); provided, however, that any such Excess Face Amount shall not exceed the additional Face Amount of Commercial Paper necessary to be issued by the Company at a discount to face value to purchasers thereof in the commercial paper market in order to obtain proceeds in an amount equal to the Acquisition Cost reduced by the aggregate total amount, if any, of (a) the Monthly Rent Components paid by the Lessee to the Lessor with respect to the Nuclear Material financed thereby and (b) any Monthly Financing Charge payable by the Lessee to the Company with respect to Nuclear Material during any period in which such Nuclear Material is subject to an Interim Lease Record, together with any Cash Collateral. Amounts payable in respect of Commercial Paper Discount during any calendar month or portion thereof shall be paid on the first Business Day of the next succeeding month in which such amounts are incurred. "Company" means the TMI-1 Fuel Corp., a Delaware corporation. "Consents and Agreements" means the agreements, each substantially in the form attached as Exhibit 2 to Exhibit D to the Lease Agreement, between the Lessee and the various contractors under the Nuclear Material Contracts, with such changes to Exhibit 2 to Exhibit D as the Secured Parties may consent to in writing, which consent shall not be unreasonably withheld. "Controlled Group" means a controlled group of corporations of which the Company is a member within the meaning of Section 414(b) of the Code, any group of corporations or entities under common control with the Company within the meaning of Section 414(c) of the Code or any affiliated service group of which the Company is a member within the meaning of Section 414(m) of the Code. "Credit Agreement" means the Credit Agreement dated as of November 5, 1998 among TMI-1 Fuel Corp. The First National Bank of Chicago, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, the Banks parties thereto, and First Chicago Capital Markets, Inc. and PNC Capital Markets, Inc., as Arrangers. "Credit Agreement Default" means an event which would, with the lapse of time or the giving of notice or both, constitute a Credit Agreement Event of Default. 41 "Credit Agreement Event of Default" means any one or more of the events specified in Section 10.01 of the Credit Agreement. "Dealer Agreements" means any agreement pursuant to which any Person is at any time acting as a Dealer. "Deemed Loss Event" means the following event: if at any time during the term of the Lease Agreement, (A) the Company, by reason solely of the ownership of the Nuclear Material or any part thereof or the lease of the Nuclear Material to the Lessee under the Lease Agreement, or the Company or any Secured Party, by reason solely of any other transaction contemplated by the Lease Agreement or any of the other Basic Documents, shall be deemed, by any governmental authority having jurisdiction, to be, or to be subject to regulation as an "electric utility" or a "public utility" or a "public utility holding company" or similar type of entity, under any applicable law or deemed a "public utility company" or a "subsidiary company" or a "holding company" within the meaning of the Public Utility Holding Company Act, (B) the Public Utility Holding Company Act shall be amended, applied, or interpreted in a manner, or any rules or regulations shall be adopted under the Public Utility Holding Company Act of 1935, which adversely affect the legality, validity and enforceability of the lease obligations of the Company and the Lessee under the Lease Agreement, or (C) either the Company or any of the Secured Parties, by reason solely of being a party to the Basic Documents, shall be required to obtain any consent, order or approval of, or to make any filing or registration with, or to give any notice to, any governmental authority, or be subject to any liabilities, duties or obligations under the Public Utility Holding Company Act, other than the filing by the Company of a certificate on Form U-7D with the SEC pursuant to SEC Rule 7(d) under the Public Utility Holding Company Act (17 C.F.R. Section 250.7(d)), except in any case if the same shall be solely the result of Nonburdensome Regulation; provided, however, that if in compliance with applicable laws, the Lessee, with the cooperation of the Company, shall have acted diligently and in good faith to contest, or obtain an exemption from the application of the laws, rules or regulations described in clauses (A), (B) or (C) to the Company, the Secured Parties or the Lessee, as the case may be, the application of which would otherwise constitute a Deemed Loss Event, such Deemed Loss Event shall be deemed not to have occurred so long as (I) the Lessee shall have furnished to the Company and the Secured Parties an opinion of counsel reasonably satisfactory to the Company and the Secured Parties to the effect that there exists a reasonable basis for such contest or exemption and that the application of such laws, rules or regulations to the 42 Company, the Secured Parties or the Lessee, as the case may be, shall be effectively stayed during the application for exemption or contest and such laws, rules or regulations shall not be applied retroactively at the conclusion of such contest, (II) the Company or the Secured Parties shall have determined in their sole discretion that such contest or exemption shall not adversely affect their business or involve any danger of the sale, foreclosure or loss of, or creation of a Lien upon, the Collateral, and (III) the Lessee shall have agreed to indemnify the Company or such Secured Parties, as the case may be, for expenses incurred in connection with such contest or exemption; and further provided, that following notice from the Lessee to the Company or the Secured Parties, as the case may be, that the Lessee shall be unable to furnish the opinion described in clause (I) of the next preceding proviso or that any such contest shall not be successful or such exemption shall not be available, a Deemed Loss Event shall be deemed not to have occurred for such period, not to exceed 270 days, as may be approved by any governmental authority having jurisdiction during which application of such law, rule or regulation to the Company, the Secured Parties or the Lessee, as the case may be, shall be suspended to enable the Company to assign or transfer its interest in the Collateral so long as during such period the Company shall use reasonable efforts to assign or transfer its interest in the Collateral upon commercially reasonable terms and conditions, provided that the Company shall not be required to assign or transfer the Nuclear Material for a price which, after deduction of sales tax and expenses of such sale incurred by the Company, shall be less than the sum of (A) Stipulated Casualty Value determined as of the date of such proposed sale, and (B) the Termination Rent determined in accordance with Section 18 of the Lease Agreement. "Depositary Agreement" means the Depositary Agreement, dated as of November 5, 1998, among the Company, Chase Manhattan Bank, as Depositary and The First National Bank of Chicago, as Administrative Agent. "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. "Excepted Payments" means any indemnity, expense, or other payment which by the terms of any of the Basic Documents shall be payable to the Company in order for the Company to satisfy its obligations pursuant to Section 7.8 of the Trust Agreement. "Face Amount" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. 43 "Federal Energy Regulatory Commission" means the independent regulatory commission of the Department of Energy of the United States Government existing under the authority of the Department of Energy Organization Act, as amended, or any successor organization or organizations performing any identical or substantially identical licensing and related regulatory functions. "Federal Power Act" means the Federal Power Act, as amended. "Final Leasing Record" means a Leasing Record which records the leasing of Nuclear Material during any period while such Nuclear Material is installed for operation in the Generating Facility. A Final Leasing Record shall be in the form of Exhibit B to the Lease Agreement. "Financing Costs" means (a) fees and other amounts owing to any Secured Party or to the Owner Trustee under the Trust Agreement, (b) legal fees and disbursements and other amounts referred to in Section 10(b) of the Security Agreement, (c) legal, accounting, and other fees and expenses incurred by the Lessee and/or the Company in connection with the preparation, execution and delivery of Basic Documents or the issuance of the Commercial Paper and/or the Notes, and (d) such other reasonable fees and expenses of the Owner Trustee and the Company as they may be entitled to under the Basic Documents. "Fuel Management" means the design of, contracting for, fixing the price and terms of acquisition of, management, movement, removal, disengagement, storage and other activities in connection with the acquisition, utilization, storage and disposal of the Nuclear Material. "Generating Facility" means the nuclear reactor located at the Three Mile Island Unit 1 Nuclear Generating Station, located in Londonderry Township, Pennsylvania. "Heat Production" means the stage of the Nuclear Material Cycle commencing with the commercial operation of a Generating Facility, during which the Nuclear Material in question is producing thermal energy which results in the production of net positive electrical energy transmitted within the distribution network of any utility and during which the Nuclear Material in question is engaged in the reactor core of such Generating Facility. 44 "Hereof," "herein," "hereunder" and words of similar import when used in a Basic Document refer to such Basic Document as a whole and not to any particular section or provision thereof. "Imposition" means any payment required by a public or governmental authority in respect of any property subject to the Lease Agreement or any transaction pursuant to the Lease Agreement or any right or interest held by virtue of the Lease Agreement; provided, however, that Imposition shall not include any taxes, whether federal, state or local, payable by any Secured Party based on or measured by net income of any Secured Party where taxable income is computed in substantially the same manner as taxable income is computed under the Code. "Insurance Requirements" means all terms of any insurance policy or indemnification agreement covering or applicable to (i) any Nuclear Material or (ii) the Generating Facility or the Lessee in its capacity as licensee of the Generating Facility, in each case insofar as any insurance policy or indemnification agreement directly or indirectly relates to the Nuclear Material or the performance by the Lessee of its obligations under the Basic Documents, and all requirements of the issuer of any such policy or agreement necessary to keep such insurance or agreements in force. "Interim Leasing Record" means a Leasing Record which records the leasing of Nuclear Material (i) prior to installation for operation in the Generating Facility, (ii) after removal from the Generating Facility during the "cooling off" and storage period, and (iii) while being reprocessed. An Interim Leasing Record shall be in the form of Exhibit A to the Lease Agreement. "Investment Company Act" means the Investment Company Act of 1940, as from time to time amended. "Lease Agreement" means the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 between TMI-1 Fuel Corp., as the Lessor, and Metropolitan Edison Company, as the Lessee, as the same may be modified, supplemented or amended from time to time. "Lease Event of Default" has the meaning specified in Section 16 of the Lease Agreement. "Leasing Record" is a form signed by the Lessor and the Lessee to record the leasing under the Lease Agreement of the Nuclear Material specified in such Leasing Record. A Leasing Record shall be either an Interim Leasing Record or a Final Leasing Record. 45 "Legal Requirements" means all applicable provisions of the Atomic Energy Act, all applicable orders, rules, regulations and other requirements of the Nuclear Regulatory Commission and the Federal Energy Regulatory Commission, and all other laws, rules, regulations and orders of any other jurisdiction or regulatory authority relating to (i) the licensing, acquisition, storage, containerization, transportation, blending, transfer, consumption, leasing, insuring, using, operating, disposing, fabricating, channelling and reprocessing of the Nuclear Material, (ii) the Generating Facility or the Lessee in its capacity as licensee of the Generating Facility, in each case insofar as such provisions, orders, rules, regulations, laws and other requirements directly or indirectly relate to the Nuclear Material or the performance by the Lessee of its obligations under the Basic Documents or (iii) the Basic Documents, insofar as any of the foregoing directly or indirectly apply to the Lessee. "Lessee" has the meaning specified in the introduction to the Lease Agreement. "Lessee Representative" means a person at the time designated to act on behalf of the Lessee by a written instrument furnished to the Company and the Secured Parties containing the specimen signature of such person and signed on behalf of the Lessee by any of its officers. The certificate may designate an alternate or alternates. A Lessee Representative may be an employee of the Lessee or of the Owner Trustee. "Lessor" has the meaning specified in the introduction to the Lease Agreement, and its successors and assigns. "Lessor's Bill of Sale" means an instrument substantially in the form of Exhibit E to the Lease Agreement, pursuant to which title to all or any portion of the Nuclear Material is transferred to the Lessee or any designee of the Lessee. "Letter Agreement" means the Lessee's Letter Agreement Regarding TMI-1 Fuel Corp., dated as of November 5, 1998, between the Lessee, the Company, and the Administrative Agent, as it may be amended from time to time. "Lien" means any mortgage, pledge, lien, security interest, title retention, charge or other encumbrance of any nature whatsoever (including any conditional sale or other title retention agreement, any lease in the nature thereof and the filing of or agreement to execute and deliver any financing statement under the Uniform Commercial Code of any jurisdiction). 46 "Loans" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Majority Secured Parties" means at any time the Secured Parties holding at such time more than 66% of the outstanding principal amount of all Secured Obligations. "Manufacturer" means any supplier of Nuclear Material or of any service (including without limitation, enrichment, fabrication, transportation, storage and processing) in connection therewith, or any agent or licensee of any such supplier. "Manufacturer's Consent" means any consent which may be given by a Manufacturer under a Nuclear Material Contract to the assignment by the Lessee to the Company of all or a portion of the Lessee's rights under such Nuclear Material Contract or of all or a portion of any such rights previously assigned by the Lessee to the Secured Parties. "Monthly Debt Service" for any calendar month means the sum of the Monthly Financing Charge for such calendar month. "Monthly Financing Charge" means, for any calendar month or portion thereof, the sum of: (a) all Commercial Paper Discount payable by the Company with respect to Commercial Paper outstanding during such month and/or all interest payable by the Company during such month with respect to all outstanding Notes and in each case, not included in Acquisition Cost; and (b) the amounts paid or due and payable by the Company with respect to the transactions contemplated by the Basic Documents during such calendar month for the following other fees, costs, charges and expenses incurred or owed by the Company under or in connection with the Lease Agreement or the other Basic Documents: (i) legal, printing, reproduction and closing fees and expenses, (ii) auditors', accountants' and attorneys' fees and expenses, (iii) franchise taxes and income taxes, and (iv) any other fees and expenses incurred by the Company under or in respect of the Basic Documents. Any figure used in the computation of any component of the Monthly Financing Charge shall be stated to five decimal places. "Monthly Rent Component" for any Nuclear Material covered by a Final Leasing Record for each calendar month during the lease of such Nuclear Material shall be as follows: 47 (i) for the first partial calendar month the Monthly Rent Component shall be zero; (ii) for the first full calendar month the Monthly Rent Component shall be zero; (iii) for the second full calendar month the Monthly Rent Component shall be zero; (iv) for the third full calendar month the Monthly Rent Component shall be an amount determined by multiplying (x) the amount of thermal energy in millions of British Thermal Units of heat produced by such Nuclear Material during the first calendar month while covered by the Final Leasing Record and also during the first partial calendar month, if any, such Nuclear Material was covered by an Interim or Final Leasing Record and was engaged in Heat Production by (y) the BTU Charge set forth in the Final Leasing Record covering such Nuclear Material; and (v) for each full calendar month after the third full calendar month, the Monthly Rent Component shall be an amount determined by multiplying (x) the amount of thermal energy in millions of British Thermal Units of heat produced by such Nuclear Material during the second preceding month by (y) the BTU Charge set forth in the Final Leasing Record covering such Nuclear Material. The BTU Charge for any Nuclear Material may be revised by the Lessee at any time during the lease thereof to reflect any reasonably anticipated change in its operating life, BTU output, or utilization. Such revision shall be effected by the Lessee's executing and forwarding to the Lessor a revised Final Leasing Record dated the first day of the following month and setting forth such revised BTU Charge. Upon receipt of such revised Final Leasing Record, the Lessor shall execute and return a copy thereof to the Lessee. Such revised BTU Charge shall be applicable to such Nuclear Material for each month thereafter beginning on the date of the revised Final Leasing Record. "Nonburdensome Regulation" means (i) ministerial regulatory requirements that do not impose limitations or regulatory requirements on the business or activities of, or adversely affect, the Company or any Secured Party and that are deemed, in the reasonable discretion of the Company or any Secured Party, not to be burdensome, or (ii) assuming redelivery of the Nuclear Material in accordance with the Lease Agreement, regulation resulting from any possession of the Nuclear Material (or right thereto) on or after the termination of the Lease Agreement. 48 "Notes" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Nuclear Incident" shall have the meaning specified in the Atomic Energy Act, 42 U.S.C. ss.2014(q), as such definition may be amended from time to time. "Nuclear Material" means those items which have been purchased by or on behalf of the Company for which a duly executed Leasing Record has been delivered to the Company and which continue to be subject to the Lease Agreement consisting of (i) the items described in such Leasing Record and each of the components thereof in the respective forms in which such items exist during each stage of the Nuclear Material Cycle, being substances and equipment which, when fabricated and assembled and loaded into a nuclear reactor, are intended to produce heat, together with all attachments, accessories, parts and additions and all improvements and repairs thereto, and all replacements thereof and substitutions therefor and (ii) the substances and materials underlying the right, title and interest of the Lessee under any Nuclear Material Contract assigned to the Company pursuant to the Lease Agreement; provided, however, that the term Nuclear Material shall not include spent fuel. "Nuclear Material Contract" means any contract, as from time to time amended, modified or supplemented, entered into by the Lessee, either in its own name or as agent for the Lessor, with one or more Manufacturers relating to the acquisition of Nuclear Material or any service in connection with the Nuclear Material. "Nuclear Material Cycle" means the various stages in the process, whether physical or chemical, by which the component parts of the Nuclear Material are designed, mined, milled, processed, converted, enriched, fabricated into assemblies utilizable for Heat Production, loaded or installed into a reactor core, utilized, disengaged from a reactor core or stored, together with all incidental processes with respect to the Nuclear Material at any such stage. "Nuclear Regulatory Commission" means the independent regulatory commission of the United States Government existing under the authority of the Energy Reorganization Act of 1974, as amended, or any successor organization or organizations performing any identical or substantially identical licensing and related regulatory functions. 49 "Obligations" means (i) all items (including, without limitation, Capitalized Leases but excluding shareholders' equity and minority interests) which in accordance with generally accepted accounting principles should be reflected on the liability side of a balance sheet as at the date as of which such obligations are to be determined; (ii) all obligations and liabilities (whether or not reflected upon such balance sheet) secured by any Lien existing on the Property held subject to such Lien, whether or not the obligation or liability secured thereby shall have been assumed; and (iii) all guarantees, endorsements (other than for collection in the ordinary course of business) and contingent obligations in respect of any liabilities of the type described in clauses (i) and (ii) of this definition (whether or not reflected on such balance sheet); provided, however, that the term 'Obligations' shall not include deferred taxes. "Obligations for Borrowed Money or Deferred Purchase Price" means all Obligations in respect of borrowed money or the deferred purchase price of property or services. "Officer's Certificate" means, with respect to any corporation, a certificate signed by the President, any Vice President, the Treasurer, any Assistant Treasurer, the Comptroller, or any Assistant Comptroller of such corporation, and with respect to any other entity, a certificate signed by an individual generally authorized to execute and deliver contracts on behalf of such entity. "Outstandings" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Owner Trust Estate" means all estate, right, title and interest of the Owner Trustee in and to the outstanding stock of the Company and in and to all monies, securities, investments, instruments, documents, rights, claims, contracts, and other property held by the Owner Trustee under the Trust Agreement; provided, however, that there shall be excluded from the Owner Trust Estate all Excepted Payments. "Owner Trustee" means United States Trust Company of New York, not in its individual capacity but solely as trustee under and pursuant to the Trust Agreement, and its permitted successors. "PaPUC" means the Pennsylvania Public Utility Commission or any successor agency thereto. 50 "Partially Assigned Agreement" means a Nuclear Material Contract which has been assigned, in part but not in full, to the Company in the manner specified in Section 5 of the Lease Agreement pursuant to a duly executed and delivered Assignment Agreement. "PBGC" means the Pension Benefit Guaranty Corporation, created by Section 4002(a) of ERISA and any successor thereto. "Permitted Liens" means (i) any assignment of the Lease Agreement permitted thereby, and by the Credit Agreement, (ii) liens for Impositions not yet payable, or payable without the addition of any fine, penalty, interest or cost for nonpayment, or being contested by the Lessee as permitted by Section 11 of the Lease Agreement, (iii) liens and security interests created by the Security Agreement, (iv) the title transfer and commingling of the Nuclear Material contemplated by paragraph (h) of Section 10 of the Lease Agreement, and (v) liens of mechanics, laborers, materialmen, suppliers or vendors, or rights thereto, incurred in the ordinary course of business for sums of money which under the terms of the related contracts are not more than 30 days past due or are being contested in good faith by the Lessee as permitted by Section 11 of the Lease Agreement; provided, however, that, in each case, such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made in respect thereto. "Person" means any individual, partnership, joint venture, corporation, trust, unincorporated organization or other business entity or any government or any political subdivision or agency thereof. "Plan" means, with respect to any Person, any plan of a type described in Section 4021(a) of ERISA in respect of which such Person is an "employer" or a "substantial employer" as defined in Sections 3(5) and 4001 (a) (2) of ERISA, respectively. "Proceeds" shall have the meaning assigned to it under the Uniform Commercial Code, as amended, and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Company from time to time with respect to the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to the Company from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. 51 "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Public Utility Holding Company Act" means the Public Utility Holding Company Act of 1935, as from time to time amended. "Qualified Institution" means a commercial bank organized under the laws of, and doing business in, the United States of America or in any State thereof, which has combined capital, surplus and undivided profits of at least $150,000,000 having trust power. "Related Person" means, with respect to any Person, any trade or business, (whether or not incorporated) which, together with such Person, is under common control as described in Section 414(c) of the Code. "Rent" means Basic Rent, Additional Rent and Termination Rent. "Rent Due and SCV Confirmation Schedule" means an instrument, substantially in the form of Exhibit G to the Lease Agreement, which is to be used by the Lessee (i) to calculate Basic Rent for each Basic Rent Period and Other Rent and (ii) to calculate and acknowledge the SCV at the end of each Basic Rent Period. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder. "Responsible Officer" means a duly elected or appointed, authorized, and acting officer, agent or representative of the Person acting. "Secured Obligations" means each and every debt, liability and obligation of every type and description which the Company may now or at any time hereafter owe to any Secured Party under, pursuant to or in connection with the Credit Agreement, any Note, the Letter of Credit or any other Basic Document, whether such debt, liability or obligation now exists or is hereafter created or incurred, and whether it is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or joint, several or joint and several, including, without limitation the Face Amount of any Commercial Paper, the principal of, interest on and any premium due with respect to any Loan and all indemnifications, costs, expenses, fees and other compensation of the Secured Parties provided for, and all other amounts owed to the Secured Parties, under the Security Agreement, Credit Agreement and the other Basic Documents. 52 "Secured Parties" means the Banks, any other holder from time to time of any Note and any holder from time to time of any Commercial Paper. "Securities Act" means the Securities Act of 1933, as from time to time amended. "Security Agreement" means the Security Agreement and Assignment of Contracts, dated as of November 5, 1998, by and among the Company and The First National Bank of Chicago, as Collateral Agent in favor of the Secured Parties. "Single Employer Plan" means any Plan which is not a multi-employer plan as defined in Section 4001(a) (3) of ERISA "Stipulated Casualty Value" or "SCV" for any Nuclear Material covered by any Leasing Record means an amount equal to the Acquisition Cost for such Nuclear Material reduced by the aggregate total amount, if any, of the Monthly Rent Components paid by the Lessee to the Lessor with respect to such Nuclear Material together with Commercial Paper Discount. "Syndication Agent" shall have the meaning specified therefor in the first paragraph of the Credit Agreement. "Termination Date" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Termination Rent" means an amount which, when added to the Stipulated Casualty Value and Basic Rent then payable by the Lessee, if any, will be sufficient to enable the Company to retire, at their respective maturities, all outstanding Notes and Commercial Paper and to pay all charges, premiums and fees owed to the holders of Notes under the Credit Agreement and to pay all other obligations of the Company incurred in connection with the implementation of the transactions contemplated by the Basic Documents. "Termination Settlement Date" has the meaning specified in Section 8(c), or Section 18(c) of the Lease Agreement. "Terminating Event" has the meaning specified in Section 18 of the Lease Agreement. "Trust" means the TMI-I Fuel Corp. and Oyster Creek Fuel Corp. Trust, a trust formed pursuant to the Trust Agreement. 53 "Trust Agreement" means the Second Amended and Restated Trust Agreement dated as of November 5, 1998 among Lord Fuel Corp., as Trustor, the Owner Trustee, as trustee, Lord Fuel Corp., as beneficiary, and Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, each as lessee under certain lease agreements, as the same may be amended, modified or supplemented from time to time. "Trustor" means the institution designated as such in the Trust Agreement and its permitted successors. "UBS Credit Agreement" means the Credit Agreement dated as of November 17, 1995 among TMI-1 Fuel Corp., Union Bank of Switzerland, New York Branch, as Arranging Agent, Union Bank of Switzerland, New York Branch, as Issuing Bank, the Banks Party thereto and Union Bank of Switzerland, New York Bank, as Administrative Agent. "UCC" means the Uniform Commercial Code as adopted and in effect in the State of New York. "U.S. Trust" means United States Trust Company of New York. 54 EXHIBIT A INTERIM LEASING RECORD Record No. ----- Name of Lessee: Metropolitan Edison Company Date of Record: ------------------ Date and No. of prior Interim or Final Leasing Record (if any): Description and location of Nuclear Material covered by this Record: Assembly Serial Nos.: Subassembly Serial Nos.: Acquisition Cost of Nuclear Material under prior Leasing Record (if any): $----------- Acquisition Cost added by this Record: $----------- Total: $----------- Credits to Acquisition Cost: $----------- Total Acquisition Cost under this Record $----------- Specify nature of Acquisition Cost added by this Record and to whom paid: Specify nature of any credits received by Lessor covered by this Record and from whom received: 55 Basic Rent for the Nuclear Material covered by this Record shall be calculated and paid as provided in Section 9 of the Second Amended and Restated Nuclear Material Lease Agreement referred to below. The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear Material described above in accordance with the covenants, terms and conditions of the Second Amended and Restated Nuclear Material Lease Agreement between the undersigned Lessor and Lessee, dated as of November 5, 1998 which covenants, terms and conditions are incorporated herein by reference. TMI-1 FUEL CORP., Lessor METROPOLITAN EDISON COMPANY, Lessee By -------------------------- By ----------------------------- Authorized Signature Authorized Signature 56 EXHIBIT B FINAL LEASING RECORD Record No. ----- Name of Lessee: Metropolitan Edison Company Date of Record: ------------------ Date and No. of prior Interim or Final Leasing Record: Description and location of Nuclear Material covered by this Record: Assembly Serial Nos.: Subassembly Serial Nos.: Acquisition Cost of Nuclear Material under prior Leasing Record (if any): $----------- Acquisition Cost added by this Record: $----------- Total: $----------- Credits (if any) to Acquisition Cost: $----------- Total Acquisition Cost under this Record $----------- BTU Charge: $---------- Specify nature of Acquisition Cost added by this Record and to whom paid: Specify nature of any credits received by Lessor covered by this Record and from whom received: Basic Rent for the Nuclear Material covered by this Record shall be calculated and paid as provided in Section 9 of the Second Amended and Restated Nuclear Material Lease Agreement referred to below. 57 The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear Material described above in accordance with the covenants, terms and conditions of the Second Amended and Restated Nuclear Material Lease Agreement between the undersigned Lessor and Lessee, dated as of November 5, 1998, which covenants, terms and conditions are incorporated herein by reference. TMI-1 FUEL CORP., Lessor METROPOLITAN EDISON COMPANY, Lessee By By --------------------------------- --------------------------------- Authorized Signature Authorized Signature 58 Attachment 1 to Exhibit B BRITISH THERMAL UNIT CHARGE AGREEMENT Dated: November 5, 1998 The undersigned Lessor and Lessee agree that the initial British Thermal Unit Charge to be used to calculate the Monthly Rent Component for the Nuclear Material pursuant to the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between the undersigned Lessor and Lessee shall be as follows: Description of Nuclear Material British Thermal Unit Charge TMI-1 FUEL CORP. METROPOLITAN EDISON COMPANY By: By: --------------------------------- --------------------------------- Its: Its: --------------------------------- --------------------------------- 59 EXHIBIT C NUCLEAR MATERIAL CONTRACTS The Agreements (each as amended and restated) referred to in Section 5 of the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between TMI-1 FUEL CORP. ("Lessor") and METROPOLITAN EDISON COMPANY ("Lessee") are: (1) Agreement, dated January 30, 1975, between Sequoyah Fuels Corporation and GPUN, as agent for the Lessee, JCP&L and Penelec. (2) Agreement, dated February 12, 1996, between United States Enrichment Corporation and GPUN, as agent for the Lessee, JCP&L and Penelec. (3) Agreement, dated as of June 14, 1995 between Framatome Cogema Fuels and GPUN, as agent for the Lessee, JCP&L and Penelec. 60 EXHIBIT D ASSIGNMENT AGREEMENT KNOW ALL MEN BY THESE PRESENTS THAT: Metropolitan Edison Company (the "Assignor"), in consideration of one dollar and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, does hereby sell, grant, bargain, convey and assign to TMI-1 Fuel Corp. ("Assignee"), all right, title and interest of the Assignor in, to and under the Nuclear Material Contract (the "Nuclear Material Contract") described in Exhibit 1 attached hereto insofar as such Nuclear Material Contract relates to the Nuclear Material described in Exhibit 1 (all of such property, including the items described on Exhibit 1 attached hereto as included with the Property, being herein collectively called the "Property"). Terms not defined herein shall have the meanings given in Exhibit 1 attached hereto. TO HAVE AND TO HOLD the Property unto the Assignee, its successors and assigns, to its and their own use forever. 1. The interest of the Assignor in the Property, and the interest transferred by this Assignment Agreement, is that of absolute ownership. 2. The Assignor hereby warrants that it is the lawful owner of the rights and interests conveyed by this Assignment Agreement and that its title to such rights and interests is hereby conveyed to the Assignee free and clear of all liens, charges, claims and encumbrances of every kind whatsoever, other than (i) the amounts, if any, owing under the Nuclear Material Contract, (ii) other claims, if any, of the Assignor and the Contractor which may exist as between themselves and (iii) Permitted Liens (as defined in the Lease Agreement referred to below); and that the Assignor will warrant and defend such title forever against all claims and demands whatsoever. 3. The Assignor hereby releases and transfers to the Assignee any right, title or interest in the Nuclear Material which may have been acquired by the Assignor under the Nuclear Material Contract prior to the date hereof. 4. This Assignment Agreement is made in accordance with the Second Amended and Restated Nuclear Material Lease Agreement dated as of November 5, 1998, between the Assignor and the Assignee (said Nuclear Material Lease Agreement, as the same 61 may be from time to time amended, modified or supplemented, being herein called the "Lease Agreement"). Pursuant to a Security Agreement and Assignment of Contracts made by TMI-1 Fuel Corp. dated as of November 5, 1998 (said Security Agreement and Assignment of Contracts, as the same may from time to time be amended, modified or supplemented, being herein called the "Security Agreement") made by Assignee in favor of the Secured Parties, as defined therein, the Assignee is assigning and granting a security interest in the Property and this Assignment Agreement to the Secured Parties, as collateral security for all obligations and liabilities of the Assignee to the Secured Parties, as such obligations are described in the Security Agreement. 5. It is expressly agreed that, anything contained herein to the contrary notwithstanding, (a) the Assignor shall at all times remain liable to the Contractor to observe and perform all of its duties and obligations under the Nuclear Material Contract to the same extent as if this Assignment Agreement and the Security Agreement had not been executed, (b) the exercise by the Assignee or the Secured Parties of any of the rights assigned hereunder or under the Security Agreement, as the case may be, shall not release the Assignor from any of its duties or obligations to the Contractor under the Nuclear Material Contract, and (c) neither the Assignee nor any of the Secured Parties shall have any obligation or liability under the Nuclear Material Contract by reason of or arising out of this Assignment Agreement, the Lease Agreement or the Security Agreement, or be obligated to perform or fulfill any of the duties or obligations of the Assignor under the Nuclear Material Contract, or to make any payment thereunder, or to make any inquiry as to the nature or sufficiency of any Property received by it thereunder, or to present or file any claim, or to take any action to collect or enforce the payment of any amounts or the delivery of any Property which may have been assigned to it or to which it may be entitled at any time or times; provided, however, the Assignee agrees, solely for the benefit of the Assignor, and subject to the terms and conditions of the Lease Agreement, (i) to purchase the Nuclear Material from the Contractor pursuant to the Nuclear Material Contract, (ii) to pay to the Contractor and/or to the Assignor or their order the respective amounts specified in the Lease Agreement with respect to such Nuclear Material and (iii) to lease such Nuclear Material to the Assignor in accordance with and subject to the terms and conditions of the Lease Agreement. The provisions of the Nuclear Material Contract limiting the liability of the Contractor and its suppliers and subcontractors' under that Contract shall remain effective against the Assignee and Secured Parties to the same extent that such provisions are effective against the Assignor. 62 6. Notwithstanding anything contained herein to the contrary, subject to the terms and conditions of the Lease Agreement, the Assignor may continue to engage in Fuel Management (as such term is defined in the Lease Agreement) with respect to the Property, including, without limitation, all dealings with the Contractor and, subject to such terms and conditions and effective until the occurrence of a Lease Event of Default (as defined in the Lease Agreement), (i) the Assignee reassigns to the Assignor the Assignee's rights under clauses (iii), (iv), (v) and (vi) of subparagraph (b) of Exhibit 1 to this Assignment Agreement (provided, however, that insurance proceeds are reassigned to the Assignor pursuant hereto only to the extent that such proceeds are needed and used to reimburse the Assignor for the cost of repairing damage or destruction to Nuclear Material or are used to purchase Nuclear Material from the Assignee in accordance with the Lease Agreement, and provided further, however, that the Assignee's rights under clause (vi) are reassigned to the Assignor subject in all respects to the limitations set forth in paragraph 8. below), and (ii) the Assignee agrees that the Assignor may, to the extent set forth in clause (i) above, to the exclusion of the Assignee, exercise and enforce such rights. 7. The Assignor shall promptly and duly execute, deliver, file and record all such further counterparts of this Assignment Agreement or such certificates, financing and continuation statements and other instruments as may be reasonably requested by the Assignee, and take such further actions as the Assignee shall from time to time reasonably request, in order to establish, perfect and maintain the rights and remedies created or intended to be created in favor of the Assignee and the Secured Parties hereunder and the Assignee's title to and interest in the Property as against the Assignor or any third party in any applicable jurisdiction. 8. The Assignor hereby agrees that it will not enter into or consent to or permit any cancellation, termination, amendment, supplement or modification of or waiver with respect to the Nuclear Material Contract insofar as it relates to the Nuclear Material except for cancellations, terminations, amendments, supplements, modifications or waivers which do not materially adversely affect the Assignee or the Secured Parties or their respective interests in the Property, nor will the Assignor sell, assign, grant any security interest in or otherwise transfer its rights or other interests in the Property or any part thereof, except as permitted by the Lease Agreement. 63 9. The Assignor hereby represents and warrants that the Nuclear Material Contract is in full force and effect and represents that it is the only agreement between the Assignor and the Contractor with respect to the Nuclear Material. 10. This Assignment Agreement shall become effective only upon receipt of the written consent of the Contractor to the assignment of the rights and interests conveyed hereunder, if such consent is required under the Nuclear Material Contract. The Assignor hereby agrees to send the Contractor a copy of this Assignment Agreement. 11. This Assignment Agreement shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the Assignor has caused this Assignment Agreement to be duly executed and delivered as of the ----- day of -----------, 19_. METROPOLITAN EDISON COMPANY By: --------------------------------- Title: --------------------------------- The foregoing Assignment Agreement is hereby accepted: TMI-1 FUEL CORP. By: --------------------------------- Title: --------------------------------- 64 EXHIBIT 1 to Assignment Agreement (a) The ------------- (as the same may from time to time be amended, modified or supplemented, being herein called the "Nuclear Material Contract"), dated as of -------------, between Metropolitan Edison Company and - -------------- (the "Contractor), insofar as, and only to the extent that, the Contract relates to ----------------- (the "Nuclear Material"); but not insofar as the Contract provides for the provision of other nuclear materials and services to the Assignor; and (b) The Property shall include, without limitation, (i) any and all amendments and supplements to the Nuclear Material Contract from time to time executed and delivered to the extent that any such amendment or supplement relates to the Nuclear Material, (ii) the Nuclear Material, including the right to receive title thereto, (iii) all rights, claims and proceeds, now or hereafter existing, under any insurance, indemnities, warranties and guaranties provided for in or arising out of the Nuclear Material Contract, to the extent that such rights or claims relate to the Nuclear Material, (iv) any claim for damages arising out of or for breach or default by the Contractor under or in connection with the Nuclear Material Contract insofar as it relates to the Nuclear Material, (v) any other amount, whether resulting from refunds or otherwise, from time to time paid or payable by the Contractor under or in connection with the Nuclear Material Contract insofar as it relates to the Nuclear Material and (vi) the right of the Assignor to terminate the Nuclear Material Contract or to perform or to exercise or enforce thereunder, insofar as it or they relate to the Nuclear Material. 65 EXHIBIT 2 to Assignment Agreement CONSENT AND AGREEMENT The undersigned, ------------------ (the "Contractor"), has entered into a --------------- (as the same may from tune to time be amended, modified or supplemented, being herein called the "Nuclear Material Contract"), dated as of -------------------- with Metropolitan Edison Company (the "Assignor"). The Contractor hereby acknowledges notice that (i) in accordance with the terms of the Second Amended and Restated Nuclear Material Lease Agreement dated as of --------- ---, 1998, between the Assignor and TMI-1 Fuel Corp. (the "Assignee"), the Assignor has assigned to the Assignee a part of the Assignor's rights under the Nuclear Material Contract pursuant to an Assignment Agreement, in the form of Annex A hereto (such Assignment Agreement, as the same may from time to time be amended, modified or supplemented, being herein collectively called the "Assignment"), and (ii) pursuant to a Security Agreement and Assignment of Contracts made by TMI-1 Fuel Corp. dated as of November 5, 1998 (said Security Agreement and Assignment Contracts, as the same may from time to time be amended, modified or supplemented, being herein called the "Security Agreement") made by the Assignee in favor of the Secured Parties as defined therein (the "Secured Parties"), the Assignee has assigned and granted a security interest in all rights under the Nuclear Material Contract from time to time assigned to it by Assignor, as collateral security for all obligations and liabilities of the Assignee to the Secured Parties. The Contractor hereby consents to (i) the assignment by the Assignor to the Assignee of part of the Assignor's right, title and interest in, to and under the Nuclear Material Contract and the other Property described in the Assignment pursuant to the Assignment and (ii) the assignment and security interest in favor of the Secured Parties as described above. The Contractor further consents to all of the terms and provisions of the Security Agreement. The Contractor agrees that, if requested by either the Assignor or the Assignee, it will acknowledge in writing the Assignment delivered by the Assignor to the Assignee; provided, that neither the lack of notice to nor acknowledgment by the Contractor of the Assignment shall limit or otherwise affect the validity or effectiveness of this consent to such Assignment. 66 The Contractor hereby confirms to the Assignee and the Secured Parties that: (a) all representations, warranties and agreements of the Contractor under the Nuclear Material Contract which relate to the Nuclear Material described in the Assignment shall inure to the benefit of, and shall be enforceable by, the Assignee or any Secured. Party to the same extent as if originally named in the Contract as the purchaser of such Nuclear Material, (b) the Contractor understands that, pursuant to the Lease Agreement, the Assignee has agreed to lease the Nuclear Material described in the Assignment to the Assignor, and consents to the assignment to the Assignor, for so long as the Lease Agreement shall be in effect or until otherwise notified by the Assignee, of the Assignee's rights under clauses (iii), (iv), (v) and (vi) of subparagraph (b) of Exhibit 1 to the Assignment to the extent that such rights are reassigned to the Assignor pursuant to the Assignment, (c) The Contractor is in the business of selling nuclear fuel and related services of the kind described in the Assignment, and the proposed sale of such nuclear fuel under the Nuclear Material Contract will be in the ordinary course of business of the Contractor, and (d) Notwithstanding any provision to the contrary contained in the Nuclear Material Contract, the Contractor agrees that title to any Nuclear Material covered by the Assignment shall pass directly to the Assignee under the Contract and shall not pass to the Assignor; provided that the foregoing shall not apply to any Nuclear Material for which title has already passed from the Contractor prior to the execution and delivery of the Assignment. It is understood that neither the Assignment, the Security Agreement nor this Consent and Agreement shall in any way add to the obligations of the Contractor or the Assignor under the Nuclear Material Contract. This Consent and. Agreement shall be governed by and construed in accordance with the laws of the State of ------------. IN WITNESS WHEREOF, the undersigned has caused this Consent and Agreement to be duly executed and delivered by its duly authorized officer as of the ---- day of --------, 19-- By: --------------------------------- Title: --------------------------------- 68 EXHIBIT E BILL OF SALE TO METROPOLITAN EDISON COMPANY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, TMI-1 Fuel Corp., a Delaware corporation (the "Seller"), whose post office address is c/o United States Trust Company of New York, 114 West 47th Street, New York, New York 10036, Attention: Corporate Trust and Agency Division, for and in consideration paid to the Seller upon or before the execution and delivery of this Bill of Sale to Metropolitan Edison Company (the "Purchaser"), a Pennsylvania corporation, whose address is 2800 Pottsville Pike, Reading, Pennsylvania 19640, Attention: Comptroller, hereby conveys, transfers, sells and sets over unto the Purchaser all of its right, title and interest in all of the personal property consisting of the assemblies of nuclear fuel or components thereof or other nuclear material described in Annex I hereto (the "Assets"), and by this Bill of Sale does hereby grant, bargain, sell, convey, transfer and deliver the Assets unto the Purchaser, to have and to hold such undivided interest in the Assets unto the Purchaser, for itself, its successors and assigns, forever. The Assets are transferred and conveyed by the Seller AS-IS, WHERE-IS, WITHOUT REPRESENTATIONS OR WARRANTIES (EXPRESS OR IMPLIED) OF ANY KIND WHATSOEVER BY THE SELLER OR ANY PERSON ACTING ON ITS BEHALF except that the Seller represents and warrants that it has not by voluntary act or omission created or granted any lien on the Assets, other than Permitted Liens, as defined in that certain Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 between the Seller and the Purchaser. The Purchaser acknowledges and agrees that neither the Seller, its directors, officers or employees, any company, person or firm controlling, controlled by, or under common control with any of them nor any other person acting on behalf of the Seller is a manufacturer of, or is engaged in the sale or distribution of, nuclear material, has had at any time physical possession of any portion of the Assets sold hereunder, or has made any inspection thereof. The Purchaser further acknowledges and agrees that the Assets sold hereunder have been at all times in the possession of the Purchaser and that the Purchaser has made such inspections thereof as it deems necessary and that the Purchaser has been solely responsible for all decisions made with respect to the choice of the suppliers of such Assets and the enrichment, fabrication, transportation, storage and processing of the same. 69 IN WITNESS WHEREOF, the Seller has caused these presents to be executed by one of its Vice Presidents, this ---- day of --------, 19---. TMI-1 FUEL CORP., Seller By: --------------------------------- Vice President Acknowledgment and Acceptance The foregoing Bill of Sale is hereby acknowledged and accepted by the undersigned as of the date last above written. METROPOLITAN EDISON COMPANY, Purchaser By: --------------------------------- Its: --------------------------------- 70 EXHIBIT F RENT DUE AND SCV CONFIRMATION SCHEDULE For the Basic Rent Period Ended ------- In accordance with the Second Amended and Restated Lease Agreement dated as of ---------- --, 1998, between TMI-1 Fuel Corp., as Lessor, and Metropolitan Edison Company, as Lessee, the Lessee certifies that all amounts set forth below are true and correct in all respects, and both Lessor and Lessee certify that this Schedule has been prepared in accordance with the provisions of the Lease Agreement. I. BASIC RENT, ADDITIONAL RENT AND TERMINATION RENT A. Basic Rent Owed 1. Calculation of Portion of Monthly Financing Charge Not Allocated to Acquisition Cost a. Interest Payable with Respect to All Outstanding Notes (See attached summary calculation $ --------- b. Other Amounts Included in Monthly Financing Charge $ --------- c. Total Monthly Financing Charge Not Allocated to Acquisition Cost (Total of I(a) and I(b) $ --------- 2. Aggregate Monthly Rent Component (See attached summary calculation) $ --------- 3. BASIC RENT (total of 1(c) and 2) $ ========= B. Additional Rent Owed (see attached summary calculation) $ --------- C. Termination Rent Owed (see attached summary calculation $ --------- TOTAL RENT DUE (total of A, B and C) $ ========= 71
II. Calculation of Stipulated Casualty Value Nuclear Material ------------------------------------- Installed for Not Installed for Operation in the Operation in the Generating Facility Generating Facility Total A. Stipulated Casualty Value as of $------------ $---------- $-------- B. Add: Acquisition Cost Incurred in Rent Period Covered by This Schedule (exclusive of Monthly Finance Charges) $------------ $---------- $-------- C. Add: Monthly Financing Charge Allocated to Acquisition Cost Incurred in Rent Period Covered by this Schedule $------------ $---------- $-------- D. Less: SVC of Nuclear Material Transferred to the Lessee Pursuant to Section 8(c), 8(g) or 14 of the Lease Agreement during the Basic Rent Period Covered by this Schedule $------------ $---------- $--------
72 EX-10 10 EX.10-X LESSEE'S LETTER AGREE. TMI-1 FUEL CORP. EXHIBIT 10-X METROPOLITAN EDISON COMPANY ------------------------------------- LESSEE'S LETTER AGREEMENT Regarding TMI-1 FUEL CORP. ------------------------------------- Dated as of November 5, 1998 TABLE OF CONTENTS Section Page 1. Definitions 1 2. Performance of Fuel Lease and Liens 1 3. Security Interest of Collateral 2 4. Sale of Nuclear Material and Assignment of Rights under Nuclear Material Contracts 2 5. Collateral Equivalence Test; No Additional Collateral or Covenants; Condemnation Statements; Exercise of Rights of Secured Parties 3 6. Fuel Management; Quiet Enjoyment 5 7. Insurance 6 8. Representations and Warranties 6 9. General Covenants of the Lessee 11 10. GPU Events 18 11. Credit Agreements and Notes 18 12. Consent to Assignment; Direct Payment of Payments Under the Fuel Lease 18 13. Severability 19 14. Indemnification 20 15. No Waiver; Amendments 21 16. Successors and Assigns 22 17. Notices 22 18. Set-off 23 19. Waiver of Jury Trial 23 20. Governing Law 24 THIS LESSEE'S LETTER AGREEMENT (the "Letter Agreement") is made as of November 5, 1998, by and between Metropolitan Edison Company, a Pennsylvania corporation (the "Lessee"), TMI-1 Fuel Corp, a Delaware corporation (the "Company"), and The First National Bank of Chicago, as Administrative Agent (the "Administrative Agent"), for the Banks party to the Credit Agreement referred to below (the "Banks"). WHEREAS, the Lessee has entered into the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 ("Fuel Lease"), with the Company in order to enable the Company to obtain financing for the acquisition, processing and use of Nuclear Material in the Generating Facility; and WHEREAS, pursuant to the Fuel Lease, the Company has agreed to make payments due to Manufacturers and/or to reimburse the Lessee for payments previously made to Manufacturers with respect to Nuclear Material; and WHEREAS, in order to finance the cost of such Nuclear Material, the Company proposes to (i) sell its Commercial Paper, and (ii) obtain the Commitment of each Bank to make Loans from time to time as hereinafter provided; and WHEREAS, the Lessee has agreed to make payments under the Fuel Lease sufficient to enable the Company to meet its obligations under the Company's financing arrangements, including the Company's obligations under the Credit Agreement, dated as of November 5, 1998, among the Company, the Banks and the Administrative Agent (the "Credit Agreement"); NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained and other good and valuable consideration, so long as any of the Loans or the Commercial Paper shall remain outstanding, or the Commitments shall be continuing, notwithstanding any provision of the Fuel Lease or any other agreement of the Lessee to the contrary, the Lessee, the Company, the Administrative Agent and the Banks agree that: 1. Definitions. Unless the context otherwise specifies or requires, each term defined in the Credit Agreement or Appendix A to the Fuel Lease, shall, when used in this Letter Agreement, have the meaning indicated in the Credit Agreement or Appendix A or set forth in the paragraph indicated therein. 2. Performance of Fuel Lease and Liens. The Lessee will perform and comply with all the terms of the Fuel Lease to be performed or complied with by it and will not omit to take an action the omission of which would cause a 2 Lease Event of Default. The Lessee acknowledges that, except as otherwise provided in the Fuel Lease, its obligations as set forth under the Fuel Lease are absolute and unconditional. The Lessee will not directly or indirectly create or permit to be created or remain, and will promptly take such action as may be necessary to discharge, any Lien on any Collateral except Permitted Liens. 3. Security Interest of Collateral. The Lessee represents that no effective financing statement (other than those naming the Secured Parties as a secured party) covering all or any part of the Collateral (as defined in the Security Agreement relating to the Lessee) is on file in any public office. The Lessee shall make, or shall cause to be made, all filings and recordings, and shall take, or cause to be taken, such other actions, including filing all continuation statements, necessary to establish, preserve and perfect the Secured Parties' lien on and security interest in, the Collateral as a legal, valid and enforceable first priority lien and security interest, or purchase money security interest, as the case may be, therein, subject only to the existence or priority of any Permitted Lien, and the Lessee represents that all such filings, recordings and other actions have been duly made. The Lessee shall deliver to the Administrative Agent evidence of the due filings of any continuation statements to be delivered to the Administrative Agent within the time period specified in Section 7.05 of the Credit Agreement. In no event will the Lessee permit the Nuclear Material to enter any jurisdiction in which all necessary action has not been taken to establish, maintain and protect the Secured Parties' first priority perfected lien and security interest in the Nuclear Material under the Security Agreement, subject only to Permitted Liens. 4. Sale of Nuclear Material and Assignment of Rights under Nuclear Material Contracts. (a) In the event that the Lessee desires the Company, on behalf of the Lessee, to purchase Nuclear Material or to have services performed on such Nuclear Material pursuant to any Nuclear Material Contract, the Lessee shall provide the Company with an Assignment Agreement and a Manufacturer's Consent, both substantially in the form of Exhibit D to the Fuel Lease, with such changes to Exhibit 2 to Exhibit D as the Administrative Agent in its reasonable discretion may consent to in writing, which consent shall not be unreasonably withheld, with respect to such Nuclear Material Contract not later than sixty 3 days following the date on which the Company is to purchase such Nuclear Material or to have such services performed pursuant thereto. Notwithstanding the foregoing, the Lessee shall not be required to have obtained a Manufacturer's Consent in any instance where the Manufacturer's obligations under the applicable Nuclear Material Contract have been fully discharged and performed, and the Manufacturer's warranties with respect to such Nuclear Material Contract have expired, and the Lessee has delivered to the Company and the Collateral Agent a certificate to such effect. (b) The Lessee at its expense will perform and comply with all the terms and provisions of each Assigned Agreement to be performed or complied with by it, will maintain each Assigned Agreement in full force and effect, will enforce each of the Assigned Agreements in accordance with their respective terms, and will take all such action to that end as from time to time may reasonably be requested by the Majority Banks. (c) The Lessee shall not enter into or consent to or permit any cancellation, termination, amendment, supplement or modification of or waiver with respect to any Assigned Agreement without the prior written consent of the Majority Banks, unless such cancellation, termination, amendment, supplement or modification could not reasonably be expected to have a Material Adverse Effect on the Company or the Company has through one or more other Assigned Agreements or otherwise arranged for the provision of comparable goods and services on terms not materially more burdensome to the Company. (d) The Lessee will from time to time, upon request of the Administrative Agent, furnish to the Administrative Agent such information concerning the Nuclear Material or any Assigned Agreement, as the Majority Banks may reasonably request. (e) The Lessee will not change its principal place of business or chief executive offices from the location specified in paragraph 8(a) hereof or remove therefrom its records concerning the Assigned Agreements unless it gives the Administrative Agent at least 30 days' prior written notice thereof. 5. Collateral Equivalence Test; No Additional Collateral or Covenants; Condemnation Statements; Exercise of Rights of Secured Parties. 4 (a) The Lessee shall not permit the sum of aggregate Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease and the Lessee's Percentage of Cash Collateral to be less than the Lessee's Percentage of Outstandings. (b) The Lessee shall not provide to any Person (other than the Banks), in order to induce such Person to extend credit to the Company, any collateral or any guarantee or other assurance against loss or non-payment, nor shall the Lessee consent to the provision thereof by the Company. (c) The Lessee shall not agree to any affirmative or negative covenant with respect to the condition, financial or otherwise, of the Lessee with any Person in order to induce such Person to extend credit to the Company. (d) The Lessee shall not sell, assign, convey, pledge or otherwise dispose of or encumber in any manner any interest it may have in the Trust or any rights it may have under the Trust Agreement. The Lessee shall not direct the Owner Trustee to liquidate, dissolve, merge or consolidate the Company except if such transaction is consented to in writing by the Banks. The Lessee shall not direct the Owner Trustee to take any action under the Trust Agreement which is inconsistent with the duties imposed upon the Company by the Basic Documents and any other agreements, documents, instruments and articles executed and delivered, and to be executed and delivered, by the Owner Trustee in connection therewith. (e) The Nuclear Material leased under the Fuel Lease shall constitute the Lessee's entire ownership interest in the items used or to be used by it as nuclear fuel in the Generating Facility. The Lessee agrees that 50% of the Lessor's ownership interest in any Nuclear Material which is subject to the Fuel Lease will be leased to the Lessee. The Lessee further agrees not to take any action under the terms of the Fuel Lease, including, but not limited to, the delivery of any Leasing Record, which would result in less than 50% of the Lessor's ownership interest in any such Nuclear Material being so leased. (f) As provided in the Security Agreement, (i) the Collateral Agent on behalf of the Secured Parties may, on and after the occurrence of a Credit Agreement Default, Credit Agreement Event of Default, Lessee Default or Lessee Event of Default, pursuant to Section 10 of the Security Agreement, exercise any and all of the Company's rights under the Fuel Lease, the Assigned Agreements and each other Basic Document to 5 which the Lessee is a party, and (ii) if a Lease Event of Default occurs and is continuing, the Collateral Agent on behalf of the Secured Parties may, pursuant to Section 10 of the Security Agreement, enforce and exercise any and all of the Company's rights under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party, or the rights and remedies granted to the Secured Parties under the Security Agreement at its election and in its sole discretion, and, in the event that the Collateral Agent is permitted to exercise such rights pursuant to Section 10 of the Security Agreement, the Lessee agrees that the Collateral Agent may do so either in concert with or in place of the Company, and the Lessee shall assist in, comply with and perform in accordance with all rights or remedies so enforced or exercised by the Collateral Agent for the ratable benefit of the Secured Parties. 6. Fuel Management; Quiet Enjoyment. The occurrence of a Credit Agreement Default, a Credit Agreement Event of Default, Lease Event of Default, Lessee Default, Lessee Event of Default or an event or condition which would, with the lapse of time or the giving of notice or both, become a Lease Event of Default, shall not affect the Lessee's sole obligation to engage in Fuel Management; provided that, upon the occurrence of a Credit Agreement Event of Default, Lessee Event of Default or Lease Event of Default, the Collateral Agent may, if so directed by the Majority Secured Parties, by written notice to the Lessee, elect to revoke such power and authority, in which case the Person from time to time designated by the Majority Secured Parties may (but shall not be obligated to), to the extent that the Majority Secured Parties desire and to the extent permitted by law, engage in Fuel Management and/or remove all or any part of the responsibility for Fuel Management from the Lessee; provided, however, that, subject to the right of the Collateral Agent and the Majority Secured Parties to exercise any or all rights granted to the Secured Parties under the Security Agreement, the rights granted to the Collateral Agent and the Majority Secured Parties under this Section 6 shall not be construed to include the right to direct, whether directly or indirectly, the operation of the Generating Facility. In the event the Majority Secured Parties, in accordance with the preceding sentence, shall revoke the Lessee's power and authority to engage in Fuel Management, all rights conferred by the Company to the Lessee pursuant to Section 3 of the Fuel Lease shall be deemed to be automatically reassigned to the Company and the Lessee shall execute such documents and instruments as the Collateral Agent shall request to further confirm such assignment. 6 7. Insurance. Each year, the Lessee will furnish the Administrative Agent and each Bank a detailed statement certified by an officer of Lessee setting forth (i) the location of all Nuclear Material and (ii) the insurance policies and indemnification agreements provided pursuant to Sections 14 and 17 of the Fuel Lease and certifying that such insurance policies and indemnification agreements comply with the requirements of the Fuel Lease. In addition, the Lessee shall promptly furnish at any time to the Administrative Agent and any Bank such information as any such Bank shall reasonably request concerning location of Nuclear Material, insurance policies and indemnification agreements and Manufacturers or other third parties with whom arrangements exist with respect to transportation, storage or processing of Nuclear Material. 8. Representations and Warranties. The Lessee hereby represents and warrants to the Company, the Administrative Agent and the Banks that as of the date hereof: (a) Organization and Standing. The Lessee is a corporation duly incorporated, validly existing and subsisting under the laws of the Commonwealth of Pennsylvania, and is qualified to do business in each state or other jurisdiction in which the nature of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on its ability to perform its obligations under this Letter Agreement or each other Basic Document to which the Lessee is a party. The Lessee's chief executive office is located at 2800 Pottsville Pike, Reading, Pennsylvania 19605. (b) Corporate Authority. The Lessee has the corporate power and authority to execute and perform this Letter Agreement and the Fuel Lease and to lease the Nuclear Material thereunder. The execution and delivery of this Letter Agreement and the Fuel Lease and the lease of the Nuclear Material thereunder will not have a material adverse effect on the financial condition, results of operations, business, properties or operations of the Lessee. (c) Compliance with Other Instruments, etc. The execution, delivery and performance by the Lessee of this Letter Agreement and each Basic Document to which the Lessee is a party, and other related instruments, documents and agreements, and the compliance by the Lessee with the terms hereof and thereof, (i) have been duly and legally authorized by appropriate corporate action taken by the Lessee, (ii) are not in 7 contravention of, and will not result in a violation or breach of, any of the terms of the Lessee's articles of incorporation, its by-laws or of any provisions relating to shares of the capital stock of the Lessee and (iii) will not violate or constitute a breach of any provision of (x) any applicable law, order, rule or regulation, rule or regulation of any governmental authority (except in those cases where non-compliance with any such law, order, rule or regulation could not reasonably be expected to have a material adverse effect on the financial condition, results of operations, business, properties or operations of the Lessee or its ability to perform its obligations hereunder or under each Basic Document) or (y) any indenture, agreement or other instrument to which the Lessee is party, or by or under which the Lessee or any of the Lessee's property is bound, or be in conflict with, result in breach of, or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement or instrument, or result in the creation or imposition of any Lien upon any of the Lessee's property or assets or any Nuclear Material. (d) Legal Obligations. This Letter Agreement and the Fuel Lease have been executed by a duly authorized officer of the Lessee, and this Letter Agreement and the Fuel Lease constitute, and each Leasing Record, when executed by a duly authorized officer of the Lessee and delivered to the Company, will constitute, the legal, valid and binding obligations of the Lessee, enforceable against the Lessee in accordance with their respective terms, except as the enforceability thereof may be limited by the Atomic Energy Act and the rules, regulations or orders issued pursuant thereto, or by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general, and except as the availability of the remedy of specific performance is subject to general principles of equity (regardless of whether such remedy is sought in a proceeding in equity or at law). (e) Governmental Consents. Neither the execution and delivery of this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee, nor the performance by the Lessee of all of its obligations hereunder or thereunder, requires the consent or approval of, the giving of notice to, or the registration, filing or recording with, or the taking of any other action in respect of, any Federal, state, local or foreign government or governmental authority or agency or any other person except for the order of the Securities and Exchange Commission (the "SEC"), dated October 25, 1995, the filing of the supplemental order of the SEC dated November 3, 1998, the order of the PaPUC, dated 8 September 17, 1998, and the filing of any statement or other instrument pursuant to Section 10(b) of the Fuel Lease, and except for the filing of certificates by the Lessee with the SEC pursuant to SEC Rule 24 under the Public Utility Holding Company Act to report on the transactions authorized by such SEC order, the filing of which is not necessary to the execution or delivery of this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee or for the performance by the Lessee of any of its obligations hereunder or thereunder, and the failure to file any of which will not affect the validity or enforceability of any of this Letter Agreement, the Fuel Lease or any Leasing Record. (f) Consents and Permits. The Lessee possesses all material licenses, permits, franchises and certificates which are necessary or appropriate to own or operate its material properties and assets and to conduct its business as now conducted. (g) Litigation. There is no litigation or other proceeding now pending or, to the best of the Lessee's knowledge, threatened, against or affecting the Lessee, before any court, arbitrator or administrative or governmental agency (i) which would adversely affect or impair the title of the Company to the Nuclear Material, (ii) which questions the validity or enforceability of this Letter Agreement, the Fuel Lease, the Assigned Agreements or any other Basic Document to which the Lessee is a party or any action taken or to be taken by the Lessee pursuant to or in connection with this Letter Agreement, or (iii) except as disclosed in the Lessee's Annual Report on Form 10-K for the year ended December 31, 1997 and Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, copies of which have previously been delivered to the Administrative Agent and the Banks, which, if decided adversely to the Lessee, would materially adversely affect the condition, financial or otherwise, of the Lessee. (h) Taxes. The Lessee has filed or caused to be filed all tax returns which are required to be filed, and has paid or caused to be paid all taxes as shown on said returns and all assessments received by it to the extent that such taxes and assessments have become due, except for taxes and assessments which are being contested in good faith and by appropriate proceedings and as to which it has provided reserves which are adequate in connection with generally accepted accounting principles. 9 (i) Reaffirmation and Restatement of Representations and Warranties. The Lessee repeats and reaffirms as of the date hereof for the benefit of the Administrative Agent and each Bank the representations and warranties made by the Lessee in the Fuel Lease as though set forth in full herein with the same effect as though such representations and warranties had been made on and as of the date hereof. In addition, the Lessee represents and warrants that as of the date hereof (i) the Lessee is in compliance with all the terms and provisions set forth in the Fuel Lease on its part to be observed or performed, (ii) no Terminating Event has occurred and no event has occurred which, with the lapse of time or the giving of notice, or both, would constitute such a Terminating Event, and (iii) no Lease Event of Default has occurred and is continuing and no event has occurred and is continuing on such date which, with the lapse of time or the giving of notice, or both, would constitute a Lease Event of Default. (j) First Perfected Security Interest. Except for Permitted Liens, upon the execution and delivery of this Letter Agreement and the Security Agreement and the due filing of the Uniform Commercial Code financing statements required to be executed and filed from time to time, the Secured Parties will have a legal, valid and enforceable first priority security interest (i) in the rights, titles and interests of the Company in and to the Fuel Lease and (ii) in and to the other Collateral. Such security interest will constitute a perfected security interest in the Collateral consisting of Nuclear Material Contracts and the Collateral consisting of Nuclear Material located in the States of Illinois, Kentucky, Ohio, Pennsylvania and Virginia, except for any such Collateral which consists of cash, instruments (as defined in the New York Uniform Commercial Code) and other items in which a security interest may only be perfected by possession, enforceable against all third parties as security for the Secured Obligations. (k) No Material Adverse Change. Since June 30, 1998, there has been no material adverse change in the financial condition, results of operations, business, properties or operations of the Lessee or in its ability to perform its obligations under the Basic Documents. (l) No Defaults. The Lessee is not in default under any bond, debenture, note or any other evidence of Obligations for Borrowed Money or Deferred Purchase Price or any mortgage, deed of trust, indenture, loan agreement or other agreement relating thereto, where the amount thereof is in excess of $20,000,000. 10 (m) Pension Plans. No accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any plan (other than a multiemployer plan). No liability to the Pension Benefit Guaranty Corporation has been, or is expected by the Lessee to be, incurred with respect to any plan (other than a multiemployer plan) by the Lessee which is or would be materially adverse to the Lessee. The Lessee has not incurred and presently does not expect to incur any withdrawal liability under Title IV of ERISA with respect to any multiemployer plan which is or would be materially adverse to the Lessee. Neither the execution and delivery by the Company of the Credit Agreement and the other Basic Documents, and the issuance of the Commercial Paper, nor the execution and delivery by the Lessee of this Letter Agreement, the Trust Agreement and each other Basic Document to which the Lessee is a party, will involve any transaction which is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975. As used herein, the term "plan" shall mean an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is and has been established or maintained, or to which contributions are or have been made, by the Lessee or by any trade or business, whether or not incorporated, which, together with the Lessee is under common control as described in Section 414(b) or (c) of the Code, and the term "multiemployer plan" shall mean any plan which is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA). (n) Financial Statements. The audited balance sheet of the Lessee as of December 31, 1997, and the related statements of income and cash flows (including the notes thereto) of the Lessee for the year then ended, copies of which have been delivered to the Company, the Administrative Agent and the Banks, and all other annual or quarterly financial statements including, without limitation, the quarterly statement dated as of June 30, 1998 so delivered fairly present the financial condition of the Lessee on the dates for which, and the results of its operations for the periods for which, the same have been furnished and have been prepared in accordance with generally accepted accounting principles consistently applied. (o) Nuclear Material. The Nuclear Material is free and clear of any Lien in favor of any Person claiming by, through or under the Lessee or any Affiliate thereof, other than Permitted Liens. No default or event which with the giving of notice or lapse of time would constitute a default has occurred and is continuing under any Nuclear Material Contract. 11 (p) Disclosure. Neither the representations in this Letter Agreement, or in any other document, certificate or statement furnished in writing to the Administrative Agent or any Bank by or on behalf of the Lessee in connection with the transactions contemplated hereby, nor the information disclosed in the Lessee's Annual Report on Form 10-K for the year ended December 31, 1997 or Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, contained as of its date, any untrue statement of a material fact or omitted to state a material fact necessary in order to make such representations or information not misleading in light of the circumstances under which they were made. (q) Collateral Equivalence Test Met. The sum of the aggregate Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease and the Lessee's Percentage of the Cash Collateral equals or exceeds the Lessee's Percentage of the Outstandings. (r) Year 2000. The Lessee has made a full and complete assessment of its Year 2000 Issues and has a realistic and achievable Year 2000 Program. Based on such assessment and on its Year 2000 Program, the Lessee does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. 9. General Covenants of the Lessee. (a) Information. The Lessee will furnish to the Company and the Administrative Agent in sufficient copies for each Bank: (i) Quarterly Statements. As soon as practicable after the end of each of the first three quarterly fiscal periods in each fiscal year of the Lessee, and in any event within 60 days thereafter, copies of: (A) a balance sheet of the Lessee as at the end of such quarter, and (B) statements of income and cash flows of the Lessee for such quarter and for the twelve-month period ending as of the end of such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with the end of such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail and certified as complete and 12 correct, subject to changes resulting from year-end adjustments, by a principal financial officer of the Lessee; provided that it is understood that the delivery of the Lessee's Quarterly Report on Form 10-Q shall be deemed to satisfy the requirements with respect to such financial statements; (ii) Annual Statements. As soon as practicable after the end of each fiscal year of the Lessee, and in any event within 120 days thereafter, copies of: (A) a balance sheet of the Lessee at the end of such fiscal year, and (B) statements of income and cash flows of the Lessee for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and accompanied by an opinion thereon of independent certified public accountants of recognized national standing selected by the Lessee, which opinion shall state that such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied (except for changes in application in which such accountants concur) and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards; provided that it is understood that the delivery of the Lessee's Annual Report on Form 10-K shall be deemed to satisfy the requirement with respect to such financial statements; (iii) Officer's Compliance Certificate. Simultaneously with the financial statements referred to in Sections 9(a)(i) and (ii), a certificate of an authorized officer of the Lessee stating that such officer has reviewed the relevant terms and conditions of the Fuel Lease and other Basic Documents to which the Lessee is a party, and has made, or caused to be made, under such officer's supervision, a review of the transactions and financial condition of the Lessee from the beginning of the accounting period covered by the income statements being delivered therewith to the date of the certificate, and that the Lessee has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Letter Agreement, the Fuel Lease and any other Basic Document to which the Lessee is a party, and no Terminating Event, Lessee Default, Lessee Event of Default, Lease Event 13 of Default or default or event of default under any such Basic Document has occurred and is continuing and no event has occurred and is continuing which, with the lapse of time or the giving of notice, or both, would constitute a Terminating Event, Lessee Default, Lessee Event of Default, Lease Event of Default or a default or event of default under any such Basic Document or, if such condition or event has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto; (iv) Auditor's Compliance Certificate. Simultaneously with the financial statements referred to in Section 9(a)(ii), a certificate of the independent public accountants who audited such statements stating that such accountants have reviewed the relevant terms and conditions of the Fuel Lease and other Basic Agreements to which the Lessee is a party, and that, in making the examination necessary for the audit of such statements, they have obtained no knowledge of any condition or event which constitutes or which with notice or lapse of time or both would constitute a Terminating Event, Lessee Default, Lessee Event of Default, Lease Event of Default or default or event of default under any such Basic Document, or if such accountants shall have obtained knowledge of any such condition or event, specifying in such certificate each such condition or event of which they have knowledge and the nature and status thereof; (v) Notices Required under the Basic Documents. Immediately upon delivery to the Lessee or the Company, all notices, consents, documents, certificates or instruments of any kind relating to the Lessee required pursuant to the Fuel Lease; (vi) Defaults. (A) Promptly upon becoming aware of the occurrence thereof, notice of any Terminating Event, Lessee Default, Lessee Event of Default, Lease Event of Default or any event which, with the lapse of time or the giving of notice, or both, would constitute a Terminating Event or a Lease Event of Default, or of any other development, financial or otherwise (including, without limitation, developments with respect to Year 2000 Issues), which could reasonably be expected to have a Material Adverse Effect, and (B) within 10 days of becoming aware of the occurrence thereof, notice of any other material event affecting the Lessee's obligations under any Basic Document or any Nuclear 14 Material Contract (except to the extent such event has previously been disclosed in the Lessee's SEC reports delivered pursuant to clause (viii) below); (vii) Notice of Claimed Default. Immediately upon becoming aware that the holder or holders of any evidence of Obligations for Borrowed Money or Deferred Purchase Price or other security of the Lessee or any subsidiary exceeding $20,000,000 in the aggregate have given notice (or taken any other action) with respect to a claimed default, breach or event of default, a notice describing the notice given (or action taken) and the nature of the claimed default, breach, or event of default; (viii) SEC and Other Reports. Promptly after filing thereof, copies of all regular and periodic reports and registration statements which the Lessee may file with the SEC or any governmental agency substituted therefor and, promptly upon written request therefor, copies of the financial statements which the Lessee may file annually with any state regulatory agency or agencies; and (ix) Requested Information. With reasonable promptness, such other data and information with respect to the Lessee, including, without limitation, information regarding Nuclear Material or any Nuclear Material Contract or the Lessee's Year 2000 Program, as from time to time may be reasonably requested by the Administrative Agent or any Bank. (b) Notice of Litigation. Immediately upon the Lessee becoming aware thereof, written notice of (i) any litigation or proceedings which would be required to be disclosed as an exception to the representations and warranties contained herein or in the Fuel Lease in order that such representations and warranties would be true and correct on a continuing basis; and (ii) any dispute between the Lessee and any governmental authority or other party relating to any part of the transactions contemplated by this Letter Agreement or any of the other Basic Documents to which the Lessee is a party which would have a material adverse effect on the ability of the Lessee to carry out its obligations hereunder or under any other Basic Document to which the Lessee is a party; provided, however, that the notice requirement in this Section 9(b) shall be satisfied if the Lessee furnishes the Company and the Administrative Agent in sufficient 15 copies for each Bank a Current Report on Form 8-K regarding the event requiring notice by the time that the Current Report is required to be filed with the Securities and Exchange Commission. (c) General Obligations. Subject to the last sentence of this Section 9(c), the Lessee will: (i) duly comply with all laws, rules, orders, regulations or other valid requirements (including, without limitation, any of the foregoing which are applicable to Nuclear Material or the operation of the Generating Facility) of any governmental authority necessary to the conduct of its business or to its properties or assets, noncompliance with which could reasonably be expected to have a material adverse effect upon the transactions contemplated by this Letter Agreement or any other Basic Document, or upon the financial condition, results of operations, business, properties or operations of the Lessee, or the ability of the Lessee to carry out its obligations under any Basic Document or this Letter Agreement); (ii) continue to engage principally in the electric utility business; (iii) obtain, maintain and keep in full force and effect all consents, permits, licenses and approvals, the absence of which would have a material adverse effect upon the transactions contemplated by this Letter Agreement or any other Basic Document to which the Lessee is a party, or upon the financial condition, results of operations, business, properties or operations of the Lessee, or the ability of the Lessee to carry out its obligations under this Letter Agreement or any other Basic Document to which the Lessee is a party; (iv) maintain its material operating properties used or useful in its business in good repair, working order and condition consistent with prudent utility practice; provided, however, that the Lessee shall not be prevented from discontinuing the operation and maintenance of any of its properties if it shall determine that the 16 continued operation and maintenance of such properties is no longer necessary, desirable or permissible; (v) pay when due all fees, taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any property belonging to it, and maintain appropriate reserves for the accrual of the same in accordance with generally accepted accounting principles; (vi) except as permitted by clause (vii) below, at all times maintain its corporate existence, privileges, franchises and rights to carry on business, and duly procure all renewals and extensions thereof, if and when any shall be necessary; (vii) not consolidate or merge with, or sell or otherwise dispose of all or substantially all of its properties and assets to any Person unless (i) the surviving or resulting entity is the Lessee hereunder, (ii) immediately after giving effect thereto no Credit Agreement Event of Default, Credit Agreement Default, Lease Event of Default, Lessee Default, Lessee Event of Default or event which with the giving of notice or passage of time would constitute a Lease Event of Default shall have occurred and be continuing, and (iii) the senior unsecured debt of the surviving or resulting Lessee shall be rated at least investment grade by Standard & Poor's Ratings Group ("S&P") or Moody's Investor Service, Inc. ("Moody's"); (viii) perform and comply with each of the material provisions of each material indenture, credit agreement, contract or other agreement by which the Lessee is bound, non-performance or non-compliance with which would have a material adverse effect upon its business or credit or in any way affect its ability to perform its obligations hereunder except material contracts or other agreements being contested in good faith; (ix) preserve and maintain its corporate existence in the jurisdiction of its incorporation, and qualify 17 and remain qualified as a foreign corporation in good standing in each jurisdiction in which such qualification is necessary or desirable in view of its business and operations or the ownership of its properties, except where the failure to be so qualified would not materially adversely affect its financial condition, operations, properties or business, and preserve its material rights, franchises and privileges to conduct its business substantially as conducted on the date hereof; (x) maintain insurance in effect at all times in such amounts as are available to the Lessee and covering such risks as is usually carried by companies of a similar size, engaged in similar businesses and owning similar properties (including, without limitation, the operation and ownership of nuclear generating facilities) in the same general geographical area in which the Lessee operates, either with responsible and reputable insurance companies or associations, or, in whole or in part, by establishing reserves of one or more insurance funds, either alone or with other corporations or associations; (xi) at any reasonable time and from time to time, permit the Administrative Agent or any Bank or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Lessee and discuss the affairs, finances and accounts of the Lessee with any of its officers or directors; (xii) not sell, transfer, lease, assign or otherwise convey or dispose of more than 25% of its assets (whether now owned or hereafter acquired), in any single or series of transactions, whether or not related, except for dispositions of its fossil and hydroelectric generating stations and associated facilities and dispositions of its current assets in the ordinary course of business as presently conducted, if immediately prior to such sale, transfer, lease, assignment, conveyance or disposition or as a result of such sale, transfer, lease, assignment, conveyance or disposition, the 18 senior unsecured debt of the Lessee shall not be rated at least investment grade by S&P or Moody's. (xiii) comply with this Letter Agreement and such other Basic Documents to which the Lessee is a party in accordance with the respective terms and conditions set forth herein and therein; and (xiv) except for Permitted Liens, permit the creation of any Liens on the Collateral. Notwithstanding the foregoing provisions of this Section 9(c), the Lessee may contest by appropriate proceedings conducted in good faith and due diligence, the amount, validity or application, in whole or in part of any fee, tax, assessment or government charge or levy, or any legal requirement, provided that the Lessee shall have set aside on its books adequate reserves, if required in accordance with generally accepted accounting principles with respect thereto and shall furnish such security, if any, as may be required in the proceeding. 10. GPU Events. It shall be a default hereunder if GPU, Inc. (a) fails to maintain at all times beneficial ownership of at least 75% of all outstanding shares of common stock of each of the Lessee, JCP&L and Penelec; or (b) pledges, grants options on, creates any charge on or security interest in, or otherwise subjects to any charge or encumbrance, any of the common stock of the Lessee, JCP&L or Penelec unless the obligations hereunder are secured ratably and with equal priority, in form and substance reasonably satisfactory to the Majority Banks. 11. Credit Agreement and Notes. The Lessee hereby acknowledges receipt of executed counterparts of the Credit Agreement and photostatic copies of the Notes evidencing the Loans, and consents to all of the terms and provisions of the Credit Agreement and the Notes. 12. Consent to Assignment; Direct Payment of Payments Under the Fuel Lease. (a) Consent to Assignment. The Lessee hereby acknowledges notice of and consents to all the terms and provisions of the Security Agreement and hereby confirms to and agrees with the Secured Parties that all representations, warranties, indemnities and agreements of the Lessee contained in this Letter Agreement and each other Basic Document to which the Lessee is a party shall inure to the benefit of, and shall be 19 enforceable by, the Secured Parties to the same extent as if such Secured Parties were originally parties to or named in such documents and agreements. The Lessee further acknowledges and consents to the assignment and transfer, and any future assignments and transfers, to the Secured Parties by the Company of the Company's right to exercise any and all of its rights, remedies, powers and privileges (but none of its obligations, duties or liabilities) under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party. The Lessee hereby agrees with the Secured Parties to comply with any exercise by the Secured Parties, either directly or through the Company, of any rights, remedies, powers or privileges pursuant to the Security Agreement. The Secured Parties acknowledge that neither the Security Agreement nor this Section 12 shall in any way add to the obligations of the Lessee (except those obligations of the Lessee to any Person, which, if not previously so, hereby become enforceable directly by the Secured Parties) under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party. Notwithstanding the foregoing, so long as no Lease Event of Default shall have occurred and be continuing, the Lessee shall have exclusive right to possession and use of the Nuclear Material in accordance with the Fuel Lease and may use such Nuclear Material for any lawful purpose consistent with the Fuel Lease. (b) Direct Payment of Payments Under the Fuel Lease. The Lessee acknowledges that it has been directed by the Company to, and agrees that it will, make all payments of monies due and to become due to the Company under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party, directly to the Collateral Agent, including, without limitation, Basic Rent, Additional Rent, the purchase price of Nuclear Material pursuant to Section 8(c), 8(d), 8(e) and 8(g) of the Fuel Lease, payments pursuant to Sections 9(e), 14, 17 and 18 of the Fuel Lease in the manner and to the accounts of the Secured Parties as specified in Section 3.03 of the Credit Agreement. 13. Severability. Any provision of this Letter Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability, without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 20 To the extent permitted by applicable law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. 14. Indemnification. The Lessee shall pay and indemnify and hold harmless the Administrative Agent and each Bank, and their respective officers, directors, incorporators, shareholders, partners, employees, agents and servants from and against any and all liabilities (other than liabilities arising out of the gross negligence or willful misconduct of such Person), taxes, (excluding, however, taxes measured solely by the net income of any Person indemnified or intended to be indemnified pursuant to this Section 14, except as otherwise provided in Section 14 hereof), losses, obligations, claims, damages, penalties, causes of action, suits, costs and expenses (including, without limitation, reasonable attorneys' and accountants' fees and expenses) and judgments of any nature arising from or in any way relating to any and all of the following during the term of the Fuel Lease and thereafter: (a) any injury to or disease, sickness or death of Persons, or loss of or damage to property, occurring through or resulting from any nuclear incident (as that term is defined in the Atomic Energy Act, 42 U.S.C. section 2011 et seq.) involving or connected in any way with the Nuclear Material or any portion thereof, (b) the acquisition, ownership (including strict liability of an owner or liability without fault), possession, disposition, sale, use, nonuse, misuse, leasing, fabrication, design, cycling, recycling, transportation, containerization, cooling, processing, reprocessing, storing, condition, management, operation, construction, maintenance, repair or rebuilding of the Nuclear Material or any portion thereof or resulting from the condition of adjoining and underlying land, buildings, streets or ways, (c) any use, nonuse or condition of, or any other matter of circumstance relating to, the Generating Facility, any other property associated therewith or any adjoining and underlying land, buildings, streets and ways, (d) any violation or default, or alleged violation or default, of the Fuel Lease or this Letter Agreement by or on behalf of Lessee, or of any contracts or agreements to which the Lessee is a party or by which it is bound, or any Legal Requirements, (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Nuclear Material or any portion thereof, (f) any infringement or alleged infringement of any patent, copyright, trade secret or other similar right relating to the Nuclear Material or any portion thereof, (g) Lessee's agreements or obligations contained in the Fuel Lease or this Letter Agreement, 21 (h) any claim arising out of loss of damage to the environment, (i) any claim arising out of strict or absolute liability in tort, or (j) the offering and sale of Commercial Paper. The Lessee also indemnifies each indemnitee, as aforesaid, from and against all other liabilities, taxes, losses, obligations, claims, damages, penalties, causes of action, suits, costs and expenses (including, without limitation, reasonable attorneys' and accountants' fees and expenses) and judgments of any nature which may be imposed on, incurred by, or asserted at any time against any indemnitee in any way relating to or arising out of the performance of this Letter Agreement, the Fuel Lease or any other Basic Document to which Lessee is a party, provided, except for claims of a nature contemplated by (i) above, that the Lessee shall not be required to indemnify any indemnitee with respect to any liability relating to or arising out of indemnitee's gross negligence or willful misconduct and provided, further, that the foregoing immunity shall not limit the terms of any indemnity that the Lessee may grant separately to any indemnitee pursuant to any separate agreement. In the event that any action, suit or proceeding is brought against the Company or any other Person indemnified or intended to be indemnified pursuant to this Section 14 by reason of any such occurrence, the Lessee shall, at the Lessee's expense, resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel designated by the Lessee and reasonably acceptable to the Person or Persons indemnified or intended to be indemnified under this Section 14 provided there is no conflict of interest with the Person or Persons indemnified or intended to be indemnified under this Section 14. In the event a conflict of interest contemplated by the proviso of the immediately preceding sentence shall exist, then the Person or Persons as to which such conflict exists may be defended by counsel of its or their choice at Lessee's expense, provided Lessee's obligation for such expense shall be limited to one firm for all such Persons as to which such a conflict exists. The obligations of the Lessee under this Section 14 shall survive any termination of this Letter Agreement, the Credit Agreement, the Fuel Lease or the Security Agreement, in whole or in part. 15. No Waiver; Amendments. Neither the Administrative Agent, the Collateral Agent, the Banks, the Company nor the Lessee shall, by any act, delay, omission or otherwise, be deemed to have waived any of its rights and remedies hereunder, and no waiver shall be valid unless in writing signed by the party or parties sought to be bound thereby. A waiver by the Administrative Agent, the Collateral Agent, the Banks, the Company or the Lessee of any of their respective rights or 22 remedies hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent, the Banks, the Company or the Lessee, as applicable, would otherwise have had on any future occasion. No failure to exercise nor any delay in exercise of any such right or remedy hereunder shall preclude any other or future exercise or partial exercise of any other right or remedy. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Letter Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by the party or parties sought to be bound thereby. 16. Successors and Assigns. This Letter Agreement shall bind the successors and assigns of the Lessee and the Company and shall inure to the benefit of permitted successors and assigns of either. The Letter Agreement shall not be assignable by the Lessee or the Company, either voluntarily or by operation of law, unless consented to by the Administrative Agent and the Majority Banks. No permitted assignment by the Lessee or the Company shall release the Lessee or the Company from any of its obligations hereunder. This Letter Agreement shall inure to and shall be binding upon the successors and assigns of the Administrative Agent and the Banks. 17. Notices. Any notice, demand or other communication which by any provision of this Letter Agreement is required or provided to be given shall be deemed to have been delivered if in writing addressed as provided below and actually delivered by mail, courier or facsimile to the following addresses: (a) except as otherwise requested in writing by the Administrative Agent or any Bank, any notice, demand or communication which by any provision of this Letter Agreement is required or provided to be given to the Administrative Agent or any Bank shall be deemed to have been delivered to the Administrative Agent or any Bank if a single copy thereof is delivered to the Administrative Agent at its address set forth in Section 11.01 of the Credit Agreement or at such other address as either may have furnished the Company and the Lessee in writing; (b) if to the Company (with copies to the Lessee at the address listed below), TMI-1 Fuel Corp c/o United States Trust Company of New York, 114 West 47th Street, 23 New York, New York 10036, marked for the attention of the Corporate Trust and Agency Division, telecopy number 212-852-1626, or at such other address as it may have furnished in writing to the Administrative Agent and the Lessee; or (c) if to the Lessee, to Metropolitan Edison Company, c/o GPU Service Inc., 310 Madison Avenue, Morristown, New Jersey 07962, marked for the attention of the Vice President and Treasurer, Telecopier: (973) 644-4224, or at such other address or addresses as the Lessee may have furnished to the Administrative Agent and the Company. 18. Set-off. (a) Lessee hereby acknowledges and agrees to set-off rights against it as provided for in Section 11.08 of the Credit Agreement. (b) Lessee agrees that it shall have no right of set-off, deduction or counterclaim in respect of its obligations hereunder, and that the obligations of the Banks hereunder and under the Credit Agreement are several and not joint. Nothing contained herein shall constitute a relinquishment or waiver of the Lessee's rights to any independent claim that the Lessee may have against the Administrative Agent or any Bank for the Administrative Agent's or such Bank's, as the case may be, gross negligence or willful misconduct, but no Bank shall be liable for the conduct of the Administrative Agent or any Bank, and the Administrative Agent shall not be liable for the conduct of any Bank. 19. Waiver of Jury Trial. Lessee irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Letter Agreement, the Credit Agreement, the other Basic Documents or any instrument or document delivered hereunder or thereunder, except that the foregoing shall not preclude any party hereto from submitting to a jury for determination in any such action, proceeding or counterclaim any dispute involving (a) the accuracy or completeness of any representation or warranty made under the Basic Documents by Lessee, (b) the performance by Lessee of any affirmative or negative covenant or agreement contained in the Basic Documents, or (c) questions of materiality, or the reasonableness of, or good faith basis f 24 or, any action taken, or determination made, by any other party hereto (other than in respect of any calculation of principal, interest, fees, or increased costs payable by the Lessee under the Basic Documents). 20. Governing Law. This Letter Agreement shall be governed by, and be construed and interpreted in accordance with the laws of the State of New York. S-1 IN WITNESS WHEREOF, the undersigned have caused this Letter Agreement to be executed as of the date first above written. METROPOLITAN EDISON COMPANY By ____________________________________ Vice President TMI-1 FUEL CORP. By ____________________________________ Title _________________________________ THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent By ____________________________________ Title _________________________________ By ____________________________________ Title _________________________________ SIGNATURE PAGE TO LESSEE'S LETTER AGREEMENT EX-10 11 EXHIBIT 10-Y NUCLEAR MATERIAL LEASE AGREEMENT EXHIBIT 10-Y COUNTERPART NO. SECOND AMENDED AND RESTATED NUCLEAR MATERIAL LEASE AGREEMENT Dated as of November 5, 1998 between TMI-1 FUEL CORP., as Lessor and PENNSYLVANIA ELECTRIC COMPANY as Lessee AS OF THE DATE OF THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, THE LESSOR UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT (THE "LESSOR") HAS GRANTED TO THE SECURED PARTIES, AS DEFINED HEREIN, A SECURITY INTEREST IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT AND IN ALL OF THE LESSOR'S RIGHTS AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT, INCLUDING, WITHOUT LIMITATION, ALL OF THE LESSOR'S RIGHTS TO AND INTERESTS IN NUCLEAR MATERIAL AS DEFINED IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT. THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT HAS BEEN MANUALLY EXECUTED IN EIGHTEEN (18) COUNTERPARTS, NUMBERED CONSECUTIVELY FROM 1 TO 18. NO SECURITY INTEREST IN THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT OR IN ANY OF THE LESSOR'S RIGHTS AND INTERESTS UNDER THIS SECOND AMENDED AND RESTATED LEASE AGREEMENT MAY BE PERFECTED BY THE POSSESSION OF ANY SUCH COUNTERPART OTHER THAN COUNTERPART NO. 1. 45908v6 - 4 - TABLE OF CONTENTS 1 Definitions 2 2 Notices 2 3 Title to Remain in the Lessor; Quiet Enjoyment; Fuel Management; Location 3 4 Agreement for Lease of Nuclear Material 3 5 Orders for Nuclear Material and Services; Assigned Agreements 4 6 Leasing Records; Payment of Costs of Lessor 5 7 No Warranties or Representation by Lessor 7 8 Lease Term; Early Termination; Termination Of Leasing Record 8 9 Payment of Rent; Payments with Respect to the Lessor's Financing Costs 1 10 Compliance with Laws; Restricted Use of Nuclear Material; Assignments; Permitted Liens; Spent Fuel 12 11 Permitted Contests 15 12 Insurance; Compliance with Insurance Requirements 16 13 Indemnity 18 14 Casualty and Other Events 21 15 Nuclear Material to Remain Personal Property 22 16 Events of Default 22 17 Rights of the Lessor Upon Default of the Lessee 24 18 Termination After Certain Events 26 19 Investment Tax Credit 29 20 Certificates; Information; Financial Statements 30 21 Obligation of the Lessee to Pay Rent 31 22 Miscellaneous 32 45908v6 SECOND AMENDED AND RESTATED NUCLEAR MATERIAL LEASE AGREEMENT SECOND AMENDED AND RESTATED LEASE AGREEMENT (this "Lease Agreement") dated as of the 5th day of November, 1998, by and between TMI-1 FUEL CORP., a Delaware corporation (herein called the "Lessor"), and PENNSYLVANIA ELECTRIC COMPANY, a Pennsylvania corporation (herein called the "Lessee"). RECITALS A. The Lessor and Lessee entered into a Nuclear Material Lease Agreement dated as of August 1, 1991 ("Original Lease") to provide for the lease of Nuclear Material to the Lessee; B. The Original Lease provided for the Lessor to enter into certain loan agreements and ancillary documents with The Prudential Insurance Company of America and certain affiliates thereof ("Prudential") to provide financing from Prudential for the acquisition of Nuclear Material under the Original Lease; C. Such loan arrangements with Prudential were terminated and Lessor entered into a new credit agreement and related instruments pursuant to which a bank syndicate for which Union Bank of Switzerland, New York Branch ("UBS") acted as agent to provide financing for the acquisition of Nuclear Material being leased hereunder; D. Lessor and Lessee entered into an Amended and Restated Nuclear Material Lease Agreement, dated as of November 17, 1995 ("Amended and Restated Lease") to reflect the necessary modifications consistent with the establishment of the credit facility with UBS; E. Concurrent with the execution and delivery hereof, such credit agreements with UBS are being terminated and Lessor is entering into a new credit agreement and related instruments to which a bank syndicate for which The First National Bank of Chicago and PNC Bank, National Association, will act as agents to provide financing for the acquisition of the Nuclear Material being leased hereunder; F. Accordingly, the Lessor and the Lessee desire to enter into this Second Amended and Restated Lease Agreement in order to reflect necessary modifications consistent with establishment of such new credit facility and other modifications thereof in certain other respects, which agreement shall supercede the Original Lease and the Amended and Restated Lease; NOW, THEREFORE, in consideration of the mutual covenants contained herein and intending to be legally bound hereby, the parties covenant and agree as follows: 1. Definitions. Except as otherwise provided herein, capitalized terms used in this Lease Agreement (including the Exhibits) shall have the respective meanings set forth in Appendix A. 2. Notices. Any notice, demand or other communication which by any provision of this Lease Agreement is required or permitted to be given shall be deemed to have been delivered if in writing and actually delivered by mail, courier, telex or facsimile to the following addresses: (i) If to the Lessor, TMI-1 Fuel Corp., c/o United States Trust Company of New York, 114 West 47th Street, New York, New York 10036, Attention: Corporate Trust and Agency Division, telecopy number 212-852-1626, or at such other address as the Lessor may have furnished to the Lessee and the Secured Parties in writing; or (ii) If to the Lessee, Pennsylvania Electric Company c/o GPU Service, Inc., 310 Madison Avenue, Morristown, New Jersey 07962-1957, Attention: Vice President and Treasurer, telecopy number 973-644-4224, or at such other address as the Lessee may have furnished the Lessor and the Secured Parties in writing; or (iii) except as provided in the following sentence or as otherwise requested in writing by any Secured Party, any notice, demand or communication which by any provision of this Lease Agreement is required or permitted to be given to the Secured Parties shall be deemed to have been delivered to all the Secured Parties if a single copy thereof is delivered to The First National Bank of Chicago, One First National Plaza, Mail Suite 0363, Chicago, Illinois 60670, Attention: Kenneth J. Bauer, facsimile number (312) 732-3055; or at such other address as either may have furnished the Lessor and the Lessee in writing. Any Leasing Record or invoice of a Manufacturer or other Person performing services covering the Nuclear Material which is required to be delivered to the Secured Parties pursuant to Section 6(c)(ii) of this Lease Agreement and any Rent Due and SCV Confirmation Schedule which is required to be delivered to the Secured Parties pursuant to Sections 8(g) or 9(d) of this Lease Agreement shall be deemed to have been delivered to all the Secured Parties if a single copy thereof is delivered to Kenneth J. Bauer at the address indicated in this Section 2(iii). 2 3. Title to Remain in the Lessor; Quiet Enjoyment; Fuel Management; Location. (a) The Lessor and the Lessee hereby acknowledge that this Lease Agreement is a lease and is intended to provide for the obligations of the Lessee to pay installments of Rent as the same become due; that, subject to the provisions of Section 10(h), the Lessor has title to and is the owner of the Nuclear Material; and that the relationship between the Lessor and the Lessee shall always be only that of lessor and lessee. (b) The Lessor (including its successors and assigns) agrees and covenants that, so long as the Lessee makes timely payments of Rent and fully performs all other obligations to be performed by the Lessee under this Lease Agreement, the Lessor (including its successors and assigns) shall not hinder or interfere with the Lessee's peaceable and quiet enjoyment of the possession and use of the Nuclear Material, for the term or terms herein provided, subject, however, to the terms of this Lease Agreement. (c) So long as no Lease Event of Default shall have occurred and be continuing and the Lessor shall not have elected to exercise any of its remedies under Section 17 hereof, the Lessee shall have the right to engage in Fuel Management. The Lessee is hereby designated the agent of the Lessor in all dealings with Manufacturers and any regulatory agency having jurisdiction over the ownership or possession of the Nuclear Material for so long as the Lessee shall have the right to engage in Fuel Management. As such agent of the Lessor, the Lessee agrees to make, or cause to be made, all filings and to obtain all consents and permits required as a result of the Lessor's ownership and leasing of the Nuclear Material. (d) The Lessee covenants to the Lessor that the location of Nuclear Material will be limited to: (w) any Manufacturer's facility, (x) transit between one Manufacturer's facility and another Manufacturer's facility or the site of the Generating Facility, (y) the site of the Generating Facility and (z) the Generating Facility. Each assembly of the Nuclear Material will be located during its Heat Production and "cooling-off" stage at the Generating Facility or the site of the Generating Facility. 4. Agreement for Lease of Nuclear Material. From and after the Closing, the Lessor shall lease to the Lessee and the Lessee shall lease from the Lessor such Nuclear Material as may be from time to time mutually agreed upon, provided that the 3 total Stipulated Casualty Value of all Nuclear Material leased under this Lease Agreement shall not exceed at any one time $25,000,000 in the aggregate or such other amount as the Lessor and the Lessee may agree to in writing (the "Maximum Stipulated Casualty Value"). The Lessor and the Lessee shall evidence their agreement to lease particular Nuclear Material in accordance with the terms and provisions of this Lease Agreement by signing and delivering to each other, from time to time, Leasing Records, substantially in the forms of Exhibit A or Exhibit B, as applicable, prepared by the Lessee, covering such Nuclear Material. Nothing contained herein shall be deemed to prohibit the Lessee from leasing from other lessors or otherwise obtaining other nuclear material for use in the Generating Facility, subject to the provisions with respect to intermingling of fuel assemblies or sub-assemblies with other fuel assemblies or sub-assemblies contained in Section 6 hereof. 5. Orders for Nuclear Material and Services; Assigned Agreements. (a) The Nuclear Material Contracts listed in Exhibit C hereto, relating, among other things, to the purchase of, and services to be performed with respect to, Nuclear Material were entered into by the Lessee prior to the date of this Lease Agreement, and, except as otherwise indicated on Exhibit C, the interests of the Lessee under such Nuclear Material Contracts have been assigned to the Lessor under an Assignment Agreement substantially in the form of Exhibit D. Any further Nuclear Material Contracts which the Lessee deems necessary or desirable may be negotiated by the Lessee and executed by the Lessee in its own name or, where authorized by the Lessor, as agent for the Lessor. (b) So long as no Lease Event of Default shall have occurred and be continuing, and subject to the approval of the Lessor and to the limitation on the Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4, the interests of the Lessee under any further Nuclear Material Contracts (whether executed and delivered before or after the date of this Lease Agreement) pursuant to which the Lessee desires the Lessor to purchase Nuclear Material or have services performed on any Nuclear Material on behalf of the Lessee may be assigned to the Lessor under an Assignment Agreement substantially in the form of Exhibit D, with such changes to Exhibit 2 to Exhibit D as the Secured Parties may consent to in writing, which consent shall not be unreasonably withheld. The Lessee shall use its best efforts to cause the other parties to such agreements to consent to each such assignment. Upon each such assignment and the obtaining of such 4 consents with respect to any Nuclear Material Contract, the Lessor, subject to the limitation on the Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4, shall make all payments which are required under such Assigned Agreements for the purchase of Nuclear Material or for services to be performed on the Nuclear Material in accordance with the procedures set forth in Section 6. (c) So long as no Lease Event of Default shall have occurred and be continuing, the Lessor hereby authorizes the Lessee, at the Lessee's own cost and expense, to assert all rights and claims and to bring suits, actions and proceedings, in its own name or in the name of the Lessor, in respect of any Manufacturer's warranties or undertakings, express or implied, relating to any portion of the Nuclear Material and to retain the proceeds of any such suits, actions and proceedings. 6. Leasing Records; Payment of Costs of Lessor. (a) Interim Leasing Records. An Interim Leasing Record shall be prepared by the Lessee, shall be dated the date that the Lessor first makes any payment with respect to the Acquisition Cost of any Nuclear Material and shall set forth a full description of such Nuclear Material, the Acquisition Cost and location thereof, and such other details with respect to such Nuclear Material upon which the parties may agree. During the period of preparation and processing or reprocessing of Nuclear Material subject to an Interim Leasing Record, if the Lessor shall make any further payment or payments or if the Lessor shall receive any payment or payments representing a credit against the Acquisition Cost previously paid with respect to such Nuclear Material, a supplemental Interim Leasing Record dated the date that the Lessor makes each such further payment or the date of receipt of any such credit shall be signed by the Lessor and the Lessee to record the revised Acquisition Cost, after giving effect to any such payments or credits with respect to such Nuclear Material, any change in location and such additional details upon which the parties may agree. (b) Final Leasing Records. For Nuclear Material previously covered by an Interim Leasing Record, the Final Leasing Record shall be prepared by the Lessee, shall be dated the first day of the month following the date of installation of such Nuclear Material in the Generating Facility, unless such date is the first day of a month, in which case the Final Leasing Record shall be dated such date. For Nuclear Material not previously covered by an Interim Leasing Record, the Final Leasing Record shall be dated the 5 date that the Lessor first makes any payment with respect to the Acquisition Cost of such Nuclear Material. A Final Leasing Record shall set forth a full description of such Nuclear Material, the Acquisition Cost thereof, the BTU Charge, the location, and such other details with respect to such Nuclear Material upon which the parties may agree. (c) Payment of Nuclear Material Costs. (i) On the Closing, the Lessor shall pay UBS pursuant to Section 5.02 of the UBS Credit Agreement the principal amount of all loans outstanding thereunder together with accrued interest thereon to the extent not paid previously, and related costs and expenses in connection therewith. (ii) From time to time after the Closing, invoices of Manufacturers, or of other Persons performing services, covering Nuclear Material shall be forwarded to the Lessor in care of the Lessee at the Lessee's address. Upon receipt by the Lessee of an invoice covering Nuclear Material, the Lessee shall review such invoice and, upon the Lessee's approval thereof, the Lessee shall forward such invoice endorsed with the Lessee's approval to the Lessor, together with a Leasing Record completed and signed by a Lessee Representative covering such Nuclear Material. The Lessee's invoice for any cost incurred by it and includable in the Acquisition Cost of any Nuclear Material shall be forwarded to the Lessor and to the Secured Parties, together with a Leasing Record completed and signed by a Lessee Representative covering such costs. After receipt of such invoice and Leasing Record, in form and substance satisfactory to the Lessor, the Lessor, subject to the limitation on Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4, shall pay such invoice as provided therein or in the related purchase agreement and shall execute the Leasing Record and return a copy of such Leasing Record to the Lessee and the Secured Parties. The Leasing Record shall be dated as provided for in this Lease Agreement. In the event that the Acquisition Cost of the Nuclear Material covered by any Leasing Record has been paid or incurred by the Lessee, the Lessor, subject to the limitation on Maximum Stipulated Casualty Value of the Nuclear Material set forth in Section 4 shall promptly reimburse the Lessee for the amount of the Acquisition Cost paid or incurred by the Lessee. (iii) The Lessee shall: (A) pay all costs and expenses of freight, packing, insurance, handling, storage, shipment and delivery of the Nuclear Material to the extent 6 that the same have not been included in the Acquisition Cost, and (B) at its own cost and expense, furnish such labor, equipment and other facilities and supplies, if any, as may be required to install and erect the Nuclear Material to the extent that the cost and expense thereof have not been included in the Acquisition Cost. Such installation and erection shall be in accordance with the specifications and requirements of each Manufacturer. The Lessor shall not be liable to the Lessee for any failure or delay in obtaining Nuclear Material or making delivery thereof. (d) Intermingling of Fuel Assemblies. Subject to the provisions of Section 10(h) hereof, the Nuclear Material shall be owned exclusively by the Lessor and leased to the Lessee under this Lease Agreement. Prior to the fabrication of Nuclear Material into a completed fuel assembly or sub-assembly or while such Nuclear Material is being reprocessed, the Lessee will cause or permit such Nuclear Material to be fabricated or assembled only into fuel assemblies or sub-assemblies owned by the Lessor and leased under this Lease Agreement. However, fuel assemblies or sub-assemblies owned by the Lessor and leased to the Lessee hereunder may be intermingled in the Generating Facility with fuel assemblies or sub-assemblies not owned by the Lessor and leased to the Lessee under this Lease Agreement, provided that such assemblies or sub-assemblies owned by the Lessor shall be readily identifiable by serial number or other distinguishing marks. 7. No Warranties or Representation by Lessor. THE NUCLEAR MATERIAL IS LEASED AS-IS, WHERE-IS, IN THE CONDITION THEREOF AND SUBJECT TO THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, THE STATE OF THE TITLE THERETO, THE RIGHTS OF OWNERSHIP THEREIN AND TO ALL APPLICABLE LAWS, RULES, REGULATIONS, ORDERS, WRITS, INJUNCTIONS, DECREES, CONSENTS, APPROVALS, EXEMPTIONS, AUTHORIZATIONS, LICENSES AND WITHHOLDING OF OBJECTIONS OF ANY GOVERNMENTAL OR PUBLIC BODY OR AUTHORITY AND ALL OTHER REQUIREMENTS HAVING THE FORCE OF LAW APPLICABLE AT ANY TIME TO ANY OF THE NUCLEAR MATERIALS OR ANY ACT OR TRANSACTION WITH RESPECT THERETO OR PURSUANT TO THIS LEASE AGREEMENT, IN EACH CASE AS IN EXISTENCE WHEN THE SAME FIRST BECOMES SUBJECT TO THIS LEASE AGREEMENT, WITHOUT REPRESENTATIONS OR WARRANTIES OF ANY KIND BY THE LESSOR OR ANY SECURED PARTY OR ANY PERSON ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY. THE LESSEE ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM 7 NOR ANY OTHER PERSON ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS HAD AT ANY TIME PHYSICAL POSSESSION OF ANY PORTION OF THE NUCLEAR MATERIAL, HAS MADE ANY INSPECTION THEREOF, HAS GIVEN ANY ADVICE TO THE LESSEE OR HAS MADE ANY RECOMMENDATION TO THE LESSEE WITH RESPECT TO THE CHOICE OF THE SUPPLIER, VENDOR OR PROCESSOR OF THE NUCLEAR MATERIAL OR WITH RESPECT TO THE PROCESSING, MILLING, CONVERSION, ENRICHMENT, FABRICATION, CONTAINERIZATION, TRANSPORTATION, UTILIZATION, STORAGE OR REPROCESSING OF THE SAME. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM, NOR ANYONE ACTING ON BEHALF OF THE LESSOR OR ANY SECURED PARTY HAS MADE ANY WARRANTY OR OTHER REPRESENTATION, EXPRESS OR IMPLIED, THAT THE NUCLEAR MATERIAL LEASED OR TO BE LEASED UNDER THIS LEASE AGREEMENT (a) WILL NOT RESULT IN INJURY OR DAMAGE TO PERSONS OR PROPERTY, (b) WILL BE USEABLE BY THE LESSEE OR WILL ACCOMPLISH THE RESULTS WHICH THE LESSEE INTENDS FOR SUCH NUCLEAR MATERIAL OR (c) IS SAFE IN ANY MANNER OR RESPECT. THE LESSEE ALSO ACKNOWLEDGES AND AGREES THAT NEITHER THE LESSOR NOR ANY SECURED PARTY NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS AND EMPLOYEES, NOR ANY COMPANY, PERSON OR FIRM CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL WITH ANY OF THEM, AND ANYONE ACTING ON BEHALF OF ANY OF THEM IS A MANUFACTURER OR ENGAGED IN THE SALE OR DISTRIBUTION OF NUCLEAR MATERIAL AND THAT NONE OF THE FOREGOING PERSONS HAS MADE OR DOES HEREBY MAKE ANY REPRESENTATION, WARRANTY OR COVENANT, EXPRESS OR IMPLIED, WITH RESPECT TO THE MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, CONDITION, QUALITY, USEABILITY, DURABILITY, SUITABILITY OR CONSEQUENCES OF USE OR MISUSE OF THE NUCLEAR MATERIAL IN ANY RESPECT OR IN CONNECTION WITH OR FOR THE PURPOSES OR USES OF THE LESSEE, OR ANY OTHER REPRESENTATION OR WARRANTY OF ANY KIND OR CHARACTER WHATSOEVER, EXPRESS OR IMPLIED. 8. Lease Term; Early Termination; Termination of Leasing Record. (a) The Lessor hereby leases to the Lessee, and the Lessee hereby leases from the Lessor, the Nuclear Material for the term provided in this Lease Agreement and subject to the terms and provisions hereof. (b) This Lease Agreement shall become effective at 12:01 A.M., Eastern time, on the Closing, and, unless earlier terminated as provided in Sections 8(c), 17 or 18, the term of this Lease Agreement shall end at the close of business on the later of (i) the date on which there is no outstanding principal of, or interest or premium, if any, on any of the Outstandings or (ii) the Termination Date but in each case in no event later than November 17, 2015. 8 (c) In the event that during the term of this Lease Agreement, the then effective Termination Date is not extended pursuant to Section 4.01 of the Credit Agreement, the Lessee shall have the option, exercisable at any time beginning 180 days before such Termination Date upon written notice to the Lessor and the Secured Parties prior to such Termination Date to purchase all (but not less than all) of the Nuclear Material and any spent fuel related thereto for which title has not been transferred to the Lessee for a purchase price equal to the Stipulated Casualty Value of such Nuclear Material at the time of such purchase plus the Termination Rent. If the Lessee exercises such purchase option, the purchase of the Nuclear Material shall occur on such date, on or prior to such Termination Date, as may be agreed upon by the Lessor and the Lessee and of which the Lessee has given the Secured Parties prior written notice. Upon receipt of payment of the purchase price, the Lessor shall deliver to the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring all right, title, interest and claim of the Lessor to the Nuclear Material and any spent fuel related thereto for which title has not already been transferred to the Lessee, to the Lessee or the Lessee's designee, free and clear of all Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. The later of (i) the date on which there is no outstanding principal of, or interest or premium, if any, on any of the Outstandings or (ii) the date of any sale by the Lessor of all of the Nuclear Material as provided in this Section 8(c) shall constitute the Termination Settlement Date, and this Lease Agreement shall terminate as of such date. (d) In the event that during the term of this Lease Agreement the then effective Termination Date is not extended pursuant to Section 4.01 of the Credit Agreement and the Lessee shall not have exercised its option to purchase pursuant to Section 8(c), the Lessee shall attempt to sell, or if no sale is possible, to otherwise convey, on behalf of the Lessor, ownership of the Nuclear Material to a third party not disqualified by any applicable statute, law, regulation or agreement from acquiring such Nuclear Material, and, upon prior written notice to the Lessor and the Secured Parties of the terms and date of such sale, the Lessor shall furnish title papers as may be necessary to effect such sale or conveyance on an as-is, where-is, non-installment, cash sale basis, without recourse to or warranty or agreement of any kind by the Lessor. The proceeds of such sale or conveyance shall be paid to the Lessor, and any amount so paid shall constitute a credit against the amount of the Stipulated Casualty Value payable by the Lessee under Section 8(e); provided, however, that any proceeds of such sale or conveyance in excess of the amount payable by the Lessee under Section 8(e) shall be retained by the Lessee. 9 (e) On the Termination Date unless the Lessee shall have exercised its purchase option set forth in Section 8(c) and paid the Lessor the purchase price of the Nuclear Material as provided therein, the Lessee shall pay to the Lessor an amount equal to the sum of (i) the Stipulated Casualty Value of all Nuclear Material leased under this Lease Agreement as of such Termination Date and of all Nuclear Material sold or conveyed pursuant to Section 8(d) (less any credit provided in Section 8(d)), and (ii) the Termination Rent as of such Termination Date. Upon receipt of such payment, the Lessor shall deliver to the Lessee or any designee of the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring all right, title, interest and claim of the Lessor to the Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee to the Lessee or the Lessee's designee, free and clear of all Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. (f) In the event that during the term of this Lease Agreement, the then effective Termination Date is not extended pursuant to Section 4.01 of the Credit Agreement, all obligations of the Lessor and Lessee under this Lease Agreement with respect to the Nuclear Material, including the obligation of the Lessee to pay Basic Rent and the obligation of the Lessor to acquire and pay for the Nuclear Material and to lease the same to the Lessee shall terminate on the date on which the Lessor receives the payment specified in Section 8(c) or Section 8(e). (g) The Lessee shall deliver to the Lessor and to the Secured Parties a Rent Due and SCV Confirmation Schedule in the form of Exhibit F within thirty (30) days following the date on which any Nuclear Material or spent fuel resulting from the Nuclear Material is removed from the reactor of the Generating Facility for purposes of "cooling-off" preliminary to reprocessing or permanent on-site safe storage and/or off-site disposal. If the Lessee elects within thirty (30) days following the receipt by the Lessor of such Rent Due and SCV Confirmation Schedule to extend the lease term for the purposes of reprocessing any such Nuclear Material, then the Lessor and the Lessee shall enter into an Interim Leasing Record with respect to such Nuclear Material in its then condition. In all other cases, the Final Leasing Record with respect to any such Nuclear Material or spent fuel resulting from such Nuclear Material shall be terminated and the Lessee shall immediately pay to the Lessor all amounts, including the Stipulated Casualty Value, if any, with respect to such Nuclear Material or spent fuel 10 resulting from such Nuclear Material, and, upon receipt thereof, the Lessor shall deliver to the Lessee or to any designee of the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, transferring all right, title, interest and claim of the Lessor to such Nuclear Material or spent fuel resulting from such Nuclear Material for which title has not already been transferred to the Lessee or the Lessee's designee, free and clear of all Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. 9. Payment of Rent; Payments with Respect to the Lessor's Financing Costs. (a) Basic Rent. The Lessee shall pay Basic Rent monthly in arrears on the first day of the next succeeding month. If such first day of the month is not a Business Day, then payment shall be made on the next succeeding Business Day. (b) Additional Rent. In addition to the Basic Rent, the Lessee will also pay from time to time as provided in this Lease Agreement or on demand of the Lessor, all Additional Rent on the due date thereof. In the event of any failure by the Lessee to pay any Additional Rent, the Lessor shall have all the rights, powers and remedies as in the case of failure to pay Basic Rent. (c) Prepayments of Basic Rent. The Lessee may prepay Basic Rent at any time. Such payment shall be credited against subsequent amounts owed by the Lessee on account of Basic Rent. (d) Wire Payment Procedure for Paying Basic Rent. All payments of Rent and other payments to be made by the Lessee to the Lessor pursuant to this Lease Agreement shall be paid to the Lessor (or, at the Lessor's request, to the Secured Parties) in lawful money of the United States in Collected Funds by wire transfer pursuant to Section 3.03 of the Credit Agreement. The Lessee shall furnish to the Lessor and the Secured Parties each month during the term of the Lease Agreement a summary of the rental calculations for such month covering all outstanding Leasing Records. On each Basic Rent Payment Date, the Lessee shall deliver to the Lessor and the Secured Parties a signed and completed Rent Due and SCV Confirmation Schedule. The Lessee shall be responsible for the accuracy of the matters contained in all such schedules delivered by the Lessee pursuant to the provisions of this Lease agreement. 11 10. Compliance with Laws; Restricted Use of Nuclear Material; Assignments; Permitted Liens; Spent Fuel. (a) Compliance with Legal Requirements. Subject to the provisions of Section 11 hereof, the Lessee agrees to comply with all Legal Requirements. (b) Recording of Title. The Lessee shall promptly and duly execute, deliver, file and record all such further counterparts of this Lease Agreement or such certificates, Bills of Sale, financing and continuation statements and other instruments as may be reasonably requested by the Lessor and take such further actions as the Lessor shall from time to time reasonably request, in order to establish, perfect and maintain the rights and remedies created or intended to be created in favor of the Lessor and the Secured Parties under this Lease Agreement and the Lessor's title to and interest in the Nuclear Material as against the Lessee or any third party in any applicable jurisdiction. (c) Exclusive Use of Nuclear Material. So long as no Lease Event Default shall have occurred and be continuing, the Lessee may use the Nuclear Material in the regular course of its business or in the business of any subsidiary or affiliate of the Lessee, and, subject to Section 3(d) and upon thirty (30) days' prior notice in writing to the Lessor and the Secured Parties, or upon such shorter prior notice in writing promptly given upon the Lessee's receipt of notice from any Manufacturer that the Nuclear Material is to be moved, and at the Lessee's sole expense (without limiting the Lessee's rights to request payment by the Lessor of such expense as provided in Section 6 hereof) move such Nuclear Material to any jurisdiction approved in writing by the Lessor in the contiguous forty-eight (48) states of the United States of America and the District of Columbia for the purpose of having services performed on such Nuclear Material in connection with any stage of the Nuclear Material Cycle other than Heat Production and the "cooling off" stage, provided that (i) no such movement of the Nuclear Material shall materially reduce the then fair market value of such Nuclear Material, (ii) such Nuclear Material shall be and remain the property of the Lessor, subject to this Lease Agreement, and (iii) all Legal Requirements (including, without limitation, all necessary government consents, permits and approvals) shall have been met or obtained by the Lessee, on its own behalf and on behalf of the Lessor, and all necessary recordings, filings and registrations or recordings, filings and registrations which the Lessor shall reasonably consider advisable shall have been duly made in order to protect the validity and effectiveness of this Lease Agreement and the security interest created in the Security 12 Agreement. At least once each year, or more frequently if the Lessor reasonably so requests, the Lessee shall advise the Lessor and the Secured Parties in writing where all Nuclear Material as of such date is located. The Lessee shall maintain and make available to the Lessor for examination upon reasonable notice complete and adequate records pertaining to receipt, possession, use, location, movement, physical inventories and any other information reasonably requested by the Lessor with respect to the Nuclear Material. (d) Additional Lessee Covenants. The Lessee agrees to use every reasonable precaution to prevent loss or damage to the Nuclear Material. All individuals handling or operating Nuclear Material in the possession of the Lessee shall be conclusively presumed not to be agents of the Lessor. The Lessee shall cooperate fully with the Lessor and all insurance companies and governmental agencies providing insurance under Section 12 hereof in the investigation and defense of any claims or suits arising from the licensing, acquisition, storage, containerization, transportation, blending, transfer, consumption, leasing, insuring, operating, disposing, fabricating and reprocessing of the Nuclear Material. To the extent required by any applicable law or regulation, the Lessee shall attach to the Nuclear Material the form of required notice to protect or disclose the ownership of the Lessor or that the Nuclear Material is leased. So long as no Lease Event of Default shall have occurred and be continuing, the Lessor will assign or otherwise make available to the Lessee all of its rights under any Manufacturer's warranty on Nuclear Material. The Lessee shall pay all costs, expenses, fees and charges, except Acquisition Costs, incurred by the Lessee in connection with the use and operation of the Nuclear Material during the term of the lease of such Nuclear Material. The Lessee hereby assumes all risks of loss or damage of Nuclear Material however caused and shall, at its own expense, keep the Nuclear Material in good operating condition and repair, reasonable wear and tear, obsolescence and exhaustion excepted. (e) Assignment by Lessor. Except as otherwise herein provided, the Lessor may not, without the prior written consent of the Lessee, sell, assign, transfer or convey the Nuclear Material or any interest therein or in the Lease Agreement, or grant to any party a security interest in, or create a lien or encumbrance upon, all or any part of its right, title and interest in this Lease Agreement and in any Nuclear Material. After receipt by the Lessee of written notice from the Lessor of any assignment by the Lessor of Rents or other sums payable by the Lessee under this Lease Agreement, the Lessee shall make such payments as directed in such notice of assignment, and such payments shall discharge the obligations of the Lessee hereunder to the extent of such payments. The Lessee hereby consents to the security interest and other rights and interests granted to the Secured Parties under the Security Agreement, dated as of the date first above written. 13 (f) Liens; Permitted Liens. The Lessee will not directly or indirectly create or permit to be created or to remain and will discharge any Lien with respect to the Nuclear Material or any portion thereof, or upon the Lessee's leasehold interest therein, or upon the Basic Rent, Additional Rent, or any other sum payable under this Lease Agreement, other than Permitted Liens. (g) Assignment by Lessee. Notwithstanding any provision of this Lease Agreement to the contrary, subject to applicable laws and regulations and so long as no Lease Event of Default shall have occurred and be continuing, the Lessee may sublease the Nuclear Material provided that (i) the Lessee has given prior written notice of such sublease to the Lessor, (ii) such sublease is not inconsistent with, and is expressly subject to, this Lease Agreement and (iii) such sublease does not in any way limit or affect the Lessee's duties and obligations under this Lease Agreement. (h) Transfer of Title to Manufacturers. The parties recognize that, during the processing and reprocessing of Nuclear Material before and after its utilization in the Generating Facility for the production of power, the Manufacturer performing services on the Nuclear Material may require that title thereto be transferred to such Manufacturer and/or that the Nuclear Material be commingled with other nuclear material, with an obligation for the Manufacturer, upon completion of the services, to reconvey a specified amount of nuclear material. The standard enrichment contracts of the Department of Energy contain such provisions. Therefore, the parties agree that (i) Nuclear Material may become subject to such a contract provision and that the action contemplated by such a provision may be taken, notwithstanding any provision of this Lease Agreement to the contrary, (ii) as between the Lessor and the Lessee, such Nuclear Material shall be deemed to remain leased under this Lease Agreement while title thereto is in the Manufacturer, and (iii) the nuclear material exchanged by the Manufacturer upon completion of its services shall be automatically leased under this Lease Agreement in substitution for the Nuclear Material originally delivered to the Manufacturer. (i) Substitution of Nuclear Material. The Lessee shall be permitted to exchange Nuclear Material for other Nuclear Material of equal or greater fair market value provided that the Lessor receives title to such substituted Nuclear Material free and clear of any Lien other than such Liens as may be created by the Security Agreement or permitted under Section 10(h). Any additional costs incurred in order to effect such an exchange shall be paid by the Lessor in accordance with the procedures set forth in Section 6(c) and shall be added to the Acquisition Cost of the Nuclear Material. A supplemental Leasing Record dated the date that the Lessor makes such further payment shall be signed by the 14 Lessor and the Lessee to record the revised Acquisition Cost and shall include a full description of the substituted Nuclear Material, notice of any change in location and such additional details upon which the parties may agree. (j) Spent Fuel. Without the consent of the Lessor, the Lessee shall not permit any Nuclear Material, which shall have been removed from a Generating Facility for the purpose of "cooling-off," storage, repair or reprocessing to be removed from the site of the Generating Facility unless (i) the new site of such Nuclear Material is a facility maintaining liability insurance and indemnification fully insuring and indemnifying the Lessor, the Lessee and the Secured Parties under the Atomic Energy Act and any other applicable law, rule or regulation, and (ii) except if the lease term is extended pursuant to the second sentence of Section 8(g), the lease of such Nuclear Material shall, concurrently with its removal from the Generating Facility, be terminated by the Lessee pursuant to the provisions of Section 8 or 18 hereof, as applicable, with the Lessee acquiring the ownership thereof pursuant to Section 8(e), 8(g) or Section 18(c), as applicable. 11. Permitted Contests. The Lessee at its expense may, in its own name or, if necessary and permitted, in the name of the Lessor (and, if necessary but not so permitted, the Lessee may require the Lessor to) contest after prior notice to the Lessor, by appropriate legal or administrative proceedings conducted in good faith and with due diligence, the amount, validity or application, in whole or in part, of any Imposition or Lien therefor, or any Legal Requirements or Insurance Requirements, or any matter underlying Lessee's indemnity obligations under Section 13 hereof, or any other Lien or contract or agreement referred to in Section 10(f) hereof; provided that (i) in the case of an unpaid Imposition or Lien therefor, such proceedings shall suspend the collection of such Imposition or the enforcement of such Lien against the Lessor, (ii) neither the Lessee's use of the Nuclear Material or any portion thereof nor the taking of any step necessary or proper with respect to such Nuclear Material in any stage of the Nuclear Material Cycle nor the performance of any other act required to be performed by the Lessee under this Lease Agreement would be enjoined, prevented or otherwise interfered with, (iii) the Lessor would not be subject to any additional civil liability (other than interest which the Lessee agrees to pay) or any criminal liability for failure to pay any such Imposition or to comply with any such Legal Requirements or Insurance Requirements or any such other Lien, contract or agreement, and (iv) the Lessee shall have set aside on its books adequate reserves (in accordance with generally accepted accounting principles) and shall have furnished such security, if any, as may be required in the proceedings or reasonably requested by the Lessor. The Lessee will pay, and save the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties harmless against, all losses, judgments, decrees and costs, 15 including attorneys' fees and expenses, in connection with any such contest and will, promptly after the determination of such contest, pay and discharge the amounts which shall be levied, assessed or imposed or determined to be payable, together with all penalties, fines, interest, costs and expenses incurred in connection with such contest. All rights and indemnification obligations under this Section 11 and each other indemnification obligation in favor of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties under this Lease Agreement shall survive any termination of this Lease Agreement or of the lease of any Nuclear Material hereunder. 12. Insurance; Compliance with Insurance Requirements. The Lessee shall comply with all Insurance Requirements and with all Legal Requirements pertaining to insurance. Without limiting the foregoing: (a) Liability and Casualty Insurance. The Lessee shall, at its own cost and expense, procure and maintain, or cause to be procured and maintained, liability insurance and indemnification with respect to the Nuclear Material insuring and indemnifying the Lessor, the Owner Trustee, U.S. Trust, the Lessee, and the Secured Parties to the full extent required or available, whichever may be greater, under the Atomic Energy Act or under any other applicable law, rule or regulation. In the event the provisions of the Atomic Energy Act with respect to liability insurance and the indemnification of owners, licensees and operators of Nuclear Material or any other provisions of the Atomic Energy Act which benefit the Lessor, the Owner Trustee, U.S. Trust or the Secured Parties shall change, then the Lessee shall use its best efforts to obtain equivalent insurance and indemnification agreements from the Nuclear Regulatory Commission or from such other public and/or private sources from which such coverage is available. The Lessee shall also, at its own cost and expense, procure and maintain, or cause to be procured and maintained, physical damage insurance with respect to the Nuclear Material insuring the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties against loss or damage to the Nuclear Material in a manner which is consistent at all times with current prudent utility industry practice in the United States; provided, however, that the Lessee shall in any event maintain physical damage insurance coverage for its Three Mile Island Unit 1 nuclear generating station site, including the Nuclear Material, in an amount not less than $1.11 billion. Such liability and physical damage insurance and indemnification agreements may be subject to deductible amounts which do not exceed in the aggregate $5,000,000, and the Lessee may self-insure with respect to such liability and physical damage insurance and indemnification agreements to the extent of $5,000,000, provided that such deductible amounts and such self-insurance are permitted under all applicable law, rules and regulations. 16 (b) Third Parties; Insurance Requirements. The Lessee shall use its best efforts to provide that the Nuclear Material, while in the possession of third parties, is covered for liability insurance and indemnification to the maximum extent available, and for physical damage insurance in an amount not less than the Stipulated Casualty Value of such Nuclear Material. To the extent that any such third party is maintaining such insurance coverage for the Nuclear Material, the Lessee shall have no obligation to do so under this Lease Agreement. (c) Named Insureds; Loss Payees. The Lessee shall provide for the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent to be named additional insureds where possible, and, with respect to physical damage coverage, named loss payees to the full extent of their interests in all insurance policies and indemnification agreements relating to the Nuclear Material required under this Section. All such policies and, where possible, indemnification agreements, shall provide for at least ten (10) days' prior written notice to the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent of any cancellation or material alteration of such policies. (d) Insurance Certificates. The Lessee shall, upon request of the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, provide the Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent, as the case may be, with copies of the policies or insurance certificates in respect of the insurance procured pursuant to the provisions of this Section and shall advise the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent of all expirations and renewals of policies and all notices issued by the insurers with respect to such policies. Within a six-month period from the execution of this Lease Agreement and at yearly intervals thereafter, the Lessee shall furnish to the Lessor, the Owner Trustee, U.S. Trust and the Collateral Agent a certificate as to the insurance coverage provided pursuant to this Section and shall further give notice as to any material change in the nature or availability of such coverage, including any material change whatsoever in the provisions of the Atomic Energy Act or any other applicable law, rule or regulation with respect to liability insurance and indemnification, or, immediately after the Lessee becomes aware, or should reasonably be expected to become aware, of any material change in the application, interpretation or enforcement thereof. The Lessor, the Owner Trustee, U.S. Trust or the Collateral Agent shall be under no duty to examine such insurance policies or indemnification agreements or to advise the Lessee in case the Lessee is not in compliance with any Insurance Requirements. 17 13. Indemnity. Without limitation of any other provision of this Lease Agreement, including Section 11, the Lessee agrees to indemnify and hold harmless each of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties and all companies, persons or firms controlling, controlled by, or under common control with any of them and the respective shareholders, directors, officers and employees of the foregoing against any and all claims, demands and liabilities of whatever nature and all costs, losses, damages, obligations, penalties, causes of action, judgments and expenses (including attorneys' fees and expenses) directly or indirectly relating to or in any way arising out of: (a) defects in title to Nuclear Material upon acquisition by the Lessor or in ownership of and interest in the Nuclear Material (the term "Nuclear Material" when used in this Section 13 shall include, in addition to all other Nuclear Material, nuclear material the lease of which has been terminated and which is in storage, or is being transported to storage, and which has not been sold or disposed of by the Lessor to the Lessee or to a third party); (b) the ownership, licensing, ordering, rejection, use, nonuse, misuse, possession, control, installation, acquisition, storage, containerization, transportation, blending, transfer, consumption, leasing, insuring, operating, disposing, fabricating, channelling, refining, milling, enriching, conversion, cooling, processing, condition, operation, inspection, repair and reprocessing of the Nuclear Material, or resulting from the condition of the environment including the adjoining and/or underlying land, water, buildings, streets or ways, except to the extent that such costs are included in the Acquisition Cost of such Nuclear Material within the limits specified in Section 4 (or within any change of such limits agreed to in writing by the Lessor and the Lessee) and except for any general administrative expenses of the Secured Parties and of their representatives; (c) the assertion of any claim or demand based upon any infringement or alleged infringement of any patent or other right, by or in respect of any Nuclear Material; provided, however, that the Lessor shall have made available to the Lessee all of the Lessor's rights under any similar indemnification from the Manufacturer of such Nuclear Material under any Nuclear Material Contract; (d) all federal, state, county, municipal, foreign or other fees and taxes of whatever nature including, but not limited to, license, qualification, franchise, sales, use, business, gross receipts, ad valorem, property, excise, and occupation fees and taxes and penalties and interest thereon, 18 whether assessed, levied against or payable by the Lessor or any Secured Party or to which the Lessor or any Secured Party is subject with respect to the Nuclear Material or the Lessor's or any Secured Party's ownership thereof or interest therein or the licensing, ordering, ownership, use, possession, control, acquisition, storage, containerization, transportation, blending, milling, enriching, transfer, consumption, leasing, insuring, operating, disposing, fabricating, channelling, refining, conversion, cooling and reprocessing of Nuclear Material or measured in any way by the value thereof or by the business of investment in, financing of or ownership by the Lessor or any Secured Party with respect thereto; provided, however, that the Lessee shall not be obligated to indemnify any Secured Party for any taxes, whether federal, state or local, based on or measured by net income of any Secured Party where taxable income is computed in substantially the same manner as taxable income is computed under the Code; (e) any injury to or disease, sickness or death of persons or loss of or damage to property occurring through or resulting from any Nuclear Incident involving or connected in any way with the Nuclear Material or any portion thereof; (f) any violation, or alleged violation, of this Lease Agreement by the Lessee or of any contracts or agreements to which the Lessee is a party or by which it is bound or any laws, rules, regulations, orders, writs, injunctions, decrees, consents, approvals, exemptions, authorizations, licenses and withholdings of objection, of any governmental or public body or authority and all other requirements having the force of law applicable at any time to the Nuclear Material or any action or transaction by the Lessee with respect thereto or pursuant to this Lease Agreement; (g) performance of any labor or service or the furnishing of any materials in respect of the Nuclear Material or any portion thereof, except to the extent that such costs are included in the Acquisition Cost of such Nuclear Material within the limits specified in Section 4 (or within any change of such limits agreed to in writing by the Lessor and the Lessee); or (h) liabilities based upon a theory of strict liability in tort, negligence or willful acts to the extent that such liabilities relate to the Nuclear Material or any action or transaction with respect thereto or pursuant to this Lease Agreement. The Lessee shall, upon demand, reimburse the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified 19 parties, as the case may be, for any sum or sums expended with respect to any of the foregoing or advance such amount, upon request by the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or such other party for payment thereof. With respect solely to the Lessor, the amount of any payment obligation of the Lessee under this Section 13 shall be determined on a net, after-tax basis, taking into account any tax benefit to the Lessor. Notwithstanding the foregoing, the Lessee shall not indemnify or hold harmless the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties for (i) any claims, demands, liabilities, costs or expenses which arise, result from or relate to obligations of such party as an insurer under contracts or agreements of insurance or reinsurance or (ii) any liability arising from the willful misconduct or gross negligence of the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties; provided, however, that the Lessee shall in any event indemnify and hold harmless the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties and other indemnified parties for that part of any such liability to which the Lessee has contributed. Without limiting any of the foregoing provisions of this Section 13, to the extent that the Lessee in fact indemnifies the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or such other party under this indemnity provision, the Lessee shall be subrogated to the rights of the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties and such other party in the affected transaction and shall have a right to determine the settlement of claims with respect to such transaction, provided that any such rights to which the Lessee shall be subrogated shall be subordinate and subject in right of payment to the prior payment in full of all liabilities to the Lessor, the Owner Trustee, U.S. Trust, the Secured Parties or other indemnified parties of the person or entity in respect of which such rights exist. The Lessor shall claim, on a timely basis, any refund to which it may be entitled with respect to any fees or taxes for which the Lessor has sought indemnification from the Lessee under Section 13(d), shall take all steps necessary to prosecute diligently such claim and shall pay over to the Lessee any refund (together with any interest received thereon) recovered by the Lessor with respect to such fees or taxes as soon as practicable following receipt thereof, provided that the Lessee shall have previously indemnified the Lessor with respect to such fees or taxes. The Owner Trustee, U.S. Trust and the Secured Parties, at the expense of the Lessee, (i) shall cooperate with the Lessee in such manner as the Lessee shall reasonably request in order to claim, on a timely basis, any refund to which the Owner Trustee, U.S. Trust or the Secured Parties may be entitled with respect to any fees or taxes for which the Lessee has indemnified the Owner Trustee, U.S. Trust or any Secured Party or for which the Lessee has an obligation to indemnify the Owner Trustee, U.S. Trust or the Secured Parties under Section 13(d) (provided that the Lessee is not in default of such obligation) if such cooperation is 20 necessary in order to claim such refund, (ii) shall take all steps which the Lessee shall reasonably request which are necessary to prosecute such claim, and (iii) shall pay over to the Lessee any refund (together with any interest received thereon) recovered by the Owner Trustee, U.S. Trust or any Secured Party with respect to such fees or taxes as soon as practicable following receipt thereof, provided that the Lessee shall have previously indemnified the Owner Trustee, U.S. Trust or such Secured Party with respect to such fees or taxes. All rights and indemnification obligations under this Section 13, and each other indemnification obligation in favor of the Lessor, the Owner Trustee, U.S. Trust and the Secured Parties under this Agreement, shall survive any termination of this Lease Agreement or of the lease of any Nuclear Material hereunder. 14. Casualty and Other Events. Upon the occurrence of any one or more of the following events: (a) the loss, destruction or damage beyond repair of any Nuclear Material, or (b) the commandeering, condemnation, attachment or loss of use to the Lessee of any Nuclear Material by reason of the act of any third party or governmental instrumentality or the deprivation or loss of use to the Lessee of any Nuclear Material for any other reason, other than by reason of a Lease Event of Default, for a period exceeding ninety (90) days; or (c) a determination by the Lessee in its sole discretion that any Nuclear Material is no longer useful to the Lessee, provided, however, that (i) no Lease Event of Default has occurred and is continuing, and (ii) no such determination may be made by the Lessee with respect to any Nuclear Material prior to November 5, 1999; Then, in any such case, the Lessee promptly shall give written notice to the Lessor and the Secured Parties of any such event, and upon the earlier of (i) ten (10) days following receipt of any insurance or other proceeds paid with respect to the foregoing or (ii) one hundred and twenty (120) days after the occurrence of any such event, the Lessee shall pay to the Lessor an amount equal to the then Stipulated Casualty Value of such Nuclear Material, together with any Basic Rent and Additional Rent then due with respect to such Nuclear Material. The lease of such Nuclear Material hereunder and the obligation of the Lessee to pay Basic Rent and Additional Rent with respect to such Nuclear Material shall continue until the day on which the Lessor receives payment of such Stipulated Casualty Value, Basic Rent and Additional Rent. Upon the giving of written notice of the occurrence of such an event, the Lessee shall promptly use its best efforts to sell, or, if no sale is possible, to otherwise convey, on behalf of the Lessor, ownership of such Nuclear Material to a third party not 21 disqualified by any applicable statute, law, regulation or agreement from acquiring such Nuclear Material, and the Lessor shall furnish title papers as may be necessary to effect such sale or conveyance on an as-is, where-is, non-installment, cash sale basis without recourse to or warranty or agreement of any kind by the Lessor. Any such sale or conveyance shall be effected on or before the date one hundred and twenty (120) days after the date of the occurrence of such event. The proceeds of such sale or conveyance shall be paid to the Lessor, and any amount so paid shall constitute a credit against the amount of the Stipulated Casualty Value payable by the Lessee under this Section 14. 15. Nuclear Material to Remain Personal Property. It is expressly understood and agreed that the Nuclear Material shall be and remain personal property notwithstanding the manner in which it may be attached or affixed to realty and notwithstanding any law or custom or the provisions of any lease, mortgage or other instrument applicable to any such realty. The Lessee agrees to indemnify the Lessor and the Secured Parties against, and to hold the Lessor and the Secured Parties harmless from, all losses, costs and expenses (including reasonable attorneys' fees and expenses) resulting from any of the Nuclear Material becoming part of any realty. Upon termination of the lease of any Nuclear Material, any costs of removal, transportation, storage and delivery of such Nuclear Material shall be paid by the Lessee. The Lessor and the Secured Parties shall not be liable for any physical damage caused to any realty or any building by reason of the removal of the Nuclear Material therefrom. 16. Events of Default. Each of the following events of default by the Lessee shall constitute a "Lease Event of Default" and give rise to the rights on the part of the Lessor described in Section 17 hereof: (i) Default in the payment of Basic Rent or Additional Rent, if any, on the date on which such payment is due and the continuance of such default for five (5) days; (ii) Default in the payment of Termination Rent; (iii) The Lessee shall fail to maintain liability and casualty insurance pursuant to its obligations under Section 12(a) of this Lease Agreement; (iv) The Lessee shall fail to perform its obligations to purchase Nuclear Material pursuant to Section 8(e) of this Lease Agreement; 22 (v) Any representation or warranty or statement made by the Lessee (or any of its officers) herein or in connection with this Lease Agreement shall prove to be incorrect or misleading in any material respect when made; (vi Default in the payment or performance of any other material liability or obligation or covenant of the Lessee to the Lessor, and the continuance of such default for thirty (30) days after written notice to the Lessee sent by registered or certified mail; (vii) The Lessee suspends or discontinues its business operations or becomes insolvent (however such insolvency may be evidenced) or admits insolvency or bankruptcy or its inability to pay its debts as they mature, makes an assignment for the benefit of creditors or applies for or consents to the appointment of a trustee or receiver for the Lessee or for the major part of its property; (viii) The institution of bankruptcy, reorganization, liquidation or receivership proceedings for relief under any bankruptcy law or similar law for the relief of debtors by or against the Lessee and, if instituted against the Lessee, its consent thereto or the pendency of such proceedings for sixty (60) days; (ix) An event of default (the effect of which is to permit the holder or holders of any instrument, or the trustee or agent on behalf of such holder or holders, to cause the indebtedness evidenced by such instrument to become due prior to its stated maturity) shall occur under the provisions of any instrument evidencing indebtedness for borrowed money of the Lessee in a principal amount equal to at least $20,000,000 or if any obligation of the Lessee for the payment of such indebtedness shall become or be declared to be due and payable prior to its stated maturity, or shall not be paid when due and is not paid within the applicable cure period, if any, provided for the payment of such indebtedness under such instrument; (x) An event of default shall occur under the provisions of any Basic Document and such default shall have continued beyond any applicable cure period. (xi) A final judgment in an amount in excess of $20,000,000 is rendered against the Lessee, and within thirty (30) days after the entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within thirty (30) days after the expiration of any such stay, such judgment is not discharged; or 23 (xii) Other than pursuant to a condemnation proceeding, any court, governmental officer or agency shall, under color of legal authority, take and hold possession of any substantial part of the property or assets of the Lessee. 17. Rights of the Lessor Upon Default of the Lessee. Upon the occurrence of any Lease Event of Default, the Lessor may, in its discretion, and shall, at the direction of the Secured Parties, do one or more of the following: (a) Terminate the lease term of any or all Nuclear Material upon five (5) days written notice to the Lessee sent by registered or certified mail; (b) Whether or not any lease of any Nuclear Material is terminated, and, subject to any applicable law or regulation, take immediate possession of any or all Nuclear Material or cause such Nuclear Material to be taken from the possession of the Lessee, and/or take immediate possession of and remove other property of the Lessor in the possession of the Lessee, wherever situated and for such purpose enter upon any premises without liability for so doing or require the Lessee, at the Lessee's expense, to deliver the Nuclear Material, properly containerized and insulated for shipping to the Lessor or to such other person as the Lessor may designate, in which case the risk of loss shall be upon the Lessee until such delivery is made; (c) Whether or not any action has been taken under (a) or (b) above, and subject to any applicable law or regulation, sell any Nuclear Material (with or without the concurrence and whether or not at the request of the Lessee) at public or private sale, and the Lessee shall be liable for and shall promptly pay to the Lessor all unpaid Rent to the date of receipt by the Lessor of the proceeds of such sale plus any deficiency between the net proceeds of such sale and the Stipulated Casualty Value of such Nuclear Material at the time of such payment by the Lessee; provided, however, that any proceeds of such sale in excess of the sum of such unpaid Rent, the Stipulated Casualty Value of such Nuclear Material and all other amounts payable by the Lessee under this Section 17 shall be received for the benefit of, and shall be paid over to the Lessee, as soon as practicable after receipt thereof; 24 (d) Subject to any applicable law or regulation, sell in a commercially reasonable manner, dispose of, hold, use, operate, remove, lease or keep idle any Nuclear Material as the Lessor in its sole discretion may determine, without any obligation to account to the Lessee with respect to such action or inaction or for any proceeds thereof, except that the net proceeds of any such selling, disposing of, holding, using, operating or leasing shall be credited by the Lessor against any Rent accruing after the Lessor shall have declared this Lease Agreement as to any or all of the Nuclear Material to be in default pursuant to this Section; provided, however, that any net proceeds of any such selling, disposing of, holding, using, operating or leasing in excess of the sum of any such accrued Rent and all other amounts payable by the Lessee under this Section 17 shall be received for the benefit of, and shall be paid over to the Lessee, as soon as practicable after receipt thereof; (e) Terminate this Lease Agreement as to any or all of the Nuclear Material or exercise any other right or remedy which may be available under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof. If the Lessee fails to deliver, promptly after written request, the Nuclear Material pursuant to (b), above, subject to reasonable wear and tear, obsolescence and exhaustion, in good operating condition and repair, or converts or destroys any Nuclear Material, the Lessee shall be liable to the Lessor for all Rent then due and payable on the Nuclear Material, all other amounts then due and payable under this Lease Agreement, the then Stipulated Casualty Value of such Nuclear Material, plus any loss, damage and expense (including without limitation reasonable attorneys' fees and expenses) sustained by the Lessor by reason of such Lease Event of Default and the exercise of the Lessor's remedies with respect thereto, including any costs incurred under the Credit Agreement and the Security Agreement, and any other amounts owed to the Secured Parties with respect to the Notes. If, upon the occurrence of a Lease Event of Default, the Lessee delivers Nuclear Material to the Lessor or to such other person as the Lessor may designate, or if the Lessor repossesses or causes Nuclear Material to be repossessed on its behalf, the Lessee 25 shall be liable for and the Lessor may recover from the Lessee all Rent on the Nuclear Material due and payable to the date of such delivery or repossession, all other amounts due and payable under this Lease Agreement, plus any loss, damage and expense (including without limitation reasonable attorneys' fees and expenses) sustained by the Lessor by reason of such Lease Event of Default and the exercise of the Lessor's remedies with respect thereto. No remedy referred to in this Section 17 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to the Lessor at law or in equity and the exercise in whole or in part by the Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by the Lessor of any or all such other remedies. No waiver by the Lessor of any Lease Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Lease Event of Default. 18. Termination After Certain Events. (a) This Lease Agreement may terminate as provided in Section 18(b) below prior to the expiration of its term in connection with any of the following "Terminating Events": (i) The Lessor shall have given notice that the Lessor is not satisfied with any change in the insurers, coverage, amount or terms of any insurance policy or indemnity agreement required to be obtained and maintained by the Lessee pursuant to Section 12; (ii) There shall occur the revocation or material adverse modification of any authorization, consent, exemption or approval theretofore obtained from any regulatory body or governmental authority necessary for the carrying out of the intent and purposes of this Lease Agreement or the actions or transactions contemplated hereby, and the effectiveness of any such revocation or material adverse modification shall not be stayed pending any appeal thereof; (iii) A Nuclear Incident involving or connected in any way with the Nuclear Material shall have occurred, and the Lessor shall have given notice to the Lessee that the 26 Lessor believes such Nuclear Incident may give rise to an aggregate liability, or to damage, destruction or personal injury in excess of $20,000,000; (iv) There shall have occurred a Deemed Loss Event; (v) Any change in, or new interpretation by a governmental authority having jurisdiction relating to, the Price-Anderson Act, as amended, or the Atomic Energy Act, or the regulations of the Nuclear Regulatory Commission thereunder, in each case as in effect on the date of this Lease Agreement, shall have been adopted, and the Lessor shall have given notice to the Lessee that, in the opinion of independent counsel selected by the Lessor and reasonably satisfactory to the Lessee and the Secured Parties as a result of such change or new interpretation the Lessor is prohibited from asserting any material right, protection or defense available under applicable law as of the date of this Lease Agreement with respect to civil or criminal actions brought in connection with a Nuclear Incident; (vi) Any law or regulation or interpretation (judicial, regulatory or otherwise) of any law or regulation shall be adopted or enforced by any Court or governmental authority, and as a result of such adoption or enforcement, approval of the transactions contemplated by this Lease Agreement shall be required and shall not have been obtained within any applicable grace period after such adoption or enforcement or as a result of which adoption or enforcement this Lease Agreement or any transaction contemplated hereby, including any payments to be made by the Lessee or the ownership of the Nuclear Material by the Lessor, shall be or become unlawful, or the performance of this Lease Agreement shall be rendered impracticable in any material way; or (vii) Any governmental licenses, approvals or consents with respect to the Generating Facility, without which the Generating Facility cannot continue to operate, shall have been revoked and the Lessee shall not have, in good faith, within one hundred and eighty (180) days of such revocation, represented in writing to the Lessor that the Lessee has made a good faith determination that such Generating Facility will return to operation within twenty-four (24) months of such revocation, or for any other reason the Generating Facility shall cease to be operated for a period of twenty-four (24) consecutive months. 27 (b) Upon the happening of any of the Terminating Events listed in Section 18(a), Lessor and/or the Secured Parties may, at their option, terminate this Lease Agreement, such termination to be effective upon delivery of the Notice contemplated by paragraph (d)(ii) below, except with respect to obligations and liabilities of the Lessee, actual or contingent, which arose under the Lease Agreement on or prior to the date of termination and except for the Lessee's obligations set forth in Sections 10, 12 and 13, and in this Section 18, all of which obligations will continue until the delivery of documentation by the Lessor and the payment by the Lessee provided for below, and except that after such delivery and payment, the Lessee's obligations under Section 13 shall continue as therein set forth as shall all of Lessee's indemnification obligations set forth in other sections of this Lease Agreement. (c) Upon any such termination, the entire interest of the Lessor in the Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee shall automatically transfer to and be vested in the Lessee, without the necessity of any action by either the Lessor or the Lessee, provided, however, that if the Lessor shall have theretofore approved in writing such Person and the terms of such transfer, the entire interest of the Lessor in such Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee shall, upon such termination, automatically transfer to and be vested in any Person designated by the Lessee. (d) Promptly after either party shall learn of the happening of any Terminating Event, such party shall give notice of the same to the other party and to the Secured Parties. (ii) If the Lessor and/or Secured Parties elect to terminate the Lease Agreement, they shall give notice to the Lessee and the Secured Parties or the Lessor, as the case may be, which notice shall (x) acknowledge that the Lease Agreement has terminated, subject to the continuing obligations of the Lessee mentioned above, and that title to and ownership of such Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee has transferred to and vested in the Lessee or such other Person, and (y) specify a Termination Settlement Date occurring one hundred and fifty (150) days after the giving of such notice. After such termination of this Lease Agreement and until such Termination Settlement Date, the Lessee shall continue to pay Basic Rent and Additional Rent. On such Termination Settlement Date, the Lessee shall be 28 obligated to pay to the Lessor as the purchase price for the Nuclear Material an amount equal to the sum of (x) Stipulated Casualty Value of the Nuclear Material as of the Termination Settlement Date and (y) the Termination Rent on the Termination Settlement Date. The Lessor shall be obligated to deliver to the Lessee a Lessor's Bill of Sale, substantially in the form of Exhibit E, on an as-is, where-is, non-installment, cash sale basis, without recourse to or warranty or agreement of any kind by the Lessor acknowledging the transfer and vesting of title and ownership of the Nuclear Material and any spent fuel relating thereto for which title has not been transferred to the Lessee, in accordance with paragraph (c) above and confirming that upon payment by the Lessee of the amounts set forth in the immediately preceding sentence, the Nuclear Material is free and clear of the Liens created by the Collateral Agreements, together with such documents, if any, as may be required to evidence the release of such Liens. 19. Investment Tax Credit. To the extent that the Lessee determines the Nuclear Material is or becomes eligible for any investment or similar credit under the Code as now or hereafter in effect, the Lessee shall request in writing that the Lessor elect to treat the Lessee as having acquired such Nuclear Material, and, if permitted to do so under the Code and under any other applicable law, rule or regulation, the Lessor, pursuant to such request of the Lessee, shall provide the Lessee with an appropriate investment credit election and the Lessee shall consent to such election. A condition to the Lessor's making such election will be the provision by the Lessee of a report or statement with respect to all Nuclear Material as to which the investment credit election is applicable. Such report or statement shall contain such information and be in such form as may be required for Internal Revenue Service reporting purposes. The Lessee shall indemnify and hold harmless the Lessor and any affiliates with respect to any adverse tax consequence, other than the loss of the credit, which may result from such election including, but not limited to, any increase in the Lessor's income taxes due to any required reduction of the Lessor's tax basis below the Lessor's cost of the Nuclear Material, and the Lessee agrees to pay to or on behalf of the Lessor, or otherwise make available to the Lessor, funds sufficient to put the Lessor in the same after-tax position (other than by reason of the loss of the investment credit) the Lessor would have been in if such election had not been made. 29 20. Certificates; Information; Financial Statements. (a) The Lessee will from time to time deliver to the Lessor and the Secured Parties, promptly upon reasonable request (i) a statement executed by any Vice President, Treasurer or Assistant Treasurer or any other assistant officer of the Lessee, certifying the dates to which the sums payable hereunder have been paid, that this Lease Agreement is unmodified and in full effect (or, if there have been modifications, that this Lease Agreement is in full effect as modified, and identifying such modifications) and that no Lease Event of Default or Terminating Event has occurred and is continuing (or specifying the nature and period of existence of any thereof and what action the Lessee is taking or proposes to take with respect thereto), (ii) such information with respect to the Nuclear Material as the Lessor or the Secured Parties may reasonably request, and (iii) such information with respect to the Lessee's operations, business, property, assets, financial condition or litigation as the Lessor or any assignee of the Lessor or the Secured Parties may reasonably request. (b) The Lessee will deliver to the Lessor and the Secured Parties: (i) Quarterly Financial Statements. As soon as practicable and in any event within ninety (90) days after the end of each fiscal quarter (other than the last fiscal quarter in each fiscal year), three (3) copies of a balance sheet of the Lessee (consolidated and consolidating if the Lessee has any subsidiaries) as of the end of such quarter and of statements of income and cash flows of the Lessee (consolidated and consolidating if the Lessee has any subsidiaries) for such quarter, setting forth in each case corresponding figures in comparative form for the corresponding period of the preceding fiscal year, each certified as true and correct by the chief accounting officer thereof; provided, however, that delivery pursuant to clause (iii) below of copies of the Lessee's Quarterly Report on Form 10-Q for such quarter containing such financial statements filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i); (ii) Annual Financial Statements. As soon as practicable and in any event within one hundred and twenty (120) days after the end of each fiscal year, three (3) copies of an annual report of the Lessee consisting of its financial 30 statements, including a balance sheet as of the end of such fiscal year (consolidated and consolidating if the Lessee has any subsidiaries) and statements of income and cash flows for the year then ended (consolidated and consolidating if the Lessee has any subsidiaries), setting forth corresponding figures in comparative form for the preceding fiscal year, with all notes thereto, all in reasonable detail and certified by independent public accountants of recognized standing selected by the Lessee (only with respect to the consolidated financial statements, if applicable); provided, however, that delivery pursuant to clause (iii) below of copies of the Lessee's Annual Report on Form 10-K for such fiscal year containing such financial statements filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii); and (iii) SEC Reports, etc. With reasonable promptness, copies of all notices, reports or materials filed by the Lessee with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission) under the Securities Act of 1933, as amended, other than Registration Statements on Form S-8 or any amendments thereto, or the Securities Exchange Act of 1934, as amended, other than Annual Reports on Form 10-K, and including without limitation, all Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Together with each delivery of financial statements required by clause (b)(i) above, the Lessee will deliver to the Lessor and the Secured Parties an Officer's Certificate stating that the Lessee is in compliance with the terms of this Lease Agreement and stating that there exists no Lease Event of Default, or Terminating Event or, if any Lease Event of Default, or Terminating Event exists, specifying the nature and period of existence thereof and what action the Lessee proposes to take with respect thereto. The Lessee also covenants that promptly upon the obtaining of knowledge of a Lease Event of Default by the chief executive officer, principal financial officer or principal accounting officer of the Lessee, it will deliver to the Lessor and the Secured Parties an Officer's Certificate specifying the nature and period of existence thereof and what action the Lessee proposes to take with respect thereto. 21. Obligation of the Lessee to Pay Rent. The Lessee's obligation to pay, as the same becomes due, Basic Rent, Additional Rent, Termination Rent, and all other amounts payable hereunder shall, subject to the covenant of the Lessor contained in Section 3 31 hereof, be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense or other right which the Lessee may have against the Lessor or anyone else for any reason whatsoever, (ii) any defect in the title, compliance with specifications, condition, design, operation or fitness for use of, or any damage to or loss or destruction of, any Nuclear Material, or (iii) any interruption or cessation in the use or possession of any Nuclear Material by the Lessee for any reason whatsoever. The Lessee hereby waives, to the extent permitted by applicable law, any and all rights which it may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender this Lease Agreement except in accordance with its express terms. Each payment of Rent and each other payment made by the Lessee shall be final, and the Lessee will not seek to recover all or any part of such payment from the Lessor for any reason whatsoever. 22. Miscellaneous (a) Successors and Assigns. This Lease Agreement shall be binding upon the Lessee and the Lessor and their respective successors and assigns and shall inure to the benefit of the Lessee and the Lessor and their respective successors and assigns; provided that, without the prior written consent of all the Secured Parties, the Lessee shall not be entitled to assign its rights or obligations hereunder. (b) Waiver. Neither party shall by act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder unless such waiver is given in writing. A waiver on one occasion shall not be construed as a waiver on any other occasion. (c) Entire Agreement. This Lease Agreement, together with the written instruments provided for or contemplated hereby, the other Basic Documents and other written agreements between the parties dated as of the date hereof, constitute the entire agreement between the parties with respect to the leasing of Nuclear Material, and no representations, warranties, promises, guaranties or agreements, oral or written, express or implied, have been made by either party or by any one else with respect to this Lease Agreement or the Nuclear Material, except as may be expressly provided for herein or therein. Any change or modification of this Lease Agreement must be in writing and duly executed by the parties. 32 (d) Descriptive Headings. The captions in this Lease Agreement are for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions. (e) Severability. Any provision of this Lease Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. (f) Governing Law. This Lease Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the law of the Commonwealth of Pennsylvania. 33 IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease Agreement to be executed and delivered by their duly authorized officers as of the day and year first above written. TMI-1 FUEL CORP. Lessor ATTEST By: (Assistant) Secretary Name: Title: PENNSYLVANIA ELECTRIC COMPANY Lessee ATTEST By: (Assistant) Secretary Name: Title: 34 STATE OF ) --------------------- COUNTY OF ) SS: -------------- On this ___ day of ________, 1998, before me personally appeared , to me personally known, who, being by me duly sworn, says that he is of TMI-1 Fuel Corp. and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. Notary Public My commission Expires: STATE OF ) --------------------- COUNTY OF ) SS: -------------- On this ___ day of ___________, 1998, before me personally appeared ____________, to me personally known, who, being by me duly sworn, says that he is _____________________ of Pennsylvania Electric Company and that said instrument was signed on behalf of said corporation by authority of its Board of Directors, and he acknowledged that the execution of the foregoing instrument was the free act and deed of said corporation. Notary Public My commission Expires: 35 ATTACHMENTS Appendix A -- Definitions Exhibit A -- Form of Interim Leasing Record Exhibit B -- Form of Final Leasing Record Exhibit C -- Nuclear Material Contracts Exhibit D -- Form of Assignment Agreement and Consent Exhibit E -- Form of Lessor's Bill of Sale Exhibit F -- Form of Rent Due and SCV Confirmation Schedule 36 APPENDIX A DEFINITIONS As used in the Basic Documents (as defined below), the following terms shall have the following meanings (such definitions to be applicable to both singular and plural forms of the terms defined), except as otherwise specifically defined therein: "Acquisition Cost" means the purchase price of any Nuclear Material, any progress payments made thereon, costs of milling, conversion, enrichment, fabrication, installation, delivery, redelivery, containerization, storage, reprocessing, any other costs incurred by the Company in acquiring the Nuclear Material (less any discounts or credits actually utilized by the Company), plus in any case (i) any allowance for funds used during construction (including any income tax component associated with such allowance) with respect to Nuclear Material purchased by the Company, (ii) at the option of the Lessee, any Rent relating to costs incurred in the ordinary course of operations but excluding Rent relating to extraordinary costs, including without limitation, indemnification payments, payable by the lessee to the Company with respect to any Nuclear Material prior to the installation of such Nuclear Material for operation in the Generating Facility, (iii) any sales, excise or other taxes or charges payable by the Company with respect to any such payment for such Nuclear Material, (iv) at the option of the Lessee, any Monthly Financing Charge payable by the Lessee to the Company with respect to Nuclear Material during any period in which such Nuclear Material is subject to an Interim Leasing Record, but excluding any interest charges or penalties for late payment by the Company of the purchase price or any portion thereof, if such late payment results from the negligence of the Company, (v) such other costs with respect to any Nuclear Material as may be agreed by the Company and the Lessee and approved by the Administrative Agent, in each case in writing, and, in the case of any Nuclear Material removed from the Generating Facility for the purpose of "cooling off' and repair or reprocessing, shall include the Stipulated Casualty Value thereof at the time of such removal, if any, and (vi) at the option of the Lessee, any Financing Costs. Any amount realized by the Company from the disposition of the by-products (including, but not limited to, plutonium) of Nuclear Material specified in a Leasing Record during the repair or reprocessing of such Nuclear Material while leased hereunder shall be credited against the Acquisition Cost of such Nuclear Material. "Additional Rent" shall mean all legal, accounting, administrative and other operating expenses and taxes incurred by the Company to the extent not paid as part of Basic Rent (including, without limitation, any Cancellation Fees and all other 37 liabilities incurred or owed by the Company pursuant to the Basic Documents) and all amounts (other than Basic Rent) that the Lessee agrees to pay under the Lease Agreement (including, without limitation, indemnification payable under the Lease Agreement, general and administrative expenses of the Company, and, to the extent not included in Acquisition Cost, Financing Costs) and interest at the rate incurred by the Company or any Secured Party as a result of any delay in payment by the Lessee to meet obligations that would have been satisfied out of prompt payment by the Lessee, and the amount of any and all other costs, losses, damages, interest, taxes, deficiencies, liabilities, obligations, actions, judgments, suits, claims, fees (including, without limitation, attorneys' fees and disbursements) and expenses, of every kind, nature, character and description, direct or indirect, that may be imposed on or incurred by the Company as a result of, arising from or relating to, in any manner whatsoever, one or more Basic Documents, or any other document referred to therein, or the transactions contemplated thereby or the enforcement thereof. For purposes of calculating the interest incurred by the Company or any Secured Party as a result of any such delay, it shall be assumed that the Company or any Secured Party, as applicable, incurred interest at the Credit Agreement Default Rate. "Administrative Agent" shall have the meaning specified therefor in the first paragraph of the Credit Agreement. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person. For purposes of this definition, the term "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Aggregate Monthly Rent Component" shall mean the sum of the Monthly Rent Components for all items of Nuclear Material which are installed in the Generating Facility during the relevant period. "Assigned Agreement" means a Nuclear Material Contract which has been assigned to the Company in the manner specified in Section 5 of the Lease Agreement pursuant to a duly executed and delivered Assignment Agreement. The term Assigned Agreement shall include a Partially Assigned Agreement. "Assignment Agreement" means an assignment agreement substantially in the form of Exhibit D to the Lease Agreement. 38 "Atomic Energy Act" means the Atomic Energy Act of 1954, as from time to time amended. "Banks" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Basic Documents" means the Lease Agreement, the Credit Agreement, the Security Agreement, the Commercial Paper, the Notes, the Letter Agreement, the Dealer Agreements, the Assigned Agreements, the Assignment Agreements, the Trust Agreement, the Depositary Agreement, each Bill of Sale, each Leasing Record, each SCV Confirmation Schedule, and other agreements related or incidental thereto which are identified in writing by the Company, the Lessee and the Secured Parties as one of the "Basic Documents," in each case, as such documents may be amended from time to time. "Basic Rent" means, for any Basic Rent Period, the sum of (a) that portion of the Monthly Financing Charge not allocated to Acquisition Cost pursuant to the Lease Agreement plus (b) the Aggregate Monthly Rent Component as shown on a Rent Due and SCV Confirmation Schedule for such Basic Rent Period. "Basic Rent Payment Date" means, for any Basic Rent Period, the first Business Day of the next succeeding calendar month following such Basic Rent Period. "Basic Rent Period" means each calendar month or portion thereof commencing on, in the case of the first such period, the effective date of the Lease Agreement, and in the case of each succeeding period, the first day following the immediately preceding Basic Rent Period, and ending on the earliest of (i) the last day of any calendar month or (ii) the Termination Settlement Date. "BTU Charge" means the dollar amount set forth in the BTU Charge Agreement which is used to calculate the Monthly Rent Component. The BTU Charge initially set forth for any Nuclear Material in any Final Leasing Record shall be the amount agreed upon by the Lessor and the Lessee as set forth in Attachment 1 to Exhibit B to the Lease Agreement based upon the reasonably anticipated operating life, BTU output, and utilization of such Nuclear Material. "BTU Charge Agreement" shall mean an agreement in the form of Attachment 1 to Exhibit B to the Lease Agreement with respect to any Nuclear Material executed by the Lessor and the Lessee on or prior to the date of the Final Leasing Record covering such Nuclear Material. 39 "Business Day" means any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in New York City are authorized by law to close. "Capitalized Lease" means any and all lease obligations which are or should be capitalized on the balance sheet of the Person in question in accordance with generally accepted accounting principles and Statement No. 13 of the Financial Accounting Standards Board or any successor to such pronouncement regarding lease accounting, without regard for the accounting treatment permitted or required under any applicable state or federal public utility regulatory accounting system, unless such treatment controls the determination of the generally accepted accounting principles applicable to such Person. "Cash Collateral" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Closing," means November 5, 1998. "Code" means the Internal Revenue Code of 1986, as from time to time amended. "Collateral" has the meaning set forth in the granting clauses of the Security Agreement and includes all property of the Company described in the Security Agreement as comprising part of the Collateral. "Collateral Agent" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Collateral Agreements" means, collectively, the Security Agreement, all Assignment Agreements, and any other assignment, security agreement or instrument executed and delivered to the Secured Parties hereafter relating to property of the Company which is security for the Notes. "Collected Funds" means funds which are immediately available to the Secured Parties, as the Lessor's assignees, for its use in New York, New York. "Commercial Paper" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Commercial Paper Discount" shall mean, at any time, amounts payable by the Company in respect of the Face Amount of Commercial Paper outstanding in excess of the Acquisition Cost together with any Cash Collateral reduced by the aggregate total 40 amount, if any, of (i) the Monthly Rent Components paid by the Lessee to the Lessor with respect to the Nuclear Material financed thereby and (ii) any Monthly Financing Charge payable by the Lessee to the Company with respect to Nuclear Material during any period in which such Nuclear Material is subject to an Interim Leasing Record ("Excess Face Amount"); provided, however, that any such Excess Face Amount shall not exceed the additional Face Amount of Commercial Paper necessary to be issued by the Company at a discount to face value to purchasers thereof in the commercial paper market in order to obtain proceeds in an amount equal to the Acquisition Cost reduced by the aggregate total amount, if any, of (a) the Monthly Rent Components paid by the Lessee to the Lessor with respect to the Nuclear Material financed thereby and (b) any Monthly Financing Charge payable by the Lessee to the Company with respect to Nuclear Material during any period in which such Nuclear Material is subject to an Interim Lease Record, together with any Cash Collateral. Amounts payable in respect of Commercial Paper Discount during any calendar month or portion thereof shall be paid on the first Business Day of the next succeeding month in which such amounts are incurred. "Company" means the TMI-1 Fuel Corp., a Delaware corporation. "Consents and Agreements" means the agreements, each substantially in the form attached as Exhibit 2 to Exhibit D to the Lease Agreement, between the Lessee and the various contractors under the Nuclear Material Contracts, with such changes to Exhibit 2 to Exhibit D as the Secured Parties may consent to in writing, which consent shall not be unreasonably withheld. "Controlled Group" means a controlled group of corporations of which the Company is a member within the meaning of Section 414(b) of the Code, any group of corporations or entities under common control with the Company within the meaning of Section 414(c) of the Code or any affiliated service group of which the Company is a member within the meaning of Section 414(m) of the Code. "Credit Agreement" means the Credit Agreement dated as of November 5, 1998 among TMI-1 Fuel Corp. The First National Bank of Chicago, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, the Banks parties thereto, and First Chicago Capital Markets, Inc. and PNC Capital Markets, Inc., as Arrangers. "Credit Agreement Default" means an event which would, with the lapse of time or the giving of notice or both, constitute a Credit Agreement Event of Default. 41 "Credit Agreement Event of Default" means any one or more of the events specified in Section 10.01 of the Credit Agreement. "Dealer Agreements" means any agreement pursuant to which any Person is at any time acting as a Dealer. "Deemed Loss Event" means the following event: if at any time during the term of the Lease Agreement, (A) the Company, by reason solely of the ownership of the Nuclear Material or any part thereof or the lease of the Nuclear Material to the Lessee under the Lease Agreement, or the Company or any Secured Party, by reason solely of any other transaction contemplated by the Lease Agreement or any of the other Basic Documents, shall be deemed, by any governmental authority having jurisdiction, to be, or to be subject to regulation as an "electric utility" or a "public utility" or a "public utility holding company" or similar type of entity, under any applicable law or deemed a "public utility company" or a "subsidiary company" or a "holding company" within the meaning of the Public Utility Holding Company Act, (B) the Public Utility Holding Company Act shall be amended, applied, or interpreted in a manner, or any rules or regulations shall be adopted under the Public Utility Holding Company Act of 1935, which adversely affect the legality, validity and enforceability of the lease obligations of the Company and the Lessee under the Lease Agreement, or (C) either the Company or any of the Secured Parties, by reason solely of being a party to the Basic Documents, shall be required to obtain any consent, order or approval of, or to make any filing or registration with, or to give any notice to, any governmental authority, or be subject to any liabilities, duties or obligations under the Public Utility Holding Company Act, other than the filing by the Company of a certificate on Form U-7D with the SEC pursuant to SEC Rule 7(d) under the Public Utility Holding Company Act (17 C.F.R. Section 250.7(d)), except in any case if the same shall be solely the result of Nonburdensome Regulation; provided, however, that if in compliance with applicable laws, the Lessee, with the cooperation of the Company, shall have acted diligently and in good faith to contest, or obtain an exemption from the application of the laws, rules or regulations described in clauses (A), (B) or (C) to the Company, the Secured Parties or the Lessee, as the case may be, the application of which would otherwise constitute a Deemed Loss Event, such Deemed Loss Event shall be deemed not to have occurred so long as (I) the Lessee shall have furnished to the Company and the Secured Parties an opinion of counsel reasonably satisfactory to the Company and the Secured Parties to the effect that there exists a reasonable basis for such contest or exemption and that the application of such laws, rules or regulations to the Company, the Secured Parties or the Lessee, as the case may be, 42 shall be effectively stayed during the application for exemption or contest and such laws, rules or regulations shall not be applied retroactively at the conclusion of such contest, (II) the Company or the Secured Parties shall have determined in their sole discretion that such contest or exemption shall not adversely affect their business or involve any danger of the sale, foreclosure or loss of, or creation of a Lien upon, the Collateral, and (III) the Lessee shall have agreed to indemnify the Company or such Secured Parties, as the case may be, for expenses incurred in connection with such contest or exemption; and further provided, that following notice from the Lessee to the Company or the Secured Parties, as the case may be, that the Lessee shall be unable to furnish the opinion described in clause (I) of the next preceding proviso or that any such contest shall not be successful or such exemption shall not be available, a Deemed Loss Event shall be deemed not to have occurred for such period, not to exceed 270 days, as may be approved by any governmental authority having jurisdiction during which application of such law, rule or regulation to the Company, the Secured Parties or the Lessee, as the case may be, shall be suspended to enable the Company to assign or transfer its interest in the Collateral so long as during such period the Company shall use reasonable efforts to assign or transfer its interest in the Collateral upon commercially reasonable terms and conditions, provided that the Company shall not be required to assign or transfer the Nuclear Material for a price which, after deduction of sales tax and expenses of such sale incurred by the Company, shall be less than the sum of (A) Stipulated Casualty Value determined as of the date of such proposed sale, and (B) the Termination Rent determined in accordance with Section 18 of the Lease Agreement. "Depositary Agreement" means the Depositary Agreement, dated as of November 5, 1998, among the Company, Chase Manhattan Bank, as Depositary and The First National Bank of Chicago, as Administrative Agent. "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. "Excepted Payments" means any indemnity, expense, or other payment which by the terms of any of the Basic Documents shall be payable to the Company in order for the Company to satisfy its obligations pursuant to Section 7.8 of the Trust Agreement. "Face Amount" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Federal Energy Regulatory Commission" means the independent regulatory commission of the Department of Energy of 43 the United States Government existing under the authority of the Department of Energy Organization Act, as amended, or any successor organization or organizations performing any identical or substantially identical licensing and related regulatory functions. "Federal Power Act" means the Federal Power Act, as amended. "Final Leasing Record" means a Leasing Record which records the leasing of Nuclear Material during any period while such Nuclear Material is installed for operation in the Generating Facility. A Final Leasing Record shall be in the form of Exhibit B to the Lease Agreement. "Financing Costs" means (a) fees and other amounts owing to any Secured Party or to the Owner Trustee under the Trust Agreement, (b) legal fees and disbursements and other amounts referred to in Section 10(b) of the Security Agreement, (c) legal, accounting, and other fees and expenses incurred by the Lessee and/or the Company in connection with the preparation, execution and delivery of Basic Documents or the issuance of the Commercial Paper and/or the Notes, and (d) such other reasonable fees and expenses of the Owner Trustee and the Company as they may be entitled to under the Basic Documents. "Fuel Management" means the design of, contracting for, fixing the price and terms of acquisition of, management, movement, removal, disengagement, storage and other activities in connection with the acquisition, utilization, storage and disposal of the Nuclear Material. "Generating Facility" means the nuclear reactor located at the Three Mile Island Unit 1 Nuclear Generating Station, located in Londonderry Township, Pennsylvania. "Heat Production" means the stage of the Nuclear Material Cycle commencing with the commercial operation of a Generating Facility, during which the Nuclear Material in question is producing thermal energy which results in the production of net positive electrical energy transmitted within the distribution network of any utility and during which the Nuclear Material in question is engaged in the reactor core of such Generating Facility. "Hereof," "herein," "hereunder" and words of similar import when used in a Basic Document refer to such Basic Document as a whole and not to any particular section or provision thereof. 44 "Imposition" means any payment required by a public or governmental authority in respect of any property subject to the Lease Agreement or any transaction pursuant to the Lease Agreement or any right or interest held by virtue of the Lease Agreement; provided, however, that Imposition shall not include any taxes, whether federal, state or local, payable by any Secured Party based on or measured by net income of any Secured Party where taxable income is computed in substantially the same manner as taxable income is computed under the Code. "Insurance Requirements" means all terms of any insurance policy or indemnification agreement covering or applicable to (i) any Nuclear Material or (ii) the Generating Facility or the Lessee in its capacity as licensee of the Generating Facility, in each case insofar as any insurance policy or indemnification agreement directly or indirectly relates to the Nuclear Material or the performance by the Lessee of its obligations under the Basic Documents, and all requirements of the issuer of any such policy or agreement necessary to keep such insurance or agreements in force. "Interim Leasing Record" means a Leasing Record which records the leasing of Nuclear Material (i) prior to installation for operation in the Generating Facility, (ii) after removal from the Generating Facility during the "cooling off" and storage period, and (iii) while being reprocessed. An Interim Leasing Record shall be in the form of Exhibit A to the Lease Agreement. "Investment Company Act" means the Investment Company Act of 1940, as from time to time amended. "Lease Agreement" means the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 between TMI-1 Fuel Corp., as the Lessor, and Pennsylvania Electric Company, as the Lessee, as the same may be modified, supplemented or amended from time to time. "Lease Event of Default" has the meaning specified in Section 16 of the Lease Agreement. "Leasing Record" is a form signed by the Lessor and the Lessee to record the leasing under the Lease Agreement of the Nuclear Material specified in such Leasing Record. A Leasing Record shall be either an Interim Leasing Record or a Final Leasing Record. "Legal Requirements" means all applicable provisions of the Atomic Energy Act, all applicable orders, rules, regulations 45 and other requirements of the Nuclear Regulatory Commission and the Federal Energy Regulatory Commission, and all other laws, rules, regulations and orders of any other jurisdiction or regulatory authority relating to (i) the licensing, acquisition, storage, containerization, transportation, blending, transfer, consumption, leasing, insuring, using, operating, disposing, fabricating, channelling and reprocessing of the Nuclear Material, (ii) the Generating Facility or the Lessee in its capacity as licensee of the Generating Facility, in each case insofar as such provisions, orders, rules, regulations, laws and other requirements directly or indirectly relate to the Nuclear Material or the performance by the Lessee of its obligations under the Basic Documents or (iii) the Basic Documents, insofar as any of the foregoing directly or indirectly apply to the Lessee. "Lessee" has the meaning specified in the introduction to the Lease Agreement. "Lessee Representative" means a person at the time designated to act on behalf of the Lessee by a written instrument furnished to the Company and the Secured Parties containing the specimen signature of such person and signed on behalf of the Lessee by any of its officers. The certificate may designate an alternate or alternates. A Lessee Representative may be an employee of the Lessee or of the Owner Trustee. "Lessor" has the meaning specified in the introduction to the Lease Agreement, and its successors and assigns. "Lessor's Bill of Sale" means an instrument substantially in the form of Exhibit E to the Lease Agreement, pursuant to which title to all or any portion of the Nuclear Material is transferred to the Lessee or any designee of the Lessee. "Letter Agreement" means the Lessee's Letter Agreement Regarding TMI-1 Fuel Corp., dated as of November 5, 1998, between the Lessee, the Company, and the Administrative Agent, as it may be amended from time to time. "Lien" means any mortgage, pledge, lien, security interest, title retention, charge or other encumbrance of any nature whatsoever (including any conditional sale or other title retention agreement, any lease in the nature thereof and the filing of or agreement to execute and deliver any financing statement under the Uniform Commercial Code of any jurisdiction). "Loans" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. 46 "Majority Secured Parties" means at any time the Secured Parties holding at such time more than 66% of the outstanding principal amount of all Secured Obligations. "Manufacturer" means any supplier of Nuclear Material or of any service (including without limitation, enrichment, fabrication, transportation, storage and processing) in connection therewith, or any agent or licensee of any such supplier. "Manufacturer's Consent" means any consent which may be given by a Manufacturer under a Nuclear Material Contract to the assignment by the Lessee to the Company of all or a portion of the Lessee's rights under such Nuclear Material Contract or of all or a portion of any such rights previously assigned by the Lessee to the Secured Parties. "Monthly Debt Service" for any calendar month means the sum of the Monthly Financing Charge for such calendar month. "Monthly Financing Charge" means, for any calendar month or portion thereof, the sum of: (a) all Commercial Paper Discount payable by the Company with respect to Commercial Paper outstanding during such month and/or all interest payable by the Company during such month with respect to all outstanding Notes and in each case, not included in Acquisition Cost; and (b) the amounts paid or due and payable by the Company with respect to the transactions contemplated by the Basic Documents during such calendar month for the following other fees, costs, charges and expenses incurred or owed by the Company under or in connection with the Lease Agreement or the other Basic Documents: (i) legal, printing, reproduction and closing fees and expenses, (ii) auditors', accountants' and attorneys' fees and expenses, (iii) franchise taxes and income taxes, and (iv) any other fees and expenses incurred by the Company under or in respect of the Basic Documents. Any figure used in the computation of any component of the Monthly Financing Charge shall be stated to five decimal places. "Monthly Rent Component" for any Nuclear Material covered by a Final Leasing Record for each calendar month during the lease of such Nuclear Material shall be as follows: (i) for the first partial calendar month the Monthly Rent Component shall be zero; 47 (ii) for the first full calendar month the Monthly Rent Component shall be zero; (iii) for the second full calendar month the Monthly Rent Component shall be zero; (iv) for the third full calendar month the Monthly Rent Component shall be an amount determined by multiplying (x) the amount of thermal energy in millions of British Thermal Units of heat produced by such Nuclear Material during the first calendar month while covered by the Final Leasing Record and also during the first partial calendar month, if any, such Nuclear Material was covered by an Interim or Final Leasing Record and was engaged in Heat Production by (y) the BTU Charge set forth in the Final Leasing Record covering such Nuclear Material; and (v) for each full calendar month after the third full calendar month, the Monthly Rent Component shall be an amount determined by multiplying (x) the amount of thermal energy in millions of British Thermal Units of heat produced by such Nuclear Material during the second preceding month by (y) the BTU Charge set forth in the Final Leasing Record covering such Nuclear Material. The BTU Charge for any Nuclear Material may be revised by the Lessee at any time during the lease thereof to reflect any reasonably anticipated change in its operating life, BTU output, or utilization. Such revision shall be effected by the Lessee's executing and forwarding to the Lessor a revised Final Leasing Record dated the first day of the following month and setting forth such revised BTU Charge. Upon receipt of such revised Final Leasing Record, the Lessor shall execute and return a copy thereof to the Lessee. Such revised BTU Charge shall be applicable to such Nuclear Material for each month thereafter beginning on the date of the revised Final Leasing Record. "Nonburdensome Regulation" means (i) ministerial regulatory requirements that do not impose limitations or regulatory requirements on the business or activities of, or adversely affect, the Company or any Secured Party and that are deemed, in the reasonable discretion of the Company or any Secured Party, not to be burdensome, or (ii) assuming redelivery of the Nuclear Material in accordance with the Lease Agreement, regulation resulting from any possession of the Nuclear Material (or right thereto) on or after the termination of the Lease Agreement. 48 "Notes" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Nuclear Incident" shall have the meaning specified in the Atomic Energy Act, 42 U.S.C. Section 2014(q), as such definition may be amended from time to time. "Nuclear Material" means those items which have been purchased by or on behalf of the Company for which a duly executed Leasing Record has been delivered to the Company and which continue to be subject to the Lease Agreement consisting of (i) the items described in such Leasing Record and each of the components thereof in the respective forms in which such items exist during each stage of the Nuclear Material Cycle, being substances and equipment which, when fabricated and assembled and loaded into a nuclear reactor, are intended to produce heat, together with all attachments, accessories, parts and additions and all improvements and repairs thereto, and all replacements thereof and substitutions therefor and (ii) the substances and materials underlying the right, title and interest of the Lessee under any Nuclear Material Contract assigned to the Company pursuant to the Lease Agreement; provided, however, that the term Nuclear Material shall not include spent fuel. "Nuclear Material Contract" means any contract, as from time to time amended, modified or supplemented, entered into by the Lessee, either in its own name or as agent for the Lessor, with one or more Manufacturers relating to the acquisition of Nuclear Material or any service in connection with the Nuclear Material. "Nuclear Material Cycle" means the various stages in the process, whether physical or chemical, by which the component parts of the Nuclear Material are designed, mined, milled, processed, converted, enriched, fabricated into assemblies utilizable for Heat Production, loaded or installed into a reactor core, utilized, disengaged from a reactor core or stored, together with all incidental processes with respect to the Nuclear Material at any such stage. "Nuclear Regulatory Commission" means the independent regulatory commission of the United States Government existing under the authority of the Energy Reorganization Act of 1974, as amended, or any successor organization or organizations performing any identical or substantially identical licensing and related regulatory functions. "Obligations" means (i) all items (including, without limitation, Capitalized Leases but excluding shareholders' equity 49 and minority interests) which in accordance with generally accepted accounting principles should be reflected on the liability side of a balance sheet as at the date as of which such obligations are to be determined; (ii) all obligations and liabilities (whether or not reflected upon such balance sheet) secured by any Lien existing on the Property held subject to such Lien, whether or not the obligation or liability secured thereby shall have been assumed; and (iii) all guarantees, endorsements (other than for collection in the ordinary course of business) and contingent obligations in respect of any liabilities of the type described in clauses (i) and (ii) of this definition (whether or not reflected on such balance sheet); provided, however, that the term 'Obligations' shall not include deferred taxes. "Obligations for Borrowed Money or Deferred Purchase Price" means all Obligations in respect of borrowed money or the deferred purchase price of property or services. "Officer's Certificate" means, with respect to any corporation, a certificate signed by the President, any Vice President, the Treasurer, any Assistant Treasurer, the Comptroller, or any Assistant Comptroller of such corporation, and with respect to any other entity, a certificate signed by an individual generally authorized to execute and deliver contracts on behalf of such entity. "Outstandings" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Owner Trust Estate" means all estate, right, title and interest of the Owner Trustee in and to the outstanding stock of the Company and in and to all monies, securities, investments, instruments, documents, rights, claims, contracts, and other property held by the Owner Trustee under the Trust Agreement; provided, however, that there shall be excluded from the Owner Trust Estate all Excepted Payments. "Owner Trustee" means United States Trust Company of New York, not in its individual capacity but solely as trustee under and pursuant to the Trust Agreement, and its permitted successors. "PaPUC" means the Pennsylvania Public Utility Commission or any successor agency thereto. "Partially Assigned Agreement" means a Nuclear Material Contract which has been assigned, in part but not in full, to the Company in the manner specified in Section 5 of the Lease Agreement pursuant to a duly executed and delivered Assignment Agreement. 50 "PBGC" means the Pension Benefit Guaranty Corporation, created by Section 4002(a) of ERISA and any successor thereto. "Permitted Liens" means (i) any assignment of the Lease Agreement permitted thereby, and by the Credit Agreement, (ii) liens for Impositions not yet payable, or payable without the addition of any fine, penalty, interest or cost for nonpayment, or being contested by the Lessee as permitted by Section 11 of the Lease Agreement, (iii) liens and security interests created by the Security Agreement, (iv) the title transfer and commingling of the Nuclear Material contemplated by paragraph (h) of Section 10 of the Lease Agreement, and (v) liens of mechanics, laborers, materialmen, suppliers or vendors, or rights thereto, incurred in the ordinary course of business for sums of money which under the terms of the related contracts are not more than 30 days past due or are being contested in good faith by the Lessee as permitted by Section 11 of the Lease Agreement; provided, however, that, in each case, such reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made in respect thereto. "Person" means any individual, partnership, joint venture, corporation, trust, unincorporated organization or other business entity or any government or any political subdivision or agency thereof. "Plan" means, with respect to any Person, any plan of a type described in Section 4021(a) of ERISA in respect of which such Person is an "employer" or a "substantial employer" as defined in Sections 3(5) and 4001 (a) (2) of ERISA, respectively. "Proceeds" shall have the meaning assigned to it under the Uniform Commercial Code, as amended, and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Company from time to time with respect to the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to the Company from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Public Utility Holding Company Act" means the Public Utility Holding Company Act of 1935, as from time to time amended. 52 "Qualified Institution" means a commercial bank organized under the laws of, and doing business in, the United States of America or in any State thereof, which has combined capital, surplus and undivided profits of at least $150,000,000 having trust power. "Related Person" means, with respect to any Person, any trade or business, (whether or not incorporated) which, together with such Person, is under common control as described in Section 414(c) of the Code. "Rent" means Basic Rent, Additional Rent and Termination Rent. "Rent Due and SCV Confirmation Schedule" means an instrument, substantially in the form of Exhibit G to the Lease Agreement, which is to be used by the Lessee (i) to calculate Basic Rent for each Basic Rent Period and Other Rent and (ii) to calculate and acknowledge the SCV at the end of each Basic Rent Period. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder. "Responsible Officer" means a duly elected or appointed, authorized, and acting officer, agent or representative of the Person acting. "Secured Obligations" means each and every debt, liability and obligation of every type and description which the Company may now or at any time hereafter owe to any Secured Party under, pursuant to or in connection with the Credit Agreement, any Note, the Letter of Credit or any other Basic Document, whether such debt, liability or obligation now exists or is hereafter created or incurred, and whether it is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or joint, several or joint and several, including, without limitation the Face Amount of any Commercial Paper, the principal of, interest on and any premium due with respect to any Loan and all indemnifications, costs, expenses, fees and other compensation of the Secured Parties provided for, and all other amounts owed to the Secured Parties, under the Security Agreement, Credit Agreement and the other Basic Documents. "Secured Parties" means the Banks, any other holder from time to time of any Note and any holder from time to time of any Commercial Paper. "Securities Act" means the Securities Act of 1933, as from time to time amended. 52 "Security Agreement" means the Security Agreement and Assignment of Contracts, dated as of November 5, 1998, by and among the Company and The First National Bank of Chicago, as Collateral Agent in favor of the Secured Parties. "Single Employer Plan" means any Plan which is not a multi-employer plan as defined in Section 4001(a) (3) of ERISA "Stipulated Casualty Value" or "SCV" for any Nuclear Material covered by any Leasing Record means an amount equal to the Acquisition Cost for such Nuclear Material reduced by the aggregate total amount, if any, of the Monthly Rent Components paid by the Lessee to the Lessor with respect to such Nuclear Material together with Commercial Paper Discount. "Syndication Agent" shall have the meaning specified therefor in the first paragraph of the Credit Agreement. "Termination Date" shall have the meaning specified therefor in Section 1.02 of the Credit Agreement. "Termination Rent" means an amount which, when added to the Stipulated Casualty Value and Basic Rent then payable by the Lessee, if any, will be sufficient to enable the Company to retire, at their respective maturities, all outstanding Notes and Commercial Paper and to pay all charges, premiums and fees owed to the holders of Notes under the Credit Agreement and to pay all other obligations of the Company incurred in connection with the implementation of the transactions contemplated by the Basic Documents. "Termination Settlement Date" has the meaning specified in Section 8(c), or Section 18(c) of the Lease Agreement. "Terminating Event" has the meaning specified in Section 18 of the Lease Agreement. "Trust" means the TMI-I Fuel Corp. and Oyster Creek Fuel Corp. Trust, a trust formed pursuant to the Trust Agreement. "Trust Agreement" means the Second Amended and Restated Trust Agreement dated as of November 5, 1998 among Lord Fuel Corp., as Trustor, the Owner Trustee, as trustee, Lord Fuel Corp., as beneficiary, and Jersey Central Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric Company, each as lessee under certain lease agreements, as the same may be amended, modified or supplemented from time to time. 53 "Trustor" means the institution designated as such in the Trust Agreement and its permitted successors. "UBS Credit Agreement" means the Credit Agreement dated as of November 17, 1995 among TMI-1 Fuel Corp., Union Bank of Switzerland, New York Branch, as Arranging Agent, Union Bank of Switzerland, New York Branch, as Issuing Bank, the Banks Party thereto and Union Bank of Switzerland, New York Bank, as Administrative Agent. "UCC" means the Uniform Commercial Code as adopted and in effect in the State of New York. "U.S. Trust" means United States Trust Company of New York. 54 EXHIBIT A INTERIM LEASING RECORD Record No. _____ Name of Lessee: Pennsylvania Electric Company Date of Record: __________________ Date and No. of prior Interim or Final Leasing Record (if any): Description and location of Nuclear Material covered by this Record: Assembly Serial Nos.: Subassembly Serial Nos.: Acquisition Cost of Nuclear Material under prior Leasing Record (if any): $___________ Acquisition Cost added by this Record: $___________ Total: $___________ Credits to Acquisition Cost: $___________ Total Acquisition Cost under this Record $___________ Specify nature of Acquisition Cost added by this Record and to whom paid: Specify nature of any credits received by Lessor covered by this Record and from whom received: 55 Basic Rent for the Nuclear Material covered by this Record shall be calculated and paid as provided in Section 9 of the Second Amended and Restated Nuclear Material Lease Agreement referred to below. The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear Material described above in accordance with the covenants, terms and conditions of the Second Amended and Restated Nuclear Material Lease Agreement between the undersigned Lessor and Lessee, dated as of November 5, 1998 which covenants, terms and conditions are incorporated herein by reference. TMI-1 FUEL CORP., Lessor PENNSYLVANIA ELECTRIC COMPANY, Lessee By By Authorized Signature Authorized Signature 56 EXHIBIT B FINAL LEASING RECORD Record No. _____ Name of Lessee: Pennsylvania Electric Company Date of Record: __________________ Date and No. of prior Interim or Final Leasing Record: Description and location of Nuclear Material covered by this Record: Assembly Serial Nos.: Subassembly Serial Nos.: Acquisition Cost of Nuclear Material under prior Leasing Record (if any): $___________ Acquisition Cost added by this Record: $___________ Total: $___________ Credits (if any) to Acquisition Cost: $___________ Total Acquisition Cost under this Record $___________ BTU Charge: $__________ Specify nature of Acquisition Cost added by this Record and to whom paid: Specify nature of any credits received by Lessor covered by this Record and from whom received: Basic Rent for the Nuclear Material covered by this Record shall be calculated and paid as provided in Section 9 of the Second Amended and Restated Nuclear Material Lease Agreement referred to below. 57 The undersigned Lessor hereby leases to the undersigned Lessee the Nuclear Material described above in accordance with the covenants, terms and conditions of the Second Amended and Restated Nuclear Material Lease Agreement between the undersigned Lessor and Lessee, dated as of November 5, 1998, which covenants, terms and conditions are incorporated herein by reference. TMI-1 FUEL CORP., Lessor PENNSYLVANIA ELECTRIC COMPANY, Lessee By By Authorized Signature Authorized Signature 58 Attachment 1 to Exhibit B BRITISH THERMAL UNIT CHARGE AGREEMENT Dated: November 5, 1998 The undersigned Lessor and Lessee agree that the initial British Thermal Unit Charge to be used to calculate the Monthly Rent Component for the Nuclear Material pursuant to the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between the undersigned Lessor and Lessee shall be as follows: Description of Nuclear Material British Thermal Unit Charge TMI-1 FUEL CORP. PENNSYLVANIA ELECTRIC COMPANY By: By: Its: Its: 59 EXHIBIT C NUCLEAR MATERIAL CONTRACTS The Agreements (each as amended and restated) referred to in Section 5 of the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between TMI-1 FUEL CORP. ("Lessor") and PENNSYLVANIA ELECTRIC COMPANY ("Lessee") are: (1) Agreement, dated January 30, 1975, between Sequoyah Fuels Corporation and GPUN, as agent for the Lessee, JCP&L and Met-Ed. (2) Agreement, dated February 12, 1996, between United States Enrichment Corporation and GPUN, as agent for the Lessee, JCP&L and Met-Ed. (3) Agreement, dated as of June 14, 1995 between Framatome Cogema Fuels and GPUN, as agent for the Lessee, JCP&L and Met-Ed. 60 EXHIBIT D ASSIGNMENT AGREEMENT KNOW ALL MEN BY THESE PRESENTS THAT: Pennsylvania Electric Company (the "Assignor"), in consideration of one dollar and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, does hereby sell, grant, bargain, convey and assign to TMI-1 Fuel Corp. ("Assignee"), all right, title and interest of the Assignor in, to and under the Nuclear Material Contract (the "Nuclear Material Contract") described in Exhibit 1 attached hereto insofar as such Nuclear Material Contract relates to the Nuclear Material described in Exhibit 1 (all of such property, including the items described on Exhibit 1 attached hereto as included with the Property, being herein collectively called the "Property"). Terms not defined herein shall have the meanings given in Exhibit 1 attached hereto. TO HAVE AND TO HOLD the Property unto the Assignee, its successors and assigns, to its and their own use forever. 1. The interest of the Assignor in the Property, and the interest transferred by this Assignment Agreement, is that of absolute ownership. 2. The Assignor hereby warrants that it is the lawful owner of the rights and interests conveyed by this Assignment Agreement and that its title to such rights and interests is hereby conveyed to the Assignee free and clear of all liens, charges, claims and encumbrances of every kind whatsoever, other than (i) the amounts, if any, owing under the Nuclear Material Contract, (ii) other claims, if any, of the Assignor and the Contractor which may exist as between themselves and (iii) Permitted Liens (as defined in the Lease Agreement referred to below); and that the Assignor will warrant and defend such title forever against all claims and demands whatsoever. 3. The Assignor hereby releases and transfers to the Assignee any right, title or interest in the Nuclear Material which may have been acquired by the Assignor under the Nuclear Material Contract prior to the date hereof. 4. This Assignment Agreement is made in accordance with the Second Amended and Restated Nuclear Material Lease Agreement dated as of November 5, 1998, between the Assignor and the Assignee (said Nuclear Material Lease Agreement, as the same 61 may be from time to time amended, modified or supplemented, being herein called the "Lease Agreement"). Pursuant to a Security Agreement and Assignment of Contracts made by TMI-1 Fuel Corp. dated as of November 5, 1998 (said Security Agreement and Assignment of Contracts, as the same may from time to time be amended, modified or supplemented, being herein called the "Security Agreement") made by Assignee in favor of the Secured Parties, as defined therein, the Assignee is assigning and granting a security interest in the Property and this Assignment Agreement to the Secured Parties, as collateral security for all obligations and liabilities of the Assignee to the Secured Parties, as such obligations are described in the Security Agreement. 5. It is expressly agreed that, anything contained herein to the contrary notwithstanding, (a) the Assignor shall at all times remain liable to the Contractor to observe and perform all of its duties and obligations under the Nuclear Material Contract to the same extent as if this Assignment Agreement and the Security Agreement had not been executed, (b) the exercise by the Assignee or the Secured Parties of any of the rights assigned hereunder or under the Security Agreement, as the case may be, shall not release the Assignor from any of its duties or obligations to the Contractor under the Nuclear Material Contract, and (c) neither the Assignee nor any of the Secured Parties shall have any obligation or liability under the Nuclear Material Contract by reason of or arising out of this Assignment Agreement, the Lease Agreement or the Security Agreement, or be obligated to perform or fulfill any of the duties or obligations of the Assignor under the Nuclear Material Contract, or to make any payment thereunder, or to make any inquiry as to the nature or sufficiency of any Property received by it thereunder, or to present or file any claim, or to take any action to collect or enforce the payment of any amounts or the delivery of any Property which may have been assigned to it or to which it may be entitled at any time or times; provided, however, the Assignee agrees, solely for the benefit of the Assignor, and subject to the terms and conditions of the Lease Agreement, (i) to purchase the Nuclear Material from the Contractor pursuant to the Nuclear Material Contract, (ii) to pay to the Contractor and/or to the Assignor or their order the respective amounts specified in the Lease Agreement with respect to such Nuclear Material and (iii) to lease such Nuclear Material to the Assignor in accordance with and subject to the terms and conditions of the Lease Agreement. The provisions of the Nuclear Material Contract limiting the liability of the Contractor and its suppliers and subcontractors' under that Contract shall remain effective against the Assignee and Secured Parties to the same extent that such provisions are effective against the Assignor. 62 6. Notwithstanding anything contained herein to the contrary, subject to the terms and conditions of the Lease Agreement, the Assignor may continue to engage in Fuel Management (as such term is defined in the Lease Agreement) with respect to the Property, including, without limitation, all dealings with the Contractor and, subject to such terms and conditions and effective until the occurrence of a Lease Event of Default (as defined in the Lease Agreement), (i) the Assignee reassigns to the Assignor the Assignee's rights under clauses (iii), (iv), (v) and (vi) of subparagraph (b) of Exhibit 1 to this Assignment Agreement (provided, however, that insurance proceeds are reassigned to the Assignor pursuant hereto only to the extent that such proceeds are needed and used to reimburse the Assignor for the cost of repairing damage or destruction to Nuclear Material or are used to purchase Nuclear Material from the Assignee in accordance with the Lease Agreement, and provided further, however, that the Assignee's rights under clause (vi) are reassigned to the Assignor subject in all respects to the limitations set forth in paragraph 8. below), and (ii) the Assignee agrees that the Assignor may, to the extent set forth in clause (i) above, to the exclusion of the Assignee, exercise and enforce such rights. 7. The Assignor shall promptly and duly execute, deliver, file and record all such further counterparts of this Assignment Agreement or such certificates, financing and continuation statements and other instruments as may be reasonably requested by the Assignee, and take such further actions as the Assignee shall from time to time reasonably request, in order to establish, perfect and maintain the rights and remedies created or intended to be created in favor of the Assignee and the Secured Parties hereunder and the Assignee's title to and interest in the Property as against the Assignor or any third party in any applicable jurisdiction. 8. The Assignor hereby agrees that it will not enter into or consent to or permit any cancellation, termination, amendment, supplement or modification of or waiver with respect to the Nuclear Material Contract insofar as it relates to the Nuclear Material except for cancellations, terminations, amendments, supplements, modifications or waivers which do not materially adversely affect the Assignee or the Secured Parties or their respective interests in the Property, nor will the Assignor sell, assign, grant any security interest in or otherwise transfer its rights or other interests in the Property or any part thereof, except as permitted by the Lease Agreement. 9. The Assignor hereby represents and warrants that the Nuclear Material Contract is in full force and effect and represents that it is the only agreement between the Assignor and the Contractor with respect to the Nuclear Material. 63 10. This Assignment Agreement shall become effective only upon receipt of the written consent of the Contractor to the assignment of the rights and interests conveyed hereunder, if such consent is required under the Nuclear Material Contract. The Assignor hereby agrees to send the Contractor a copy of this Assignment Agreement. 11. This Assignment Agreement shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the Assignor has caused this Assignment Agreement to be duly executed and delivered as of the ____ day of __________, 1998. PENNSYLVANIA ELECTRIC COMPANY By: Title: The foregoing Assignment Agreement is hereby accepted: TMI-1 FUEL CORP. By: Title: 64 EXHIBIT 1 to Assignment Agreement (a) The _____________ (as the same may from time to time be amended, modified or supplemented, being herein called the "Nuclear Material Contract"), dated as of _____________, between Pennsylvania Electric Company and ______________ (the "Contractor), insofar as, and only to the extent that, the Contract relates to _________________ (the "Nuclear Material"); but not insofar as the Contract provides for the provision of other nuclear materials and services to the Assignor; and (b) The Property shall include, without limitation, (i) any and all amendments and supplements to the Nuclear Material Contract from time to time executed and delivered to the extent that any such amendment or supplement relates to the Nuclear Material, (ii) the Nuclear Material, including the right to receive title thereto, (iii) all rights, claims and proceeds, now or hereafter existing, under any insurance, indemnities, warranties and guaranties provided for in or arising out of the Nuclear Material Contract, to the extent that such rights or claims relate to the Nuclear Material, (iv) any claim for damages arising out of or for breach or default by the Contractor under or in connection with the Nuclear Material Contract insofar as it relates to the Nuclear Material, (v) any other amount, whether resulting from refunds or otherwise, from time to time paid or payable by the Contractor under or in connection with the Nuclear Material Contract insofar as it relates to the Nuclear Material and (vi) the right of the Assignor to terminate the Nuclear Material Contract or to perform or to exercise or enforce thereunder, insofar as it or they relate to the Nuclear Material. 65 EXHIBIT 2 to Assignment Agreement CONSENT AND AGREEMENT The undersigned, _________________ (the "Contractor"), has entered into a _______________ (as the same may from tune to time be amended, modified or supplemented, being herein called the "Nuclear Material Contract"), dated as of ____________, 19__ with Pennsylvania Electric Company (the "Assignor"). The Contractor hereby acknowledges notice that (i) in accordance with the terms of the Second Amended and Restated Nuclear Material Lease Agreement dated as of November 5, 1998, between the Assignor and TMI-1 Fuel Corp. (the "Assignee"), the Assignor has assigned to the Assignee a part of the Assignor's rights under the Nuclear Material Contract pursuant to an Assignment Agreement, in the form of Annex A hereto (such Assignment Agreement, as the same may from time to time be amended, modified or supplemented, being herein collectively called the "Assignment"), and (ii) pursuant to a Security Agreement and Assignment of Contracts made by TMI-1 Fuel Corp. dated as of November 5, 1998 (said Security Agreement and Assignment Contracts, as the same may from time to time be amended, modified or supplemented, being herein called the "Security Agreement") made by the Assignee in favor of the Secured Parties as defined therein (the "Secured Parties"), the Assignee has assigned and granted a security interest in all rights under the Nuclear Material Contract from time to time assigned to it by Assignor, as collateral security for all obligations and liabilities of the Assignee to the Secured Parties. The Contractor hereby consents to (i) the assignment by the Assignor to the Assignee of part of the Assignor's right, title and interest in, to and under the Nuclear Material Contract and the other Property described in the Assignment pursuant to the Assignment and (ii) the assignment and security interest in favor of the Secured Parties as described above. The Contractor further consents to all of the terms and provisions of the Security Agreement. The Contractor agrees that, if requested by either the Assignor or the Assignee, it will acknowledge in writing the Assignment delivered by the Assignor to the Assignee; provided, that neither the lack of notice to nor acknowledgment by the Contractor of the Assignment shall limit or otherwise affect the validity or effectiveness of this consent to such Assignment. 66 The Contractor hereby confirms to the Assignee and the Secured Parties that: (a) all representations, warranties and agreements of the Contractor under the Nuclear Material Contract which relate to the Nuclear Material described in the Assignment shall inure to the benefit of, and shall be enforceable by, the Assignee or any Secured. Party to the same extent as if originally named in the Contract as the purchaser of such Nuclear Material, (b) the Contractor understands that, pursuant to the Lease Agreement, the Assignee has agreed to lease the Nuclear Material described in the Assignment to the Assignor, and consents to the assignment to the Assignor, for so long as the Lease Agreement shall be in effect or until otherwise notified by the Assignee, of the Assignee's rights under clauses (iii), (iv), (v) and (vi) of subparagraph (b) of Exhibit 1 to the Assignment to the extent that such rights are reassigned to the Assignor pursuant to the Assignment, (c) The Contractor is in the business of selling nuclear fuel and related services of the kind described in the Assignment, and the proposed sale of such nuclear fuel under the Nuclear Material Contract will be in the ordinary course of business of the Contractor, and (d) Notwithstanding any provision to the contrary contained in the Nuclear Material Contract, the Contractor agrees that title to any Nuclear Material covered by the Assignment shall pass directly to the Assignee under the Contract and shall not pass to the Assignor; provided that the foregoing shall not apply to any Nuclear Material for which title has already passed from the Contractor prior to the execution and delivery of the Assignment. It is understood that neither the Assignment, the Security Agreement nor this Consent and Agreement shall in any way add to the obligations of the Contractor or the Assignor under the Nuclear Material Contract. This Consent and. Agreement shall be governed by and construed in accordance with the laws of the State of ____________. 67 IN WITNESS WHEREOF, the undersigned has caused this Consent and Agreement to be duly executed and delivered by its duly authorized officer as of the ____ day of ________, 19__. By: Title: 68 EXHIBIT E BILL OF SALE TO PENNSYLVANIA ELECTRIC COMPANY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, TMI-1 Fuel Corp., a Delaware corporation (the "Seller"), whose post office address is c/o United States Trust Company of New York, 114 West 47th Street, New York, New York 10036, Attention: Corporate Trust and Agency Division, for and in consideration paid to the Seller upon or before the execution and delivery of this Bill of Sale to Pennsylvania Electric Company (the "Purchaser"), a Pennsylvania corporation, whose address is 2800 Pottsville Pike, Reading, Pennsylvania 19640, Attention: Comptroller, hereby conveys, transfers, sells and sets over unto the Purchaser all of its right, title and interest in all of the personal property consisting of the assemblies of nuclear fuel or components thereof or other nuclear material described in Annex I hereto (the "Assets"), and by this Bill of Sale does hereby grant, bargain, sell, convey, transfer and deliver the Assets unto the Purchaser, to have and to hold such undivided interest in the Assets unto the Purchaser, for itself, its successors and assigns, forever. The Assets are transferred and conveyed by the Seller AS-IS, WHERE-IS, WITHOUT REPRESENTATIONS OR WARRANTIES (EXPRESS OR IMPLIED) OF ANY KIND WHATSOEVER BY THE SELLER OR ANY PERSON ACTING ON ITS BEHALF except that the Seller represents and warrants that it has not by voluntary act or omission created or granted any lien on the Assets, other than Permitted Liens, as defined in that certain Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 between the Seller and the Purchaser. The Purchaser acknowledges and agrees that neither the Seller, its directors, officers or employees, any company, person or firm controlling, controlled by, or under common control with any of them nor any other person acting on behalf of the Seller is a manufacturer of, or is engaged in the sale or distribution of, nuclear material, has had at any time physical possession of any portion of the Assets sold hereunder, or has made any inspection thereof. The Purchaser further acknowledges and agrees that the Assets sold hereunder have been at all times in the possession of the Purchaser and that the Purchaser has made such inspections thereof as it deems necessary and that the Purchaser has been solely responsible for all decisions made with respect to the choice of the suppliers of such Assets and the enrichment, fabrication, transportation, storage and processing of the same. 69 IN WITNESS WHEREOF, the Seller has caused these presents to be executed by one of its Vice Presidents, this ____ day of ________, 19__. TMI-1 FUEL CORP., Seller By: Vice President Acknowledgment and Acceptance The foregoing Bill of Sale is hereby acknowledged and accepted by the undersigned as of the date last above written. PENNSYLVANIA ELECTRIC COMPANY, Purchaser By: Its: 70 EXHIBIT F RENT DUE AND SCV CONFIRMATION SCHEDULE For the Basic Rent Period Ended _______ In accordance with the Second Amended and Restated Lease Agreement dated as of _________ __, 1998, between TMI-1 Fuel Corp., as Lessor, and Pennsylvania Electric Company, as Lessee, the Lessee certifies that all amounts set forth below are true and correct in all respects, and both Lessor and Lessee certify that this Schedule has been prepared in accordance with the provisions of the Lease Agreement. I. BASIC RENT, ADDITIONAL RENT AND TERMINATION RENT A. Basic Rent Owed 1. Calculation of Portion of Monthly Financing Charge Not Allocated to Acquisition Cost a. Interest Payable with Respect to All Outstanding Notes (See attached summary calculation $ b. Other Amounts Included in Monthly Financing Charge $ c. Total Monthly Financing Charge Not Allocated to Acquisition Cost (Total of 1(a) and 1(b) $ 2. Aggregate Monthly Rent Component (See attached summary calculation) $ 3. BASIC RENT (total of 1(c) and 2) $ ========= B. Additional Rent Owed (see attached summary calculation) $ C. Termination Rent Owed (see attached summary calculation $ TOTAL RENT DUE (total of A, B and C) $ ========= 71
II. Calculation of Stipulated Casualty Value Nuclear Material -------------------------------------------------------------- Installed for Not Installed for Operation in the Operation in the Generating Facility Generating Facility Total ------------------- ------------------- ----------- A. Stipulated Casualty Value as of ______ $---------------- $--------------- $----------- B. Add: Acquisition Cost Incurred in Rent Period Covered by This Schedule (exclusive of Monthly Finance Charges) $---------------- $--------------- $----------- C. Add: Monthly Financing Charge Allocated to Acquisition Cost Incurred in Rent Period Covered by this Schedule $---------------- $--------------- $----------- D. Less: SVC of Nuclear Material Transferred to the Lessee Pursuant to Section 8(c), 8(g) or 14 of the Lease Agreement during the Basic Rent Period Covered by this Schedule $---------------- $--------------- $----------- STIPULATED CASUALTY VALUE AS OF _________ $ $ $ ================= ================= ============ Add: Commercial Paper Discount $------------ STIPULATED CASUALTY VALUE AS OF ---------- $ ============
72 EX-10 12 EXHIBIT 10-Z - LESSEE'S LETTER AGREEMENT EXHIBIT 10-Z PENNSYLVANIA ELECTRIC COMPANY ------------------------------------ LESSEE'S LETTER AGREEMENT Regarding TMI-1 FUEL CORP. ------------------------------------ Dated as of November 5, 1998 TABLE OF CONTENTS Section Page 1. Definitions 1 2. Performance of Fuel Lease and Liens 1 3. Security Interest of Collateral 2 4. Sale of Nuclear Material and Assignment of Rights under Nuclear Material Contracts 2 5. Collateral Equivalence Test; No Additional Collateral or Covenants; Condemnation Statements; Exercise of Rights of Secured Parties 3 6. Fuel Management; Quiet Enjoyment 5 7. Insurance 6 8. Representations and Warranties 6 9. General Covenants of the Lessee 11 10. GPU Events 18 11. Credit Agreements and Notes 18 12. Consent to Assignment; Direct Payment of Payments Under the Fuel Lease 18 13. Severability 19 14. Indemnification 20 15. No Waiver; Amendments 21 16. Successors and Assigns 22 17. Notices 22 18. Set-off 23 19. Waiver of Jury Trial 23 20. Governing Law 24 THIS LESSEE'S LETTER AGREEMENT (the "Letter Agreement") is made as of November 5, 1998, by and between Pennsylvania Electric Company, a Pennsylvania corporation (the "Lessee"), TMI-1 Fuel Corp, a Delaware corporation (the "Company"), and The First National Bank of Chicago, as Administrative Agent (the "Administrative Agent"), for the Banks party to the Credit Agreement referred to below (the "Banks"). WHEREAS, the Lessee has entered into the Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998 ("Fuel Lease"), with the Company in order to enable the Company to obtain financing for the acquisition, processing and use of Nuclear Material in the Generating Facility; and WHEREAS, pursuant to the Fuel Lease, the Company has agreed to make payments due to Manufacturers and/or to reimburse the Lessee for payments previously made to Manufacturers with respect to Nuclear Material; and WHEREAS, in order to finance the cost of such Nuclear Material, the Company proposes to (i) sell its Commercial Paper, and (ii) obtain the Commitment of each Bank to make Loans from time to time as hereinafter provided; and WHEREAS, the Lessee has agreed to make payments under the Fuel Lease sufficient to enable the Company to meet its obligations under the Company's financing arrangements, including the Company's obligations under the Credit Agreement, dated as of November 5, 1998, among the Company, the Banks and the Administrative Agent (the "Credit Agreement"); NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained and other good and valuable consideration, so long as any of the Loans or the Commercial Paper shall remain outstanding, or the Commitments shall be continuing, notwithstanding any provision of the Fuel Lease or any other agreement of the Lessee to the contrary, the Lessee, the Company, the Administrative Agent and the Banks agree that: 1. Definitions. Unless the context otherwise specifies or requires, each term defined in the Credit Agreement or Appendix A to the Fuel Lease, shall, when used in this Letter Agreement, have the meaning indicated in the Credit Agreement or Appendix A or set forth in the paragraph indicated therein. 2. Performance of Fuel Lease and Liens. The Lessee will perform and comply with all the terms of the Fuel Lease to be performed or complied with by 2 it and will not omit to take an action the omission of which would cause a Lease Event of Default. The Lessee acknowledges that, except as otherwise provided in the Fuel Lease, its obligations as set forth under the Fuel Lease are absolute and unconditional. The Lessee will not directly or indirectly create or permit to be created or remain, and will promptly take such action as may be necessary to discharge, any Lien on any Collateral except Permitted Liens. 3. Security Interest of Collateral. The Lessee represents that no effective financing statement (other than those naming the Secured Parties as a secured party) covering all or any part of the Collateral (as defined in the Security Agreement relating to the Lessee) is on file in any public office. The Lessee shall make, or shall cause to be made, all filings and recordings, and shall take, or cause to be taken, such other actions, including filing all continuation statements, necessary to establish, preserve and perfect the Secured Parties' lien on and security interest in, the Collateral as a legal, valid and enforceable first priority lien and security interest, or purchase money security interest, as the case may be, therein, subject only to the existence or priority of any Permitted Lien, and the Lessee represents that all such filings, recordings and other actions have been duly made. The Lessee shall deliver to the Administrative Agent evidence of the due filings of any continuation statements to be delivered to the Administrative Agent within the time period specified in Section 7.05 of the Credit Agreement. In no event will the Lessee permit the Nuclear Material to enter any jurisdiction in which all necessary action has not been taken to establish, maintain and protect the Secured Parties' first priority perfected lien and security interest in the Nuclear Material under the Security Agreement, subject only to Permitted Liens. 4. Sale of Nuclear Material and Assignment of Rights under Nuclear Material Contracts. (a) In the event that the Lessee desires the Company, on behalf of the Lessee, to purchase Nuclear Material or to have services performed on such Nuclear Material pursuant to any Nuclear Material Contract, the Lessee shall provide the Company with an Assignment Agreement and a Manufacturer's Consent, both substantially in the form of Exhibit D to the Fuel Lease, with such changes to Exhibit 2 to Exhibit D as the Administrative Agent in its reasonable discretion may consent to in writing, 3 which consent shall not be unreasonably withheld, with respect to such Nuclear Material Contract not later than sixty days following the date on which the Company is to purchase such Nuclear Material or to have such services performed pursuant thereto. Notwithstanding the foregoing, the Lessee shall not be required to have obtained a Manufacturer's Consent in any instance where the Manufacturer's obligations under the applicable Nuclear Material Contract have been fully discharged and performed, and the Manufacturer's warranties with respect to such Nuclear Material Contract have expired, and the Lessee has delivered to the Company and the Collateral Agent a certificate to such effect. (b) The Lessee at its expense will perform and comply with all the terms and provisions of each Assigned Agreement to be performed or complied with by it, will maintain each Assigned Agreement in full force and effect, will enforce each of the Assigned Agreements in accordance with their respective terms, and will take all such action to that end as from time to time may reasonably be requested by the Majority Banks. (c) The Lessee shall not enter into or consent to or permit any cancellation, termination, amendment, supplement or modification of or waiver with respect to any Assigned Agreement without the prior written consent of the Majority Banks, unless such cancellation, termination, amendment, supplement or modification could not reasonably be expected to have a Material Adverse Effect on the Company or the Company has through one or more other Assigned Agreements or otherwise arranged for the provision of comparable goods and services on terms not materially more burdensome to the Company. (d) The Lessee will from time to time, upon request of the Administrative Agent, furnish to the Administrative Agent such information concerning the Nuclear Material or any Assigned Agreement, as the Majority Banks may reasonably request. (e) The Lessee will not change its principal place of business or chief executive offices from the location specified in paragraph 8(a) hereof or remove therefrom its records concerning the Assigned Agreements unless it gives the Administrative Agent at least 30 days' prior written notice thereof. 5. Collateral Equivalence Test; No Additional Collateral or Covenants; Condemnation Statements; Exercise of Rights of Secured Parties. 4 (a) The Lessee shall not permit the sum of aggregate Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease and the Lessee's Percentage of Cash Collateral to be less than the Lessee's Percentage of Outstandings. (b) The Lessee shall not provide to any Person (other than the Banks), in order to induce such Person to extend credit to the Company, any collateral or any guarantee or other assurance against loss or non-payment, nor shall the Lessee consent to the provision thereof by the Company. (c) The Lessee shall not agree to any affirmative or negative covenant with respect to the condition, financial or otherwise, of the Lessee with any Person in order to induce such Person to extend credit to the Company. (d) The Lessee shall not sell, assign, convey, pledge or otherwise dispose of or encumber in any manner any interest it may have in the Trust or any rights it may have under the Trust Agreement. The Lessee shall not direct the Owner Trustee to liquidate, dissolve, merge or consolidate the Company except if such transaction is consented to in writing by the Banks. The Lessee shall not direct the Owner Trustee to take any action under the Trust Agreement which is inconsistent with the duties imposed upon the Company by the Basic Documents and any other agreements, documents, instruments and articles executed and delivered, and to be executed and delivered, by the Owner Trustee in connection therewith. (e) The Nuclear Material leased under the Fuel Lease shall constitute the Lessee's entire ownership interest in the items used or to be used by it as nuclear fuel in the Generating Facility. The Lessee agrees that 25% of the Lessor's ownership interest in any Nuclear Material which is subject to the Fuel Lease will be leased to the Lessee. The Lessee further agrees not to take any action under the terms of the Fuel Lease, including, but not limited to, the delivery of any Leasing Record, which would result in less than 25% of the Lessor's ownership interest in any such Nuclear Material being so leased. (f) As provided in the Security Agreement, (i) the Collateral Agent on behalf of the Secured Parties may, on and after the occurrence of a Credit Agreement Default, Credit Agreement Event of Default, Lessee Default or Lessee Event of Default, pursuant to Section 10 of the Security Agreement, exercise any and all of the Company's rights under the Fuel Lease, the Assigned Agreements and each other Basic Document to 5 which the Lessee is a party, and (ii) if a Lease Event of Default occurs and is continuing, the Collateral Agent on behalf of the Secured Parties may, pursuant to Section 10 of the Security Agreement, enforce and exercise any and all of the Company's rights under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party, or the rights and remedies granted to the Secured Parties under the Security Agreement at its election and in its sole discretion, and, in the event that the Collateral Agent is permitted to exercise such rights pursuant to Section 10 of the Security Agreement, the Lessee agrees that the Collateral Agent may do so either in concert with or in place of the Company, and the Lessee shall assist in, comply with and perform in accordance with all rights or remedies so enforced or exercised by the Collateral Agent for the ratable benefit of the Secured Parties. 6. Fuel Management; Quiet Enjoyment. The occurrence of a Credit Agreement Default, a Credit Agreement Event of Default, Lease Event of Default, Lessee Default, Lessee Event of Default or an event or condition which would, with the lapse of time or the giving of notice or both, become a Lease Event of Default, shall not affect the Lessee's sole obligation to engage in Fuel Management; provided that, upon the occurrence of a Credit Agreement Event of Default, Lessee Event of Default or Lease Event of Default, the Collateral Agent may, if so directed by the Majority Secured Parties, by written notice to the Lessee, elect to revoke such power and authority, in which case the Person from time to time designated by the Majority Secured Parties may (but shall not be obligated to), to the extent that the Majority Secured Parties desire and to the extent permitted by law, engage in Fuel Management and/or remove all or any part of the responsibility for Fuel Management from the Lessee; provided, however, that, subject to the right of the Collateral Agent and the Majority Secured Parties to exercise any or all rights granted to the Secured Parties under the Security Agreement, the rights granted to the Collateral Agent and the Majority Secured Parties under this Section 6 shall not be construed to include the right to direct, whether directly or indirectly, the operation of the Generating Facility. In the event the Majority Secured Parties, in accordance with the preceding sentence, shall revoke the Lessee's power and authority to engage in Fuel Management, all rights conferred by the Company to the Lessee pursuant to Section 3 of the Fuel Lease shall be deemed to be automatically reassigned to the Company and the Lessee shall execute such documents and instruments as the Collateral Agent shall request to further confirm such assignment. 6 7. Insurance. Each year, the Lessee will furnish the Administrative Agent and each Bank a detailed statement certified by an officer of Lessee setting forth (i) the location of all Nuclear Material and (ii) the insurance policies and indemnification agreements provided pursuant to Sections 14 and 17 of the Fuel Lease and certifying that such insurance policies and indemnification agreements comply with the requirements of the Fuel Lease. In addition, the Lessee shall promptly furnish at any time to the Administrative Agent and any Bank such information as any such Bank shall reasonably request concerning location of Nuclear Material, insurance policies and indemnification agreements and Manufacturers or other third parties with whom arrangements exist with respect to transportation, storage or processing of Nuclear Material. 8. Representations and Warranties. The Lessee hereby represents and warrants to the Company, the Administrative Agent and the Banks that as of the date hereof: (a) Organization and Standing. The Lessee is a corporation duly incorporated, validly existing and subsisting under the laws of the Commonwealth of Pennsylvania, and is qualified to do business in each state or other jurisdiction in which the nature of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on its ability to perform its obligations under this Letter Agreement or each other Basic Document to which the Lessee is a party. The Lessee's chief executive office is located at 2800 Pottsville Pike, Reading, Pennsylvania 19605. (b) Corporate Authority. The Lessee has the corporate power and authority to execute and perform this Letter Agreement and the Fuel Lease and to lease the Nuclear Material thereunder. The execution and delivery of this Letter Agreement and the Fuel Lease and the lease of the Nuclear Material thereunder will not have a material adverse effect on the financial condition, results of operations, business, properties or operations of the Lessee. (c) Compliance with Other Instruments, etc. The execution, delivery and performance by the Lessee of this Letter Agreement and each Basic Document to which the Lessee is a party, and other related instruments, documents and agreements, and the compliance by the Lessee with the terms hereof and thereof, (i) have been duly and legally authorized by appropriate corporate action taken by the Lessee, (ii) are not in contravention of, and 7 will not result in a violation or breach of, any of the terms of the Lessee's articles of incorporation, its by-laws or of any provisions relating to shares of the capital stock of the Lessee and (iii) will not violate or constitute a breach of any provision of (x) any applicable law, order, rule or regulation, rule or regulation of any governmental authority (except in those cases where non-compliance with any such law, order, rule or regulation could not reasonably be expected to have a material adverse effect on the financial condition, results of operations, business, properties or operations of the Lessee or its ability to perform its obligations hereunder or under each Basic Document) or (y) any indenture, agreement or other instrument to which the Lessee is party, or by or under which the Lessee or any of the Lessee's property is bound, or be in conflict with, result in breach of, or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement or instrument, or result in the creation or imposition of any Lien upon any of the Lessee's property or assets or any Nuclear Material. (d) Legal Obligations. This Letter Agreement and the Fuel Lease have been executed by a duly authorized officer of the Lessee, and this Letter Agreement and the Fuel Lease constitute, and each Leasing Record, when executed by a duly authorized officer of the Lessee and delivered to the Company, will constitute, the legal, valid and binding obligations of the Lessee, enforceable against the Lessee in accordance with their respective terms, except as the enforceability thereof may be limited by the Atomic Energy Act and the rules, regulations or orders issued pursuant thereto, or by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general, and except as the availability of the remedy of specific performance is subject to general principles of equity (regardless of whether such remedy is sought in a proceeding in equity or at law). (e) Governmental Consents. Neither the execution and delivery of this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee, nor the performance by the Lessee of all of its obligations hereunder or thereunder, requires the consent or approval of, the giving of notice to, or the registration, filing or recording with, or the taking of any other action in respect of, any Federal, state, local or foreign government or governmental authority or agency or any other person except for the order of the Securities and Exchange Commission (the "SEC"), dated October 25, 1995, the filing of the supplemental order of the SEC dated November 3, 1998, the order of the PaPUC, dated 8 September 17, 1998, and the filing of any statement or other instrument pursuant to Section 10(b) of the Fuel Lease, and except for the filing of certificates by the Lessee with the SEC pursuant to SEC Rule 24 under the Public Utility Holding Company Act to report on the transactions authorized by such SEC order, the filing of which is not necessary to the execution or delivery of this Letter Agreement, the Fuel Lease or any Leasing Record by the Lessee or for the performance by the Lessee of any of its obligations hereunder or thereunder, and the failure to file any of which will not affect the validity or enforceability of any of this Letter Agreement, the Fuel Lease or any Leasing Record. (f) Consents and Permits. The Lessee possesses all material licenses, permits, franchises and certificates which are necessary or appropriate to own or operate its material properties and assets and to conduct its business as now conducted. (g) Litigation. There is no litigation or other proceeding now pending or, to the best of the Lessee's knowledge, threatened, against or affecting the Lessee, before any court, arbitrator or administrative or governmental agency (i) which would adversely affect or impair the title of the Company to the Nuclear Material, (ii) which questions the validity or enforceability of this Letter Agreement, the Fuel Lease, the Assigned Agreements or any other Basic Document to which the Lessee is a party or any action taken or to be taken by the Lessee pursuant to or in connection with this Letter Agreement, or (iii) except as disclosed in the Lessee's Annual Report on Form 10-K for the year ended December 31, 1997 and Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, copies of which have previously been delivered to the Administrative Agent and the Banks, which, if decided adversely to the Lessee, would materially adversely affect the condition, financial or otherwise, of the Lessee. (h) Taxes. The Lessee has filed or caused to be filed all tax returns which are required to be filed, and has paid or caused to be paid all taxes as shown on said returns and all assessments received by it to the extent that such taxes and assessments have become due, except for taxes and assessments which are being contested in good faith and by appropriate proceedings and as to which it has provided reserves which are adequate in connection with generally accepted accounting principles. 9 (i) Reaffirmation and Restatement of Representations and Warranties. The Lessee repeats and reaffirms as of the date hereof for the benefit of the Administrative Agent and each Bank the representations and warranties made by the Lessee in the Fuel Lease as though set forth in full herein with the same effect as though such representations and warranties had been made on and as of the date hereof. In addition, the Lessee represents and warrants that as of the date hereof (i) the Lessee is in compliance with all the terms and provisions set forth in the Fuel Lease on its part to be observed or performed, (ii) no Terminating Event has occurred and no event has occurred which, with the lapse of time or the giving of notice, or both, would constitute such a Terminating Event, and (iii) no Lease Event of Default has occurred and is continuing and no event has occurred and is continuing on such date which, with the lapse of time or the giving of notice, or both, would constitute a Lease Event of Default. (j) First Perfected Security Interest. Except for Permitted Liens, upon the execution and delivery of this Letter Agreement and the Security Agreement and the due filing of the Uniform Commercial Code financing statements required to be executed and filed from time to time, the Secured Parties will have a legal, valid and enforceable first priority security interest (i) in the rights, titles and interests of the Company in and to the Fuel Lease and (ii) in and to the other Collateral. Such security interest will constitute a perfected security interest in the Collateral consisting of Nuclear Material Contracts and the Collateral consisting of Nuclear Material located in the States of Illinois, Kentucky, Ohio, Pennsylvania and Virginia, except for any such Collateral which consists of cash, instruments (as defined in the New York Uniform Commercial Code) and other items in which a security interest may only be perfected by possession, enforceable against all third parties as security for the Secured Obligations. (k) No Material Adverse Change. Since June 30, 1998, there has been no material adverse change in the financial condition, results of operations, business, properties or operations of the Lessee or in its ability to perform its obligations under the Basic Documents. (l) No Defaults. The Lessee is not in default under any bond, debenture, note or any other evidence of Obligations for Borrowed Money or Deferred Purchase Price or any mortgage, deed of trust, indenture, loan agreement or other agreement relating thereto, where the amount thereof is in excess of $20,000,000. 10 (m) Pension Plans. No accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any plan (other than a multiemployer plan). No liability to the Pension Benefit Guaranty Corporation has been, or is expected by the Lessee to be, incurred with respect to any plan (other than a multiemployer plan) by the Lessee which is or would be materially adverse to the Lessee. The Lessee has not incurred and presently does not expect to incur any withdrawal liability under Title IV of ERISA with respect to any multiemployer plan which is or would be materially adverse to the Lessee. Neither the execution and delivery by the Company of the Credit Agreement and the other Basic Documents, and the issuance of the Commercial Paper, nor the execution and delivery by the Lessee of this Letter Agreement, the Trust Agreement and each other Basic Document to which the Lessee is a party, will involve any transaction which is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975. As used herein, the term "plan" shall mean an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is and has been established or maintained, or to which contributions are or have been made, by the Lessee or by any trade or business, whether or not incorporated, which, together with the Lessee is under common control as described in Section 414(b) or (c) of the Code, and the term "multiemployer plan" shall mean any plan which is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA). (n) Financial Statements. The audited balance sheet of the Lessee as of December 31, 1997, and the related statements of income and cash flows (including the notes thereto) of the Lessee for the year then ended, copies of which have been delivered to the Company, the Administrative Agent and the Banks, and all other annual or quarterly financial statements including, without limitation, the quarterly statement dated as of June 30, 1998 so delivered fairly present the financial condition of the Lessee on the dates for which, and the results of its operations for the periods for which, the same have been furnished and have been prepared in accordance with generally accepted accounting principles consistently applied. (o) Nuclear Material. The Nuclear Material is free and clear of any Lien in favor of any Person claiming by, through or under the Lessee or any Affiliate thereof, other than Permitted Liens. No default or event which with the giving of notice or lapse of time would constitute a default has occurred and is continuing under any Nuclear Material Contract. 11 (p) Disclosure. Neither the representations in this Letter Agreement, or in any other document, certificate or statement furnished in writing to the Administrative Agent or any Bank by or on behalf of the Lessee in connection with the transactions contemplated hereby, nor the information disclosed in the Lessee's Annual Report on Form 10-K for the year ended December 31, 1997 or Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, contained as of its date, any untrue statement of a material fact or omitted to state a material fact necessary in order to make such representations or information not misleading in light of the circumstances under which they were made. (q) Collateral Equivalence Test Met. The sum of the aggregate Stipulated Casualty Value of the Nuclear Material leased under the Fuel Lease and the Lessee's Percentage of the Cash Collateral equals or exceeds the Lessee's Percentage of the Outstandings. (r) Year 2000. The Lessee has made a full and complete assessment of its Year 2000 Issues and has a realistic and achievable Year 2000 Program. Based on such assessment and on its Year 2000 Program, the Lessee does not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. 9. General Covenants of the Lessee. (a) Information. The Lessee will furnish to the Company and the Administrative Agent in sufficient copies for each Bank: (i) Quarterly Statements. As soon as practicable after the end of each of the first three quarterly fiscal periods in each fiscal year of the Lessee, and in any event within 60 days thereafter, copies of: (A) a balance sheet of the Lessee as at the end of such quarter, and (B) statements of income and cash flows of the Lessee for such quarter and for the twelve-month period ending as of the end of such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with the end of such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all 12 in reasonable detail and certified as complete and correct, subject to changes resulting from year-end adjustments, by a principal financial officer of the Lessee; provided that it is understood that the delivery of the Lessee's Quarterly Report on Form 10-Q shall be deemed to satisfy the requirements with respect to such financial statements; (ii) Annual Statements. As soon as practicable after the end of each fiscal year of the Lessee, and in any event within 120 days thereafter, copies of: (A) a balance sheet of the Lessee at the end of such fiscal year, and (B) statements of income and cash flows of the Lessee for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and accompanied by an opinion thereon of independent certified public accountants of recognized national standing selected by the Lessee, which opinion shall state that such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied (except for changes in application in which such accountants concur) and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards; provided that it is understood that the delivery of the Lessee's Annual Report on Form 10-K shall be deemed to satisfy the requirement with respect to such financial statements; (iii) Officer's Compliance Certificate. Simultaneously with the financial statements referred to in Sections 9(a)(i) and (ii), a certificate of an authorized officer of the Lessee stating that such officer has reviewed the relevant terms and conditions of the Fuel Lease and other Basic Documents to which the Lessee is a party, and has made, or caused to be made, under such officer's supervision, a review of the transactions and financial condition of the Lessee from the beginning of the accounting period covered by the income statements being delivered therewith to the date of the certificate, and that the Lessee has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Letter Agreement, the Fuel Lease and any other Basic Document to which the Lessee is a party, and no Terminating 13 Event, Lessee Default, Lessee Event of Default, Lease Event of Default or default or event of default under any such Basic Document has occurred and is continuing and no event has occurred and is continuing which, with the lapse of time or the giving of notice, or both, would constitute a Terminating Event, Lessee Default, Lessee Event of Default, Lease Event of Default or a default or event of default under any such Basic Document or, if such condition or event has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto; (iv) Auditor's Compliance Certificate. Simultaneously with the financial statements referred to in Section 9(a)(ii), a certificate of the independent public accountants who audited such statements stating that such accountants have reviewed the relevant terms and conditions of the Fuel Lease and other Basic Agreements to which the Lessee is a party, and that, in making the examination necessary for the audit of such statements, they have obtained no knowledge of any condition or event which constitutes or which with notice or lapse of time or both would constitute a Terminating Event, Lessee Default, Lessee Event of Default, Lease Event of Default or default or event of default under any such Basic Document, or if such accountants shall have obtained knowledge of any such condition or event, specifying in such certificate each such condition or event of which they have knowledge and the nature and status thereof; (v) Notices Required under the Basic Documents. Immediately upon delivery to the Lessee or the Company, all notices, consents, documents, certificates or instruments of any kind relating to the Lessee required pursuant to the Fuel Lease; (vi) Defaults. (A) Promptly upon becoming aware of the occurrence thereof, notice of any Terminating Event, Lessee Default, Lessee Event of Default, Lease Event of Default or any event which, with the lapse of time or the giving of notice, or both, would constitute a Terminating Event or a Lease Event of Default, or of any other development, financial or otherwise (including, without limitation, developments with respect to Year 2000 Issues), which could reasonably be expected to have a Material Adverse Effect, and (B) within 10 days of becoming aware of the occurrence thereof, notice of any other material event affecting the 14 Lessee's obligations under any Basic Document or any Nuclear Material Contract (except to the extent such event has previously been disclosed in the Lessee's SEC reports delivered pursuant to clause (viii) below); (vii) Notice of Claimed Default. Immediately upon becoming aware that the holder or holders of any evidence of Obligations for Borrowed Money or Deferred Purchase Price or other security of the Lessee or any subsidiary exceeding $20,000,000 in the aggregate have given notice (or taken any other action) with respect to a claimed default, breach or event of default, a notice describing the notice given (or action taken) and the nature of the claimed default, breach, or event of default; (viii) SEC and Other Reports. Promptly after filing thereof, copies of all regular and periodic reports and registration statements which the Lessee may file with the SEC or any governmental agency substituted therefor and, promptly upon written request therefor, copies of the financial statements which the Lessee may file annually with any state regulatory agency or agencies; and (ix) Requested Information. With reasonable promptness, such other data and information with respect to the Lessee, including, without limitation, information regarding Nuclear Material or any Nuclear Material Contract or the Lessee's Year 2000 Program, as from time to time may be reasonably requested by the Administrative Agent or any Bank. (b) Notice of Litigation. Immediately upon the Lessee becoming aware thereof, written notice of (i) any litigation or proceedings which would be required to be disclosed as an exception to the representations and warranties contained herein or in the Fuel Lease in order that such representations and warranties would be true and correct on a continuing basis; and (ii) any dispute between the Lessee and any governmental authority or other party relating to any part of the transactions contemplated by this Letter Agreement or any of the other Basic Documents to which the Lessee is a party which would have a material adverse effect on the ability of the Lessee to carry out its obligations hereunder or under any other Basic Document to which the Lessee is a party; provided, however, that the notice requirement in this Section 9(b) shall be satisfied if the Lessee furnishes the Company and the Administrative Agent in sufficient 15 copies for each Bank a Current Report on Form 8-K regarding the event requiring notice by the time that the Current Report is required to be filed with the Securities and Exchange Commission. (c) General Obligations. Subject to the last sentence of this Section 9(c), the Lessee will: (i) duly comply with all laws, rules, orders, regulations or other valid requirements (including, without limitation, any of the foregoing which are applicable to Nuclear Material or the operation of the Generating Facility) of any governmental authority necessary to the conduct of its business or to its properties or assets, noncompliance with which could reasonably be expected to have a material adverse effect upon the transactions contemplated by this Letter Agreement or any other Basic Document, or upon the financial condition, results of operations, business, properties or operations of the Lessee, or the ability of the Lessee to carry out its obligations under any Basic Document or this Letter Agreement); (ii) continue to engage principally in the electric utility business; (iii) obtain, maintain and keep in full force and effect all consents, permits, licenses and approvals, the absence of which would have a material adverse effect upon the transactions contemplated by this Letter Agreement or any other Basic Document to which the Lessee is a party, or upon the financial condition, results of operations, business, properties or operations of the Lessee, or the ability of the Lessee to carry out its obligations under this Letter Agreement or any other Basic Document to which the Lessee is a party; (iv) maintain its material operating properties used or useful in its business in good repair, working order and condition consistent with prudent utility practice; provided, however, that the Lessee shall not be prevented from discontinuing the operation and maintenance of any of its properties if it shall determine that the 16 continued operation and maintenance of such properties is no longer necessary, desirable or permissible; (v) pay when due all fees, taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any property belonging to it, and maintain appropriate reserves for the accrual of the same in accordance with generally accepted accounting principles; (vi) except as permitted by clause (vii) below, at all times maintain its corporate existence, privileges, franchises and rights to carry on business, and duly procure all renewals and extensions thereof, if and when any shall be necessary; (vii) not consolidate or merge with, or sell or otherwise dispose of all or substantially all of its properties and assets to any Person unless (i) the surviving or resulting entity is the Lessee hereunder, (ii) immediately after giving effect thereto no Credit Agreement Event of Default, Credit Agreement Default, Lease Event of Default, Lessee Default, Lessee Event of Default or event which with the giving of notice or passage of time would constitute a Lease Event of Default shall have occurred and be continuing, and (iii) the senior unsecured debt of the surviving or resulting Lessee shall be rated at least investment grade by Standard & Poor's Ratings Group ("S&P") or Moody's Investor Service, Inc. ("Moody's"); (viii) perform and comply with each of the material provisions of each material indenture, credit agreement, contract or other agreement by which the Lessee is bound, non-performance or non-compliance with which would have a material adverse effect upon its business or credit or in any way affect its ability to perform its obligations hereunder except material contracts or other agreements being contested in good faith; 17 (ix) reserve and maintain its corporate existence in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in good standing in each jurisdiction in which such qualification is necessary or desirable in view of its business and operations or the ownership of its properties, except where the failure to be so qualified would not materially adversely affect its financial condition, operations, properties or business, and preserve its material rights, franchises and privileges to conduct its business substantially as conducted on the date hereof; (x) maintain insurance in effect at all times in such amounts as are available to the Lessee and covering such risks as is usually carried by companies of a similar size, engaged in similar businesses and owning similar properties (including, without limitation, the operation and ownership of nuclear generating facilities) in the same general geographical area in which the Lessee operates, either with responsible and reputable insurance companies or associations, or, in whole or in part, by establishing reserves of one or more insurance funds, either alone or with other corporations or associations; (xi) at any reasonable time and from time to time, permit the Administrative Agent or any Bank or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Lessee and discuss the affairs, finances and accounts of the Lessee with any of its officers or directors; (xii) not sell, transfer, lease, assign or otherwise convey or dispose of more than 25% of its assets (whether now owned or hereafter acquired), in any single or series of transactions, whether or not related, except for dispositions of its fossil and hydroelectric generating stations and associated facilities and dispositions of its current assets in the ordinary course of business as presently conducted, if immediately prior to such sale, transfer, lease, assignment, conveyance or 18 disposition or as a result of such sale, transfer, lease, assignment, conveyance or disposition, the senior unsecured debt of the Lessee shall not be rated at least investment grade by S&P or Moody's. (xiii) comply with this Letter Agreement and such other Basic Documents to which the Lessee is a party in accordance with the respective terms and conditions set forth herein and therein; and (xiv) except for Permitted Liens, permit the creation of any Liens on the Collateral. Notwithstanding the foregoing provisions of this Section 9(c), the Lessee may contest by appropriate proceedings conducted in good faith and due diligence, the amount, validity or application, in whole or in part of any fee, tax, assessment or government charge or levy, or any legal requirement, provided that the Lessee shall have set aside on its books adequate reserves, if required in accordance with generally accepted accounting principles with respect thereto and shall furnish such security, if any, as may be required in the proceeding. 10. GPU Events. It shall be a default hereunder if GPU, Inc. (a) fails to maintain at all times beneficial ownership of at least 75% of all outstanding shares of common stock of each of the Lessee, Met-Ed and JCP&L; or (b) pledges, grants options on, creates any charge on or security interest in, or otherwise subjects to any charge or encumbrance, any of the common stock of the Lessee, Met-Ed or JCP&L unless the obligations hereunder are secured ratably and with equal priority, in form and substance reasonably satisfactory to the Majority Banks. 11. Credit Agreement and Notes. The Lessee hereby acknowledges receipt of executed counterparts of the Credit Agreement and photostatic copies of the Notes evidencing the Loans, and consents to all of the terms and provisions of the Credit Agreement and the Notes. 12. Consent to Assignment; Direct Payment of Payments Under the Fuel Lease. (a) Consent to Assignment. The Lessee hereby acknowledges notice of and consents to all the terms and provisions of the Security Agreement and hereby confirms to and agrees with the Secured Parties that all representations, warranties, indemnities and agreements of the Lessee contained 19 in this Letter Agreement and each other Basic Document to which the Lessee is a party shall inure to the benefit of, and shall be enforceable by, the Secured Parties to the same extent as if such Secured Parties were originally parties to or named in such documents and agreements. The Lessee further acknowledges and consents to the assignment and transfer, and any future assignments and transfers, to the Secured Parties by the Company of the Company's right to exercise any and all of its rights, remedies, powers and privileges (but none of its obligations, duties or liabilities) under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party. The Lessee hereby agrees with the Secured Parties to comply with any exercise by the Secured Parties, either directly or through the Company, of any rights, remedies, powers or privileges pursuant to the Security Agreement. The Secured Parties acknowledge that neither the Security Agreement nor this Section 12 shall in any way add to the obligations of the Lessee (except those obligations of the Lessee to any Person, which, if not previously so, hereby become enforceable directly by the Secured Parties) under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party. Notwithstanding the foregoing, so long as no Lease Event of Default shall have occurred and be continuing, the Lessee shall have exclusive right to possession and use of the Nuclear Material in accordance with the Fuel Lease and may use such Nuclear Material for any lawful purpose consistent with the Fuel Lease. (b) Direct Payment of Payments Under the Fuel Lease. The Lessee acknowledges that it has been directed by the Company to, and agrees that it will, make all payments of monies due and to become due to the Company under the Fuel Lease, the Assigned Agreements and each other Basic Document to which the Lessee is a party, directly to the Collateral Agent, including, without limitation, Basic Rent, Additional Rent, the purchase price of Nuclear Material pursuant to Section 8(c), 8(d), 8(e) and 8(g) of the Fuel Lease, payments pursuant to Sections 9(e), 14, 17 and 18 of the Fuel Lease in the manner and to the accounts of the Secured Parties as specified in Section 3.03 of the Credit Agreement. 13. Severability. Any provision of this Letter Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability, without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or 20 render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. 14. Indemnification. The Lessee shall pay and indemnify and hold harmless the Administrative Agent and each Bank, and their respective officers, directors, incorporators, shareholders, partners, employees, agents and servants from and against any and all liabilities (other than liabilities arising out of the gross negligence or willful misconduct of such Person), taxes, (excluding, however, taxes measured solely by the net income of any Person indemnified or intended to be indemnified pursuant to this Section 14, except as otherwise provided in Section 14 hereof), losses, obligations, claims, damages, penalties, causes of action, suits, costs and expenses (including, without limitation, reasonable attorneys' and accountants' fees and expenses) and judgments of any nature arising from or in any way relating to any and all of the following during the term of the Fuel Lease and thereafter: (a) any injury to or disease, sickness or death of Persons, or loss of or damage to property, occurring through or resulting from any nuclear incident (as that term is defined in the Atomic Energy Act, 42 U.S.C. section 2011 et seq.) involving or connected in any way with the Nuclear Material or any portion thereof, (b) the acquisition, ownership (including strict liability of an owner or liability without fault), possession, disposition, sale, use, nonuse, misuse, leasing, fabrication, design, cycling, recycling, transportation, containerization, cooling, processing, reprocessing, storing, condition, management, operation, construction, maintenance, repair or rebuilding of the Nuclear Material or any portion thereof or resulting from the condition of adjoining and underlying land, buildings, streets or ways, (c) any use, nonuse or condition of, or any other matter of circumstance relating to, the Generating Facility, any other property associated therewith or any adjoining and underlying land, buildings, streets and ways, (d) any violation or default, or alleged violation or default, of the Fuel Lease or this Letter Agreement by or on behalf of Lessee, or of any contracts or agreements to which the Lessee is a party or by which it is bound, or any Legal Requirements, (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Nuclear Material or any portion thereof, (f) any infringement or alleged infringement of any patent, copyright, trade secret or other similar right relating to the Nuclear Material or any portion thereof, (g) Lessee's agreements or obligations contained in the Fuel Lease or this Letter Agreement, 21 (h) any claim arising out of loss of damage to the environment, (i) any claim arising out of strict or absolute liability in tort, or (j) the offering and sale of Commercial Paper. The Lessee also indemnifies each indemnitee, as aforesaid, from and against all other liabilities, taxes, losses, obligations, claims, damages, penalties, causes of action, suits, costs and expenses (including, without limitation, reasonable attorneys' and accountants' fees and expenses) and judgments of any nature which may be imposed on, incurred by, or asserted at any time against any indemnitee in any way relating to or arising out of the performance of this Letter Agreement, the Fuel Lease or any other Basic Document to which Lessee is a party, provided, except for claims of a nature contemplated by (i) above, that the Lessee shall not be required to indemnify any indemnitee with respect to any liability relating to or arising out of indemnitee's gross negligence or willful misconduct and provided, further, that the foregoing immunity shall not limit the terms of any indemnity that the Lessee may grant separately to any indemnitee pursuant to any separate agreement. In the event that any action, suit or proceeding is brought against the Company or any other Person indemnified or intended to be indemnified pursuant to this Section 14 by reason of any such occurrence, the Lessee shall, at the Lessee's expense, resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel designated by the Lessee and reasonably acceptable to the Person or Persons indemnified or intended to be indemnified under this Section 14 provided there is no conflict of interest with the Person or Persons indemnified or intended to be indemnified under this Section 14. In the event a conflict of interest contemplated by the proviso of the immediately preceding sentence shall exist, then the Person or Persons as to which such conflict exists may be defended by counsel of its or their choice at Lessee's expense, provided Lessee's obligation for such expense shall be limited to one firm for all such Persons as to which such a conflict exists. The obligations of the Lessee under this Section 14 shall survive any termination of this Letter Agreement, the Credit Agreement, the Fuel Lease or the Security Agreement, in whole or in part. 15. No Waiver; Amendments. Neither the Administrative Agent, the Collateral Agent, the Banks, the Company nor the Lessee shall, by any act, delay, omission or otherwise, be deemed to have waived any of its rights and remedies hereunder, and no waiver shall be valid unless in writing signed by the party or parties sought to be bound thereby. A waiver by the Administrative Agent, the Collateral Agent, the Banks, the 22 Company or the Lessee of any of their respective rights or remedies hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent, the Banks, the Company or the Lessee, as applicable, would otherwise have had on any future occasion. No failure to exercise nor any delay in exercise of any such right or remedy hereunder shall preclude any other or future exercise or partial exercise of any other right or remedy. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Letter Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by the party or parties sought to be bound thereby. 16. Successors and Assigns. This Letter Agreement shall bind the successors and assigns of the Lessee and the Company and shall inure to the benefit of permitted successors and assigns of either. The Letter Agreement shall not be assignable by the Lessee or the Company, either voluntarily or by operation of law, unless consented to by the Administrative Agent and the Majority Banks. No permitted assignment by the Lessee or the Company shall release the Lessee or the Company from any of its obligations hereunder. This Letter Agreement shall inure to and shall be binding upon the successors and assigns of the Administrative Agent and the Banks. 17. Notices. Any notice, demand or other communication which by any provision of this Letter Agreement is required or provided to be given shall be deemed to have been delivered if in writing addressed as provided below and actually delivered by mail, courier or facsimile to the following addresses: (a) except as otherwise requested in writing by the Administrative Agent or any Bank, any notice, demand or communication which by any provision of this Letter Agreement is required or provided to be given to the Administrative Agent or any Bank shall be deemed to have been delivered to the Administrative Agent or any Bank if a single copy thereof is delivered to the Administrative Agent at its address set forth in Section 11.01 of the Credit Agreement or at such other address as either may have furnished the Company and the Lessee in writing; 23 (b) if to the Company (with copies to the Lessee at the address listed below), TMI-1 Fuel Corp c/o United States Trust Company of New York, 114 West 47th Street, New York, New York 10036, marked for the attention of the Corporate Trust and Agency Division, telecopy number 212-852-1626, or at such other address as it may have furnished in writing to the Administrative Agent and the Lessee; or (c) if to the Lessee, to Pennsylvania Electric Company, c/o GPU Service Inc., 310 Madison Avenue, Morristown, New Jersey 07962, marked for the attention of the Vice President and Treasurer, Telecopier: (973) 644-4224, or at such other address or addresses as the Lessee may have furnished to the Administrative Agent and the Company. 18. Set-off. (a) Lessee hereby acknowledges and agrees to set-off rights against it as provided for in Section 11.08 of the Credit Agreement. (b) Lessee agrees that it shall have no right of set-off, deduction or counterclaim in respect of its obligations hereunder, and that the obligations of the Banks hereunder and under the Credit Agreement are several and not joint. Nothing contained herein shall constitute a relinquishment or waiver of the Lessee's rights to any independent claim that the Lessee may have against the Administrative Agent or any Bank for the Administrative Agent's or such Bank's, as the case may be, gross negligence or willful misconduct, but no Bank shall be liable for the conduct of the Administrative Agent or any Bank, and the Administrative Agent shall not be liable for the conduct of any Bank. 19. Waiver of Jury Trial. Lessee irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Letter Agreement, the Credit Agreement, the other Basic Documents or any instrument or document delivered hereunder or thereunder, except that the foregoing shall not preclude any party hereto from submitting to a jury for determination in any such action, proceeding or counterclaim any dispute involving (a) the accuracy or completeness of any representation or warranty made under the Basic Documents by Lessee, (b) the performance by Lessee of any affirmative or negative covenant or agreement contained in the Basic Documents, or (c) questions of materiality, or the 24 reasonableness of, or good faith basis for, any action taken, or determination made, by any other party hereto (other than in respect of any calculation of principal, interest, fees, or increased costs payable by the Lessee under the Basic Documents). 20. Governing Law. This Letter Agreement shall be governed by, and be construed and interpreted in accordance with the laws of the State of New York. S-1 IN WITNESS WHEREOF, the undersigned have caused this Letter Agreement to be executed as of the date first above written. PENNSYLVANIA ELECTRIC COMPANY By Vice President TMI-1 FUEL CORP. By Title THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent By Title By Title SIGNATURE PAGE TO LESSEE'S LETTER AGREEMENT EX-10 13 EXHIBIT 10-AA - GPU 1990 STOCK PLAN FOR EMPLOYEES EXHIBIT 10-AA GPU, INC. 1990 STOCK PLAN FOR EMPLOYEES OF GPU, INC. AND SUBSIDIARIES AS AMENDED AND RESTATED TO REFLECT AMENDMENTS THROUGH MARCH 5, 1998 1990 STOCK PLAN FOR EMPLOYEES OF GPU, INC. AND SUBSIDIARIES 1. Purpose GPU, Inc. (the "Corporation") desires to attract and retain employees of outstanding talent. The 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries (the "Plan") affords eligible employees the opportunity to acquire proprietary interests in the Corporation and thereby encourages their highest levels of performance. 2. Scope and Duration (a) Awards under the Plan may be granted in the following forms: (i) incentive stock options ("incentive stock options") as provided in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and non-qualified stock options ("non-qualified options") (the term "options" includes incentive stock options and non-qualified options); (ii) shares of Common Stock of the Corporation (the "Common Stock") which are restricted as provided in Section 10 ("restricted shares"); or (iii) rights to acquire shares of Common Stock which are restricted as provided in Section 10 ("units" or "restricted units"). Options may be accompanied by stock appreciation rights ("rights"). (b) The maximum aggregate number of shares of Common Stock as to which awards of options, restricted shares, units or rights may be made from time to time under the Plan is 1,974,190 shares.(1) Shares issued pursuant to this Plan may be in whole or in part, as the Board of Directors of the Corporation (the "Board of Directors") shall from time to time determine, authorized but unissued shares or issued shares reacquired by the - --------------------- (1) Initially, 1,000,000 shares were authorized to be issued under the Plan. On May 29, 1991, the Corporation effected a two-for-one stock split by way of a stock dividend, leaving 1,974,190 shares available for issuance under the Plan on and after that date, after giving effect to shares previously awarded. Corporation. If for any reason any shares as to which an option has been granted cease to be subject to purchase thereunder or any restricted shares or restricted units are forfeited to the Corporation, or to the extent that any awards under the Plan denominated in shares or units are paid or settled in cash or are surrendered upon the exercise of an option, then (unless the Plan shall have been terminated) such shares or units, and any shares surrendered to the Corporation upon such exercise, shall become available for subsequent awards under the Plan unless such shares or units, if so made available for subsequent awards under the Plan, would not be exempt from Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act") pursuant to Rule 16b-3, as amended, thereunder; provided, however, that shares surrendered to the Corporation upon the exercise of an incentive stock option and shares subject to an incentive stock option surrendered upon the exercise of a right shall not be available for subsequent award of additional stock options under the Plan. (c) No incentive stock option shall be granted hereunder after March 4, 2008. (d) The total number of shares of Common Stock with respect to which options may be granted under the Plan to any employee during any calendar year shall not exceed [400,000] shares. 3. Administration (a) The Plan shall be administered by those members of the Personnel, Compensation and Nominating Committee, or any successor thereto, of the Board of Directors who are "nonemployee directors" within the meaning of Rule 16b-3, as amended, under Section 16(b) of the Exchange Act or by such other committee consisting of not less than two persons each of whom shall qualify as "non-employee directors," as may be determined by the Board of Directors ("the Committee"). (b) The Committee shall have plenary authority in its sole discretion, subject to and not inconsistent with the express provisions of this Plan: (i) to grant options, to determine the purchase price of the Common Stock covered by each option, the term of each option, the employees to whom, and the time or times at which, options shall be granted and the number of shares to be covered by each option; (ii) to designate options as incentive stock options or non-qualified options and to determine which options shall be accompanied by rights; (iii) to grant rights and to determine the purchase price of the Common Stock covered by each right or related option, the term of each right or related option, the employees to whom, and the time or times at which, rights or related options shall be granted and the number of shares to be covered by each right or related option; (iv) to grant restricted shares and restricted units and to determine the term of the Restricted Period (as defined in Section 10) and other conditions applicable to such shares or units, the employees to whom, and the time or times at which, restricted shares or restricted units shall be granted and the number of shares or units to be covered by each grant; (v) to interpret the Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the Plan; (vii) to determine the terms and provisions of the option and rights agreements (which need not be identical) and the restricted share and restricted unit agreements (which need not be identical) entered into in connection with awards under the Plan, including any provisions of such agreements that may permit a recipient of an award of restricted units to elect, prior to the vesting of such units, to defer the payment of cash and/or the delivery of shares of Common Stock otherwise to be made upon the vesting of such restricted units, and/or to defer the payment of any cash compensation awarded to the recipient with respect to such restricted units, or with respect to any restricted stock awarded to the recipient, either under this Plan or the GPU System Companies Deferred Compensation Plan (a "Deferral"); and to make all other determinations deemed necessary or advisable for the administration of the Plan. Without limiting the foregoing, the Committee shall have plenary authority in its sole discretion, subject to and not inconsistent with the express provisions of the Plan, (1) to select GPU Officers (as defined below) for participation in the Plan, (2) to determine the timing, price and amount of any grant or award under the Plan to any GPU Officer, (3) either (A) to determine the form in which payment of any right granted or awarded under the Plan will be made (i.e., cash, securities or any combination thereof) or (B) to approve the election of the employee to receive cash in whole or in part in settlement of any right granted or awarded under the Plan. As used herein, the term "GPU Officer" shall mean an officer (other than an assistant officer) of the Corporation and any person who may from time to time be designated an executive officer of the Corporation by its Board of Directors (the "Board"). The exercise by the Committee of the powers granted in clauses (i), (ii), (iii), (iv), and (vii) hereof shall be subject to the approval of the Board with respect to a recipient of an award hereunder who is an officer (other than assistant officer) of the Corporation or the Chairman or President of any subsidiary (as defined in Section 4(a) hereof) of the Corporation. (The Committee and the Board are sometimes hereinafter referred to as the "Grantors.") (c) The Grantors may delegate to one or more of their members or to one or more agents such administrative duties as they may deem advisable, and the Grantors or any person to whom they have delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Grantors or such person may have under the Plan; provided, that the Grantors may not delegate any duties to a member of the Board of Directors who would not qualify as a "non-employee director" to administer the Plan as contemplated by Rule 16b-3, as amended, or other applicable rules under the Exchange Act. The Grantors may employ attorneys, consultants, accountants or other persons and the Grantors, the Corporation and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Grantors in good faith shall be final and binding upon all employees who have received awards, the Corporation and all other interested persons. Notwithstanding the foregoing, any action taken or any interpretation or determination made by the Grantors after the occurrence of a "Change in Control" (as defined in Section 7(c) hereof) which adversely affects the rights of any employee with respect to any award made to the employee hereunder shall be subject to judicial review under a "de novo" rather than a deferential standard. No member or agent of the Grantors shall be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan or awards made thereunder, and all members and agents of the Grantors shall be fully protected by the Corporation in respect of any such action, determination or interpretation. 4. Eligibility; Factors to be Considered in Making Awards (a) Only employees of the Corporation or its subsidiaries may receive awards under the Plan. The term "subsidiary" means any corporation one hundred (100%) percent of the common stock of which is owned, directly or indirectly, by the Corporation. A director of the Corporation or of a subsidiary who is not also an employee will not be eligible to receive an award. (b) In determining the employees to whom awards shall be granted and the number of shares or units to be covered by each award, the Committee shall take into account the nature of the employee's duties, his or her present and potential contributions to the success of the Corporation and such other factors as it shall deem relevant in connection with accomplishing the purposes of the Plan. (c) Awards may be granted singly, in combination or in tandem and may be made in combination or in tandem with or in replacement of, or as alternatives to, awards or grants under any other employee plan maintained by the Corporation or its subsidiaries. An award made in the form of an option, a unit or a right may provide, in the discretion of the Committee, for (i) the crediting to the account of, or the current payment to, each employee who has such an award of an amount equal to the cash dividends and stock dividends paid by the Corporation upon one share of Common Stock for each restricted unit, or share of Common Stock subject to an option or right, included in such award, and for each restricted unit which is the subject of a Deferral ("Dividend Equivalents"), or (ii) the deemed reinvestment of such Dividend Equivalents and stock dividends in shares of Common Stock or the deemed reinvestment of units in additional units, which deemed reinvestment in each case shall be deemed to be made in accordance with the provisions of Section 10 and credited to the employee's account ("Additional Deemed Shares"). Such Additional Deemed Shares shall be subject to the same restrictions (including but not limited to provisions regarding forfeitures) applicable with respect to the option, unit or right with respect to which such credit is made. Dividend Equivalents not deemed reinvested as stock dividends shall not be subject to forfeiture, and may bear amounts equivalent to interest or cash dividends as the Committee may determine. An employee who has been granted incentive stock options under the Plan may be granted an additional award or awards, subject to such limitations as may be imposed by the Code with respect to incentive stock options. (d) The Committee, in its sole discretion, may grant to an employee who has been granted an award under the Plan or any other employee plan maintained by the Corporation, any of its subsidiaries, or any successor thereto, in exchange for the surrender and cancellation of such award, a new award in the same or a different form and containing such terms, including without limitation a price which is different (either higher or lower) than any price provided in the award so surrendered and cancelled, as the Committee may deem appropriate. 5. Option Price (a) The purchase price of the Common Stock covered by each option shall be determined by the Committee; provided, however, that the purchase price shall not be less than 100% of the fair market value of the Common Stock on the date the option is granted. Fair market value shall mean the closing price of the Common Stock as reported on the New York Stock Exchange Composite Tape for the date on which the option is granted, or if there are no sales on such date, on the next preceding day on which there were sales. Such price shall be subject to adjustment as provided in Section 13. The price so determined shall also be applicable in connection with the exercise of any related right. (b) The purchase price of the shares as to which an option is exercised shall be paid in full at the time of exercise. Payment may be made in cash, which may be paid by check or other instrument acceptable to the Corporation, in shares of the Common Stock, valued at the closing price of the Common Stock as reported on the New York Stock Exchange Composite Tape for the date of exercise, or if there were no sales on such date, on the next preceding day on which there were sales, or (if permitted by the Committee and subject to such terms and conditions as it may determine) by surrender of outstanding awards under the Plan. In addition, the purchase price may be paid in whole or in part by delivering a properly executed exercise notice in a form approved by the Committee together with irrevocable instructions to a broker to promptly deliver to the Corporation the applicable amount of the proceeds from the sale or loan securities. The purchase price may also be paid in such other form or manner as the Committee may from time to time approve. (c) At the time of any exercise of an option granted to an employee hereunder, the employee shall pay any amount determined by the Committee to be necessary to satisfy all applicable federal, state or local tax requirements relating to such exercise. The Committee may permit such amount to be paid in other shares of Common Stock owned by the employee, or a portion of the shares of Common Stock that otherwise would be issued to the employee upon such exercise of the option, or a combination of cash and shares of such Common Stock. 6. Term of Options The term of each option granted under the Plan shall be such period of time as the Committee shall determine, but not more than ten years from the date of grant. Unless sooner forfeited pursuant to the terms of the applicable option agreement or cancelled pursuant to Section 7(c) hereof, each option granted under the Plan shall expire at the end of its term. Notwithstanding any other provision in this Plan to the contrary, no option granted hereunder may be exercised after the expiration of its term. 7. Exercise of Options (a) Each option granted under the Plan shall become exercisable, in whole or in part, at such time or times during its term as the agreement evidencing the grant of such option shall specify; provided, however, that the Committee may also, in its discretion, accelerate the exercisability of any option in whole or in part at any time. (b) Each option granted under the Plan that has become exercisable pursuant to Section 7(a) hereof shall remain exercisable thereafter for such period of time prior to the expiration of its term (including any period subsequent to the employee's termination of employment with the Corporation and all of its subsidiaries for any reason) as the option agreement evidencing the grant of such option shall provide. (c) Subject to subsection (e) below but notwithstanding any other provision of the Plan, upon the occurrence of a Change in Control of the Corporation (the date upon which such event occurs shall be referred to for purposes of this Plan as an "Acceleration Date"), all options granted under the Plan and still outstanding on the Acceleration Date shall be cancelled, and the Corporation's obligation in respect of each option so cancelled shall be discharged by payment to the holder of such option of a single cash lump sum, in an amount determined under subsection (d) below. Such amount shall be payable as soon as practicable after the Acceleration Date. For purposes of the Plan, a "Change in Control" shall mean the occurrence during the term of the Plan of: (1) An acquisition (other than directly from the Corporation) of any Common Stock or other voting securities of the Corporation entitled to vote generally for the election of directors (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares of Common Stock or the combined voting power of the Corporation's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Corporation or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Corporation (for purposes of this definition, a "Subsidiary"), (B) the Corporation or its Subsidiaries, or (C) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (2) The individuals who, as of August 1, 1996, are members of the Board of Directors (the "Incumbent Board"), cease for any reason to constitute at least seventy percent (70%) of the members of the Board of Directors; provided, however, that if the election, or nomination for election by the Corporation's shareholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (3) The consummation of: (A) A merger, consolidation or reorganization with or into the Corporation or in which securities of the Corporation are issued, unless such merger, consolidation or reorganization is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a merger, consolidation or reorganization with or into the Corporation or in which securities of the Corporation are issued where: (i) the shareholders of the Corporation, immediately before such merger, consolidation or reorganization, own directly or indirectly immediately following such merger, consolidation or reorganization, at least sixty percent (60%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization, (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute at least seventy percent (70%) of the members of the board of directors of the Surviving Corporation, or a corporation, directly or indirectly, beneficially owning a majority of the Voting Securities of the Surviving Corporation, and (iii) no Person other than (w) the Corporation, (x) any Subsidiary, (y) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such merger, consolidation or reorganization, was maintained by the Corporation or any Subsidiary, or (z) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or Common Stock, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities or its common stock. (B) A complete liquidation or dissolution of the Corporation; or (C) The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Subsidiary). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Common Stock or Voting Securities as a result of the acquisition of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. (d) The lump sum payment to be made in respect of any option pursuant to subsection (c) above shall be an amount equal to (i) the excess, if any, of the Determined Value of all shares that are still subject to the option as of the Acceleration Date (including any shares as to which the option had not otherwise become exercisable prior to such date) over the aggregate purchase price of such shares, less (ii) the amount of all federal, state and local taxes required by law to be withheld with respect to such payment. The "Determined Value" of the shares still subject to an option as of the Acceleration Date shall mean the amount determined by multiplying the number of such shares by the "Multiplication Factor," as defined in Section 10(f)(i) hereof. (e) Any incentive stock option granted under the Plan and still outstanding immediately prior to the occurrence of a Change in Control shall, upon the occurrence of the Change in Control, become immediately exercisable as to all shares of Common Stock that are then still subject to the option. The holder of any such incentive stock option shall be provided an opportunity to exercise such option at such time prior to the time as of which the Change in Control becomes effective, and in accordance with such procedures, as the Committee shall determine. To the extent an option is so exercised, the option shall not be cancelled as provided in subsection (c) above. (f) An option may be exercised, at any time or from time to time during its term (subject, in the case of an incentive stock option, to such restrictions as may be imposed by the Code), as to any or all full shares as to which the option has become and remains exercisable; provided, however, that an option may not be exercised at any one time as to less than 100 shares (or less than the number of shares as to which the option is then exercisable, if that number is less than 100 shares). (g) Upon the exercise of an option or portion thereof in accordance with the Plan, the option agreement and such rules and regulations as may be established by the Committee, the holder thereof shall have the rights of a shareholder with respect to the shares issued as a result of such exercise. 8. Award and Exercise of Rights (a) A right may be awarded by the Committee in connection with any option granted under the Plan, either at the time the option is granted or thereafter at any time prior to the exercise, termination or expiration of the option ("tandem right"), or separately ("freestanding right"). Each tandem right shall be subject to the same terms and conditions as the related option and shall be exercisable only to the extent the option is exercisable. A right shall be exercisable (as to a tandem right, only to the extent the related option is exercisable) on or after an Acceleration Date. (b) A right shall entitle the employee upon exercise in accordance with its terms (subject, in the case of a tandem right, to the surrender unexercised of the related option or any portion or portions thereof which the employee from time to time determines to surrender for this purpose) to receive, subject to the provisions of the Plan and such rules and regulations as from time to time may be established by the Committee, a payment having an aggregate value equal to the product of (A) the excess of (i) the fair market value on the exercise date of one share of Common Stock over (ii) the exercise price per share, in the case of a tandem right, or the price per share specified in the terms of the right, in the case of a freestanding right, multiplied by (B) the number of shares with respect to which the right shall have been exercised. The payment may be made in the form of all cash, all shares of Common Stock, or a combination thereof, as elected by the employee. (c) The exercise price per share specified in a right shall be as determined by the Committee, provided that, in the case of a tandem right accompanying an incentive stock option, the exercise price shall be not less than fair market value of the Common Stock subject to such option on the date of grant. (d) If upon the exercise of a right the employee is to receive a portion of the payment in shares of Common Stock, the number of shares shall be determined by dividing such portion by the fair market value of a share on the exercise date. The number of shares received may not exceed the number of shares covered by any option or portion thereof surrendered. Cash will be paid in lieu of any fractional share. (e) No payment will be required from an employee upon exercise of a right, except that any amount necessary to satisfy applicable federal, state or local tax requirements shall be withheld or paid promptly by the employee upon notification of the amount due and prior to or concurrently with delivery of cash or a certificate representing shares. The Committee may permit such amount to be paid in shares of Common Stock previously owned by the employee, or a portion of the shares of Common Stock that otherwise would be distributed to such employee upon exercise of the right, or a combination of cash and shares of such Common Stock. (f) The fair market value of a share shall mean the closing price of the Common Stock as reported on the New York Stock Exchange Composite Tape for the date of exercise, or if there are no sales on such date, on the next preceding day on which there were sales; provided, however, that in the case of rights that relate to an incentive stock option, the Committee may prescribe, by rules of general application, such other measure of fair market value as the Committee may in its discretion determine but not in excess of the maximum amount that would be permissible under Section 422 of the Code without disqualifying such option under Section 422. (g) Upon exercise of a tandem fight, the number of shares subject to exercise under the related option shall automatically be reduced by the number of shares represented by the option or portion thereof surrendered. (h) A right related to an incentive stock option may only be exercised if the fair market value of a share of Common Stock on the exercise date exceeds the option price. 9. Non-Transferability of Options, Rights and Units; Holding Periods for GPU Officers Except as may otherwise be provided in the agreement evidencing the grant of any option, right or unit hereunder, any option, right, or unit granted under the Plan shall not be transferable by the grantee thereof otherwise than by will or the laws of descent and distribution; provided, that the designation of a beneficiary by an employee shall not constitute a transfer; and options and rights may be exercised during the lifetime of the employee only by the employee or, unless such exercise would disqualify an option as an incentive stock option, by the employee's guardian or legal representative. 10. Award and Delivery of Restricted Shares or Restricted Units (a) At the time an award of restricted shares or restricted units is made, the Committee shall establish a period of time (the "Restricted Period") applicable to such award. Each award of restricted shares or restricted units may have a different Restricted Period. The Committee may, in its sole discretion, at the time an award is made, prescribe conditions for the incremental lapse of restrictions during the Restricted Period and for the lapse or termination of restrictions upon the satisfaction of other conditions in addition to or other than the expiration of the Restricted Period with respect to all or any portion of the restricted shares or restricted units. The Committee may also, in its sole discretion, shorten or terminate the Restricted Period, or waive any conditions for the lapse or termination of restrictions with respect to all or any portion of the restricted shares or restricted units. Notwithstanding the foregoing, all restrictions shall lapse, and the Restricted Period shall terminate, with respect to all restricted shares or restricted units upon the occurrence of an Acceleration Date or at such earlier time as provided for in Section 11 or Section 12. (b) (1) Unless such shares are issued as uncertificated shares pursuant to paragraph (3) below, a stock certificate representing the number of restricted shares granted to an employee shall be registered in the employee's name but shall be held in custody by the Corporation or an agent therefor for the employee's account. The employee shall generally have the rights and privileges of a shareholder as to such restricted shares, including the right to vote such restricted shares, except that, subject to the provisions of Section 11 and Section 12, the following restrictions shall apply: (i) the employee shall not be entitled to delivery of the certificate until the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Committee; (ii) none of the restricted shares may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of during the Restricted Period and until the satisfaction of any other conditions prescribed by the Committee at the time of award; and (iii) all of the restricted shares shall be forfeited and all rights of the employee to such restricted shares shall terminate without further obligation on the part of the Corporation unless the employee has remained an employee of the Corporation or any of its subsidiaries until the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Committee at the time of award applicable to such restricted shares. At the discretion of the Committee, (x) cash and stock dividends with respect to the restricted shares may be either currently paid or withheld by the Corporation for the employee's account, and interest may be paid on the amount of cash dividends withheld at a rate and subject to such terms as determined by the Committee or (y) the Committee may require that all cash dividends be applied to the purchase of additional shares of Common Stock, and such purchased shares, together with any stock dividends related to such restricted shares (such purchased shares and stock dividends are hereafter referred to as "Additional Restricted Shares") shall be treated as Additional Shares, subject to forfeiture on the same terms and conditions as the original grant of the restricted shares to the employee. (2) The purchase of any such Additional Restricted Shares shall be made either (i) through the Corporation's Dividend Reinvestment and Stock Purchase Plan, in which event the price of such shares so purchased through the reinvestment of dividends shall be as determined in accordance with the provisions of that plan and no stock certificate representing such Additional Restricted Shares shall be registered in the employee's name or (ii) in accordance with such alternative procedure as is determined by the Committee in which event the price of such purchased shares shall be the closing price of the Common Stock as reported on the New York Stock Exchange Composite Tape for the date on which such purchase is made, or if there were no sales on such date, the next preceding day on which there were sales. In the event that the Committee shall not require reinvestment, cash or stock dividends so withheld by the Committee shall not be subject to forfeiture. Upon the forfeiture of any restricted shares (including any Additional Restricted Shares), such forfeited shares shall be transferred to the Corporation without further action by the employee. The employee shall have the same rights and privileges, and be subject to the same restrictions, with respect to any shares received pursuant to Section 13. (3) Notwithstanding anything herein to the contrary, shares representing restricted shares or Additional Restricted Shares may be issued as uncertificated shares. (c) Upon the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Committee at the time of award, or at such earlier time as provided for in Section 11 or Section 12, the restrictions applicable to the restricted shares (including Additional Restricted Shares) shall lapse and a stock certificate for the number of restricted shares (including any Additional Restricted Shares) with respect to which the restrictions have lapsed shall be delivered, free of all such restrictions, except any that may be imposed by law, to the employee or the employee's beneficiary or estate, as the case may be. The Corporation shall not be required to deliver any fractional share of Common Stock but will pay, in lieu thereof, the fair market value (determined as of the date the restrictions lapse) of such fractional share to the employee or the employee's beneficiary or estate, as the case may be. No payment will be required from the employee upon the issuance or delivery of any restricted shares, except that any amount necessary to satisfy applicable federal, state or local tax requirements shall be withheld or paid promptly upon notification of the amount due and prior to or concurrently with the issuance or delivery of a certificate representing such shares. The Committee may permit such amount to be paid in shares of Common Stock previously owned by the employee, or a portion of the shares of Common Stock that otherwise would be distributed to such employee upon the lapse of the restrictions applicable to the restricted shares, or a combination of cash and shares of such Common Stock. (d) In the case of an award of restricted units, no shares of Common Stock shall be issued at the time the award is made, and the Corporation shall not be required to set aside a fund for the payment of any such award. (e) Subject to subsection (g) below: (i) Upon the expiration or termination of the Restricted Period or the occurrence of an Acceleration Date and the satisfaction of any other conditions prescribed by the Committee or at such earlier time as provided for in Section 11 or Section 12, the Corporation shall deliver to the employee or the employee's beneficiary or estate, as the case may be, one share of Common Stock for each restricted unit with respect to which the restrictions have lapsed ("vested unit"). (ii) In addition, if the Committee has not required the deemed reinvestment of such Dividend Equivalents pursuant to Section 4, at such time the Corporation shall deliver to the employee cash equal to any Dividend Equivalents or stock dividends credited with respect to each such vested unit and, to the extent determined by the Committee, the interest thereupon. However, if the Committee has required such deemed reinvestment in connection with such restricted unit, in addition to the stock represented by such vested unit, the Corporation shall deliver the number of Additional Deemed Shares credited to the employee with respect to such vested unit. (iii) Notwithstanding the foregoing, the Committee may, in its sole discretion, elect to pay cash or part cash and part Common Stock in lieu of delivering only Common Stock for the vested units and related Additional Deemed Shares. If a cash payment is made in lieu of delivering Common Stock, the amount of such cash payment shall be equal to the closing price of the Common Stock as reported on the New York Stock Exchange Composite Tape for the date on which the Restricted Period lapsed with respect to such vested unit and related Additional Deemed Shares, or if there are no sales on such date, on the next preceding day on which there were sales. (f) Upon the occurrence of an Acceleration Date, all outstanding vested units (including restricted units whose restrictions have lapsed as a result of the occurrence of such Acceleration Date) and credited Dividend Equivalents or related Additional Deemed Shares shall be payable as soon as practicable after such Acceleration Date in cash, in shares of Common Stock, or part in cash and part in Common Stock, as the Committee, in its sole discretion, shall determine. (i) Subject to subsection (g) below, to the extent that an employee receives cash in payment for his or her vested units and Additional Deemed Shares, such employees shall receive an amount equal to the product of (x) the number of vested units and Additional Deemed Shares credited to such employee's account for which such employee is receiving payment in cash multiplied by (y) the highest closing price per share of Common Stock occurring during the ninety (90) day period preceding and the ninety (90) day period following the Acceleration Date (the "Multiplication Factor"). (ii) Subject to subsection (g) below, to the extent that an employee receives Common Stock in payment for his or her vested units and Additional Deemed Shares, such employee shall receive the number of shares of Common Stock determined by dividing (x) the product of (I) the number of vested units and Additional Deemed Shares credited to such employee's account for which such employee is receiving payment in Common Stock multiplied by (II) the Multiplication Factor, by (y) the fair market value per share of the Common Stock for the day preceding the payment date, or if there are no sales on such date, on the next preceding day on which there were sales. (g) No payment will be required from the employee upon the award of any restricted units, the crediting or payment of any Dividend Equivalents or Additional Deemed Shares, or the delivery of Common Stock or the payment of cash in respect of vested units, except that any amount necessary to satisfy applicable federal, state or local tax requirements shall be withheld or paid promptly upon notification of the amount due. The Committee may permit such amount to be paid in shares of Common Stock previously owned by the employee, or a portion of the shares of Common Stock that otherwise would be distributed to such employee in respect of vested units and Additional Deemed Shares, or a combination of cash and shares of such Common Stock. (h) In addition, the Committee shall have the right, in its absolute discretion, upon or prior to the vesting of any restricted shares (including Additional Restricted Shares) and restricted units (including Additional Deemed Shares) to award cash compensation to the employee for the purpose of aiding the employee in the payment of any and all federal, state and local income taxes payable as a result of such vesting, if the performance of the Corporation during the Restricted Period meets such criteria as the Committee shall have prescribed. (i) Notwithstanding any other provision in this Section 10 to the contrary, any payment of cash and/or delivery of any shares of Common Stock otherwise required to be made hereunder on any date with respect to any restricted units awarded to an employee, or with respect to any cash compensation awarded to an employee pursuant to subsection (h) above, may be deferred, at the employee's election, either under this Plan or under the GPU Companies Deferred Compensation Plan, to the extent such deferral is permitted under, and upon such terms and conditions as may be set forth in, the written agreement between the employee and the Corporation (whether as initially entered into, or as subsequently amended) evidencing the award of such units, or cash compensation, to the employee. 11. Termination of Employment Unless otherwise determined by the Committee, if an employee to whom restricted shares or restricted units have been granted ceases to be an employee of the Corporation or of any of its subsidiaries prior to the end of the Restricted Period applicable to the shares or units so granted and prior to the satisfaction of any other conditions prescribed by the Committee at the time of grant for any reason other than as set forth in Section 12, the employee shall immediately forfeit all restricted shares and restricted units so granted, including all Additional Restricted Shares or Additional Deemed Shares related thereto. Any option, right, restricted share or restricted unit agreement, or any rules and regulations relating to the Plan, may contain such provisions as the Committee shall approve with reference to the determination of the date employment terminates and the effect of leaves of absence. Any such rules and regulations with reference to any option agreement shall be consistent with the provisions of the Code and any applicable rules and regulations thereunder. Nothing in the Plan or in any award granted pursuant to the Plan shall confer upon any employee any right to continue in the employ of the Corporation or any of its subsidiaries or interfere in any way with the right of the Corporation or any such subsidiary to terminate such employment at any time. 12. Eligible Retirement, Death or Total Disability of Employee (a) If the Committee so determines, the agreement evidencing the grant of any restricted shares or restricted units to any employee may permit the restricted shares or restricted units so granted, or any portion of such restricted shares or restricted units, to become vested upon the employee's death, Total Disability or Eligible Retirement. (b) For purposes of this Plan, (i) "Total Disability" shall mean the permanent inability of an employee, as a result of accident or sickness, to perform any and every duty pertaining to such employee's occupation or employment for which the employee is suited by reason of the employee's previous training, education and experience, and (ii) "Eligible Retirement" shall mean the date upon which an employee, having attained an age of not less than fifty-five, terminates his or her employment with the Corporation and all of its subsidiaries, provided that such employee is immediately eligible to receive a pension (whether or not he or she otherwise elects to defer such receipt) under Section 3.1 or 3.3 of the "Employee Pension Plan" maintained by any subsidiary or subsidiaries of the Corporation for salaried employees, or any successor thereto. 13. Adjustments Upon Changes in Capitalization, etc. Notwithstanding any other provision of the Plan, the Committee may at any time make or provide for such adjustments to the Plan, to the number and class of shares available thereunder or to any outstanding options, restricted shares or restricted units as it shall deem appropriate to prevent dilution or enlargement of rights, including adjustments in the event of distributions to holders of Common Stock other than a normal cash dividend, changes in the outstanding Common Stock by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations and the like. In the event of any offer to holders of Common Stock generally relating to the acquisition of their shares, the Committee may make such adjustment as it deems equitable in respect of outstanding options, rights, and restricted units including in the Committee's discretion revision of outstanding options, rights, and restricted units so that they may be exercisable for or payable in the consideration payable in the acquisition transaction. Any such determination by the Committee shall be conclusive and binding on all parties. No adjustment shall be made in the minimum number of shares with respect to which an option may be exercised at any time. Any fractional shares resulting from such adjustments to options, rights, limited rights, or restricted units shall be eliminated. 14. Effective Date The Plan as initially adopted became effective as of June 1, 1990. The Committee may, in its discretion, grant awards under the Plan, the grant, exercise or payment of which shall be expressly subject to the conditions that to the extent required at the time of grant, exercise or payment (i) the shares of Common Stock covered by such awards shall be duly listed, upon official notice of issuance, upon the New York Stock Exchange, and (ii) if the Corporation deems it necessary or desirable a Registration Statement under the Securities Act of 1933 with respect to such shares shall be effective. 15. Termination and Amendment The Board of Directors of the Corporation may suspend, terminate, modify or amend the Plan, provided that no amendment or modification to the penultimate sentence of Section 3(c), to Section 7(c) or to this Section 15, nor any suspension or termination of the Plan, effectuated (i) at the request of a third party who has indicated an intention or taken steps to effect a Change in Control and who effectuates a Change in Control, (ii) within six (6) months prior to, or otherwise in connection with, or in anticipation of, a Change in Control which has been threatened or proposed and which actually occurs, or (iii) following a Change in Control, shall be effective if the amendment, modification, suspension or termination adversely affects the rights of any employee under the Plan. If the Plan is terminated, the terms of the Plan shall, notwithstanding such termination, continue to apply to awards granted prior to such termination. In addition, no amendment, modification, suspension or termination of the Plan shall adversely affect the rights of any employee with respect to any award (including without limitation any right with respect to the timing and method of payment of any award) granted to the employee prior to the date of the adoption of such amendment, modification, suspension or termination without such employee's written consent. 16. Written Agreements Each award of options, rights, restricted shares or restricted units shall be evidenced by a written agreement, executed by the employee and the Corporation, which shall contain such restrictions, terms and conditions as the Committee may require. 17. Effect on Other Stock Plans The adoption of the Plan shall have no effect on awards made or to be made pursuant to other stock plans covering employees of the Corporation, its subsidiaries, or any successors thereto. EX-10 14 EXHIBIT 10-BB - STOCK OPTION AGREEMENT EXHIBIT 10-BB STOCK OPTION AGREEMENT THIS AGREEMENT made as of this day of , 1998, by and between GPU, Inc. (the "Corporation") and (the "Recipient"): WHEREAS, the Corporation maintains the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries (the "Plan") under which the Personnel, Compensation and Nominating Committee of the Corporation's Board of Directors (the "Committee") may, among other things, grant options to purchase shares of the Corporation's common stock to such employees of the Corporation and its Subsidiaries as the Committee may determine, subject to such terms, conditions or restrictions as it may deem appropriate; WHEREAS, pursuant to the Plan, the Committee has granted a stock option to the Recipient subject to the terms and conditions set forth in this Agreement; and WHEREAS, the Plan requires that the grant of a stock option be evidenced by a written agreement between the Corporation and the Recipient which contains such restrictions, terms and conditions as the Committee may require; NOW, THEREFORE, the parties hereto agree as follows: 1. Date of Grant. This Agreement evidences the grant by the Committee to the Recipient, on , 1998 (the "Date of Grant") of an option (the "Option") to purchase shares of common stock of the Corporation ("Shares"). 2. Purchase Price. The price at which any Shares may be purchased pursuant to any exercise of this Option shall be $__________ per Share. 3. Exercisability. This Option shall become exercisable in three equal annual installments, beginning on the first anniversary of the Date of Grant and continuing each year through the third anniversary of the Date of Grant. Each annual installment shall include a number of Shares equal to 33-1/3% of - ----------------- 1) Insert amount equal to 100% of per share closing price of GPU shares on the Date of Grant the total number of Shares specified in Section 1 above. As of any date, the portion of this Option that is then exercisable, and the portion of this Option that is not yet exercisable as of such date, are referred to herein, respectively, as the "Exercisable Portion", and the "Non-Exercisable", of this Option. 4. Option Term. The term of this Option ("Option Term") shall be the period beginning on the Date of Grant and ending on the 10th anniversary thereof. Subject to the provisions of Sections 5, 8 and 11 hereof and the applicable provisions of the Plan, this Option may be exercised at any time during the Option Term to purchase any part or all of the Shares included in the Exercisable Portion of the Option at the time of exercise. Unless sooner terminated, cancelled or forfeited pursuant to Section 5, 8 or 11 hereof and the applicable provisions of the Plan, this Option shall expire at, and shall cease to be exercisable after, the end of the Option Term. 5. Exercise in the Event of Termination of Employment. In the event the Recipient's employment with the Corporation and its subsidiaries should terminate, this Option may be exercised in accordance with the following provisions: (a) If the Recipient's employment terminates as a result of death, the Non-Exercisable portion of this Option at the date of the Recipient's death shall become immediately and fully exercisable, and this Option (including the portion thereof that becomes exercisable upon the Recipient's death) may be exercised by the Recipient's Beneficiary (as defined in Section 13 below) at any time or from time to time during the Recipient's Post-Termination Exercise Period (as defined in Section 5(f) below). (b) If the Recipient's employment terminates as a result of Total Disability (as defined in the Plan), the Non-Exercisable Portion of this Option at the date of the Recipient's termination of employment shall become immediately and fully exercisable, and this Option (including the portion thereof that becomes exercisable upon such termination of the Recipient's employment) may be exercised by the Recipient at any time and from time to time during the Recipient's Post-Termination Exercise Period. If the Recipient's employment has terminated as a result of Total Disability and the Recipient should thereafter die before the end of the Recipient's Post-Termination Exercise Period, the Exercisable Portion of this Option at the date of the Recipient's death shall continue to be exercisable by the Recipient's Beneficiary at any time or from time to time after the date of -2- the Recipient's death until the earlier of the second anniversary of such date of death or the date on which the Option Term expires. (c) If the Recipient's employment terminates as a result of Eligible Retirement (as defined in the Plan), this Option may be exercised (i) with respect to the Exercisable Portion of the Option, at any time or from time to time during the Recipient's Post-Termination Exercise Period and (ii) with respect to the Non-Exercisable Portion of the Option, at any time or from time to time on or after the date or dates during the Recipient's Post-Termination Exercise Period on which such portion of the Option becomes exercisable, but only during such Period. If the Recipient should die prior to the end of the Recipient's Post-Termination Exercise Period, the Non-Exercisable Portion, if any, of this Option at the date of the Recipient's death shall become immediately and fully exercisable, and this Option (including the portion thereof that becomes exercisable upon the Recipient's death) may be exercised by the Recipient's Beneficiary at any time or from time to time after the Recipient's death until the earlier of the second anniversary of such date of death or the date on which the Option Term expires. (d) If the Recipient's employment terminates for any reason other than death, Total Disability or Eligible Retirement, this Option (including the Exercisable Portion of this Option, to the extent it has not been exercised prior to the date of such termination of the Recipient's employment) shall be forfeited and cancelled as of the date of the Recipient's termination of employment. (e) Notwithstanding the foregoing, the Committee may, in its sole discretion, determine that any part or all of the Non-Exercisable Portion of this Option at the date of the Recipient's termination of employment (and any part or all of the Exercisable Portion at such date, if the Recipient's employment terminates for any reason other than death, Total Disability or Eligible Retirement) shall not be forfeited and cancelled, and may be exercised by the Recipient (or in the event of the Recipient's death by the Recipient's Beneficiary) for such period after such date of termination of employment and prior to the expiration of the Option Term, as the Committee shall specify in such determination. (f) For purposes of the foregoing, the Recipient's "Post-Termination Exercise Period" shall mean the period beginning on the date of the Recipient's termination of employment and ending (i) on the second anniversary of such date, if the Recipient's -3- employment has terminated as a result of the Recipient's death, or (ii) on the first anniversary of such date, if the Recipient's employment has terminated as a result of Total Disability, or (iii) on the fifth anniversary of such date, if the Recipient's employment has terminated as a result of Eligible Retirement. Notwithstanding the foregoing, the Recipient's Post-Termination Exercise Period shall end no later than the date on which the Option Term expires. (g) For purposes of this Agreement, the Recipient's employment shall not be treated as having terminated unless the Recipient is no longer employed with the Corporation or any "subsidiary" as defined in the Plan. 6. Manner of Exercise. This Option may be exercised by delivery to the Corporation of a written notice specifying the number of Shares as to which the Option is being exercised, accompanied by payment in full of the aggregate purchase price for such Shares. The Option may be exercised only with respect to a whole number of Shares, and may not be exercised, at any single time, as to less than 100 Shares or, if less, the total number of Shares as to which the Option is then exercisable. Any notice hereunder to the Corporation shall be addressed to it at its office at 300 Madison Avenue, Morristown, New Jersey 07960, Attention: Senior Vice President - Corporate Affairs. 7. Manner of Payment. Payment of the purchase price for Shares purchased pursuant to any exercise of this Option may be made (a) in cash, (b) by delivery of certificates, duly endorsed or accompanied by appropriate stock powers, representing Shares previously owned by the Recipient having an aggregate fair market value equal to the purchase price, or (c) by a combination of payment in cash and delivery of certificates for Shares, as provided in (a) and (b) above, having a combined sum and value equal to the purchase price. For purposes of the foregoing, the fair market value of any Shares included in the payment of the purchase price shall be determined on the basis of the per share closing price of the Corporation's common stock as reported on the New York Stock Exchange Composite Tape for the date of exercise, or if there were no sales on such date, for the next preceding day on which there were sales. In addition, the purchase price may be paid in whole or in part by delivering a properly executed exercise notice in a form approved by the Committee together with irrevocable instructions to a broker to promptly deliver to the Corporation the applicable amount of the proceeds from the sale or loan of securities. The purchase price -4- may also be paid in such other form or manner as the Committee may from time to time approve. 8. Change in Control. Notwithstanding any other provision herein to the contrary, if a Change in Control (as defined in the Plan) occurs at any time during the Option Term, this Option shall be cancelled upon the occurrence of the Change in Control. In the event of such cancellation, the Corporation's obligation in respect of this Option shall be discharged by payment to the Recipient of a single cash lump sum (reduced by any taxes withheld pursuant to Section 12) in an amount equal to the excess, if any, of the Determined Value (as defined in the Plan) of all Shares that are still subject to this Option (including both the Exercisable Portion and the Non-Exercisable Portion thereof) as of the date of the occurrence of the Change in Control, over the aggregate purchase price of such shares. Such amount shall be payable as soon as practicable following the Change in Control. 9. Tax Status of Option. This Option shall be treated as a "non-qualified option", as defined in the Plan. 10. Nontransferability. This Option shall be nontransferable and may be exercised during the Recipient's lifetime only by the Recipient. Notwithstanding the foregoing, the Recipient may transfer this Option (or any portion thereof) by gift to a "Permitted Transferee" as defined below, subject to the following: (i) such transfer shall be permitted only if the Recipient does not receive any consideration for the transfer; (ii) such transfer shall not be effective unless and until the Recipient has furnished the Committee with written notice of the transfer and copies of all documents evidencing the transfer; (iii) any portion of this Option that is transferred by the Recipient to a Permitted Transferee may be exercised by the Permitted Transferee to the same extent as the Recipient would have been entitled to exercise it, and shall remain subject to all of the terms and conditions that would have applied to this Option or portion thereof under the provisions of this Agreement and the Plan if the Recipient -5- had not transferred the Option or portion thereof to the Permitted Transferee; (iv) any portion of this Option that is transferred by the Recipient to a Permitted Transferee may not be further transferred by the Permitted Transferee other than by will or the laws of descent and distribution. For purposes of the foregoing, a Permitted Transferee shall mean (i) one or more members of the Recipient's Immediate Family (as hereinafter defined), (ii) a trust solely for the benefit of the Recipient and/or one or more members of his [her] Immediate Family, or (iii) a partnership or limited liability company whose only partners or members are the Recipient and/or one or more members of his [her] Immediate Family. For this purpose, members of the Recipient's "Immediate Family" shall include his [her] parents, spouse, children or grandchildren (including adopted children and grandchildren and step-children and step-grandchildren). 11. Other Terms and Conditions. This Option is subject to the following additional terms and conditions: (a) Notwithstanding any other provisions herein to the contrary, this Option (including both the Exercisable Portion and the Non-Exercisable Portion thereof) may be cancelled by the Committee at any time, and upon such cancellation the Recipient shall cease to have any further right to exercise this Option, if the Committee determines that the Recipient has been discharged from employment with the Corporation or any of its subsidiaries for cause. (b) The Recipient shall not have any rights as a shareholder with respect to any Shares that are subject to this Option prior to the date as of which such Shares are issued to the Recipient pursuant to his exercise of this Option. (c) The Recipient's rights under this Option shall be subject to all applicable provisions of the Plan, as in effect from time to time at and after the Date of Grant. 12. Taxes. The Corporation or any of its subsidiaries may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of all federal, state and local taxes required by law to be withheld with respect to this Option and the exercise thereof including, but not limited to, -6- (a) deducting the amount so required to be withheld from any other amount then or thereafter payable to the Recipient, and/or (b) requiring the Recipient or the Recipient's Permitted Transferee or Beneficiary to pay to the Corporation or any of its subsidiaries the amount so required to be withheld as a condition of the issuance, delivery, distribution or release of any Shares. Such payment shall be made in cash unless, and except to the extent that, the Corporation permits such payment to be made in Shares. 13. Designation of Beneficiary. The Recipient shall file with the Committee a written designation of one or more persons (the "Beneficiary") who shall be entitled to exercise this Option after the Recipient's death, to the extent such exercise is otherwise permitted hereunder. The Recipient may, from time to time, revoke or change the Recipient's Beneficiary designation without the consent of any previously designated Beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Recipient's death, and in no event shall it be effective as of a date prior to such receipt. If at the date of the Recipient's death there is no designation of a Beneficiary in effect for the Recipient pursuant to the provisions of this Section 13, or if no Beneficiary designated by the Recipient in accordance with the provisions hereof survives to exercise this Option, the Recipient's estate shall be treated as the Recipient's Beneficiary for all purposes. Notwithstanding any other provision herein to the contrary, if any portion of this Option is transferred to a Permitted Transferee pursuant to Section 10, the Permitted Transferee shall be treated, at all times after such transfer, as the Recipient's Beneficiary with respect to the portion so transferred. 14. Governing Laws. This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania applicable to contracts made, and to be enforced, within the Commonwealth of Pennsylvania. 15. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Corporation and its successors and assigns, and the Recipient, the Recipient's Beneficiary and the Recipient's estate. -7- 16. Entire Agreement. This Agreement contains the entire understanding of the parties and shall not be modified or amended except in writing and duly signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the date set forth above. GPU, INC. By: Fred D. Hafer Chairman, President and Chief Executive Officer [Print Name of Recipient] EX-10 15 EXHIBIT 10-CC - 1998 AGREEMENT EXHIBIT 10-CC Performance Units Agreement under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries 1998 AGREEMENT AGREEMENT made as of _______________________________, by and between GPU, Inc. (the "Corporation") and ______________________________ (the "Recipient"): WHEREAS, the Corporation maintains the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries (the "Plan") under which the Personnel, Compensation and Nominating Committee of the Corporation's Board of Directors (the "Committee") may, among other things, award units ("Performance Units") representing rights to acquire shares of the Corporation's Common Stock, $2.50 par value ("Common Stock") to such employees of the Corporation and its subsidiaries as the Committee may determine, subject to such terms, conditions or restrictions as it may deem appropriate; WHEREAS, pursuant to the Plan, the Committee has granted to the Recipient an award of Performance Units subject to the terms and conditions set forth in this Agreement; and WHEREAS, the Plan requires that an award of Performance Units be evidenced by a written agreement between the Corporation and the Recipient that contains such restrictions, terms and conditions as the Committee may require; NOW, THEREFORE, the parties hereto agree as follows: 1. AWARD OF PERFORMANCE UNITS; NATURE OF RIGHTS (a) In accordance with the provisions of the Plan, the Committee awarded to the Recipient on _________________ (the "Award Date") __________ Performance Units. Each unit so awarded, and each additional Performance Unit credited to the Recipient pursuant to Section 2 (the Performance Units so awarded and the additional Performance Units so credited are hereinafter referred to collectively as the Recipient's "Units"), shall entitle the Recipient, upon the vesting of such units as provided in Section 3 hereof, to receive one share of Common Stock, or a cash payment in lieu of such share, subject to the terms, conditions, and restrictions set forth herein. (b) Prior to the issuance, as provided in Section 4 hereof, of shares of Common Stock with respect to the Recipient's Units, or with respect to the Recipient's "Deferred Vested Units" as defined in Section 4(f)(ii) hereof, the Recipient shall not be entitled to any of the rights of a stockholder of the Corporation by reason of such Units or Deferred Vested Units. (c) Notwithstanding anything in this Agreement to the contrary, the Recipient shall have the status of a mere unsecured creditor of the Corporation with respect to his or her right to receive any payment hereunder; and this Agreement shall constitute a mere promise by the Corporation to make payments in the future in accordance with the terms hereof. It is the intention of the parties hereto that the arrangements set forth in this Agreement be treated as unfunded for tax purposes and, if it should be determined that Title I of ERISA is applicable to such arrangements, for purposes of Title I of ERISA. 2. ADDITIONAL PERFORMANCE UNITS (a) As of each date prior to the Vesting Date (as defined in Section 3(a) below) on which a dividend is paid on the Common Stock ("Dividend Payment Date"), there shall be credited to the Recipient hereunder a number of additional Performance Units determined by multiplying (i) the aggregate number of Units standing to the Recipient's credit immediately prior to such Dividend Payment Date, by (ii) the quotient resulting from dividing (A) the per share amount of the dividend so paid by (B) the price per share used for the reinvestment of dividends paid on such Dividend Payment Date under the provisions of the Corporation's Dividend Reinvestment and Stock Purchase Plan. (b) Any additional Performance Units credited to the Recipient pursuant to this Section 2 shall be subject to the same terms, conditions and restrictions as are applicable with respect to the Recipient's initially awarded Performance Units. 3. ADJUSTMENT AND VESTING OF UNITS (a) For purposes of this Agreement, the Recipient's "Vesting Date" shall mean the earliest to occur of the following dates: (i) the fifth anniversary of the Award Date, if the Recipient's employment with the Corporation or any subsidiary has not terminated before such anniversary for any reason other than as a result of the Recipient's "Eligible Retirement" or "Total Disability", as defined in the Plan; 2 (ii) the date as of which the Recipient's employment with the Corporation or any subsidiary terminates as a result of the Recipient's death; or (iii) an "Acceleration Date," as defined in the Plan. (b) As of the Recipient's Vesting Date, the aggregate number of Units then standing to the Recipient's credit shall be adjusted in accordance with the following provisions: (i) The aggregate number of the Recipient's Units shall be adjusted by multiplying such aggregate number by the Performance Percentage determined pursuant to the following table: If the Corporation's TSR The Performance Percentile Ranking is in the: Percentage shall be: 90th percentile - or above 200% 85th to 89th 175 80th to 84th 160 75th to 79th 145 70th to 74th 130 65th to 69th 120 60th to 64th 110 55th to 59th 100 50th to 54th 90 45th to 49th 75 40th to 44th 50 below 40th 0 For purposes of the foregoing, the Corporation's TSR Percentile Ranking shall be determined by (A) ascertaining, for each company (including the Corporation) included in the Standard & Poor's Electric Utility Companies Index (the "Index") on the last day of the Performance Period (as defined below), such company's average quarterly total shareholder return ("TSR") for all calendar 3 quarters in the Performance Period, as reported in the Index; (B) ascertaining the number of such companies whose average quarterly TSR for the Performance Period is lower than the Corporation's; and (C) dividing such number by the total number of companies included in the Index on such last day. The "Performance Period" shall mean the period from January 1, 1998 through December 31, 2002. (ii) Notwithstanding the foregoing, (A) if the Recipient's Vesting Date occurs by reason of the Recipient's death prior to the first day of the calendar year which includes the fifth anniversary of the Award Date, the Recipient's Units shall not be adjusted in the manner described in subparagraph (i) above; and (B) if the Recipient's Vesting Date occurs by reason of an Acceleration Date's occurring prior to such first day, the adjustment with respect to the Recipient's Units required under subparagraph (i) above shall be made using 200% as the applicable Performance Percentage. (iii) If the Recipient's employment with the Corporation or any subsidiary terminates prior to the fifth anniversary of the Award Date as a result of the Recipient's death, Eligible Retirement or Total Disability, the number of Units standing to the Recipient's credit as of the Recipient's Vesting Date (after taking into account any adjustment required under subparagraph (i) above) shall be adjusted (or further adjusted) by multiplying such number of Units by the Recipient's Service Percentage. The Recipient's "Service Percentage" shall mean the percentage determined by dividing by 60 the number of months in the period beginning on the Award Date and ending on the date of such termination of the Recipient's employment; and for this purpose, any fraction of a month included in such period shall be treated as a full month. This subparagraph (iii) shall not apply if the Recipient's Vesting Date occurs by reason of the occurrence of an Acceleration Date. (c) As of the Recipient's Vesting Date, all Units then standing to the Recipient's credit (after taking into 4 account any adjustments required under subparagraphs (i), (ii) and (iii) of paragraph (b) above) shall become vested. If the number of Units standing to the Recipient's credit immediately prior to any adjustments made pursuant to subparagraphs (i), (ii) and (iii) of paragraph (b) above exceed the number of Units standing to the Recipient's credit after giving effect to such adjustments, all of the Recipient's rights with respect to such excess number of Units shall be forfeited as of the Vesting Date. If the Recipient's employment with the Corporation or any subsidiary should terminate before the Recipient's Vesting Date for any reason other than as a result of the Recipient's Eligible Retirement or Total Disability, all of the Recipient's rights with respect to any Units credited to the Recipient hereunder shall be forfeited as of the date of such termination. (d) For purposes of this Agreement, (i) the term "subsidiary" shall have the same meaning as in paragraph 4(a) of the Plan and (ii) the transfer of a Recipient's employment from one subsidiary to another shall not be treated as a termination of the Recipient's employment. 4. PAYMENT FOR VESTED UNITS (a) Upon the Vesting Date, the Recipient shall become entitled to receive payment with respect to the Units which have become vested on such date (such Units are hereafter referred to as the Recipient's "Vested Units"). Payment shall be made as soon as practicable after the Vesting Date, in the manner hereinafter set forth in this Section 4. (b) Except as otherwise provided in paragraph (c) below, payment with respect to the Recipient's Vested Units shall be made by the issuance to the Recipient of shares of Common Stock. Except as otherwise provided in paragraph (d) (ii) below, one share of Common Stock shall be issued for each of the Recipient's Vested Units. The Recipient shall own any shares of Common Stock so issued (or issued with respect to the Recipient's Deferred Vested Units) free and clear of any restrictions and shall be free to hold or dispose of such shares at will, subject, however, to any restrictions that may be imposed by law. 5 (c) The Committee, in its sole discretion, may determine that payment with respect to any or all of the Recipient's Vested Units shall be made in cash instead of in shares of Common Stock, and payment with respect to any fractional part of a Vested Unit shall be made in cash. Except as otherwise provided in paragraph (d) (i) below, the amount of the cash payment to be made with respect to any Vested Unit shall be equal to (and the amount of the cash payment to be made with respect to any fractional part of a Vested Unit shall be based upon) the per share closing price of one share of Common Stock as reported on the New York Stock Exchange Composite Tape for the Vesting Date, or if there are no sales of Common Stock on such date, for the next preceding day on which there were sales of Common Stock. (d) Upon the occurrence of an Acceleration Date, the amount payable with respect to the Recipient's Vested Units (including any Units that became vested prior to such date but for which payment hereunder has not been made as of such date, but not including any Deferred Vested Units as defined in Section 4(f)(ii) hereof standing to the Recipient's credit on such date except as otherwise provided in Section 4(g)(iv) hereof) shall be determined as follows: (i) To the extent that the payment for any of the Recipient's Vested Units is to be made in cash, the amount of cash to be paid for such Vested Units shall be equal to the product of (A) the number of such Vested Units, multiplied by (B) the highest closing price per share of the Common Stock, as reported on the New York Stock Exchange Composite Tape, occurring during the 90-day period preceding and the 90-day period following the Acceleration Date (the "Multiplication Factor"). (ii) To the extent that payment for any of the Recipient's Vested Units is to be made in shares of Common Stock, the number of shares of Common Stock to be issued with respect to such Vested Units shall be determined by dividing (A) the product of (y) the number of such Vested Units multiplied by (z) the Multiplication Factor, by (B) the per share closing price of the Common Stock as reported on the New York Stock Exchange 6 Composite Tape for the day preceding the payment date, or if there are no sales of Common Stock on such date, for the next preceding day on which there were sales of Common Stock. (e) If the Recipient has died prior to the date on which any payment is to be made hereunder with respect to the Recipient's Vested Units or Deferred Vested Units, the payment otherwise required to be made to the Recipient shall be made to the Recipient's beneficiary or estate, as the case may be. (f) Subject to the provisions of paragraph (g) below but notwithstanding any other provisions of this Section 4 to the contrary, payment with respect to part or all of the Recipient's Vested Units shall be deferred, and shall be made at the time and in the manner hereinafter set forth, if the Recipient so elects in accordance with the following provisions: (i) An election by the Recipient hereunder shall be made in writing, on a form furnished to the Recipient for such purpose by the Committee. The form shall be filed with the Committee at least one year prior to the Vesting Date. (ii) In the Recipient's election form, the Recipient shall specify the number of Vested Units payment with respect to which the Recipient wishes to defer (the number of Vested Units payment with respect to which is deferred pursuant to the Recipient's election hereunder, and the number of additional units credited to the Recipient pursuant to subparagraph (vi) below are hereinafter collectively referred to as the Recipient's "Deferred Vested Units"); the date on which payment with respect to the Recipient's Deferred Vested Units shall be made or commence (the "Payment Commencement Date") in accordance with subparagraph (iii) below; and the method by which payment with respect to the Recipient's Deferred Vested Units shall be made (the "Payment Method") in accordance with subparagraph (iv) below. (iii) The Recipient may select, as the Payment Commencement Date, the first business day of any of the following: (A) the third calendar year 7 following the calendar year in which the Vesting Date occurs, or any later calendar year; (B) the earlier of (x) any calendar year which the Recipient is permitted to select under clause (A), or (y) the calendar year following the later of the Vesting Date or the date of the termination of the Recipient's employment with the Corporation or any subsidiary or the Recipient's Total Disability; or (C) the calendar year following the later of the Vesting Date or the date of the termination of the Recipient's employment with the Corporation or any subsidiary or the Recipient's Total Disability, or any later calendar year. (iv) The Recipient may select, as the Payment Method, either (A) a single lump sum payment, or (B) payment in annual installments, over a period of at least five years, or such greater number of years as the Recipient specifies in the Recipient's election form. With each such annual installment, payment shall be made with respect to a number of the Recipient's Deferred Vested Units equal to the quotient resulting from dividing (C) the total number of Deferred Vested Units standing to the Recipient's credit hereunder on the applicable payment date, by (D) the number of installment payments remaining to be made on such date. Immediately after each annual installment payment has been made, the number of Deferred Vested Units standing to the Recipient's credit hereunder shall be reduced by the number of Deferred Vested Units with respect to which such payment was made. (v) Any election made hereunder by the Recipient shall be irrevocable. (vi) Until payment has been made with respect to all of the Recipient's Deferred Vested Units (including those credited to the Recipient under this subparagraph), there shall be credited to the Recipient hereunder, as of each Dividend Payment Date, a number of additional Deferred Vested Units determined by multiplying (A) the number of Deferred Vested Units (including any additional Deferred Vested Units previously credited to the Recipient under this subparagraph) standing to the 8 Recipient's credit hereunder on the day immediately preceding such Dividend Payment Date, by (B) the quotient referred to in Section 2(a)(ii) hereof. (vii) Payment with respect to the Recipient's Deferred Vested Units shall be made in cash, or in shares of Common Stock, or in any combination of cash or such shares, as the Committee shall determine in its sole discretion. To the extent that payment with respect to any of the Recipient's Deferred Vested Units is to be made in shares of Common Stock, one share of Common Stock shall be issued for each such Deferred Vested Unit. The amount of the cash payment to be made with respect to any Deferred Vested Units shall be equal to (and with respect to any fractional part of a Deferred Vested Unit, shall be based upon) the per share closing price of one share of Common Stock as reported on the New York Stock Exchange Composite Tape for the last business day immediately preceding the date on which such cash payment is to be made. (viii) A deferral election otherwise permitted to be made hereunder shall be subject to the following limitations: (A) If the Recipient's Vesting Date should occur within one year following the date on which the Recipient's election form is filed with the Committee, or if the Vesting Date occurs more than one year from such date but occurs as a result of the occurrence of an Acceleration Date, the Recipient's deferral election shall not be given effect, and payment with respect to the Recipient's Vested Units shall be made in accordance with the other applicable provisions of this Section 4. (B) No deferral election shall be effective hereunder if at any time during the 12-month period ending on the Vesting Date, the Recipient received a hardship withdrawal under Section 7.2(e) of the GPU Companies Employee Savings Plan for Nonbargaining Employees. 9 (C) No amount may be deferred with respect to the Recipient's Vested Units pursuant to the Recipient's deferral election hereunder to the extent that any tax is required to be withheld with respect to such amount pursuant to applicable federal, state or local law. (ix) Notwithstanding any other provision in this paragraph (f) to the contrary, to the extent the Committee in its sole discretion so determines, payment with respect to any part or all of the Recipient's Deferred Vested Units may be made to the Recipient or to the Recipient's beneficiary or estate, on any date earlier than the date on which such payment is to be made pursuant to the Recipient's election hereunder, in the following circumstances: (A) in the event of the Recipient's death prior to the Payment Commencement Date specified in the Recipient's election hereunder; (B) in the event the Recipient becomes entitled to receive payments under the Long-Term Disability Plan or Employee Pension Plan of any GPU Company as a result of incurring a Total Disability; and (C) in the event the Recipient requests such early payment and the Committee, in its sole discretion, determines that such early payment is necessary to help the Recipient meet some severe financial need arising from circumstances which were beyond the Recipient's control and which were not foreseen by the Recipient at the time of the Recipient's election hereunder. (g) Notwithstanding any provision in paragraph (f) above to the contrary or any other election made by the Recipient under paragraph (f), the Recipient may make a special election under this paragraph (g) regarding payment with respect to his or her Deferred Vested Units in the event a "Change in Control", as defined in the Plan, should occur. (i) The Recipient may elect under this subparagraph (i) to have payment with respect to all of his or her Deferred Vested Units made in the form of a single lump sum payment upon the occurrence of a Change in Control prior to the Recipient's termination of employment. Such 10 payment shall be made as soon as practicable after the date on which such Change in Control occurs. (ii) The Recipient may elect under this subparagraph (ii) to have payment with respect to all of his or her Deferred Vested Units made in the form of a single lump sum payment in the event of the Recipient's termination of employment for any reason within the two-year period following a Change in Control. Such payment shall be made by no later than 30 days after the date of the Participant's termination of employment. (iii) Under this subparagraph (iii) a Recipient may elect, in the event a Change in Control occurs after the Participant's termination of employment but before all payments with respect to his or her Deferred Vested Units have been made pursuant to the Participant's election under Section 4(f), to have payment with respect to all of the Deferred Vested Units that are still standing to the Recipient's credit hereunder at the time of such Change in Control made in the form of a single lump sum payment. Such payment shall be made as soon as practicable after the date on which such Change of Control occurs. (iv) Payment with respect to the Recipient's Deferred Vested Units pursuant to an election made by the Recipient under subparagraph (i), (ii) or (iii) above shall be made in the manner provided in Section 4(f)(vii); provided, however, that if payment is to be made pursuant to the Recipient's election under subparagraph (i) or (iii), the second and third sentences of Section 4(f)(vii) shall not apply, and the amount of cash payable and/or the number of shares of Common Stock to be issued with respect to the Recipient's Deferred Vested Units shall be determined in accordance with the provisions of Section 4(d)(i) and (ii). (v) An election under subparagraph (i) shall be effective only if it is made at least one year prior to the Change in Control referred to in subparagraph (i). An election under subparagraph (ii) shall be effective only if it is made either (A) at least twenty-four (24) months prior to the Recipient's termination of employment, or (B) if 11 such termination of employment constitutes an "Involuntary Termination", as defined in subparagraph (vi) below, at least one year prior to the Change in Control referred to in subparagraph (ii). An election under subparagraph (iii) shall be effective only if it is made prior to the Recipient's termination of employment and at least one year prior to the occurrence of the Change in Control referred to in subparagraph (iii). Any special election made under subparagraphs (i), (ii) or (iii) may be revoked, and a new special election may be made thereunder, at any time; provided, however, that any such revocation or new election shall be effective only if it is made within the applicable election period specified herein. Any special election, or revocation of a special election, that may be made under subparagraphs (i), (ii) or (iii) shall be made in the manner set forth in the first sentence of Section 4(f)(i). Any special election made by the Recipient under subparagraph (i), (ii) or (iii) shall be effective only if, at the date as of which payment is to be made pursuant to such election, there is in effect for the Recipient a special election under the comparable provision of each other Performance Units Agreement and Restricted Units Agreement between the Recipient and GPU, Inc. in effect on such date. (vi) For purposes of this paragraph (g), "Involuntary Termination" shall mean the termination of Recipient's employment (A) as a result of the Recipient's death, (B) by the Corporation or any subsidiary, for any reason, or (C) by the Recipient for "Good Reason". For purposes of the foregoing, "Good Reason" shall mean the occurrence after a Change in Control of any of the following events or conditions: (1) a change in the Recipient's status, title, position or responsibilities (including reporting responsibilities) which, in the Recipient's reasonable judgment, represents an adverse change from his or her status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Recipient of any duties or responsibilities which, in the Recipient's 12 reasonable judgment, are inconsistent with his or her status, title, position or responsibilities; or any removal of the Recipient from or failure to reappoint or reelect him or her to any of such offices or positions, other than in connection with the termination of his or her employment for disability, for cause, or by the Recipient other than for Good Reason; (2) a reduction in the rate of the Recipient's annual base salary; (3) the relocation of the offices at which the Recipient is principally employed to a location more than twenty-five (25) miles from the location of such offices immediately prior to such relocation, or the Recipient being required to be based anywhere other than at such offices, except to the extent the Recipient was not previously assigned to a principal place of duty and except for required travel on business of the Corporation or any subsidiary to an extent substantially consistent with the Recipient's previous business travel obligations; (4) the failure by the Corporation or any subsidiary to pay to the Recipient any amount of the Recipient's current compensation, or any amount payable under this Agreement, within seven (7) days of the date on which payment of such amount is due; or (5) the failure by the Corporation or any subsidiary (x) to continue in effect (without reduction in benefit level, and/or reward opportunities) any material compensation or employee benefit plan in which the Recipient was participating immediately prior to such failure by the Corporation or any subsidiary unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to the Recipient or (y) to continue to provide the Recipient with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) 13 to those provided for under all other compensation or employee benefit plans, programs and practices in which the Recipient was participating immediately prior to such failure by the Corporation or any subsidiary. Any event or condition described in clauses (1) through (5) above which occurs (A) within twelve (12) months prior to a Change in Control or (B) prior to a Change in Control but which you reasonably demonstrate (x) was at the request of a third party who has indicted an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control or (y) otherwise arose in connection with, or in anticipation of a Change in Control which has been threatened or proposed, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to a Change in Control. 5. WITHHOLDING TAXES In connection with the issuance of any Common Stock or the making of any cash payment in accordance with the provisions of this Agreement, the Corporation shall withhold the taxes then required by applicable federal, state and local law to be so withheld. In lieu thereof, the Corporation may require the Recipient (or, in the event of the Recipient's death, the Recipient's beneficiary or estate) to pay to the Corporation an amount equal to the amount of taxes so required to be withheld. Such payment to the Corporation shall be made in cash, in shares of Common Stock with a market value equal to such withholding obligation, or in any combination thereof, as determined by the Committee. 6. ADMINISTRATION (a) The Committee shall have full authority and sole discretion (subject only to the express provisions of the Plan) to decide all matters relating to the administration and interpretation of the Plan and this Agreement. All such Committee determinations shall be final, conclusive, and binding upon the Corporation, the Recipient, the Recipient's estate and any and all other interested parties. Notwithstanding the foregoing, any determination made by the Committee after the occurrence of a "Change in Control" (as defined in the Plan) shall be subject to judicial 14 review under a "de novo" rather than a deferential standard. The Recipient hereby acknowledges receipt of the Corporation's Prospectus which includes the text of the Plan. (b) This Agreement shall be subject to the terms of the Plan, and in the case of any inconsistency between the Plan and this Agreement, the provisions of the Plan shall govern. 7. NONASSIGNABILITY The Recipient's rights to payments under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer (other than transfer by will or by the laws of descent and distribution), assignment, pledge, encumbrance, attachment or garnishment by the Recipient's creditors or the creditors of the Recipient's spouse or any other beneficiary. 8. RIGHT TO CONTINUED EMPLOYMENT Nothing in the Plan or this Agreement shall confer on the Recipient any right to continue as an employee of the Corporation or any subsidiary or in any way affect the Corporation or any subsidiary's right to terminate the Recipient's employment at any time. 9. FORCE AND EFFECT The various provisions of this Agreement are severable in their entirety. Any determination of invalidity or unenforceability of any one provision shall have no effect on the continuing force and effect of the remaining provisions. 10. PREVAILING LAWS This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania applicable to contracts made, and to be enforced, within the Commonwealth of Pennsylvania. 11. SUCCESSORS This Agreement shall be binding upon and inure to the benefit of the successors, assigns and heirs of the respective parties. 15 12. NOTICE Any notice to the Corporation hereunder shall be in writing addressed to: Senior Vice President - Corporate Affairs GPU Service, Inc. 300 Madison Avenue Morristown, NJ 07962 Any notice to the Recipient hereunder shall be in writing addressed to: ------------------------------------------------- ------------------------------------------------- or such other address as the Recipient shall specify to the Corporation in writing. 13. ENTIRE AGREEMENT This Agreement contains the entire understanding of the parties and shall not be modified or amended except in writing and duly signed by each of the parties hereto. No waiver by either party of any default under this Agreement shall be deemed a waiver of any later default set forth above. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the date set forth above. GPU, INC. By:________________________________ Fred D. Hafer Chairman, President and Chief Executive Officer ----------------------------------- (Recipient) EX-10 16 EX. 10-KK ASSET PURCHASE AGREEMENT EXHIBIT 10-KK PRIVILEGED AND CONFIDENTIAL EXECUTION COPY HOMER CITY ELECTRIC GENERATING STATION ASSET PURCHASE AGREEMENT BY AND AMONG Pennsylvania electric Company, NGE GENERATION, INC., and NEW YORK STATE ELECTRIC & GAS CORPORATION as SELLERS, MISSION ENERGY WESTSIDE, INC., as BUYER Dated as of August 1, 1998 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 Definitions 1 1.2 Certain Interpretive Matters 13 ARTICLE II PURCHASE AND SALE 2.1 Transfer of Assets 13 2.2 Excluded Assets 15 2.3 Assumed Liabilities 16 2.4 Excluded Liabilities 18 2.5 Control of Litigation 20 ARTICLE III THE CLOSING 3.1 Closing 20 3.2 Payment of Purchase Price 20 3.3 Adjustment to Purchase Price 21 3.4 Allocation of Purchase Price 22 3.5 Prorations 23 3.6 Deliveries by Sellers 24 3.7 Deliveries by Buyer 25 3.8 Ancillary Agreements 26 ARTICLE IV REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLERS 4.1 Incorporation; Qualification 26 4.2 Authority Relative to this Agreement 26 4.3 Consents and Approvals; No Violation 26 4.4 Insurance 27 4.5 Title and Related Matters 27 4.6 Real Property Leases 28 4.7 Environmental Matters 28 4.8 Labor Matters 29 4.9 Benefit Plans: ERISA 29 4.10 Real Property 30 4.11 Condemnation 30 4.12 Contracts and Leases 30 4.13 Legal Proceedings, etc. 31 4.14 Permits 31 4.15 Taxes 31 4.16 Intellectual Property 32 4.17 Capital Expenditures 32 4.18 Compliance with Laws 32 4.19 Disclaimers Regarding Purchased Assets 32 4.20 Transmission 33 ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER 5.1 Organization 34 5.2 Authority Relative to this Agreement 34 5.3 Consents and Approvals; No Violation 34 5.4 Availability of Funds 35 5.5 Financial Representations 35 5.6 Legal Proceedings 35 5.7 No Knowledge of Sellers' Breach 35 5.8 Qualified Buyer 36 5.9 Inspections 36 5.10 WARN Act 36 ARTICLE VI COVENANTS OF THE PARTIES 6.1 Conduct of Business Relating to the Purchased Assets 36 6.2 Access to Information 38 6.3 Public Statements 41 6.4 Expenses 41 6.5 Further Assurances 41 6.6 Consents and Approvals 43 6.7 Fees and Commissions 45 6.8 Tax Matters 45 6.9 Advice of Changes 46 6.10 Employees 47 6.11 Risk of Loss 51 6.12 Additional Covenants of Buyer 51 ARTICLE VII CONDITIONS 7.1 Conditions to Obligations of Buyer 52 7.2 Conditions to Obligations of Sellers 54 ARTICLE VIII INDEMNIFICATION 8.1 Indemnification 56 8.2 Defense of Claims 59 ARTICLE IX TERMINATION AND ABANDONMENT 9.1 Termination 62 9.2 Procedure and Effect of No-Default Termination 63 ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Several Liability of Each Seller 62 10.2 Amendment and Modification 63 10.3 Waiver of Compliance; Consents 63 10.4 No Survival 63 10.5 Notices 64 10.6 Assignment 65 10.7 Governing Law 65 10.8 Counterparts 66 10.9 Interpretation 66 10.10 Schedules and Exhibits 66 10.11 Entire Agreement 66 10.12 Bulk Sales Laws 66 10.13 U.S. Dollars 66 10.14 Zoning Classification 67 10.15 Sewage Facilities 67 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated as of August 1, 1998, by and among Pennsylvania Electric Company, a Pennsylvania corporation ("Penelec"), New York State Electric & Gas Corporation, a New York corporation ("NYSEG"), NGE Generation, Inc., a New York corporation ("NGE"), (Penelec, NGE and NYSEG, collectively, "Sellers"), and Mission Energy Westside, Inc., a California corporation ("Buyer"). Sellers and Buyer are referred to individually as a "Party," and collectively as the "Parties." W I T N E S S E T H WHEREAS, each of Penelec and NGE owns as tenant-in-common a 50% undivided interest in the Homer City Electric Generating Station (the "Facility") located near Indiana, Pennsylvania, and certain facilities and other assets associated therewith and ancillary thereto; and WHEREAS, Penelec and NGE have heretofore agreed jointly to divest themselves of the Facility; WHEREAS, Buyer, a wholly owned subsidiary of Edison Mission Energy, a California corporation ("Buyer Parent", and together with Buyer, "Buyer Entities") desires to purchase and assume, and Penelec and NGE desire to sell and assign, the Purchased Assets (as defined in Section 2.1 below) and certain associated liabilities, upon the terms and conditions hereinafter set forth in this Agreement; WHEREAS, to induce Sellers to execute this Agreement, Buyer Parent is executing and delivering a certain Guaranty dated the date hereof ("Guaranty") in favor of Sellers. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows: ARTICLE DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms have the meanings specified in this Section 1.1. (1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. (2) "Agreement" means this Asset Purchase Agreement together with the Schedules and Exhibits hereto, as the same may be from time to time amended. (1) (3) "Ancillary Agreements" means the Interconnection Agreement, the Easement and Attachment Agreement and the Transition Power Purchase Agreements, as the same may be from time to time amended. (4) "Assignment and Assumption Agreement" means the Assignment and Assumption Agreement between Sellers and Buyer substantially in the form of Exhibit A hereto, by which Sellers shall subject to the terms and conditions hereof, assign the Sellers' Agreements, the Real Property Leases, certain intangible assets and other Purchased Assets to Buyer and whereby Buyer shall assume the Assumed Liabilities. (5) "Assumed Liabilities" has the meaning set forth in Section 2.3. (6) "Benefit Plans" has the meaning set forth in Section 4.9. (7) "Bill of Sale" means the Bill of Sale, substantially in the form of Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible Personal Property included in the Purchased Assets transferred to Buyer at the Closing. (8) "Buyer Material Adverse Effect" has the meaning set forth in Section 5.3(a). (9) "Business Day" shall mean any day other than Saturday, Sunday and any day on which banking institutions in New York State or the Commonwealth of Pennsylvania are authorized by law or other governmental action to close. (10)"Buyer Benefit Plans" has the meaning set forth in Section 6.10(f). (11)"Buyer Indemnitee" has the meaning set forth in Section 8.1(b). (12)"Buyer Required Regulatory Approvals" has the meaning set forth in Section 5.3(b). (13)"Capital Expenditures" has the meaning set forth in Section 3.3(a). (14)"CERCLA" means the Federal Comprehensive Environmental Response, Compensation, and Liability Act, as amended. (15)"Closing" has the meaning set forth in Section 3.1. (16)"Closing Adjustment" has the meaning set forth in Section 3.3(b). 2 (17) "Closing Date" has the meaning set forth in Section 3.1. (18) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. (19) "Code" means the Internal Revenue Code of 1986, as amended. (20) "Commercially Reasonable Efforts" means efforts which are reasonably within the contemplation of the Parties at the time of executing this Agreement and which do not require the performing Party to expend any funds other than expenditures which are customary and reasonable in transactions of the kind and nature contemplated by this Agreement in order for the performing Party to satisfy its obligations hereunder. (21) "Confidentiality Agreement" means the Confidentiality Agreement, dated April 1, 1998, by and among Sellers and Buyer Parent. (22) "Direct Claim" has the meaning set forth in Section 8.2(c). (23) "Easements" means, with respect to the Purchased Assets, the easements and access rights to be granted by Buyer to Penelec and NYSEG pursuant to the Easement and Attachment Agreement, including, without limitation, easements authorizing access, use, maintenance, construction, repair, replacement and other activities by Penelec and NYSEG, as further described in the Easement and Attachment Agreement. (24) "Easement and Attachment Agreement" means the Easement, License and Attachment Agreement between Buyer, Penelec and NYSEG, in the form of Exhibit C hereto, executed on the date hereof, whereby Buyer will provide Penelec and NYSEG with Easements with respect to the Real Property transferred to Buyer and whereby Penelec and NYSEG will provide Buyer with certain attachment rights with respect to certain real property owned by Penelec and NYSEG. (25) "Emission Allowance" means all present and future authorizations to emit specified units of pollutants or Hazardous Substances, which units are established by the Governmental Authority with jurisdiction over the Plant under (i) an air pollution control and emission reduction program designed to mitigate global warming, interstate or intra-state transport of air pollutants; (ii) a program designed to mitigate impairment of surface waters, watersheds, or groundwater; or (iii) any pollution reduction program with a similar purpose. Allowances include allowances, as described above, regardless as to whether the Governmental Authority establishing such Allowances designates such allowances by a name other than "allowances." 3 (26) "Emission Reduction Credits" means credits, in units that are established by the Governmental Authority with jurisdiction over the Plant that has obtained the credits, resulting from reductions in the emissions of air pollutants from an emitting source or facility (including, without limitation, and to the extent allowable under applicable law, reductions from shut-downs or control of emissions beyond that required by applicable law) that: (i) have been identified by the PaDEP as complying with applicable Pennsylvania law governing the establishment of such credits (including, without limitation, that such emissions reductions are enforceable, permanent, quantifiable and surplus) and listed in the Emissions Reduction Credit Registry maintained by the PaDEP or with respect to which such identification and listing are pending; or (ii) have been certified by any other applicable Governmental Authority as complying with the law and regulations governing the establishment of such credits (including, without limitation, certification that such emissions reductions are enforceable, permanent, quantifiable and surplus). The term includes Emission Reduction Credits that have been approved by the PaDEP and are awaiting USEPA approval. The term also includes certified air emissions reductions, as described above, regardless as to whether the Governmental Authority certifying such reductions designates such certified air emissions reductions by a name other than "emission reduction credits." (27) "Encumbrances" means any mortgages, pledges, liens, security interests, conditional and installment sale agreements, activity and use limitations, conservation easements, deed restrictions, encumbrances and charges of any kind. (28) "Environmental Claim" means any and all pending and/or threatened administrative or judicial actions, suits, orders, claims, liens, notices, notices of violations, investigations, complaints, requests for information, proceedings, or other written communication, whether criminal or civil, pursuant to or relating to any applicable Environmental Law by any person (including, but not limited to, any Governmental Authority, private person and citizens' group) based upon, alleging, asserting, or claiming any actual or potential (a) violation of, or liability under any Environmental Law, (b) violation of any Environmental Permit, or (c) liability for investigatory costs, cleanup costs, removal costs, remedial costs, response costs, natural resource damages, property damage, personal injury, fines, or penalties arising out of, based on, resulting from, or related to the presence, Release, or threatened Release into the environment of any Hazardous Substances at any location related to the Purchased Assets, including, but not limited to, any off-Site location to which Hazardous Substances, or materials containing Hazardous Substances, were sent for handling, storage, treatment, or disposal. 4 (29) "Environmental Condition" means the presence or Release to the environment, whether at the Site or at an off-Site location, of Hazardous Substances, including any migration of those Hazardous Substances through air, soil or groundwater to or from the Site or any off-Site location regardless of when such presence or Release occurred or is discovered. (30) "Environmental Laws" means all Federal, state and local, provincial and foreign, civil and criminal laws, regulations, rules, ordinances, codes, decrees, judgments, directives, or judicial or administrative orders relating to pollution or protection of the environment, natural resources or human health and safety, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Substances (including, without limitation, Releases to ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport, disposal or handling of Hazardous Substances. "Environmental Laws" include, without limitation, CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Oil Pollution Act (33 U.S.C. Section 2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.),the Pennsylvania Hazardous Sites Cleanup Act (35 P.S. Section 6020.101 et seq.), the Pennsylvania Solid Waste Management Act (35 P.S. Section 6018.101 et seq.), the Pennsylvania Clean Stream Law (35 P.S. Section 691.1 et seq. ) and all other state laws analogous to any of the above. (31) "Environmental Permits" has the meaning set forth in Section 4.7(a). (32) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (33) "ERISA Affiliate" has the meaning set forth in Section 2.4(j). (34) "ERISA Affiliate Plans" has the meaning set forth in Section 2.4(j). (35) "Estimated Adjustment" has the meaning set forth in Section 3.3(b). (36) "Estimated Closing Statement" has the meaning set forth in Section 3.3(b). (37) "Excluded Assets" has the meaning set forth in Section 2.2. 5 (4) (38) "Excluded Liabilities" has the meaning set forth in Section 2.4. (39) "Facilities Act" has the meaning set forth in Section 10.15. (40)"FERC" means the Federal Energy Regulatory Commission or any successor agency thereto. (41) "FIRPTA Affidavit" means the Foreign Investment in Real Property Tax Act Certification and Affidavit, substantially in the form of Exhibit D hereto. (42) "Genco" means GPU Generation, Inc., a Pennsylvania corporation and wholly-owned subsidiary of GPU. (43) "Good Utility Practices" mean any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or any of the practices, methods or acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Good Utility Practices are not intended to be limited to the optimum practices, methods or acts to the exclusion of all others, but rather to be acceptable practices, methods or acts generally accepted in the industry. (44) "Governmental Authority" means any federal, state, local or other governmental, regulatory or administrative agency, commission, department, board, or other governmental subdivision, court, tribunal, arbitrating body or other governmental authority. (45) "GPU" means GPU, Inc., a Pennsylvania corporation and parent company of Penelec. (46) "Hazardous Substances" means (a) any petrochemical or petroleum products, oil or coal ash, radioactive materials, radon gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid which may contain levels of polychlorinated biphenyls; (b) 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; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any applicable Environmental Law. 6 (47) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. (48) "IBEW" means Local 459 of the International Brotherhood of Electrical Workers. (49) "IBEW Collective Bargaining Agreement" has the meaning set forth in Section 6.10(d). (50) "Income Tax" means any federal, state, local or foreign Tax (a) based upon, measured by or calculated with respect to net income, profits or receipts (including, without limitation, capital gains Taxes and minimum Taxes) or (b) based upon, measured by or calculated with respect to multiple bases (including, without limitation, corporate franchise taxes) if one or more of the bases on which such Tax may be based, measured by or calculated with respect to, is described in clause (a), in each case together with any interest, penalties, or additions to such Tax. (51) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a). (52) "Indemnifying Party" has the meaning set forth in Section 8.1(e). (53) "Indemnitee" has the meaning set forth in Section 8.1(d). (54) "Independent Accounting Firm" means such independent accounting firm of national reputation as is mutually appointed by Sellers and Buyer. (55) "Inspection" means all tests, reviews, examinations, inspections, investigations, verifications, samplings and similar activities conducted by Buyer or its agents or Representatives with respect to the Purchased Assets prior to the Closing. (56) "Intellectual Property" means all patents and patent rights, trademarks and trademark rights, inventions, copyrights and copyright rights owned by the Sellers and necessary for the operation and maintenance of the Purchased Assets, and all pending applications for registrations of patents, trademarks, and copyrights, as set forth as part of Schedule 2.1(l) (57) "Interconnection Agreement" means the Interconnection Agreement, between Penelec, NYSEG and Buyer, in the form of Exhibit E hereto, executed on the date hereof, under which Penelec and NYSEG will provide Buyer with interconnection service to certain of their respective transmission facilities and whereby Buyer will provide Penelec and NYSEG with continuing access to certain of the Purchased Assets after the Closing Date. 7 (58) "Inventories" means coal, fuel oil or alternative fuel inventories, limestone, materials, spare parts, consumable supplies and chemical and gas inventories relating to the operation of the Plant located at, or in transit to, the Plant. (59) "Knowledge" means the actual knowledge of the corporate officers or managerial representatives of the specified Person charged with responsibility for the particular function as of the date of the this Agreement, or, with respect to any certificate delivered pursuant to this Agreement, the date of delivery of the certificate. (60) "Material Adverse Effect" means any change in, or effect on the Purchased Assets that is materially adverse to the operations or condition (financial or otherwise) of the Purchased Assets, taken as a whole, other than: (a) any change affecting the international, national, regional or local electric industry as a whole and not Sellers specifically and exclusively; (b) any change or effect resulting from changes in the international, national, regional or local wholesale or retail markets for electric power; (c) any change or effect resulting from changes in the international, national, regional or local markets for any fuel used in connection with the Purchased Assets; (d) any change or effect resulting from, changes in the North American, national, regional or local electric transmission systems or operations thereof; (e) any materially adverse change in or effect on the Purchased Assets which is cured (including by the payment of money) by the Sellers before the Termination Date; (f) any order of any court or Governmental Authority or legislature applicable to providers of generation, transmission or distribution of electricity generally that imposes restrictions, regulations or other requirements thereon; and (g) any change or effect resulting from action or inaction by a Governmental Authority with respect to an independent system operator or retail access in Pennsylvania or New York. (61) "Mine Indemnities" means the indemnification agreements included in (x) the Termination Agreement, dated as of February 11, 1993, among NYSEG, Penelec, The Helen Mining Company, The Valley Camp Coal Company and Quaker State Corporation and (y) Amendment No. 5 to the Coal Sales Agreement, dated November 22, 1994, among NYSEG, Penelec, Helvetia Coal Company and Rochester & Pittsburgh Coal Company. (62) "Mines" means the Helen and Helvetia coal mines and associated facilities which are located on the Real Property. (63) "Non-Union Employees" has the meaning as set forth in Section 6.10(b). (64) "NYDEC" means the New York Department of Environmental Conservation and any successor agency thereto. 8 (65) "NYPSC" means the Public Service Commission of the State of New York and any successor agency thereto. (66) "PaPUC" means the Pennsylvania Public Utility Commission and any successor agency thereto. (67) "PaDEP" means the Pennsylvania Department of Environmental Protection and any successor agency thereto. (68) "Permits" has the meaning set forth in Section 4.14. (69) "Permitted Encumbrances" means: (i) the Easements; (ii) those exceptions to title to the Purchased Assets listed in Schedule 4.5 and those Encumbrances set forth in Schedule 1.1(69); (iii) statutory liens for Taxes or other governmental charges or assessments not yet due or delinquent or the validity of which is being contested in good faith by appropriate proceedings provided that the aggregate amount being so contested does not exceed $500,000; (iv) mechanics', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business relating to obligations as to which there is no default on the part of the Sellers or the validity of which are being contested in good faith, and which do not, individually or in the aggregate, exceed $500,000; (v) zoning, entitlement, conservation restriction and other land use and environmental regulations by Governmental Authorities; and (vi) such other liens, imperfections in or failure of title, charges, easements, restrictions and Encumbrances which do not materially, individually or in the aggregate, detract from the value of the Purchased Assets as currently used or materially interfere with the present use of the Purchased Assets and neither secure indebtedness, nor individually or in the aggregate create a Material Adverse Effect. (70) "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, or governmental entity or any department or agency thereof. (71) "Plant" means the three-unit coal-fired generating station and related assets as more fully identified on Schedule 2.1 attached hereto. (72) "Post-Closing Adjustment" has the meaning set forth in Section 3.3(c). (73) "Post-Closing Statement" has the meaning set forth in Section 3.3(c). (74) "Proposed Post-Closing Adjustment" has the meaning set forth in Section 3.3(c). 9 (75) "Proprietary Information" of a Party means all information about the Party or its Affiliates, including their respective properties or operations, furnished to the other Party or its Representatives by the Party or its Representatives, after the date hereof, regardless of the manner or medium in which it is furnished. Proprietary Information does not include information that: (a) is or becomes generally available to the public, other than as a result of a disclosure by the other Party or its Representatives; (b) was available to the other Party on a nonconfidential basis prior to its disclosure by the Party or its Representatives; (c) becomes available to the other Party on a nonconfidential basis from a person, other than the Party or its Representatives, who is not otherwise bound by a confidentiality agreement with the Party or its Representatives, or is not otherwise under any obligation to the Party or any of its Representatives not to transmit the information to the other Party or its Representatives; (d) is independently developed by the other Party; or (e) was disclosed pursuant to the Confidentiality Agreement and remains subject to the terms and conditions of the Confidentiality Agreement. (76) "Purchased Assets" has the meaning set forth in Section 2.1. (77) "Purchase Price" has the meaning set forth in Section 3.2. (78) "Qualifying Offer" has the meaning set forth in Section 6.10(b). (79) "Real Property" has the meaning set forth in Section 2.1(a). (80) "Real Property Leases" has the meaning set forth in Section 4.6. (81) "Release" means release, spill, leak, discharge, dispose of, pump, pour, emit, empty, inject, leach, dump or allow to escape into or through the environment. (82) "Remediation" means action of any kind to address a Release or the presence of Hazardous Substances at the Site or an off-Site location including, without limitation, any or all of the following activities to the extent they relate to or arise from the presence of a Hazardous Substance at the Site or an off-Site location: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (b) obtaining any permits, consents, approvals or authorizations of any Governmental Authority necessary to conduct any such activity; (c) preparing and implementing any plans or studies for any such activity; (d) obtaining a written notice from a Governmental Authority with jurisdiction over the Site or an off-Site location under Environmental Laws that no material additional work is required by such Governmental 10 Authority; (e) the use, implementation, application, installation, operation or maintenance of removal actions on the Site or an off-Site location, remedial technologies applied to the surface or subsurface soils, excavation and off-Site treatment or disposal of soils, systems for long term treatment of surface water or ground water, engineering controls or institutional controls; and (f) any other activities reasonably determined by a Party to be necessary or appropriate or required under Environmental Laws to address the presence or Release of Hazardous Substances at the Site or an off-Site location. (83) "Replacement Welfare Plans" has the meaning set forth in Section 6.10(e) (84) "Representatives" of a Party means the Party's Affiliates and their directors, officers, employees, agents, partners, advisors (including, without limitation, accountants, counsel, environmental consultants, financial advisors and other authorized representatives) and parents and other controlling persons. (85) "SEC" means the Securities and Exchange Commission and any successor agency thereto. (86) "Sellers' Agreements" means those contracts, agreements, licenses and leases relating to the ownership, operation and maintenance of the Plant and being assigned to Buyer as part of the Purchased Assets, including without limitation the IBEW Collective Bargaining Agreement. (87) "Sellers' Indemnitee" has the meaning set forth in Section 8.1(a). (88) "Sellers' Required Regulatory Approvals" has the meaning set forth in Section 4.3(b). (89) "Site" means the Real Property (including improvements) forming a part of, or used or usable in connection with the operation of, the Plant, including any disposal sites included in Real Property. Any reference to the Site shall include, by definition, the surface and subsurface elements, including the soils and groundwater present at the Site, and any reference to items "at the Site" shall include all items "at, on, in, upon, over, across, under and within" the Site. (90) "Subsidiary" when used in reference to any Person means any entity of which outstanding securities having ordinary voting power to elect a majority of the Board of Directors or other Persons performing similar functions of such entity are owned directly or indirectly by such Person. (91) Reserved. 11 (92) "Tangible Personal Property" has the meaning set forth in Section 2.1(c). (93) "Taxes" means all taxes, charges, fees, levies, penalties or other assessments imposed by any federal, state or local or foreign taxing authority, including, but not limited to, income, excise, property, sales, transfer, franchise, payroll, withholding, social security, gross receipts, license, stamp, occupation, employment or other taxes, including any interest, penalties or additions attributable thereto. (94) "Tax Return" means any return, report, information return, declaration, claim for refund or other document (including any schedule or related or supporting information) required to be supplied to any taxing authority with respect to Taxes including amendments thereto. (95) "Termination Date" has the meaning set forth in Section 9.1(b). (96) "Third Party Claim" has the meaning set forth in Section 8.2(a). (97) "Transferable Permits" means those Permits and Environmental Permits which may be transferred to Buyer without a filing with, notice to, consent or approval of any Governmental Authority, and are set forth in Schedule 1.1 (97). (98) "Transferred Employees" means Transferred Non-Union Employees and Transferred Union Employees. (99) "Transferred Non-Union Employees" has the meaning set forth in Section 6.10(b). (100) "Transferred Union Employees" has the meaning set forth in Section 6.10(b). (101) "Transferring Employee Records" means records related to Sellers' personnel who will become employees of Buyer only to the extent such files pertain to: (i) skill and development training and biographies, (ii) seniority histories, (iii) salary and benefit information, (iv) Occupational, Safety and Health Administration reports, and (v) active medical restriction forms. (102) "Transition Power Purchase Agreements" means the agreements between Penelec and Buyer and NYSEG and Buyer, respectively, in the form of Exhibit G hereto, executed on the date hereof, relating to the sale of installed capacity to Penelec and NYSEG, respectively, for a specified period of time following the Closing Date. (103) "Transmission Assets" has the meaning set forth in Section 2.2(a). 12 (104) "USEPA" means the United States Environmental Protection Agency and any successor agency thereto. (105)"Year 2000 Compliant" has the meaning set forth in Section 4.19. "Year 2000 Compliance" has a meaning correlative to the foregoing. (106) "WARN Act" means the Federal Worker Adjustment Retraining and Notification Act of 1988, as amended. 1.2 Certain Interpretive Matters. In this Agreement, unless the context otherwise required, the singular shall include the plural, the masculine shall include the feminine and neuter, and vice versa. The term "includes" or "including" shall mean "including without limitation." References to a Section, Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule of this Agreement, and reference to a given agreement or instrument shall be a reference to that agreement or instrument as modified, amended, supplemented and restated through the date as of which such reference is made. ARTICLE PURCHASE AND SALE 2.1 Transfer of Assets. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, at the Closing each of Penelec and NGE will sell, assign, convey, transfer and deliver to Buyer, and Buyer will purchase, assume and acquire from each such Seller, free and clear of all Encumbrances (except for Permitted Encumbrances), and subject to Section 2.2, all of such Seller's right, title and interest in and to all of the assets constituting, or used in and necessary for generation purposes to the operation of, the Plant, including without limitation those assets identified in Schedule 2.1 and those assets described below (but excluding the Excluded Assets), each as in existence on the Closing Date (collectively, "Purchased Assets"): (a) Those certain parcels of real property (including all buildings, facilities and other improvements thereon and all appurtenances thereto) described in Schedule 4.10 (the "Real Property"), but subject to the Permitted Encumbrances and those exceptions listed in Schedule 4.5 and except as otherwise constituting part of the Excluded Assets; (b) All Inventories and Emission Allowances; (c) All machinery, mobile or otherwise, equipment (including communications equipment), vehicles, tools, furniture and furnishings and other personal property located on the Real 13 Property on the Closing Date, including, without limitation, the items of personal property included in Schedule 2.1(c), together with all the personal property of Sellers used principally in the operation of the Plant and listed in Schedule 2.1(c), other than property used or primarily usable as part of the Transmission Assets or otherwise constituting part of the Excluded Assets (collectively, "Tangible Personal Property"); (d) Subject to the provisions of Section 6.5(c), all Sellers' Agreements; (e) Subject to the provisions of Section 6.5(c), all Real Property Leases; (f) All Transferable Permits; (g) All books, operating records, operating, safety and maintenance manuals, engineering design plans, documents, blueprints and as built plans, specifications, procedures and similar items of Sellers relating specifically to the aforementioned assets and necessary for the operation of the Plant (subject to the right of Sellers to retain copies of same for their use) other than such items which are proprietary to third parties and accounting records; (h) All Emission Reduction Credits associated with the Plant and identified in Schedule 2.1(h) that have accrued prior to, or that accrue on or after, the date of this Agreement but prior to the Closing Date; (i) All unexpired, transferable warranties and guarantees from third parties with respect to any item of Real Property or personal property constituting part of the Purchased Assets, as of the Closing Date; (j) The name of the Plant. It is expressly understood that Sellers are not assigning or transferring to Buyer any right to use the name "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU Generation", "GPU Genco", "New York State Electric & Gas Corporation", "NYSEG", "NGE" or "NGE Generation" or any related or similar trade names, trademarks, service marks, corporate names and logos or any part, derivative or combination thereof; (k) All drafts, memoranda, reports, information, technology, and specifications relating to the Sellers' plans for Year 2000 Compliance; (l) The Intellectual Property described on Schedule 2.1(l); and (m) The substation equipment set forth in Schedule A to the Interconnection Agreement and designated therein as being transferred to Buyer. 14 2.2 Excluded Assets. Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement will constitute or be construed as conferring on Buyer, and Buyer is not acquiring, any right, title or interest in or to the following specific assets which are associated with the Purchased Assets, but which are hereby specifically excluded from the sale and the definition of Purchased Assets herein (the "Excluded Assets"): (a) Except as expressly identified in Schedule 2.1(c), the electrical transmission or distribution facilities (as opposed to generation facilities) of Sellers or any of their Affiliates located at the Site or forming part of the Plant (whether or not regarded as a "transmission" or "generation" asset for regulatory or accounting purposes), including all switchyard facilities, substation facilities and support equipment, as well as all permits, contracts and warranties, to the extent they relate to such transmission and distribution assets (collectively, the "Transmission Assets"), and those certain assets, facilities and agreements all as identified on Schedule 2.2(a) attached hereto; (b) Certain switches and meters in the Plant, gas facilities, revenue meters and remote testing units, drainage pipes and systems, as identified in the Easement and Attachment Agreement; (c) Certificates of deposit, shares of stock, securities, bonds, debentures, evidences of indebtedness, and interests in joint ventures, partnerships, limited liability companies and other entities; (d) All cash, cash equivalents, bank deposits, accounts and notes receivable (trade or otherwise), and any income, sales, payroll or other tax receivables; (e) The rights of Sellers and their Affiliates to the names "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU Generation", "GPU Genco", "New York State Electric & Gas Corporation", "NYSEG", "NGE" and "NGE Generation" or any related or similar trade names, trademarks, service marks, corporate names or logos, or any part, derivative or combination thereof; (f) All tariffs, agreements and arrangements to which Sellers are a party for the purchase or sale of electric capacity and/or energy or for the purchase of transmission or ancillary services; (g) The rights of Sellers in and to any causes of action against third parties (including indemnification and contribution) relating to any Real Property or personal property, Permits, Environmental Permits, Taxes, Real Property Leases or Sellers' Agreements, if any, including any claims for refunds, 15 prepayments, offsets, recoupment, insurance proceeds, condemnation awards, judgments and the like, whether received as payment or credit against future liabilities, relating specifically to the Plant or the Site and relating to any period prior to the Closing Date except that Buyer shall be deemed to be a third party beneficiary of the Mine Indemnitees to the extent permitted by such agreements; (h) All personnel records of Sellers or their Affiliates relating to the Transferred Employees other than Transferring Employee Records or other records, the disclosure of which is required by law, or legal or regulatory process or subpoena; and (i) Any and all of Sellers' rights in any contract representing an intercompany transaction between Sellers and an Affiliate of Sellers, whether or not such transaction relates to the provision of goods and services, payment arrangements, intercompany charges or balances, or the like. 2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to Sellers the Assignment and Assumption Agreement pursuant to which Buyer shall assume and agree to discharge when due, without recourse to Sellers, all of the following liabilities and obligations of Sellers, direct or indirect, known or unknown, absolute or contingent, which relate to the Purchased Assets, other than Excluded Liabilities, in accordance with the respective terms and subject to the respective conditions thereof (collectively, "Assumed Liabilities"): (a) All liabilities and obligations of Sellers arising on or after the Closing Date under the Sellers' Agreements, the Real Property Leases, and the Transferable Permits in accordance with the terms thereof, including, without limitation, (i) the contracts, licenses, agreements and personal property leases entered into by Sellers with respect to the Purchased Assets, whether or not disclosed on Schedule 4.12(a) and (ii) the contracts, licenses, agreements and personal property leases entered into by Sellers with respect to the Purchased Assets after the date hereof consistent with the terms of this Agreement, except in each case to the extent such liabilities and obligations, but for a breach or default by Sellers, would have been paid, performed or otherwise discharged on or prior to the Closing Date or to the extent the same arise out of any such breach or default or out of any event which after the giving of notice would constitute a default by Sellers; (b) All liabilities and obligations associated with the Purchased Assets in respect of Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof; (c) All liabilities and obligations with respect to the Transferred Employees on and after the Closing Date for which (i) Buyer is responsible pursuant to Section 6.10 and (ii) the 16 grievances and arbitration proceedings arising out of or under the Collective Bargaining Agreement prior to (as set forth in Schedule 4.8), on or after the Closing Date; (d) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with (i) any violation or alleged violation of Environmental Laws, whether prior to, on or after the Closing Date, with respect to the ownership or operation of any of the Purchased Assets, including, but not limited to, the Mines (except to the extent Sellers receive indemnity payments under the Mine Indemnities); (ii) loss of life, injury to persons or property or damage to natural resources (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Purchased Assets prior to, on or after the Closing Date, including, but not limited to, Hazardous Substances contained in building materials at or adjacent to the Purchased Assets or in the soil, surface water, sediments, groundwater, landfill cells, or in other environmental media at or near the Purchased Assets; and (iii) the Remediation (whether or not such Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances that are present or have been Released prior to, on or after the Closing Date at, on, in, under, adjacent to or migrating from, the Purchased Assets or in the soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to the Purchased Assets; provided, that nothing set forth in this subsection 2.3(d) shall require Buyer to assume any liabilities or obligations that are expressly excluded in Section 2.4 including without limitation liability for toxic torts as set forth in Section 2.4(i); provided, further, however, that nothing set forth in this subsection 2.3(d) or otherwise herein shall require Buyer to assume any obligation for payment of fines, penalties or costs imposed by a Governmental Authority to the extent such obligations arise out of or relate to acts or omissions of the Sellers prior to the Closing that constitute violations of the New Source Performance Standards, Prevention of Significant Deterioration or New Source Review regulations under the Clean Air Act. (e) All liabilities and obligations of Sellers with respect to the Purchased Assets under the agreements or consent orders set forth on Schedule 4.7 arising on or after the Closing; and (f) With respect to the Purchased Assets, any Tax that may be imposed by any federal, state or local government on the ownership, sale, operation or use of the Purchased Assets on or 17 after the Closing Date, except for any Income Taxes attributable to income received by Sellers. 2.4 Excluded Liabilities. Buyer shall not assume or be obligated to pay, perform or otherwise discharge the following liabilities or obligations (the "Excluded Liabilities"): (a) Any liabilities or obligations of Sellers in respect of any Excluded Assets or other assets of Sellers which are not Purchased Assets; (b) Any liabilities or obligations in respect of Taxes attributable to the ownership, operation or use of Purchased Assets for taxable periods, or portions thereof, ending before the Closing Date, except for Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof; (c) Any liabilities or obligations of Sellers accruing under any of the Sellers' Agreements prior to the Closing Date; (d) Any and all asserted or unasserted liabilities or obligations to third parties (including employees) for personal injury or tort, or similar causes of action arising solely out of the ownership or operation of the Purchased Assets prior to the Closing Date, other than any liabilities or obligations which have been assumed by Buyer under Section 2.3(d); (e) Any fines, penalties or costs imposed by a Governmental Authority resulting from (i) an investigation, proceeding, request for information or inspection before or by a Governmental Authority pending prior to the Closing Date but only regarding acts which occurred prior to the Closing Date, or (ii) illegal acts, willful misconduct or gross negligence of Sellers prior to the Closing Date, other than, any such fines, penalties or costs which have been assumed by Buyer under Section 2.3(d); (f) Any payment obligations of Sellers for goods delivered or services rendered prior to the Closing Date, including, but not limited to, rental payments pursuant to the Real Property Leases and Personal Property Leases; (g) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with loss of life, injury to persons or property or damage to natural resources (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) to the extent caused (or allegedly caused) by the off-Site disposal, storage, transportation, discharge, Release, or recycling of Hazardous Substances, or the arrangement for such activities, of Hazardous Substances, prior to the Closing Date, in connection with the 18 ownership or operation of the Purchased Assets, provided that for purposes of this Section "off-Site" does not include any location to which Hazardous Substances disposed of or Released at the Purchased Assets have migrated; (h) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with the investigation and/or Remediation (whether or not such investigation or Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances that are disposed, stored, transported, discharged, Released, recycled, or the arrangement of such activities, prior to the Closing Date, in connection with the ownership or operation of the Purchased Assets, at any off-Site location, provided that for purposes of this Section "off-Site" does not include any location to which Hazardous Substances disposed of or Released at the Purchased Assets have migrated; (i) Third party liability for toxic torts arising as a result of or in connection with loss of life or injury to persons (whether or not such loss or injury arose or was made manifest on or after the Closing Date) caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Purchased Assets prior to the Closing Date; (j) Subject to Section 6.10, any liabilities or obligations relating to any Benefit Plan maintained by the Sellers or any trade or business (whether or not incorporated) which is or ever has been under common control, or which is or ever has been treated as a single employer, with a Seller under Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which a Seller and any ERISA Affiliate contributed thereunder (the "ERISA Affiliate Plans"), including any multi-employer plan, maintained by, contributed to, or obligated to contribute to, at any time, by a Seller or any ERISA Affiliate, including but not limited to any liability (i) relating to benefits payable under any Benefit Plans (ii) relating to the Pension Benefit Guaranty Corporation under Title IV of ERISA; (iii) relating to a multi-employer plan; (iv) with respect to non-compliance with the notice and benefit continuation requirements of COBRA; (v) with respect to any noncompliance with ERISA or any other applicable laws; or (vi) with respect to any suit, proceeding or claim which is brought against Buyer, any Benefit Plan, ERISA Affiliate Plan, any fiduciary or former fiduciary of any such Benefit Plan or ERISA Affiliate Plan; (k) Subject to Section 6.10, any liabilities or obligations relating to the employment or termination of employment, including discrimination, wrongful discharge, unfair labor practices, or constructive termination by a Seller of any individual, attributable to any actions or inactions by the 19 Sellers prior to the Closing Date other than such actions or inactions taken at the written direction of Buyer; (l) Subject to Section 6.10, any obligations for wages, overtime, employment taxes, severance pay, transition payments in respect of compensation or similar benefits accruing or arising prior to the Closing under any term or provision of any contract, plan, instrument or agreement relating to any of the Purchased Assets; and (m) Any liability of a Seller arising out of a breach by a Seller or any of its Affiliates of any of their respective obligations under this Agreement or the Ancillary Agreements. 2.5 Control of Litigation. The Parties agree and acknowledge that Sellers shall be entitled exclusively to control, defend and settle any litigation, administrative or regulatory proceeding, and any investigation or Remediation activities (including without limitation any environmental mitigation or Remediation activities), arising out of or related to any Excluded Liabilities, and Buyer agrees to cooperate fully in connection therewith. ARTICLE III THE CLOSING 3.1 Closing. Upon the terms and subject to the satisfaction of the conditions contained in Article VII of this Agreement, the sale, assignment, conveyance, transfer and delivery of the Purchased Assets to Buyer, the payment of the Purchase Price to Sellers, and the consummation of the other respective obligations of the Parties contemplated by this Agreement shall take place at a closing (the "Closing"), to be held at the offices of Berlack, Israels & Liberman LLP, 120 West 45th Street, New York, New York at 10:00 a.m. local time, or another mutually acceptable time and location, on the date that is fifteen (15) Business Days following the date on which the last of the conditions precedent to Closing set forth in Article VII of this Agreement have been either satisfied or waived by the Party for whose benefit such conditions precedent exist or such other date as the Parties may mutually agree. The date of Closing is hereinafter called the "Closing Date." The Closing shall be effective for all purposes as of 12:01 a.m. on the Closing Date. 3.2 Payment of Purchase Price. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, in consideration of the aforesaid sale, assignment, conveyance, transfer and delivery of the Purchased Assets, Buyer will pay or cause to be paid to Sellers at the Closing 20 an aggregate amount of one billion, eight hundred and one million United States Dollars(U.S. $1,801,000,000.00) (the "Purchase Price") plus or minus any adjustments pursuant to the provisions of this Agreement, by wire transfer of immediately available funds denominated in U.S. dollars or by such other means as are agreed upon by Sellers and Buyer. 3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at the Closing, the Purchase Price shall be adjusted, without duplication, to account for the items set forth in this Section 3.3(a): (i) The Purchase Price shall be increased or decreased, as applicable, to reflect the difference between the book value of all Inventories as of the Closing Date and the value of all Inventories as of December 31, 1997 reflected on Schedule 3.3(a)(i). (ii) The Purchase Price shall be adjusted to account for the items prorated as of the Closing Date pursuant to Section 3.5. (iii) The Purchase Price shall be increased by the amount expended, or for which liabilities are incurred, by Sellers between the date hereof and the Closing Date for capital additions to or replacements of property, plant and equipment included in the Purchased Assets and other expenditures or repairs on property, plant and equipment included in the Purchased Assets that would be capitalized by Sellers in accordance with normal accounting policies of Sellers and their Affiliates (together, "Capital Expenditures"), which are not described on Schedule 6.1 and which either (A) are mandated after the date of this Agreement by any Governmental Authority (subject to Buyer's right to direct Sellers to contest such mandates by appropriate proceedings at Buyer's expense and provided there is no adverse impact on the Purchased Assets); or (B) do not fall within category (A) above but do not exceed in the aggregate $500,000; or (C) are approved in writing by Buyer. (b) At least ten (10) Business Days prior to the Closing Date, Sellers shall prepare and deliver to Buyer an estimated closing statement (the "Estimated Closing Statement") that shall set forth Sellers' best estimate of all estimated adjustments to the Purchase Price required by Section 3.3(a) (the "Estimated Adjustment"). Within five (5) Business Days following the delivery of the Estimated Closing Statement by Sellers to Buyer, Buyer may object in good faith to the Estimated Adjustment in writing. If Buyer objects to the Estimated Adjustment, the Parties shall attempt to resolve their differences by negotiation. If the Parties are unable to do so within three (3) Business Days prior to the Closing Date (or if Buyer does not object to the Estimated Adjustment), the Purchase Price shall be 21 adjusted (the "Closing Adjustment") for the Closing by the amount of the Estimated Adjustment not in dispute. The disputed portion shall be paid as a Post-Closing Adjustment to the extent required by Section 3.3(c). (c) Within sixty (60) days following the Closing Date, Sellers shall prepare and deliver to Buyer a final closing statement (the "Post-Closing Statement") that shall set forth all adjustments to the Purchase Price required by Section 3.3(a) (the "Proposed Post-Closing Adjustment"). The Post-Closing Statement shall be prepared using the same accounting principles, policies and methods as Sellers have historically used in connection with the calculation of the items reflected on such Post-Closing Statement. Within thirty (30) days following the delivery of the Post-Closing Statement by Sellers to Buyer, Buyer may object to the Proposed Post-Closing Adjustment in writing. Sellers agree to cooperate with Buyer to provide Buyer and Buyer's Representatives information used to prepare the Post-Closing Statement and information relating thereto. If Buyer objects to the Proposed Post-Closing Adjustment, the Parties shall attempt to resolve such dispute by negotiation. If the Parties are unable to resolve such dispute within thirty (30) days of any objection by Buyer, the Parties shall appoint the Independent Accounting Firm, which shall, at Sellers' and Buyer's joint expense, review the Proposed Post-Closing Adjustment and determine the appropriate adjustment to the Purchase Price, if any, within thirty (30) days of such appointment. The Parties agree to cooperate with the Independent Accounting Firm and provide it with such information as it reasonably requests to enable it to make such determination. The finding of such Independent Accounting Firm shall be binding on the Parties hereto. Upon determination of the appropriate adjustment (the "Post-Closing Adjustment") by agreement of the Parties or by binding determination of the Independent Accounting Firm, if the Post-Closing Adjustment is more or less than the Closing Adjustment, the Party owing the difference shall deliver such difference to the other Party no later than two (2) Business Days after such determination, in immediately available funds or in any other manner as reasonably requested by the payee. 3.4 Allocation of Purchase Price. Buyer and Sellers shall endeavor to agree upon an allocation among the Purchased Assets of the sum of the Purchase Price and the Assumed Liabilities consistent with Section 1060 of the Code and the Treasury Regulations thereunder within sixty (60) days of the date of this Agreement. Each of Buyer and Sellers agree to file Internal Revenue Service Form 8594, and all federal, state, local and foreign Tax Returns, in accordance with any such agreed to allocation. Each of Buyer and Sellers shall report the transactions contemplated by this Agreement for federal Tax and all other Tax purposes in a manner consistent with any such agreed to allocation determined pursuant to this Section 3.4. Each of Buyer and Sellers agree to provide the other promptly with any information required to complete Form 8594. Buyer and 22 Sellers shall notify and provide the other with reasonable assistance in the event of an examination, audit or other proceeding regarding any allocation of the Purchase Price agreed to pursuant to this Section 3.4. 3.5 Prorations. (a) Buyer and Sellers agree that all of the items normally prorated, including those listed below (but not including Income Taxes), relating to the business and operation of the Purchased Assets shall be prorated as of the Closing Date, with Sellers liable to the extent such items relate to any time period prior to the Closing Date, and Buyer liable to the extent such items relate to periods commencing with the Closing Date (measured in the same units used to compute the item in question, otherwise measured by calendar days): (i) Personal property, real estate and occupancy Taxes, assessments and other charges, if any, on or with respect to the business and operation of the Purchased Assets; (ii) Rent, Taxes and all other items (including prepaid services or goods not included in Inventory) payable by or to Sellers under any of the Sellers' Agreements; (iii) Any permit, license, registration, compliance assurance fees or other fees with respect to any Transferable Permit; (iv) Sewer rents and charges for water, telephone, electricity and other utilities; and (v) Rent and Taxes and other items payable by Sellers under the Real Property Leases assigned to Buyer. (b) In connection with the prorations referred to in (a) above, in the event that actual figures are not available at the Closing Date, the proration shall be based upon the actual Taxes or other amounts accrued through the Closing Date or paid for the most recent year (or other appropriate period) for which actual Taxes or other amounts paid are available. Such prorated Taxes or other amounts shall be re-prorated and paid to the appropriate Party within sixty (60) days of the date that the previously unavailable actual figures become available. The prorations shall be based on the number of days in a year or other appropriate period (i) before the Closing Date and (ii) including and after the Closing Date. Sellers and Buyer agree to furnish each other with such documents and other records as may be reasonably requested in order to confirm all adjustment and proration calculations made pursuant to this Section 3.5. Notwithstanding anything to the contrary herein, no proration shall be made under this Section 3.5 with respect to Taxes payable under the Pennsylvania Public Utility Realty Tax Act ("PURTA"). Buyer shall be fully 23 responsible for all Taxes payable under PURTA for the year in which the Closing occurs. 3.6. Deliveries by Sellers. At the Closing, each of Sellers as to itself will deliver, or cause to be delivered, the following to Buyer: (a) The Bill of Sale, duly executed by Penelec and NGE; (b) Copies of any and all governmental and other third party consents, waivers or approvals obtained by Sellers with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement; (c) The opinions of counsel and officer's certificates contemplated by Section 7.1; (d) One or more special warranty deeds conveying the Real Property to Buyer, in substantially the form of Exhibit F hereto, duly executed and acknowledged by Penelec and NGE and in recordable form; (e) The Assignment and Assumption Agreement, duly executed by Penelec and NGE; (f) A FIRPTA Affidavit, duly executed by Sellers; (g) Copies, certified by the Secretary or Assistant Secretary of each Seller, of corporate resolutions authorizing the execution and delivery of this Agreement and all of the agreements and instruments to be executed and delivered by Sellers in connection herewith, and the consummation of the transactions contemplated hereby; (h) A certificate of the Secretary or Assistant Secretary of each Seller identifying the name and title and bearing the signatures of the officers of such Seller authorized to execute and deliver this Agreement and the other agreements and instruments contemplated hereby; (i) Certificates of Good Standing with respect to the Sellers, issued by the Secretary of the State of each Sellers' state of incorporation, as applicable; (j) To the extent available, originals of all Sellers' Agreements, Real Property Leases and Transferable Permits and, if not available, true and correct copies thereof; (k) All such other instruments of assignment, transfer or conveyance as shall, in the reasonable opinion of Buyer and its counsel, be necessary or desirable to transfer to Buyer the 24 Purchased Assets, in accordance with this Agreement and where necessary or desirable in recordable form; and (l) Such other agreements, documents, instruments and writings as are required to be delivered by Sellers at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. 3.7. Deliveries by Buyer. At the Closing, Buyer will deliver, or cause to be delivered, the following to Sellers: (a) The Purchase Price, as adjusted pursuant to Section 3.3, by wire transfer of immediately available funds in accordance with Sellers' instructions or by such other means as may be agreed to by Sellers and Buyer; (b) The opinions of counsel and officer's certificates contemplated by Section 7.2; (c) The Assignment and Assumption Agreement, duly executed by Buyer; (d) Copies, certified by the Secretary or Assistant Secretary of Buyer and Buyer Parent, respectively, of resolutions authorizing the execution and delivery of this Agreement, the Guaranty and all of the agreements and instruments to be executed and delivered by Buyer in connection herewith, and the consummation of the transactions contemplated hereby; (e) A certificate of the Secretary or Assistant Secretary of Buyer and Buyer Parent, respectively, identifying the name and title and bearing the signatures of the officers of Buyer authorized to execute and deliver this Agreement, the Guaranty and the other agreements contemplated hereby; (f) All such other instruments of assumption as shall, in the reasonable opinion of Sellers and their counsel, be necessary for Buyer to assume the Assumed Liabilities in accordance with this Agreement; (g) Copies of any and all governmental and other third party consents, waivers or approvals obtained by Buyer with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement; (h) Certificates of Insurance relating to the insurance policies required pursuant to Article 10 of the Interconnection Agreement; and (i) Such other agreements, documents, instruments and writings as are required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. 25 3.8 Ancillary Agreements. The Parties acknowledge that the Ancillary Agreements have been executed on the date hereof. ARTICLE IV REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLERS Each of Sellers severally as to itself, in the case of Sections 4.1, 4.2, 4.3, 4.5 and 4.15, and, subject to Section 10.1, jointly and severally, as to all other representations and warranties, represents and warrants to Buyer as follows: 4.1 Incorporation; Qualification. Such Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation and has all requisite corporate power and authority to own, lease, and operate its material properties and assets and to carry on its business as is now being conducted. Such Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which its business as now being conducted shall require it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect. Such Seller has heretofore delivered to Buyer true, complete and correct copies of its Certificate of Incorporation and Bylaws as currently in effect. 4.2 Authority Relative to this Agreement. Such Seller has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by it hereby. The execution and delivery of this Agreement by such Seller and the consummation of the transactions contemplated by such Seller hereby have been duly and validly authorized by all necessary corporate action required on the part of such Seller and this Agreement has been duly and validly executed and delivered by such Seller. Subject to the receipt of Sellers' Required Regulatory Approvals, this Agreement constitutes the legal, valid and binding agreement of such Seller, enforceable against such Seller in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 4.3 Consents and Approvals; No Violation. (a) Except as set forth in Schedule 4.3(a), and subject to obtaining Sellers' Required Regulatory Approvals, neither the execution and delivery of this Agreement by such Seller nor the consummation by such Seller of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws of such Seller, (ii) result in a default (or give rise to any right of termination, cancellation 26 or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which such Seller is a party or by which it, or any of the Purchased Assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which, would not, individually or in the aggregate, create a Material Adverse Effect; or (iii) constitute violations of any law, regulation, order, judgment or decree applicable to such Seller, which violations, individually or in the aggregate, would create a Material Adverse Effect. (b) Except as set forth in Schedule 4.3(b), (the filings and approvals referred to in Schedule 4.3(b) are collectively referred to as the "Sellers' Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery of this Agreement by such Seller, or the consummation by such Seller of the transactions contemplated hereby, other than (i) such consents, approvals, filings or notices which, if not obtained or made, will not prevent such Seller from performing its material obligations hereunder and (ii) such consents, approvals, filings or notices which become applicable to such Seller or the Purchased Assets as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged. 4.4 Insurance. Except as set forth in Schedule 4.4, all material policies of fire, liability, workers' compensation and other forms of insurance owned or held by, or on behalf of, Sellers with respect to the business, operations or employees at the Plant or the Purchased Assets are in full force and effect, all premiums with respect thereto covering all periods up to and including the date hereof has been paid (other than retroactive premiums which may be payable with respect to comprehensive general liability and workers' compensation insurance policies), and no notice of cancellation or termination has been received with respect to any such policy which was not replaced on substantially similar terms prior to the date of such cancellation. Except as described in Schedule 4.4, within the 36 months preceding the date of this Agreement, the Sellers have not been refused any insurance with respect to the Purchased Assets nor has their coverage been limited by any insurance carrier to which they have applied for any such insurance or with which they have carried insurance during the last twelve (12) months. 4.5. Title and Related Matters. Except as set forth in Schedule 4.5 and subject to Permitted Encumbrances, (i) each of Penelec and NGE is the owner of record title to a 50% undivided interest in the Real Property and has good and valid title to the other Purchased Assets which it purports to own, free and clear of all Encumbrances and (ii) each such Seller shall convey to 27 Buyer such title with respect to the Real Property as a reputable title company doing business in the Commonwealth of Pennsylvania would insure. 4.6 Real Property Leases. Schedule 4.6 lists, as of the date of this Agreement, all real property leases under which each Seller is a lessee or lessor and which relate to the Purchased Assets ("Real Property Leases"). Except as set forth in Schedule 4.6, all such leases are valid, binding and enforceable against Sellers in accordance with their terms; there are no existing material defaults by Sellers or, to such Sellers' Knowledge, any other party thereunder; and no event has occurred which (whether with or without notice, lapse of time or both) would constitute a material default by Sellers or, to Sellers' Knowledge, any other party thereunder. Sellers have delivered to Buyer true, correct and complete copies of each of the Real Property Leases. 4.7 Environmental Matters. Except as disclosed in Schedule 4.7 or in the "Phase I" and "Phase II" environmental site assessments prepared by Sellers' outside environmental consultants ("Environmental Reports") and made available for inspection by Buyer: (a) The Sellers hold, and are in substantial compliance with, all permits, certificates, certifications, licenses and governmental authorizations under Environmental Laws ("Environmental Permits") that are required for Sellers to conduct the business and operations of the Purchased Assets, and Sellers are otherwise in compliance with applicable Environmental Laws with respect to the business and operations of the Purchased Assets except for such failures to hold or comply with required Environmental Permits, or such failures to be in compliance with applicable Environmental Laws, as would not, individually or in the aggregate, create a Material Adverse Effect; (b) None of Sellers has received any written request for information, or been notified that it is a potentially responsible party, under CERCLA or any similar state law with respect to the Real Property; (c) None of the Sellers has entered into or agreed to any consent decree or order relating to the Purchased Assets, or is subject to any outstanding judgment, decree, or judicial order relating to compliance with any Environmental Law or to investigation or cleanup of Hazardous Substances under any Environmental Law relating to the Purchased Assets. (d) To Sellers' Knowledge, no Releases of Hazardous Substances have occurred at, from, in, on, or under the Site, and no Hazardous Substances are present in, on, about or migrating from the Site that could give rise to an Environmental Claim related to the Purchased Assets for which Remediation 28 reasonably such Releases would not, individually or in the aggregate, create a Material Adverse Effect. The representations and warranties made in this Section 4.7 are the Sellers' exclusive representations and warranties relating to environmental matters. 4.8 Labor Matters. Sellers have previously delivered to Buyer true and correct copies of all collective bargaining agreements to which Sellers are a party or are subject and which relate to the business and operations of the Purchased Assets. With respect to the business or operations of the Purchased Assets, except to the extent set forth in Schedule 4.8 and except for such matters as will not, individually or in the aggregate, create a Material Adverse Effect, (a) Sellers are in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours; (b) neither Seller has received written notice of any unfair labor practice complaint against such Seller pending before the National Labor Relations Board; (c) no arbitration proceeding arising out of or under any collective bargaining agreements is pending against either Seller; and (d) Sellers have not experienced any work stoppage within the three-year period prior to the date hereof and to Sellers' Knowledge none is currently threatened. 4.9 Benefit Plans: ERISA. (a)Schedule 4.9(a) lists all deferred compensation, profit-sharing, retirement and pension plans, including multi-employer plans (of which none exist), and all material bonus, fringe benefit and other employee benefit plans maintained or with respect to which contributions are made by Penelec or Genco in respect of the current employees of Penelec or Genco connected with the Purchased Assets ("Benefit Plans"). True and complete copies of all such Benefit Plans have been made available to Buyer. (b) Except as set forth in Schedule 4.9(b), Sellers and the ERISA Affiliates have fulfilled their respective obligations under the minimum funding requirements of Section 302 of ERISA, and Section 412 of the Code, with respect to each Benefit Plan which is an "employee pension benefit plan" as defined in Section 3(2) of ERISA and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and the Code. Except as set forth in Schedule 4.9(b), neither the Sellers nor any ERISA Affiliate has incurred any liability under Section 4062(b) of ERISA to the Pension Benefit Guaranty Corporation in connection with any Benefit Plan which is subject to Title IV of ERISA or any withdrawal liability, nor is there any reportable event (as defined in Section 4043 of ERISA), except as set forth in Schedule 4.9(b). Except as set forth in Schedule 4.9(b), the Internal Revenue Service has issued a letter for each Benefit Plan which is intended to be qualified under Section 401(a) of the Code, which letter determines that such plan is exempt from United States Federal Income Tax under 29 Section 401(a) and 501(a) of the Code, and there has been no occurrence since the date of any such determination letter which has affected adversely such qualification. (c) Neither the Sellers nor any ERISA Affiliate has engaged in any transaction within the meaning of Section 4069(b) or Section 4212(c) of ERISA. No Benefit Plan is a multi-employer plan. (d) To the extent the Sellers maintain a "group health plan" within the meaning of Section 5000(b) (1) of the Code, Sellers have materially complied in good faith with the notice and continuation requirements of Section 4980B of the Code, COBRA, Part 6 of Subtitle B of Title I of ERISA and the regulations thereunder. 4.10 Real Property. Schedule 4.10 contains a description of the Real Property owned by Penelec and NGE and included in the Purchased Assets. True and correct copies of any current surveys, abstracts or title opinions in Sellers' possession and any policies of title insurance currently in force and in the possession of Sellers with respect to the Real Property have heretofore been made available to Buyer. 4.11 Condemnation. Except as set forth in Schedule 4.11, Sellers have not received any written notices of and otherwise have no Knowledge of any pending or threatened proceedings or governmental actions to condemn or take by power of eminent domain all or any part of the Purchased Assets. 4.12 Contracts and Leases. (a) Schedule 4.12(a) lists each written contract, license, agreement, or personal property lease which is material to the business or operations of the Purchased Assets, other than any contract, license, agreement or personal property lease which is listed or described on another Schedule, or which is expected to expire or terminate prior to the Closing Date, or which provides for annual payments by the Sellers after the date hereof of less than $250,000 or payments by the Sellers after the date hereof of less than $1,000,000 in the aggregate. (b) Except as disclosed in Schedule 4.12(b), each Sellers' Agreement (i) constitutes a legal, valid and binding obligation of the applicable Seller and, to each Seller's Knowledge, constitutes a valid and binding obligation of the other parties thereto, and (ii) may be transferred to Buyer pursuant to this Agreement without the consent of the other parties thereto and will continue in full force and effect thereafter, unless in any such case the impact of such lack of legality, validity or binding nature, or inability to transfer, would not, individually or in the aggregate, create a Material Adverse Effect. 30 (c) Except as set forth in Schedule 4.12(c), there is not, under the Sellers' Agreements, any default or event which, with notice or lapse of time or both, would constitute a default on the part of the Sellers or to each Seller's Knowledge, any of the other parties thereto, except such events of default and other events which would not, individually or in the aggregate, create a Material Adverse Effect. 4.13 Legal Proceedings etc. Except as set forth in Schedule 4.13, there are no actions or proceedings pending against Sellers before any court, arbitrator or Governmental Authority, which could, individually or in the aggregate, reasonably be expected to create a Material Adverse Effect. Except as set forth in Schedule 4.13, neither Seller is subject to any outstanding judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator or Governmental Authority which would, individually or in the aggregate, create a Material Adverse Effect. 4.14 Permits. (a) The Sellers have all permits, licenses, franchises and other governmental authorizations, consents and approvals, (other than Environmental Permits, which are addressed in Section 4.7 hereof) (collectively, "Permits") necessary to own and operate the Purchased Assets except where the failure to have such Permits would not, individually or in the aggregate, create a Material Adverse Effect. Except as disclosed on Schedule 4.14(a), Sellers have not received any notification that any Seller is in violation of any such Permits, except notifications of violations which would not, individually or in the aggregate, create a Material Adverse Effect. Sellers are in compliance with all such Permits except where non-compliance would not, individually or in the aggregate, create a Material Adverse Effect. (b) Schedule 4.14(b) sets forth all material Permits and Environmental Permits, other than Transferable Permits (which are set forth on Schedule 1.1(96)) related to the Purchased Assets. 4.15 Taxes. Penelec and NGE have filed all returns that are required to be filed by it with respect to any Tax relating to the Purchased Assets, and Penelec and NGE have each paid all Taxes that have become due as indicated thereon, except where such Tax is being contested in good faith by appropriate proceedings, or where the failure to so file or pay would not reasonably be expected to create a Material Adverse Effect. Penelec and NGE have complied in all material respects with all applicable laws, rules and regulations relating to withholding Taxes relating to Transferred Employees. All Tax Returns relating to the Purchased Assets are true, correct and complete in all material respects. Except as set forth in Schedule 4.15, no notice of deficiency or assessment has been received from any taxing authority with respect to liabilities for Taxes of 31 such Sellers in respect of the Purchased Assets, which have not been fully paid or finally settled, and any such deficiency shown in Schedule 4.15 is being contested in good faith through appropriate proceedings. Except as set forth in Schedule 4.15, there are no outstanding agreements or waivers extending the applicable statutory periods of limitation for Taxes associated with the Purchased Assets that will be binding upon Buyer after the Closing. None of the Purchased Assets is property that is required to be treated as being owned by any other person pursuant to the so-called safe harbor lease provisions of former Section 168(f) of the Code, and none of the Purchased Assets is "tax-exempt use" property within the meaning of Section 168(h) of the Code. Schedule 4.15 sets forth the taxing jurisdictions in which either Penelec or NGE own assets or conduct business that require a notification to a taxing authority of the transactions contemplated by this Agreement, if the failure to make such notification, or obtain Tax clearance certificates in connection therewith, would either require Buyer to withhold any portion of the Purchase Price or subject Buyer to any liability for any Taxes of Penelec or NGE. 4.16 Intellectual Property. Schedule 2.1(l) sets forth all Intellectual Property used in and, individually or in the aggregate with other Intellectual Property, is material to the operation or business of the Purchased Assets, each of which a Seller or its Affiliates either has all right, title and interest in or valid and binding rights under contract to use. Except as disclosed in Schedule 4.16, (i) the Sellers are not, nor have they received any notice that they are, in default (or with the giving of notice or lapse of time or both, would be in default), under any contract to use such Intellectual Property, and (ii), to Sellers' Knowledge, such Intellectual Property is not being infringed by any other Person. Sellers have not received notice that they are infringing any Intellectual Property of any other Person in connection with the operation or business of the Purchased Assets, and Sellers, to their Knowledge, are not infringing any Intellectual Property of any other Person the effect of which, individually or in the aggregate, would have a Material Adverse Effect. 4.17 Capital Expenditures. Except as set forth in Schedule 6.1, there are no capital expenditures associated with the Purchased Assets that are planned by Sellers through December 31, 1999. 4.18 Compliance With Laws. The Sellers are in compliance with all applicable laws, rules and regulations with respect to the ownership or operation of the Purchased Assets except where the failure to be in compliance would not, individually or in the aggregate, create a Material Adverse Effect. 4.19 DISCLAIMERS REGARDING PURCHASED ASSETS. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED ASSETS ARE SOLD "AS IS, WHERE IS", AND EACH SELLER EXPRESSLY DISCLAIMS ANY 32 REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO LIABILITIES, OPERATIONS OF THE PLANT, THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF THE PURCHASED ASSETS AND EACH SELLER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING BUT NOT LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER EACH SELLER POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, EACH SELLER FURTHER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, EACH SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE CONDITION OF THE PURCHASED ASSETS OR THE SUITABILITY OF THE PURCHASED ASSETS FOR OPERATION AS A POWER PLANT AND NO SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION PROVIDED BY OR COMMUNICATIONS MADE BY EACH SELLER OR THEIR REPRESENTATIVES, OR BY ANY BROKER OR INVESTMENT BANKER, WILL CAUSE OR CREATE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS. The Sellers make no warranties and representations of any kind, whether direct or implied, that any of the hardware, software, and firmware product (including embedded microcontrollers in non-computer equipment) which may be included in the Purchased Assets to be transferred under this Agreement (the "Computer Systems") is Year 2000 Compliant. For purposes hereof, "Year 2000 Compliant" shall mean that the Computer Systems will correctly differentiate between years, in different centuries, that end in the same two digits, and will accurately process date/time data (including, but not limited to, calculating, comparing, and sequencing) from, into, and between the twentieth and twenty-first centuries, including leap year calculations. 4.20 Transmission. NYSEG represents and warrants that Buyer shall not be obligated to pay a NYSEG transmission charge in connection with any NYPP Economy Energy transaction as defined in the NYPP Agreement as effective and on file with FERC without waiving NYSEG's right to NYPP Economy Energy Transaction Transmission Fund payments. 33 ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Sellers as follows: 5.1 Organization. Buyer is a California corporation, duly organized, validly existing and in good standing under the laws of the state of its organization and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as is now being conducted. Buyer is, or by the Closing will be, qualified to do business in the Commonwealth of Pennsylvania. Buyer has heretofore delivered to Sellers complete and correct copies of its Certificate of Incorporation and Bylaws (or other similar governing documents) as currently in effect. 5.2 Authority Relative to this Agreement. Buyer has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements and to consummate the transactions contemplated by it hereby and thereby. The execution and delivery of this Agreement and the Ancillary Agreements by Buyer and the consummation of the transactions contemplated hereby and thereby by Buyer have been duly and validly authorized by all necessary corporate action required on the part of Buyer. This Agreement and the Ancillary Agreements have been duly and validly executed and delivered by Buyer. Subject to the receipt of Buyer Required Regulatory Approvals, this Agreement and the Ancillary Agreements constitute legal, valid and binding agreements of Buyer, enforceable against Buyer in accordance with their terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 5.3 Consents and Approvals; No Violation. (a) Except as set forth in Schedule 5.3(a), and subject to obtaining Buyer Required Regulatory Approvals, neither the execution and delivery of this Agreement and the Ancillary Agreements by Buyer nor the consummation by Buyer of the transactions contemplated hereby and thereby will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws (or other similar governing documents) of Buyer, or (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Buyer or any of its Subsidiaries is a party or by which any of their respective assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers 34 or consents have been obtained or which would not, individually or in the aggregate, have a material adverse effects on the business, assets, operations or condition (financial or otherwise) of Buyer Entities ("Buyer Material Adverse Effect") or (iii) violate any law, regulation, order, judgment or decree applicable to Buyer, which violations, individually or in the aggregate, would create a Buyer Material Adverse Effect. (b) Except as set forth in Schedule 5.3(b) (the filings and approvals referred to in such Schedule are collectively referred to as the "Buyer Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for Buyer's execution and delivery of this Agreement and the Ancillary Agreements, or the consummation by Buyer of the transactions contemplated hereby and thereby, other than such consents, approvals, filings or notices, which, if not obtained or made, will not prevent Buyer from performing its obligations under this Agreement and the Ancillary Agreements. 5.4 Availability of Funds. Buyer has sufficient funds and lines of credit available to it or has received binding written commitments from creditworthy financial institutions, copies of which have been provided to Sellers, to provide sufficient funds on the Closing Date to pay the Purchase Price and to permit Buyer to timely perform all of its obligations under this Agreement and the Ancillary Agreements. 5.5 Financial Representations. Buyer Parent has provided Sellers with its balance sheet, income statement and statement of changes in cash flows for each of the preceding three fiscal years and most recent interim period. Such financial statements have been prepared in accordance with generally accepted accounting principles and fairly reflect the financial posture and results of operations of Buyer Parent as at and for the periods therein. 5.6 Legal Proceedings. There are no actions or proceedings pending against Buyer Entities before any court or arbitrator or Governmental Authority, which, individually or in the aggregate, could reasonably be expected to create a Buyer Material Adverse Effect. Buyer Entities are not subject to any outstanding judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator or Governmental Authority which would, individually or in the aggregate, create a Buyer Material Adverse Effect. 5.7 No Knowledge of Sellers' Breach. Buyer Entities have no Knowledge of any breach by Sellers of any representation or warranty of Sellers, or of any other condition or circumstance that would excuse Buyer from its timely performance of its obligations hereunder. Buyer Entities shall notify Sellers 35 promptly if any such information comes to their attention prior to the Closing. 5.8 Qualified Buyer. Buyer is qualified to obtain any Permits and Environmental Permits necessary for Buyer to own and operate the Purchased Assets as of the Closing. Without limiting the foregoing, Buyer is not aware of any reason or circumstance that would prevent Buyer from procuring Buyer Required Regulatory Approvals associated with Exempt Wholesale Generator (as defined in the Public Utility Holding Company Act of 1935) status and market-based rate authorization specified in items 3 and 2 of Schedule 5.3(b). 5.9 Inspections. Subject to the restrictions set forth in Section 6.2(a), Buyer acknowledges and agrees that it has, prior to its execution of this Agreement, (i) reviewed the Environmental Reports, (ii) had full opportunity to conduct to its satisfaction Inspections of the Purchased Assets, including the Site, and (iii) fully completed and approved the results of all Inspections of the Purchased Assets. Subject to the restrictions set forth in Section 6.2(a), Buyer acknowledges that it is satisfied through such review and Inspections that no further investigation and study on or of the Site is necessary for the purposes of acquiring the Purchased Assets for Buyer's intended use. Buyer acknowledges and agrees that it hereby assumes the risk that adverse past, present, and future physical characteristics and Environmental Conditions may not have been revealed by its Inspections and the investigations of the Purchased Assets contained in the Environmental Reports. In making its decision to execute this Agreement, and to purchase the Purchased Assets, Buyer has relied on and will rely upon, among other things, the results of its Inspections and the Environmental Reports. 5.10 WARN Act. Buyer does not intend to engage in a Plant Closing or Mass Layoff as such terms are defined in the WARN Act within sixty days of the Closing Date. ARTICLE VI COVENANTS OF THE PARTIES 6.1 Conduct of Business Relating to the Purchased Assets. (a) Except as described in Schedule 6.1 or as expressly contemplated by this Agreement or to the extent Buyer otherwise consents in writing, during the period from the date of this Agreement to the Closing Date, Sellers (i) will operate the Purchased Assets in the ordinary course of business consistent with the past practices of Sellers or their Affiliates or with Good Utility Practices, (ii) shall use all Commercially Reasonable Efforts to preserve intact the Purchased Assets, and endeavor to preserve the goodwill and relationships with customers, suppliers 36 and others having business dealings with it, (iii) shall maintain the insurance coverage described in Section 4.4, (iv) shall comply with all applicable laws relating to the Purchased Assets, including without limitation, all Environmental Laws, except where the failure to so comply would not result in a Material Adverse Effect, and (v) shall continue with Sellers' program, or (at Buyer's expense) as Buyer may direct, to install such equipment or software with respect to Year 2000 Compliance in accordance with Sellers' plans referred to in Section 2.1(k). Without limiting the generality of the foregoing, and, except as contemplated in this Agreement or as described in Schedule 6.1, or as required under applicable law or by any Governmental Authority, prior to the Closing Date, without the prior written consent of Buyer, Sellers shall not with respect to the Purchased Assets: (i) Make any material change in the levels of Inventories customarily maintained by Sellers or their Affiliates with respect to the Purchased Assets, other than changes which are consistent with Good Utility Practices; (ii) Sell, lease (as lessor), encumber, pledge, transfer or otherwise dispose of, any material Purchased Assets individually or in the aggregate (except for Purchased Assets used, consumed or replaced in the ordinary course of business consistent with past practices of Sellers or their Affiliates or with Good Utility Practices) other than to encumber Purchased Assets with Permitted Encumbrances; (iii) Modify, amend or voluntarily terminate prior to the expiration date any of the Sellers' Agreements or Real Property Leases or any of the Permits or Environmental Permits in any material respect, other than (a) in the ordinary course of business, to the extent consistent with the past practices of Sellers or their Affiliates or with Good Utility Practices, (b) with cause, to the extent consistent with past practices of Sellers or their Affiliates or with Good Utility Practices, or (c) as may be required in connection with transferring Sellers' rights or obligations thereunder to Buyer pursuant to this Agreement; (iv) Except as otherwise provided herein, enter into any commitment for the purchase, sale, or transportation of fuel having a term greater than six months and not terminable on or before the Closing Date either (i) automatically, or (ii) by option of Sellers (or, after the Closing, by Buyer) in its sole discretion, if the aggregate payment under such commitment for fuel and all other outstanding commitments for fuel not previously approved by Buyer would exceed $1,000,000; (v) Sell, lease or otherwise dispose of Emission Allowances, or Emission Reduction Credits identified in 37 Schedule 2.1(h), except to the extent necessary to operate the Purchased Assets in accordance with this Section 6.1; (vi) Except as otherwise provided herein, enter into any contract, agreement, commitment or arrangement relating to the Purchased Assets that individually exceeds $250,000 or in the aggregate exceeds $1,000,000 unless it is terminable by Sellers (or, after the Closing, by Buyer) without penalty or premium upon no more than sixty (60) days notice; (vii) Except as otherwise required by the terms of the IBEW Collective Bargaining Agreement (as defined in Section 6.10(d)), (a) hire at, or transfer to the Purchased Assets, any new employees prior to the Closing, other than to fill vacancies in existing positions in the reasonable discretion of Sellers, (b) materially increase salaries or wages of employees employed in connection with the Purchased Assets prior to the Closing, (c) take any action prior to the Closing to effect a material change in the Collective Bargaining Agreement, or (d) take any action prior to the Closing to materially increase the aggregate benefits payable to the employees employed in connection with the Purchased Assets; (viii) Make any Capital Expenditures except as permitted by Section 3.3(a)(iii) or for Sellers' account; and (ix) Except as otherwise provided herein, enter into any written or oral contract, agreement, commitment or arrangement with respect to any of the proscribed transactions set forth in the foregoing paragraphs (i) through (viii). 6.2. Access to Information. (a) Between the date of this Agreement and the Closing Date, Sellers will, at reasonable times and upon reasonable notice: (i) give Buyer and its Representatives reasonable access to its managerial personnel and to all books, records, plans, equipment, offices and other facilities and properties constituting the Purchased Assets; (ii) furnish Buyer with such financial and operating data and other information with respect to the Purchased Assets as Buyer may from time to time reasonably request, and permit Buyer to make such reasonable Inspections thereof as Buyer may request; (iii) furnish Buyer at its request a copy of each material report, schedule or other document filed by Sellers or any of their Affiliates with respect to the Purchased Assets with the SEC, FERC, NYPSC, NYDEC, PaPUC, PaDEP or any other Governmental Authority; and (iv) furnish Buyer with all such other information as shall be reasonably necessary to enable Buyer to verify the accuracy of the representations and 38 warranties of Sellers contained in this Agreement; provided, however, that (A) any such inspections and investigations shall be conducted in such a manner as not to interfere unreasonably with the operation of the Purchased Assets, (B) Sellers shall not be required to take any action which would constitute a waiver of the attorney-client privilege, and (C) Sellers need not supply Buyer with any information which Sellers are under a legal or contractual obligation not to supply. Notwithstanding anything in this Section 6.2 to the contrary, Sellers will only furnish or provide such access to Transferring Employee Records and will not furnish or provide access to other employee personnel records or medical information unless required by law or specifically authorized by the affected employee and Buyer shall not have the right to perform or conduct any environmental sampling or testing at, in, on, or underneath the Purchased Assets. (b) Each Party shall, and shall use its best efforts to cause its Representatives to, (i) keep all Proprietary Information of the other Party confidential and not to disclose or reveal any such Proprietary Information to any person other than such Party's Representatives and (ii) not use such Proprietary Information other than in connection with the consummation of the transactions contemplated hereby. After the Closing Date, any Proprietary Information to the extent related to the Purchased Assets shall no longer be subject to the restrictions set forth herein. The obligations of the Parties under this Section 6.2(b) shall be in full force and effect for three (3) years from the date hereof and will survive the termination of this Agreement, the discharge of all other obligations owed by the Parties to each other and the closing of the transactions contemplated by this Agreement. (c) For a period of seven (7) years after the Closing Date (or such longer period as may be required by applicable law), each Party and its Representatives shall have reasonable access to all of the books and records of the Purchased Assets, including all Transferring Employee Records in the possession of the other Party to the extent that such access may reasonably be required by such Party in connection with the Assumed Liabilities or the Excluded Liabilities, or other matters relating to or affected by the operation of the Purchased Assets. Such access shall be afforded by the Party in possession of any such books and records upon receipt of reasonable advance written notice and during normal business hours. The Party exercising this right of access shall be solely responsible for any costs or expenses incurred by it or the other Party with respect to such access pursuant to this Section 6.2(c). If the Party in possession of such books and records shall desire to dispose of any books and records upon or prior to the expiration of such seven-year period (or any such longer period), such Party shall, prior to such disposition, give the other Party a reasonable opportunity at such other Party's reasonable expense, to segregate and remove such books and records as such other Party may select. 39 (d) Notwithstanding the terms of Section 6.2(b) above, the Parties agree that prior to the Closing Buyer may reveal or disclose Proprietary Information to any other Persons in connection with Buyer's financing of its purchase of the Purchased Assets or any equity participation in Buyer's purchase of the Purchased Assets (provided that such Persons agree in writing to maintain the confidentiality of the Proprietary Information in accordance with this Agreement). (e) Upon the other Party's prior written approval (which will not be unreasonably withheld), either Party may provide Proprietary Information of the other Party to the NYPSC, the PaPUC, the SEC, the FERC or any other Governmental Authority with jurisdiction or any stock exchange, as may be necessary to obtain Sellers' Required Regulatory Approvals, or Buyer Required Regulatory Approvals, respectively, or to comply generally with any relevant law or regulation. The disclosing Party will seek confidential treatment for the Proprietary Information provided to any Governmental Authority and the disclosing Party will notify the other Party as far in advance as is practicable of its intention to release to any Governmental Authority any Proprietary Information. (f) Except as specifically provided herein or in the Confidentiality Agreement, nothing in this Section shall impair or modify any of the rights or obligations of Buyer or its Affiliates under the Confidentiality Agreement, all of which remain in effect until termination of such agreement in accordance with its terms. (g) Except as may be permitted in the Confidentiality Agreement, Buyer agrees that, prior to the Closing Date, it will not contact any vendors, suppliers, employees, or other contracting parties of Sellers or their Affiliates with respect to any aspect of the Purchased Assets or the transactions contemplated hereby, without the prior written consent of Sellers, which consent shall not be unreasonably withheld. (h) (i) Buyer shall be entitled to inspect, in accordance with this Section 6.2(h), all of the Purchased Assets located adjacent to any Point of Interconnection (as defined in the Interconnection Agreement), as shown in Schedule A to the Interconnection Agreement, to verify and/or determine the accuracy of the data, drawings, and records described in such Schedule. The Parties shall cooperate to schedule Buyer's inspection at the Facility so that any interference with the operation of the Facility is minimized, to the extent reasonably feasible, and so that Buyer may complete its inspections of the Facility within thirty (30) working days of commencement of inspections and within two (2) months after the execution of this Agreement. 40 (ii) Sellers shall provide, or shall cause to be provided, to Buyer, access to the Facility at the times scheduled for the inspections. Buyer shall provide qualified engineering, operations, and maintenance personnel to escort Buyer's personnel and to assist Buyer's personnel in conducting the inspections. Sellers and Buyer shall each bear their own costs of participating in the inspections. At a mutually convenient time not more than one (1) month after Buyer has completed its inspections, the Parties shall meet to discuss whether, as a result of the inspections, it is appropriate to modify Schedule A to the Interconnection Agreement to portray more accurately the Points of Interconnection. Any modification to any portion of Schedule A of the Interconnection Agreement to which the Parties agree shall thereafter be deemed part of Schedule A of the Interconnection Agreement for all purposes under the Interconnection Agreement. 6.3 Public Statements. Subject to the requirements imposed by any applicable law or any Governmental Authority or stock exchange, prior to the Closing Date, no press release or other public announcement or public statement or comment in response to any inquiry relating to the transactions contemplated by this Agreement shall be issued or made by any Party without the prior approval of the other Parties (which approval shall not be unreasonably withheld). The Parties agree to cooperate in preparing such announcements. 6.4 Expenses. Except to the extent specifically provided herein, whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the Party incurring such costs and expenses. Notwithstanding anything to the contrary herein, Buyer will be responsible for (a) all costs and expenses associated with the obtaining of any title insurance policy and all endorsements thereto that Buyer elects to obtain and (b) all filing fees under the HSR Act. 6.5 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the Parties hereto shall use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the purchase and sale of the Purchased Assets pursuant to this Agreement and the assumption of the Assumed Liabilities, including without limitation using its best efforts to ensure satisfaction of the conditions precedent to each Party's obligations hereunder, including obtaining all necessary consents, approvals, and authorizations of third parties and Governmental Authorities required to be obtained in order to consummate the transactions hereunder, and to effectuate a transfer of the Transferable Permits to Buyer. Buyer agrees to perform all conditions required of Buyer 41 in connection with the Sellers' Required Regulatory Approvals, other than those conditions which would create a Buyer Material Adverse Effect. Neither of the Parties hereto shall, without prior written consent of the other Party, take or fail to take any action, which might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. Buyer further agrees that prior to the Closing Date, it will neither enter into any other contract to acquire, nor acquire, electric generation facilities or uncommitted generation capacity located in New York State if Buyer's proposed acquisition of such additional electric generation facilities or uncommitted generation capacity might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. Buyer shall give Sellers reasonable advance notice (and in any event not less than 10 days) before Buyer contracts to acquire or acquires any electric generation facility or uncommitted generation capacity located in New York. (b) In the event that any Purchased Asset shall not have been conveyed to Buyer at the Closing, each Seller shall, subject to Section 6.5(c) and (d), use Commercially Reasonable Efforts to convey such asset to Buyer as promptly as is practicable after the Closing. In the event that any Easement shall not have been granted by Buyer to Penelec or NYSEG at the Closing, Buyer shall use Commercially Reasonable Efforts to grant such Easement to Penelec or NYSEG as promptly as is practicable after the Closing. (c) To the extent that Sellers' rights under any Sellers' Agreement or Real Property Lease may not be assigned without the consent of another Person which consent has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign the same, if an attempted assignment would constitute a breach thereof or be unlawful. Sellers and Buyer agree that if any consent to an assignment of any material Sellers' Agreement or Real Property Lease shall not be obtained or if any attempted assignment would be ineffective or would impair Buyer's rights and obligations under the material Sellers' Agreement or Real Property Lease in question, so that Buyer would not in effect acquire the benefit of all such rights and obligations, Sellers, at Buyer's option and to the maximum extent permitted by law and such material Sellers' Agreement or Real Property Lease, shall, after the Closing Date, appoint Buyer to be Sellers' agent with respect to such material Sellers' Agreement or Real Property Lease, or, to the maximum extent permitted by law and such material Sellers' Agreement or Real Property Lease, enter into such reasonable arrangements with Buyer or take such other actions as are necessary to provide Buyer with the same or substantially similar rights and obligations of such material Sellers' Agreement or Real Property Lease as Buyer may reasonably request. Sellers and Buyer shall cooperate and shall each use Commercially Reasonable Efforts prior to and after the Closing Date to 42 obtain an assignment of such material Sellers' Agreement or Real Property Lease to Buyer. For purposes of this Section 6.5(c), all Sellers' Agreements listed on Schedule 4.12(a) are deemed to be "material." (d) To the extent that Sellers' rights under any warranty or guaranty described in Section 2.1(i) may not be assigned without the consent of another Person, which consent has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign same, if an attempted assignment would constitute a breach thereof, or be unlawful. Sellers and Buyer agree that if any consent to an assignment of any such warranty or guaranty shall not be obtained, or if any attempted assignment would be ineffective or would impair Buyer's rights and obligations under the warranty or guaranty in question, so that Buyer would not in effect acquire the benefit of all such rights and obligations, Sellers, at Buyer's expense, shall use Commercially Reasonable Efforts, to the extent permitted by law and such warranty or guaranty, to enforce such warranty or guaranty for the benefit of Buyer so as to provide Buyer to the maximum extent possible with the benefits and obligations of such warranty or guaranty. 6.6 Consents and Approvals. (a) As promptly as possible after the date of this Agreement, Sellers and Buyer, as applicable, shall each file or cause to be filed with the Federal Trade Commission and the United States Department of Justice any notifications required to be filed under the HSR Act and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. The Parties shall use their respective best efforts to respond promptly to any requests for additional information made by either of such agencies, and to cause the waiting periods under the HSR Act to terminate or expire at the earliest possible date after the date of filing. Buyer will pay all filing fees under the HSR Act but each Party will bear its own costs of the preparation of any filing. (b) As promptly as possible after the date of this Agreement, Buyer shall file with the FERC an application requesting Exempt Wholesale Generator status for Buyer, which filing may be made individually by Buyer or jointly with the Sellers in conjunction with other filings to be made with the FERC under this Agreement, as reasonably determined by the Parties. Prior to Buyer's submission of that application with the FERC, Buyer shall submit such application to the Sellers for review and comment and Buyer shall incorporate into the application any revisions reasonably requested by Sellers. Buyer shall be solely responsible for the cost of preparing and filing this application, any petition(s) for rehearing, or any re-application. If Buyer's initial application for Exempt Wholesale Generator status is rejected by the FERC, Buyer agrees to petition the FERC for rehearing and/or to re-submit an 43 application with the FERC, as reasonably required by the Sellers, provided that in either case the action directed by the Sellers does not create a Buyer Material Adverse Effect. (c) As promptly as possible after the date of this Agreement, Buyer shall file with the FERC an application requesting authorization under Section 205 of the Federal Power Act to sell electric generating capacity and energy, but not other services, including, without limitation, ancillary services, at wholesale at market-based rates, which filing may be made individually by Buyer or jointly with Sellers in conjunction with other filings to be made with the FERC under this Agreement, as reasonably determined by the Parties. Prior to the filing of that application with the FERC, Buyer shall submit such application to the Sellers for review and comment and Buyer shall incorporate into the application any revisions reasonably requested by the Sellers. Buyer shall be solely responsible for the cost of preparing and filing this application, any petition(s) for rehearing, or any reapplication. If Buyer's initial application for market-based rate authorization results in a FERC request for additional information or is rejected by the FERC, Buyer shall provide that information promptly, to petition the FERC for rehearing and/or to re-submit an application with the FERC, as reasonably required by the Sellers, provided that the Sellers shall have a reasonable opportunity to make changes to such a petition or re-submission application and, provided further, that the action directed by the Seller does not create a Buyer Material Adverse Effect. (d) As promptly as possible, and in any case within sixty (60) days, after the date of this Agreement, Sellers and Buyer, as applicable, shall file with the NYPSC, the PaPUC, the FERC and any other Governmental Authority, and make any other filings required to be made with respect to the transactions contemplated hereby. The Parties shall respond promptly to any requests for additional information made by such agencies, and use their respective best efforts to cause regulatory approval to be obtained at the earliest possible date after the date of filing. Each Party will bear its own costs of the preparation of any such filing. (e) Sellers and Buyer shall cooperate with each other and promptly prepare and file notifications with, and request Tax clearances from, state and local taxing authorities in jurisdictions in which a portion of the Purchase Price may be required to be withheld or in which Buyer would otherwise be liable for any Tax liabilities of Sellers pursuant to such state and local Tax law. (f) Buyer shall have the primary responsibility for securing the transfer, reissuance or procurement of the Permits and Environmental Permits (other than Transferable Permits) effective as of the Closing Date. Sellers shall cooperate with Buyer's efforts in this regard and assist in any transfer 44 or reissuance of a Permit or Environmental Permit held by Sellers or the procurement of any other Permit or Environmental Permit when so requested by Buyer. 6.7 Fees and Commissions. Each Seller, on the one hand, and Buyer, on the other hand, represent and warrant to the other that, except for Goldman, Sachs & Co., which are acting for and at the expense of Sellers, and Lehman Brothers Inc., which is acting for and at the expense of Buyer, no broker, finder or other Person is entitled to any brokerage fees, commissions or finder's fees in connection with the transaction contemplated hereby by reason of any action taken by the Party making such representation. Each Seller, on the one hand, and Buyer, on the other hand, will pay to the other or otherwise discharge, and will indemnify and hold the other harmless from and against, any and all claims or liabilities for all brokerage fees, commissions and finder's fees (other than the fees, commissions and finder's fees payable to the parties listed above) incurred by reason of any action taken by the indemnifying party. 6.8 Tax Matters. (a) All transfer and sales taxes incurred in connection with this Agreement and the transactions contemplated hereby (including, without limitation, (a) Pennsylvania sales tax; (b) the Pennsylvania transfer tax on conveyances of interests in real property; and (c) Pennsylvania sales tax and transfer tax on deeds) shall be borne by Buyer. Sellers shall file, to the extent required by, or permissible under, applicable law, all necessary Tax Returns and other documentation with respect to all such transfer and sales taxes, and, if required by applicable law, Buyer shall join in the execution of any such Tax Returns and other documentation. Prior to the Closing Date, to the extent applicable, Buyer shall provide to Sellers appropriate certificates of Tax exemption from each applicable taxing authority. (b) With respect to Taxes to be prorated in accordance with Section 3.5 of this Agreement, Buyer shall prepare and timely file all Tax Returns required to be filed after the Closing Date with respect to the Purchased Assets, if any, and shall duly and timely pay all such Taxes shown to be due on such Tax Returns. Buyer's preparation of any such Tax Returns shall be subject to Sellers' approval, which approval shall not be unreasonably withheld. Buyer shall make such Tax Returns available for Sellers' review and approval no later than fifteen (15) Business Days prior to the due date for filing each such Tax Return. (c) Buyer and Sellers shall provide the other with such assistance as may reasonably be requested by the other Party in connection with the preparation of any Tax Return, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to liability 45 for Taxes, and each shall retain and provide the requesting party with any records or information which may be relevant to such return, audit, examination or proceedings. Any information obtained pursuant to this Section 6.8(c) or pursuant to any other Section hereof providing for the sharing of information or review of any Tax Return or other instrument relating to Taxes shall be kept confidential by the parties hereto. (d) Disputes. In the event that a dispute arises between Sellers and Buyer regarding Taxes, or any amount due under this Section 6.8, the Parties shall attempt in good faith to resolve such dispute and any agreed upon amount shall be paid to the appropriate Party. If such dispute is not resolved within 30 days, the Parties shall submit the dispute to the Independent Accounting Firm for resolution, which resolution shall be final, conclusive and binding on the Parties. Notwithstanding anything in this Agreement to the contrary, the fees and expenses of the Independent Accounting Firm in resolving the dispute shall be borne 50% by Sellers and 50% by Buyer. Any payment required to be made as a result of the resolution of the dispute by the Independent Accounting Firm shall be made within ten days after such resolution, together with any interest determined by the Independent Accounting Firm to be appropriate. 6.9 Advice of Changes. Prior to the Closing, each Party will promptly advise the other in writing with respect to any matter arising after execution of this Agreement of which that Party obtains Knowledge and which, if existing or occurring at the date of this Agreement, would have been required to be set forth in this Agreement, including any of the Schedules hereto. Sellers may at any time notify Buyer of any development causing a breach of any of its representations and warranties in Article IV. Unless Buyer has the right to terminate this Agreement pursuant to Section 9.1(f) below by reason of the developments and exercises that right within the period of fifteen (15) days after such right accrues, the written notice pursuant to this Section 6.9 will be deemed to have amended this Agreement, including the appropriate Schedule, to have qualified the representations and warranties contained in Article IV above, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the development. 6.10 Employees. (a) At least 90 days prior to the Closing Date, Buyer is required to offer employment, effective on the Closing Date, to those employees of Penelec who are covered by the IBEW Collective Bargaining Agreement as defined in Section 6.10(d) below, and who are employed in positions relating to the Purchased Assets ("Union Employees"). At least 90 days prior to the Closing Date, Buyer shall provide Sellers with notice of its staffing level requirements, listed by classification and operation, and shall be required to offer employment only to that number of Union Employees necessary to 46 satisfy such staffing level requirements. In each classification, Union Employees shall be so offered employment in order of their seniority. (b) At least 90 days prior to the Closing Date, Buyer is also required to make reasonable efforts to make a Qualifying Offer of employment, effective on the Closing Date, to those salaried employees of Penelec or Genco who are listed in, or are in a function or whose employment responsibilities are listed in, Schedule 6.10(b) ("Non-Union Employees"). Each person who becomes employed by Buyer pursuant to Section 6.10(a) or (b) (whether pursuant to a Qualifying Offer or otherwise) shall be referred to herein as a "Transferred Union Employee" or "Transferred Non-Union Employee", respectively. As used herein, the term "Qualifying Offer" means an offer of at least 85% of an employee's current total annual cash compensation at the time the offer was made (consisting of base salary and target incentive bonus). Schedule 6.10(b) sets forth, for each of the Non-Union Employees listed therein, their current base salaries and target incentive bonuses. (c) All offers of employment made pursuant to Sections 6.10(a) or (b) shall be made (i) in accordance with seniority and all applicable laws and regulations, and (ii) for Union Employees, in accordance with the IBEW Collective Bargaining Agreement. (d) Schedule 6.10(d) sets forth the collective bargaining agreement, and amendments thereto, to which Penelec is a party with the IBEW in connection with the Purchased Assets ("IBEW Collective Bargaining Agreement"). Transferred Union Employees shall retain their seniority and receive full credit for service with Penelec in connection with entitlement to vacation and all other benefits and rights under the IBEW Collective Bargaining Agreement and under each compensation, retirement or other employee benefit plan or program Buyer is required to maintain for Transferred Union Employees pursuant to the IBEW Collective Bargaining Agreement. With respect to Transferred Union Employees, on the Closing Date, Buyer shall assume the IBEW Collective Bargaining Agreement for the duration of its term as it relates to Transferred Union Employees to be employed at the Plant in positions covered by the IBEW Collective Bargaining Agreement and shall comply with all applicable obligations under the IBEW Collective Bargaining Agreement. Consistent with the obligations under the IBEW Collective Bargaining Agreement and applicable laws, Buyer shall be required to establish and maintain a pension plan and other employer benefit programs for the Transferred Union Employees for the duration of the term of the IBEW Collective Bargaining Agreement which are substantially equivalent to the Penelec plans and programs in effect for the Transferred Union Employees immediately prior to the Closing Date (the "Penelec Plans"), and which provide at least the same level of benefits or coverage as do the Penelec Plans for the duration of the IBEW Collective 47 Bargaining Agreement. Buyer further agrees to recognize the IBEW as the collective bargaining agent for the Transferred Union Employees. (e) As of the Closing Date, all Transferred Non-Union Employees shall commence participation in welfare benefit plans of Buyer or its Affiliates (the "Replacement Welfare Plans"). Buyer shall (i) waive all limitations as to pre-existing condition exclusions and waiting periods with respect to the Transferred Non-Union Employees under the Replacement Welfare Plans, other than, but only to the extent of, limitations or waiting periods that were in effect with respect to such employees under the welfare plans maintained by Genco, Penelec or their Affiliates and that have not been satisfied as of the Closing Date, and (ii) provide each Transferred Non-Union Employee with credit for any copayments and deductibles paid prior to the Closing Date in satisfying any deductible or out-of-pocket requirements under the Replacement Welfare Plans (on a pro-rata basis in the event of a difference in plan years). (f) Transferred Non-Union Employees shall be given credit for all service with Genco, Penelec and their Affiliates under all deferred compensation, profit-sharing, 401(k), retirement and pension plans, incentive compensation, bonus, fringe benefit and other employee benefit plans, programs and arrangements of Buyer ("Buyer Benefit Plans") in which they may become participants. The service credit so given shall be for purposes of eligibility and vesting, but not for level of benefits and benefit accrual. (g) To the extent allowable by law, Buyer shall take any and all necessary action to cause the trustee of any defined contribution plan of Buyer or its Affiliates in which any Transferred Employee becomes a participant to accept a direct "rollover" of all or a portion of said employee's "eligible rollover distribution" within the meaning of Section 402 of the Code from the GPU Companies Employee Savings Plan for Non-Bargaining Employees or the Penelec Employee Savings Plan for Bargaining Unit Employees (the "Sellers' Savings Plans") if requested to do so by the Transferred Employee. Buyer agrees that the property so rolled over and the assets so transferred may include promissory notes evidencing loans from the Sellers' Savings Plans to Transferred Employees that are outstanding as of the Closing Date. However, except as otherwise provided in Section 6.10(d), any defined contribution plan of Buyer or its Affiliates accepting such a rollover or transfer shall not be required to (x) make any further loans to any Transferred Employee after the Closing Date or (y) permit any additional investment to be made in GPU common stock on behalf of any Transferred Employee after the Closing Date. (h) Buyer shall pay or provide to Transferred Employees the benefits described in subparagraphs (i), (ii) and (iii) of this Section 6.10(h), and shall reimburse the Sellers for the benefits they will provide to Union 48 Employees and Non-Union Employees in accordance with subparagraph (iv) of this Section 6.10(h). (i) Buyer shall make a transition incentive payment in the amount of $2,500 to each Transferred Union Employee. Payment shall be made as soon as practicable after, but in any event no later than 60 days following, the Closing Date. (ii) In the case of each Transferred Non-Union Employee who is initially assigned by Buyer to a principal place of work that is at least 50 miles farther from the employee's principal residence than was his principal place of work immediately prior to the Closing Date and who relocates his or her principal residence to the vicinity of his or her new principal place of work within 12 months following the Closing Date, Buyer shall reimburse the employee for all "moving expenses" within the meaning of Section 217(b) of the Code incurred by the employee and other members of his or her household in connection with such relocation, up to a maximum aggregate amount of $5,000. Claims for reimbursement for such expenses shall be filed in accordance with such procedures, and shall be accompanied by such substantiation of the expenses for which reimbursement is sought, as Buyer may reasonably request. All claims for reimbursement shall be processed, and qualifying expenses shall be reimbursed, as soon as practicable after, but in any event no later than 60 days following, the date on which the employee's claim for reimbursement is submitted to Buyer. (iii) Buyer shall provide the severance benefits described in Section 1 of Schedule 6.10(h) to each Transferred Employee who is "Involuntarily Terminated" (as defined below) (a) within 12 months after the Closing Date or (b), in the case of any Transferred Non-Union Employee who had attained age 50 and had completed at least 10 Years of Service (as defined in Section 1(c) of Schedule 6.10(h)) prior to the Closing Date, on or any time prior to June 30, 2004. For purposes of this Section 6.10(h) and Schedule 6.10(h), a Transferred Employee shall be treated as "Involuntarily Terminated" if his or her employment with Buyer and all of its Affiliates is terminated by Buyer or any of its Affiliates for any reason other than for cause, disability or mandatory retirement. A Transferred Employee who voluntarily leaves employment with Buyer and all of its Affiliates as a result of a reduction of more than 15% in the rate of his or her total annual cash compensation (including both base salary and target incentive award) shall also be treated as having been Involuntarily Terminated. Buyer shall require any Transferred Employee who is Involuntarily Terminated, as a condition to receiving the severance benefits described in Section 1(b), (c), (d), (e) 49 and (g) of Schedule 6.10(h), to execute a release of claims against Penelec or Genco, as applicable, and Buyer, in such form as Buyer and Sellers shall agree upon. (iv) At the Closing or as soon thereafter as practicable, but in any event no later than 60 days following the Closing Date, Buyer shall pay to Sellers, in addition to all other amounts to be paid by Buyer to Sellers hereunder, an amount equal to the aggregate estimated cost that the Sellers will or may incur in providing the severance, pension, health care and group term life insurance benefits described in Section 2 of Schedule 6.10(h) to the Union Employees and Non-Union Employees therein described. The estimated cost of such benefits shall be calculated by the actuarial firm regularly engaged to provide actuarial services to the GPU Companies with respect to their pension, health care and life insurance plans, and shall be determined using the same assumptions as to mortality, turnover, interest rate and other actuarial assumption as used by such firm in determining the cost of benefits under the GPU Companies' pension, health and group term life insurance plans for purposes of their most recently issued financial statements prior to the Closing Date. (i) Sellers shall be responsible for any payments required under their voluntary early retirement plans offered in connection with the transfer of the Purchased Assets. Within thirty (30) days following the last day that any Union Employee or Non-Union Employee may elect to participate in such plans, Sellers shall provide Buyer with a list of all such employees who have so elected. (j) Sellers shall be responsible, with respect to the Purchased Assets, for performing and discharging all requirements under the WARN Act and under applicable state and local laws and regulations for the notification of its employees of any "employment loss" within the meaning of the WARN Act which occurs prior to the Closing Date. (k) Sellers are responsible for extending and continuing to extend COBRA continuation coverage to all employees and former employees, and qualified beneficiaries of such employees and former employees, who become or became entitled to such COBRA continuation coverage on or before the Closing Date, including those for whom the Closing Date occurs during their COBRA election period. (l) Sellers shall pay to all Sellers' employees that Buyer offers employment pursuant to Section 6.10 hereof, all compensation, bonus, vacation and holiday compensation, workers' compensation or other employment benefits that are payable in cash which have accrued to such employees through 50 and including the Closing Date, at such times as provided under the terms of the applicable compensation or benefit programs. 6.11. Risk of Loss. (a) From the date hereof through the Closing Date, all risk of loss or damage to the property included in the Purchased Assets shall be borne by Sellers, other than loss or damage caused by the acts or negligence of Buyer or any Buyer Representative, which loss or damage shall be the responsibility of Buyer. (b) If, before the Closing Date, all or any portion of the Purchased Assets is (i) taken by eminent domain or is the subject of a pending or (to the Knowledge of Sellers) contemplated taking which has not been consummated, or (ii) damaged or destroyed by fire or other casualty, Sellers shall notify Buyer promptly in writing of such fact, and (x) in the case of a condemnation, Sellers shall assign or pay, as the case may be, any proceeds thereof to Buyer at the Closing and (y) in the case of a casualty, Sellers shall either restore the damage or assign the insurance proceeds therefor (and pay the amount of any deductible and/or self-insured amount in respect of such casualty) to Buyer at the Closing. Notwithstanding the above, if such casualty or loss results in a Material Adverse Effect, Buyer and Sellers shall negotiate to settle the loss resulting from such taking (and such negotiation shall include, without limitation, the negotiation of a fair and equitable adjustment to the Purchase Price). If no such settlement is reached within sixty (60) days after Sellers have notified Buyer of such casualty or loss, then Buyer or Sellers may terminate this Agreement pursuant to Section 9.1(i). In the event of damage or destruction which Sellers elect to restore, Sellers will have the right to postpone the Closing for up to four (4) months. Buyer will have the right to inspect and observe, or have its representatives inspect or observe, all repairs necessitated by any such damage or destruction. 6.12 Additional Covenants of Buyer. Notwithstanding any other provision hereof, Buyer covenants and agrees that, after the Closing Date, Buyer will not make any modifications to the Purchased Assets or take any action which would result in a loss of the exclusion of interest on the pollution control bonds issued on behalf of Penelec or NYSEG in connection with the Purchased Assets from gross income for federal income purposes under Section 103 of the Code. Buyer further covenants and agrees that, in the event that Buyer transfers any of the Purchased Assets, Buyer shall obtain from its transferee a covenant and agreement that is analogous to Buyer's covenant and agreement pursuant to the immediately preceding sentence, as well as a covenant and agreement that is analogous to that of this sentence. This covenant shall survive Closing and shall continue in effect so long as the pollution control bonds remain outstanding. 51 ARTICLE VII CONDITIONS 7.1. Conditions to Obligations of Buyer. The obligation of Buyer to effect the purchase of the Purchased Assets and the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver by Buyer) of the following conditions: (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated. (b) No preliminary or permanent injunction or other order or decree by any federal or state court or Governmental Authority which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority which prohibits the consummation of the sale of the Purchased Assets; (c) Buyer shall have received all of Buyer's Required Regulatory Approvals, in form and substance reasonably satisfactory (including no material adverse conditions) to it; (d) Sellers shall have performed and complied in all material respects with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Sellers on or prior to the Closing Date; (e) The representations and warranties of Sellers set forth in this Agreement shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date; (f) Buyer shall have received certificates from an authorized officer of each Seller, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Section 7.1(d) and (e) have been satisfied by such Seller; (g) Buyer shall have received an opinion from each Seller's counsel reasonably acceptable to Buyer, dated the Closing Date and reasonably satisfactory in form and substance to Buyer and its counsel, substantially to the effect that: (i) Such Seller is a corporation duly incorporated, validly existing and in good standing under the laws its state of incorporation and Seller has the corporate power and authority to own, lease and operate its 52 material assets and properties and to carry on its business as is now conducted, and to execute and deliver the Agreement and each Ancillary Agreement and to consummate the transactions contemplated by it thereby; and the execution and delivery of the Agreement by such Seller and the consummation of the sale of the Purchased Assets contemplated thereby have been duly and validly authorized by all necessary corporate action required on the part of such Seller; (ii) The Agreement and each Ancillary Agreement has been duly and validly executed and delivered by such Seller and constitutes a legal, valid and binding agreement of such Seller, enforceable in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity); (iii) The execution, delivery and performance of the Agreement and each Ancillary Agreement by such Seller does not (A) conflict with the Certificate of Incorporation or Bylaws of such Seller or (B) to the knowledge of such counsel, constitute a violation of or default under those agreements or instruments set forth on a Schedule attached to the opinion and which have been identified to such counsel as all the agreements and instruments which are material to the business or financial condition of such Seller; (iv) The Bill of Sale, the deeds, the Assignment and Assumption Agreement and other transfer instruments described in Section 3.6 are in proper form to transfer to Buyer such title as was held by such Seller to the Purchased Assets; (v) No consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery of this Agreement by such Seller or the consummation by such Seller of the transactions contemplated hereby, other than (i) such consents, approvals, filings or notices set forth in Schedule 4.3(b) or which, if not obtained or made, will not prevent such Seller from performing its material obligations hereunder and (ii) such consents, approvals, filings or notices which become applicable to Sellers or the Purchased Assets as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged. 53 In rendering the foregoing opinion, each Seller's counsel may rely on opinions of local law reasonably acceptable to Buyer. (h) Sellers shall have delivered, or caused to be delivered, to Buyer at the Closing, Sellers' closing deliveries described in Section 3.6. (i) Buyer shall have received from a title insurance company ALTA title owner's insurance policies on the Real Property insuring title as described in Section 4.5, subject only to Permitted Encumbrances reasonably acceptable to Buyer and standard printed exceptions. A Permitted Encumbrance which is not removed prior to Closing shall be deemed reasonably acceptable to Buyer as aforesaid unless such Permitted Encumbrance would have a Material Adverse Effect. Buyer shall provide Sellers with a copy of a preliminary title report and survey for the Real Property as soon as it is available. (j) Since the date of this Agreement, no Material Adverse Effect shall have occurred and be continuing. 7.2 Conditions to Obligations of Sellers. The obligation of Sellers to effect the sale of the Purchased Assets and the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver by Sellers) of the following conditions: (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated; (b) No preliminary or permanent injunction or other order or decree by any federal or state court which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority in the United States which prohibits the consummation of the sale of the Purchased Assets; (c) NGE and NYSEG shall have received all of Sellers' Required Regulatory Approvals applicable to NGE or NYSEG, in form and substance reasonably satisfactory (including no material adverse conditions) to it; (d) Penelec shall have received all of Sellers' Required Regulatory Approvals applicable to Penelec, in form and substance reasonably satisfactory (including no material adverse conditions) to it; (e) All consents and approvals for the consummation of the sale of the Purchased Assets contemplated hereby required under the terms of any note, bond, mortgage, indenture, material agreement or other instrument or 54 obligation to which any Seller is party or by which any Seller, or any of the Purchased Assets, may be bound, shall have been obtained, other than those which if not obtained, would not, individually and in the aggregate, create a Material Adverse Effect; (f) Buyer shall have performed and complied with in all material respects the covenants and agreements contained in this Agreement which are required to be performed and complied with by Buyer on or prior to the Closing Date; (g) The representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date; (h) Sellers shall have received a certificate from an authorized officer of Buyer, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Sections 7.2(f) and (g) have been satisfied by Buyer; (i) Effective upon Closing, Buyer shall have assumed, as set forth in Section 6.10, all of the applicable obligations under the IBEW Collective Bargaining Agreement as they relate to Transferred Union Employees; (j) Sellers shall have received an opinion from Buyer's counsel reasonably acceptable to Sellers, dated the Closing Date and satisfactory in form and substance to Sellers and their counsel, substantially to the effect that: (i) Each Buyer Entity is a California corporation duly organized, validly existing and in good standing under the laws of the state of its organization and is qualified to do business in the Commonwealth of Pennsylvania and has the full corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as is now conducted, and to execute and deliver the Agreement and the Ancillary Agreements by Buyer and the Guaranty by Buyer Parent and to consummate the transactions contemplated thereby; and the execution and delivery of the Agreement and the Ancillary Agreements by Buyer and the Guaranty by Buyer Parent, and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action required on the part of Buyer and Buyer Parent; (ii) The Agreement, the Ancillary Agreements and the Guaranty have been duly and validly executed and delivered by Buyer and Buyer Parent, as applicable, and constitute legal, valid and binding agreements of Buyer and Buyer Parent, as applicable, enforceable against Buyer and Buyer Parent, as applicable, in accordance with their terms, except that such enforceability may be limited by applicable 55 bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting or relating to enforcement of creditor's rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity); (iii) The execution, delivery and performance of the Agreement and the Ancillary Agreements by Buyer and the Guaranty by Buyer Parent does not (A) conflict with the Certificate of Incorporation or Bylaws (or other organizational documents), as currently in effect, of Buyer and Buyer Parent or (B) to the knowledge of such counsel, constitute a violation of or default under those agreements or instruments set forth on a Schedule attached to the opinion and which have been identified to such counsel as all the agreements and instruments which are material to the business or financial condition of Buyer or Buyer Parent; (iv) The Assignment and Assumption Agreement and other transfer instruments described in Section 3.7 are in proper form for Buyer to assume the Assumed Liabilities; and (v) No consent or approval of, filing with, or notice to, any Governmental Authority is necessary for Buyer's execution and delivery of the Agreement and the Ancillary Agreements, Buyer Parent's execution and delivery of the Guaranty, or the consummation by Buyer and Buyer Parent of the transactions contemplated hereby and thereby, other than such consents, approvals, filings or notices, which, if not obtained or made, will not prevent Buyer or Buyer Parent from performing its respective obligations under the Agreement, the Ancillary Agreements and Guaranty. (k) Buyer shall have delivered, or caused to be delivered, to Sellers at the Closing, Buyer's closing deliveries described in Section 3.7. ARTICLE VIII INDEMNIFICATION 8.1 Indemnification. (a) Buyer shall indemnify, defend and hold harmless Sellers, their officers, directors, employees, shareholders, Affiliates and agents (each, a "Sellers' Indemnitee") from and against any and all claims, demands, suits, losses, liabilities, damages, obligations, payments, costs and expenses (including, without limitation, the costs and expenses of any and all actions, suits, proceedings, assessments, judgments, settlements and compromises relating thereto and reasonable attorneys' fees and reasonable disbursements in connection therewith) (each, an 56 "Indemnifiable Loss"), asserted against or suffered by any Sellers' Indemnitee relating to, resulting from or arising out of (i) any breach by Buyer of any covenant or agreement of Buyer contained in this Agreement or the representations and warranties contained in Sections 5.1, 5.2 and 5.3, (ii) the Assumed Liabilities, (iii) any loss or damages resulting from or arising out of any Inspection, or (iv) any Third Party Claims against a Sellers' Indemnitee arising out of or in connection with Buyer's ownership or operation of the Plant and other Purchased Assets on or after the Closing Date. (b) Sellers shall jointly and severally, except as otherwise specified in Section 10.1, defend and hold harmless Buyer, its officers, directors, employees, shareholders, Affiliates and agents (each, a "Buyer Indemnitee") from and against any and all Indemnifiable Losses asserted against or suffered by any Buyer Indemnitee relating to, resulting from or arising out of (i) any breach by Sellers of any covenant or agreement of Sellers contained in this Agreement or the representations and warranties contained in Sections 4.1, 4.2 and 4.3, (ii) the Excluded Liabilities, (iii) noncompliance by Sellers with any bulk sales or transfer laws as provided in Section 10.12, or (iv) any Third Party Claims against a Buyer Indemnitee arising out of or in connection with Sellers' ownership or operation of the Excluded Assets on or after the Closing Date. (c) Buyer, for itself and on behalf of its Representatives and Affiliates, does hereby release, hold harmless and forever discharge Sellers, their Representatives and Affiliates, from any and all Indemnifiable Losses of any kind or character, whether known or unknown, hidden or concealed, resulting from or arising out of any Environmental Condition or violation of Environmental Law relating to the Purchased Assets other than any liabilities or obligations described in Sections 2.4(g), (h) and (i). Buyer hereby waives any and all rights and benefits with respect to such Indemnifiable Losses that it now has, or in the future may have conferred upon it by virtue of any statute or common law principle which provides that a general release does not extend to claims which a party does not know or suspect to exist in its favor at the time of executing the release, if knowledge of such claims would have materially affected such party's settlement with the obligor. In this connection, Buyer hereby acknowledges that it is aware that factual matters now unknown to it may have given or may hereafter give rise to Indemnifiable Losses that are presently unknown, unanticipated and unsuspected, and it further agrees that this release has been negotiated and agreed upon in light of that awareness and they nevertheless hereby intend to release Sellers and their Representatives and Affiliates from the Indemnifiable Losses described in the first sentence of this paragraph. (d) Notwithstanding anything to the contrary contained herein: 57 (i) Any Person entitled to receive indemnification under this Agreement (an "Indemnitee") shall use Commercially Reasonable Efforts to mitigate all losses, damages and the like relating to a claim under these indemnification provisions, including availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity. The Indemnitee's Commercially Reasonable Efforts shall include the reasonable expenditure of money to mitigate or otherwise reduce or eliminate any loss or expenses for which indemnification would otherwise be due, and the Indemnitor shall reimburse the Indemnitee for the Indemnitee's reasonable expenditures in undertaking the mitigation. (ii) Any Indemnifiable Loss shall be net of (i) the dollar amount of any insurance or other proceeds actually receivable by the Indemnitee or any of its Affiliates with respect to the Indemnifiable Loss, and (ii) income tax benefits to the Indemnitee, to the extent realized by the Indemnitee. Any party seeking indemnity hereunder shall use Commercially Reasonable Efforts to seek coverage (including both costs of defense and indemnity) under applicable insurance policies with respect to any such Indemnifiable Loss. (e) The expiration or termination of any covenant or agreement shall not affect the Parties' obligations under this Section 8.1 if the Indemnitee provided the Person required to provide indemnification under this Agreement (the "Indemnifying Party") with proper notice of the claim or event for which indemnification is sought prior to such expiration, termination or extinguishment. (f) Except to the extent otherwise provided in Article IX, the rights and remedies of Sellers and Buyer under this Article VIII are exclusive and in lieu of any and all other rights and remedies which Sellers and Buyer may have under this Agreement or otherwise for monetary relief, with respect to (i) any breach of or failure to perform any covenant, agreement, or representation or warranty set forth in this Agreement, after the occurrence of the Closing, or (ii) the Assumed Liabilities or the Excluded Liabilities, as the case may be. The indemnification obligations of the Parties set forth in this Article VIII apply only to matters arising out of this Agreement, excluding the Ancillary Agreements. Any Indemnifiable Loss arising under or pursuant to an Ancillary Agreement shall be governed by the indemnification obligations, if any, contained in the Ancillary Agreement under which the Indemnifiable Loss arises. (g) Notwithstanding anything to the contrary herein, no party (including an Indemnitee) shall be entitled to recover from any other party (including an Indemnifying Party) for any liabilities, damages, obligations, payments losses, costs, or expenses under this Agreement any amount in excess of 58 the actual compensatory damages, court costs and reasonable attorney's and other advisor fees suffered by such party. Buyer and Sellers waive any right to recover punitive, incidental, special, exemplary and consequential damages arising in connection with or with respect to this Agreement. The provisions of this Section 8.1(g) shall not apply to indemnification for a Third Party Claim. 8.2 Defense of Claims. (a) If any Indemnitee receives notice of the assertion of any claim or of the commencement of any claim, action, or proceeding made or brought by any Person who is not a party to this Agreement or any Affiliate of a Party to this Agreement (a "Third Party Claim") with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying Party reasonably prompt written notice thereof, but in any event such notice shall not be given later than ten (10) calendar days after the Indemnitee's receipt of notice of such Third Party Claim. Such notice shall describe the nature of the Third Party Claim in reasonable detail and shall indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be sustained by the Indemnitee. The Indemnifying Party will have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third Party Claim at such Indemnifying Party's expense and by such Indemnifying Party's own counsel, provided that the counsel for the Indemnifying Party who shall conduct the defense of such Third Party Claim shall be reasonably satisfactory to the Indemnitee. The Indemnitee shall cooperate in good faith in such defense at such Indemnitee's own expense. If an Indemnifying Party elects not to assume the defense of any Third Party Claim, the Indemnitee may compromise or settle such Third Party Claim over the objection of the Indemnifying Party, which settlement or compromise shall conclusively establish the Indemnifying Party's liability pursuant to this Agreement. (b) (i) If, within ten (10) calendar days after an Indemnitee provides written notice to the Indemnifying Party of any Third Party Claims, the Indemnitee receives written notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third Party Claim as provided in Section 8.2(a), the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided, however, that if the Indemnifying Party shall fail to take reasonable steps necessary to defend diligently such Third Party Claim within twenty (20) calendar days after receiving notice from the Indemnitee that the Indemnitee believes the Indemnifying Party has failed to take such steps, the Indemnitee may assume its own defense and the Indemnifying Party shall be liable for all reasonable expenses thereof. (ii) Without the prior written consent of the Indemnitee, the Indemnifying Party shall not enter 59 into any settlement of any Third Party Claim which would lead to liability or create any financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to the Indemnitee to that effect. If the Indemnitee fails to consent to such firm offer within ten (10) calendar days after its receipt of such notice, the Indemnifying Party shall be relieved of its obligations to defend such Third Party Claim and the Indemnitee may contest or defend such Third Party Claim. In such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will be the amount of such settlement offer plus reasonable costs and expenses paid or incurred by Indemnitee up to the date of said notice. (c) Any claim by an Indemnitee on account of an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct Claim") shall be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable, but in any event such notice shall not be given later than ten (10) calendar days after the Indemnitee becomes aware of such Direct Claim, and the Indemnifying Party shall have a period of thirty (30) calendar days within which to respond to such Direct Claim. If the Indemnifying Party does not respond within such thirty (30) calendar day period, the Indemnifying Party shall be deemed to have accepted such claim. If the Indemnifying Party rejects such claim, the Indemnitee will be free to seek enforcement of its right to indemnification under this Agreement. (d) If the amount of any Indemnifiable Loss, at any time subsequent to the making of an indemnity payment in respect thereof, is reduced by recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by, from or against any other entity, the amount of such reduction, less any costs, expenses or premiums incurred in connection therewith (together with interest thereon from the date of payment thereof at the publicly announced prime rate then in effect of Chase Manhattan Bank) shall promptly be repaid by the Indemnitee to the Indemnifying Party. (e) A failure to give timely notice as provided in this Section 8.2 shall not affect the rights or obligations of any Party hereunder except if, and only to the extent that, as a result of such failure, the Party which was entitled to receive such notice was actually prejudiced as a result of such failure. 60 ARTICLE IX TERMINATION 9.1 Termination. (a) This Agreement may be terminated at any time prior to the Closing Date by mutual written consent of Sellers and Buyer. (b) This Agreement may be terminated by Sellers or Buyer if (i) any Federal or state court of competent jurisdiction 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 nonappeallable or (ii) any statute, rule, order or regulation shall have been enacted or issued by any Governmental Authority which, directly or indirectly, prohibits the consummation of the Closing; or (iii) the Closing contemplated hereby shall have not occurred on or before the day which is 12 months from the date of this Agreement (the "Termination Date"); provided that the right to terminate this Agreement under this Section 9.1(b) (iii) shall not be available to any Party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; and provided, further, that if on the day which is 12 months from the date of this Agreement the conditions to the Closing set forth in Section 7.1(b) or 7.2(c) or (d) shall not have been fulfilled but all other conditions to the Closing shall be fulfilled or shall be capable of being fulfilled, then the Termination Date shall be the day which is 18 months from the date of this Agreement. (c) Except as otherwise provided in this Agreement, this Agreement may be terminated by Buyer if any of Buyer Required Regulatory Approvals, the receipt of which is a condition to the obligation of Buyer to consummate the Closing as set forth in Section 7.1(b), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted but are not in form and substance reasonably satisfactory to Buyer. (d) This Agreement may be terminated by Sellers, if any of the Sellers' Required Regulatory Approvals applicable to Penelec, the receipt of which is a condition to the obligation of Penelec to consummate the Closing as set forth in Section 7.2(d), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted but are not in form and substance reasonably satisfactory to Penelec. (e) This Agreement may be terminated by Sellers, if any of Sellers' Required Regulatory Approvals applicable to NGE or NYSEG, the receipt of which is a condition to the obligations of NGE or NYSEG to consummate 61 the Closing as set forth in Section 7.2(c) have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied), or shall have been granted but are not in form and substance reasonably satisfactory to NGE and NYSEG. (f) This Agreement may be terminated by Buyer if there has been a violation or breach by Sellers of any covenant, representation or warranty contained in this Agreement which has resulted in a Material Adverse Effect and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Sellers of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Buyer. (g) This Agreement may be terminated by Sellers, if there has been a material violation or breach by Buyer of any covenant, representation or warranty contained in this Agreement and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Buyer of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Sellers. (h) This Agreement may be terminated by Sellers if there shall have occurred any change that is materially adverse to the business, operations or conditions (financial or otherwise) of Buyer. (i) This Agreement may be terminated by either of Sellers of NGE or NYSEG to consummate or Buyer in accordance with the provisions of Section 6.11(b). 9.2 Procedure and Effect of No-Default Termination. In the event of termination of this Agreement by either or both of the Parties pursuant to Section 9, written notice thereof shall forthwith be given by the terminating Party to the other Party, whereupon, if this Agreement is terminated pursuant to any of Sections 9.1(a) through (e) and 9.1(h) and (i), the liabilities of the Parties hereunder will terminate, except as otherwise expressly provided in this Agreement, and thereafter neither Party shall have any recourse against the other by reason of this Agreement. ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Several Liability of each Seller. Notwithstanding anything to the contrary contained herein, but subject to Section 10.4, it is expressly understood and agreed that (i) the obligations and covenants of the Sellers in Section 3.6 and the representations and warranties of Sellers in Sections 4.1, 4.2, 4.3, 4.5, 4.15 and 6.7 (and any indemnity under Article VIII 62 relating thereto) are made severally as to itself in the case of Penelec, and jointly and severally in the case of NYSEG and NGE as to themselves; and (ii) all other obligations and covenants of the Sellers and all other representations and warranties of the Sellers hereunder (except for Section 4.20 which is made solely by NYSEG) are made severally by Penelec on the one hand, and jointly and severally by NYSEG and NGE on the other, such that Penelec on the one hand, and NYSEG and NGE on the other, shall in no event be liable to Buyer hereunder for more than 50% of any Indemnifiable Loss incurred by Buyer under the indemnity agreement in Article VIII or otherwise under this Agreement for a breach of such representation, warranty, obligation or covenant. 10.2 Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified or supplemented only by written agreement of Sellers and Buyer. 10.3 Waiver of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the Parties to comply with any obligation, covenant, agreement or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver of such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent failure to comply therewith 10.4 No Survival. Each and every representation, warranty and covenant contained in this Agreement (other than the covenants contained in Sections 3.3(c), 3.4, 3.5(b), 6.2, 6.4, 6.5, 6.6(f), 6.7, 6.8, 6.10, 6.12, 9.4, and in Articles VIII and X, which provisions shall survive the delivery of the deed(s) and the Closing in accordance with their terms and the representations and warranties set forth in Sections 4.1, 4.2, 4.3, 5.1, 5.2 and 5.3, and claims arising under Sections 6.1 and 6.6(e), which representations and warranties and such claims shall survive the Closing for eighteen (18) months from the Closing Date) shall expire with, and be terminated and extinguished by the consummation of the sale of the Purchased Assets and shall merge into the deed(s) pursuant hereto and the transfer of the Assumed Liabilities pursuant to this Agreement and such representations, warranties and covenants shall not survive the Closing Date; and none of Sellers, Buyer or any officer, director, trustee or Affiliate of any of them shall be under any liability whatsoever with respect to any such representation, warranty or covenant. 10.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission, or mailed by overnight courier or registered or certified mail (return receipt requested), postage prepaid, to the recipient Party at its address (or at such other address or facsimile number for a Party as shall be specified by like notice; provided however, that 63 notices of a change of address shall be effective only upon receipt thereof): (a) If to Sellers, to: (Penelec) c/o GPU Service, Inc. 300 Madison Avenue Morristown, New Jersey 07962 Attention: David Brauer Vice President (NGE or NYSEG) 4500 Vestal Parkway East Binghamton, New York 13902 Attention: Daniel W. Farley Vice President and Secretary with a copy to: (if to Penelec) Berlack, Israels & Liberman LLP 120 West 45th Street New York, New York 10036 Attention: Douglas E. Davidson, Esq. (if to NGE or NYSEG) Huber Lawrence & Abell 605 Third Avenue New York, New York 10169 Attention: Nicholas A. Giannasca, Esq. Taras G. Borkowsky, Esq. (b) if to Buyer, to: Mission Energy Westside, Inc. 18101 Von Karman Avenue, Suite 1700 Irvine, California 92612 Attention: James V. Iaco President with a copy to: Morgan, Lewis & Bockius LLP 300 South Grand Avenue Los Angeles, California 90071 Attention: Richard A. Shortz, Esq. 64 10.6 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any Party hereto, including by operation of law, without the prior written consent of each other Party, nor is this Agreement intended to confer upon any other Person except the Parties hereto any rights, interests, obligations or remedies hereunder. No provision of this Agreement shall create any third party beneficiary rights in any employee or former employee of Sellers (including any beneficiary or dependent thereof) in respect of continued employment or resumed employment, and no provision of this Agreement shall create any rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. Notwithstanding the foregoing, (i) Buyer may assign all of its rights and obligations hereunder to any majority owned Subsidiary (direct or indirect) and upon Sellers' receipt of notice from Buyer of any such assignment, such assignee will be deemed to have assumed, ratified, agreed to be bound by and perform all such obligations, and all references herein to "Buyer" shall thereafter be deemed to be references to such assignee, in each case without the necessity for further act or evidence by the Parties hereto or such assignee, and (ii) Buyer or its permitted assignee may assign, transfer, pledge or otherwise dispose of (absolutely or as security) its rights and interests hereunder to a trustee, lending institutions or other party for the purposes of leasing, financing or refinancing the Purchased Assets, including such an assignment, transfer or other disposition upon or pursuant to the exercise of remedies with respect to such leasing, financing or refinancing, or by way of assignments, transfers, pledges, or other dispositions in lieu thereof; provided, however, that no such assignment in clause (i) or (ii) shall relieve or discharge Buyer from any of its obligations hereunder. The Sellers agree, at Buyer's expense, to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights and interests hereunder so long as the Sellers' rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. 10.7 Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York (without giving effect to conflict of law principles) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. THE PARTIES HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE AND FEDERAL COURTS IN AND FOR NEW YORK COUNTY, NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF 65 AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 10.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.9 Interpretation. The articles, section and schedule headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. 10.10 Schedules and Exhibits. Except as otherwise provided in this Agreement, all Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. 10.11 Entire Agreement. This Agreement, the Confidentiality Agreement, and the Ancillary Agreements including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein, embody the entire agreement and understanding of the Parties hereto in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein or therein. It is expressly acknowledged and agreed that there are no restrictions, promises, representations, warranties, covenants or undertakings contained in any material made available to Buyer pursuant to the terms of the Confidentiality Agreement (including the Offering Memorandum dated April 1998, previously delivered to Buyer by Sellers and Goldman, Sachs & Co.). This Agreement supersedes all prior agreements and understandings between the Parties other than the Confidentiality Agreement with respect to such transactions. 10.12 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything in this Agreement to the contrary, Sellers will not comply with the provision of the bulk sales laws of any jurisdiction in connection with the transactions contemplated by this Agreement. Buyer hereby waives compliance by Sellers with the provisions of the bulk sales laws of all applicable jurisdictions. 10.13 U.S. Dollars. Unless otherwise stated, all dollar amounts set forth herein are United States (U.S.) dollars. 66 10.14 Zoning Classification. Buyer acknowledges that the Real Property is not zoned. 10.15 Sewage Facilities. Buyer acknowledges that there is no community (municipal) sewage system available to serve the Real Property. Accordingly, any additional sewage disposal planned by Buyer will require an individual (on-site) sewage system and all necessary permits as required by the Pennsylvania Sewage Facilities Act (the "Facilities Act"). Buyer recognizes that certain of the existing individual sewage systems on the Real Property may have been installed pursuant to exemptions from the requirements of the Facilities Act or prior to the enactment of the Facilities Act and that soils and site testing may not have been performed in connection therewith. The owner of the property or properties served by such a system, at the time of any malfunction, may be held liable for any contamination, pollution, public health hazard or nuisance which occurs as the result of such malfunction. 67 IN WITNESS WHEREOF, Sellers and Buyer have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. PENNSYLVANIA ELECTRIC COMPANY NGE GENERATION, INC. By: ___________________________ By: _____________________ Name: John G. Graham Name: Kenneth M. Jasinski Title: Vice President and Title: Executive Vice President Chief Financial Officer MISSION ENERGY WESTSIDE, INC. NEW YORK STATE ELECTRIC & GAS CORPORATION By:_____________________________ By:______________________ Name: James V. Iaco Name: Kenneth M. Jasinski Title: President Title: Executive Vice President 68 LIST OF EXHIBITS AND SCHEDULES EXHIBITS Exhibit A Form of Assignment and Assumption Agreement Exhibit B Form of Bill of Sale Exhibit C Form of Easement and Attachment Agreement Exhibit D Form of FIRPTA Affidavit Exhibit E Form of Interconnection Agreement Exhibit F Form of Special Warranty Deed Exhibit G Form of Transition Power Purchase Agreement Exhibit H Guaranty SCHEDULES 1.1(69) Permitted Encumbrances 1.1(97) Transferable Permits (both environmental and non- environmental) 2.1 Schedule of Purchased Assets 2.1(c) Schedule of Tangible Personal Property to be Conveyed to Buyer 2.1(h) Schedule of Emission Reduction Credits 2.1(l) Intellectual Property 2.2(a) Description of Transmission and other Assets not included in Conveyance 3.3(a)(i) Schedule of Inventory 4.3(a) Third Party Consents 4.3(b) Sellers' Required Regulatory Approvals 4.4 Insurance Exceptions 4.5 Exceptions to Title 4.6 Real Property Leases 4.7 Schedule of Environmental Matters 4.8 Schedule of Noncompliance with Employment Laws 4.9(a) Schedule of Benefit Plans 4.9(b) Benefit Plan Exceptions 4.l0 Description of Real Property 4.11 Notices of Condemnation 4.12(a) List of Contracts 4.12(b) List of Non-assignable Contracts 4.12(c) List of Defaults under the Contracts 4.13 List of Litigation 4.14(a) List of Permit Violations 4.14(b) List of material Permits (other than Transferable Permits) 4.15 Tax Matters 4.16 Intellectual Property Exceptions 5.3(a) Third Party Consents 5.3(b) Buyer's Required Regulatory Approvals 6.1 Schedule of Permitted Activities prior to Closing 6.10(b) Schedule of Non-Union Employees 6.10(d) IBEW Collective Bargaining Agreement 6.10(h) Schedule of Severance Benefits 69 EX-10 17 EXHIBIT 10-LL - PURCHASE & SALE AGREEMENT Exhibit 10-LL PRIVILEGED AND CONFIDENTIAL [JCP&L P&S] EXECUTION COPY PURCHASE AND SALE AGREEMENT BY AND AMONG JERSEY CENTRAL POWER & LIGHT COMPANY, as SELLER, and SITHE ENERGIES, INC., as BUYER Dated as of October 29, 1998 TABLE OF CONTENTS Page No. ARTICLE I 2 1.1 Definitions 2 1.2 Certain Interpretive Matters 15 ARTICLE II 15 2.1 Transfer of Assets 15 2.2 Excluded Assets 17 2.3 Assumed Liabilities 18 2.4 Excluded Liabilities 20 2.5 Control of Litigation 22 ARTICLE III 23 3.1 Closing 23 3.2 Payment of Purchase Price 23 3.3 Adjustment to Purchase Price 23 3.4 Allocation of Purchase Price 25 3.5 Prorations 25 3.6 Deliveries by Seller 26 3.7 Deliveries by Buyer 28 3.8 Ancillary Agreements 29 3.9 Easement Agreements 29 ARTICLE IV 29 4.1 Incorporation; Qualification 29 4.2 Authority Relative to this Agreement 30 4.3 Consents and Approvals; No Violation 30 4.4 Insurance 31 4.5 Title and Related Matters 31 4.6 Real Property Leases 31 4.7 Environmental Matters 32 4.8 Labor Matters 33 4.9 Benefit Plans: ERISA 33 4.10 Real Property 34 4.11 Condemnation 34 4.12 Contracts and Leases 34 4.13 Legal Proceedings, etc 35 4.14 Permits 35 4.15 Taxes 35 4.16 Intellectual Property 36 4.17 Capital Expenditures 36 4.18 Compliance With Laws 37 4.19 PUHCA 37 4.20 Disclaimers Regarding Purchased Assets 37 ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER 38 5.1 Organization 38 5.2 Authority Relative to this Agreement 38 5.3 Consents and Approvals; No Violation 38 5.4 Availability of Funds 39 5.5 Legal Proceedings 39 5.6 No Knowledge of Seller's Breach 39 5.7 Qualified Buyer 40 5.8 Inspections 40 5.9 WARN Act 40 ARTICLE VI 40 6.1 Conduct of Business Relating to the Purchased Assets 40 6.2 Access to Information 43 6.3 Public Statements 46 6.4 Expenses 46 6.5 Further Assurances 46 6.6 Consents and Approvals 48 6.7 Fees and Commissions 50 6.8 Tax Matters 50 6.9 Advice of Changes 52 6.10 Employees 53 6.11 Risk of Loss 58 6.12 Additional Covenants of Buyer 58 6.13 Additional Forked River Covenants 59 ARTICLE VII 59 7.1 Conditions to Obligations of Buyer 59 7.2 Conditions to Obligations of Seller 63 7.3 Zoning Condition Adjustments 65 ARTICLE VIII 66 8.1 Indemnification 66 8.2 Defense of Claims 69 ARTICLE IX 71 9.1 Termination 71 9.2 Procedure and Effect of No-Default Terminations 72 ARTICLE X 72 10.1 Amendment and Modification 72 10.2 Waiver of Compliance; Consents 72 10.3 No Survival 73 10.4 Notices 73 10.5 Assignment 74 10.6 Governing Law 75 10.7 Counterparts 75 10.8 Interpretation 75 10.9 Schedules and Exhibits 75 10.10 Entire Agreement 76 10.11 Bulk Sales Laws 76 10.12 U.S. Dollars 76 10.13 Zoning Classification 76 10.14 Sewage Facilities 76 PURCHASE AND SALE AGREEMENT PURCHASE AND SALE AGREEMENT, dated as of October 29, 1998, by and between Jersey Central Power & Light Company, a New Jersey corporation ("JCP&L" or "Seller"), and Sithe Energies, Inc., a Delaware corporation ("Buyer"). Seller and Buyer are referred to individually as a "Party," and collectively as the "Parties." W I T N E S S E T H WHEREAS, Buyer desires to purchase, and Seller desires to sell, its interests in the Purchased Assets (as defined herein) upon the terms and conditions hereinafter set forth in this Agreement; and WHEREAS, simultaneous herewith Buyer is entering into substantially similar Purchase and Sale Agreements with Seller's affiliates providing for Buyer's purchase of the remainder of the Aggregate Purchased Assets (as hereinafter defined). NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms have the meanings specified in this Section 1.1. (1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. (2) "Agreement" means this Purchase and Sale Agreement together with the Schedules and Exhibits hereto, as the same may be from time to time amended. (3) "Aggregate Purchased Assets" means, collectively, the Purchased Assets (as defined herein) and the Purchased Assets (as defined in each Related Purchase Agreement). (4) "Ancillary Agreements" means the Interconnection Agreements, the Easement Agreements, the Merrill Creek Sublease Agreement and the Transition Power Purchase Agreement, as the same may be from time to time amended. 2 (5) "Assignment and Assumption Agreement" means the Assignment and Assumption Agreement between Seller and Buyer substantially in the form of Exhibit A hereto, by which Seller shall, subject to the terms and conditions hereof, assign Seller's Agreements, the Real Property Leases, certain intangible assets and other Purchased Assets to Buyer and whereby Buyer shall assume the Assumed Liabilities. (6) "Assumed Liabilities" has the meaning set forth in Section 2.3. (7) "Benefit Plans" has the meaning set forth in Section 4.9. (8) "Bill of Sale" means the Bill of Sale, substantially in the form of Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible Personal Property included in the Purchased Assets transferred to Buyer at the Closing. (9) "Business Day" shall mean any day other than Saturday, Sunday and any day on which banking institutions in the State of New Jersey or the Commonwealth of Pennsylvania are authorized by law or other governmental action to close. (10) "Buyer Benefit Plans" has the meaning set forth in Section 6.10(f). (11) "Buyer Indemnitee" has the meaning set forth in Section 8.1(b). (12) "Buyer Material Adverse Effect" has the meaning set forth in Section 5.3(a). (13) "Buyer Required Regulatory Approvals" has the meaning set forth in Section 5.3(b). (14) "Capital Expenditures" has the meaning set forth in Section 3.3(a). (15) "CERCLA" means the Federal Comprehensive Environmental Response, Compensation, and Liability Act, as amended. (16) "Closing" has the meaning set forth in Section 3.1. (17) "Closing Adjustment" has the meaning set forth in Section 3.3(b). (18) "Closing Date" has the meaning set forth in Section 3.1. 3 (19) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. (20) "Code" means the Internal Revenue Code of 1986, as amended. (21) "Collective Bargaining Agreement" has the meaning set forth in Section 6.10(d). (22) "Commercially Reasonable Efforts" means efforts which are reasonably within the contemplation of the Parties at the time of executing this Agreement and which do not require the performing Party to expend any funds other than expenditures which are customary and reasonable in transactions of the kind and nature contemplated by this Agreement in order for the performing Party to satisfy its obligations hereunder. (23) "Computer Systems" has the meaning set forth in Section 4.20. (24) "Confidentiality Agreement" means the Confidentiality Agreement, dated March 2, 1998, by and between Seller and Buyer. (25) "Direct Claim" has the meaning set forth in Section 8.2(c). (26) "Easements" means, with respect to the Purchased Assets, the easements and access rights to be granted pursuant to the Easement Agreements, including, without limitation, easements authorizing access, use, maintenance, construction, repair, replacement and other activities, as further described in the Easement Agreements. (27) "Easement Agreements" means the Easement and License Agreements between Buyer and Seller, in the form of Exhibit C hereto, whereby Buyer will provide Seller with certain Easements with respect to the Real Property transferred to Buyer and whereby Seller will provide Buyer with certain Easements with respect to certain property owned by Seller. (28) "Emission Allowance" means all present and future authorizations to emit specified units of pollutants or Hazardous Substances, which units are established by the Governmental Authority with jurisdiction over the Plants under (i) an air pollution control and emission reduction program designed to mitigate global warming, interstate or intra-state transport of air pollutants; (ii) a program designed to mitigate impairment of surface waters, watersheds, or groundwater; or (iii) any pollution reduction program with a similar purpose. Emission Allowances include allowances, as described above, regardless as 4 to whether the Governmental Authority establishing such Emission Allowances designates such allowances by a name other than "allowances." (29) "Emission Reduction Credits" means credits, in units that are established by the Governmental Authority with jurisdiction over the Plants that have obtained the credits, resulting from reductions in the emissions of air pollutants from an emitting source or facility (including, without limitation, and to the extent allowable under applicable law, reductions from shut-downs or control of emissions beyond that required by applicable law) that: (i) have been identified by the NJDEP as complying with applicable New Jersey law governing the establishment of such credits (including, without limitation, that such emissions reductions are enforceable, permanent, quantifiable and surplus) and listed in the Emissions Reduction Credit Registry maintained by the NJDEP or with respect to which such identification and listing are pending; or (ii) have been certified by any other applicable Governmental Authority as complying with the law and regulations governing the establishment of such credits (including, without limitation, certification that such emissions reductions are enforceable, permanent, quantifiable and surplus). The term includes Emission Reduction Credits that have been approved by the NJDEP and are awaiting USEPA approval. The term also includes certified air emissions reductions, as described above, regardless as to whether the Governmental Authority certifying such reductions designates such certified air emissions reductions by a name other than "emission reduction credits." (30) "Encumbrances" means any mortgages, pledges, liens, security interests, conditional and installment sale agreements, activity and use limitations, conservation easements, deed restrictions, encumbrances and charges of any kind. (31) "Environmental Claim" means any and all pending and/or threatened administrative or judicial actions, suits, orders, claims, liens, notices, notices of violations, investigations, complaints, requests for information, proceedings, or other written communication, whether criminal or civil, pursuant to or relating to any applicable Environmental Law by any person (including, but not limited to, any Governmental Authority, private person and citizens' group) based upon, alleging, asserting, or claiming any actual or potential (a) violation of, or liability under any Environmental Law, (b) violation of any Environmental Permit, or (c) liability for investigatory costs, cleanup costs, removal costs, remedial costs, response costs, natural resource damages, property damage, personal injury, fines, or penalties arising out of, based on, resulting from, or related to the presence, Release, or 5 threatened Release into the environment of any Hazardous Substances at any location related to the Purchased Assets, including, but not limited to, any off-Site location to which Hazardous Substances, or materials containing Hazardous Substances, were sent for handling, storage, treatment, or disposal. (32) "Environmental Condition" means the presence or Release to the environment, whether at the Sites or at an off-Site location, of Hazardous Substances, including any migration of those Hazardous Substances through air, soil or groundwater to or from the Sites or any off-Site location regardless of when such presence or Release occurred or is discovered. (33) "Environmental Laws" means all applicable Federal, state and local, provincial and foreign, civil and criminal laws, regulations, rules, ordinances, codes, decrees, judgments, directives, or judicial or administrative orders relating to pollution or protection of the environment, natural resources or human health and safety, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Substances (including, without limitation, Releases to ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport, disposal or handling of Hazardous Substances. "Environmental Laws" include, without limitation, CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Oil Pollution Act (33 U.S.C. Section 2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), New Jersey Water Pollution Control Act, (N.J.S.A. 58:10-23.11 et seq.), the Spill Compensation and Control Act (N.J.S.A. 13:1E-1 et seq.), the Solid Waste Management Act (N.J.S.A. 58:4A-4.1 et seq.), the Subsurface and Percolating Waters Act (N.J.S.A. 13:1K-6 et seq.), the Industrial Site Recovery Act (N.J.S.A. 13:1k-6 et seq.) and all applicable other state laws analogous to any of the above. (34) "Environmental Permits" has the meaning set forth in Section 4.7(a). (35) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (36) "ERISA Affiliate" has the meaning set forth in Section 2.4(k). 6 (37) "ERISA Affiliate Plans" has the meaning set forth in Section 2.4(k). (38) "Estimated Adjustment" has the meaning set forth in Section 3.3(b). (39) "Estimated Closing Statement" has the meaning set forth in Section 3.3(b). (40) "Excluded Assets" has the meaning set forth in Section 2.2. (41) "Excluded Liabilities" has the meaning set forth in Section 2.4. (42) "Facilities Act" has the meaning set forth in Section 10.14. (43) "FERC" means the Federal Energy Regulatory Commission or any successor agency thereto. (44) "FIRPTA Affidavit" means the Foreign Investment in Real Property Tax Act Certification and Affidavit, substantially in the form of Exhibit D hereto. (45) "Good Utility Practices" mean any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or previously engaged in by Seller in its operation of the Purchased Assets, or any of the practices, methods or acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Good Utility Practices are not intended to be limited to the optimum practices, methods or acts to the exclusion of all others, but rather to be acceptable practices, methods or acts generally accepted in the industry or previously engaged in by Seller in its operation of the Purchased Assets. (46) "Governmental Authority" means any federal, state, local or other governmental, regulatory or administrative agency, commission, department, board, or other governmental subdivision, court, tribunal, arbitrating body or other governmental authority. (47) "GPU" means GPU, Inc., a Pennsylvania corporation and parent company of Seller. (48) "GPUN" means GPU Nuclear, Inc., a New Jersey corporation and a wholly-owned subsidiary of GPU. 7 (49) "GPUS" means GPU Service, Inc., a Pennsylvania corporation and a wholly-owned subsidiary of GPU. (50) "Hazardous Substances" means (a) any petrochemical or petroleum products, coal ash, oil, radioactive materials, radon gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid which may contain levels of polychlorinated biphenyls; (b) 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; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any applicable Environmental Law. (51) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. (52) "Income Tax" means any federal, state, local or foreign Tax (a) based upon, measured by or calculated with respect to net income, profits or receipts (including, without limitation, capital gains Taxes and minimum Taxes) or (b) based upon, measured by or calculated with respect to multiple bases (including, without limitation, corporate franchise taxes) if one or more of the bases on which such Tax may be based, measured by or calculated with respect to, is described in clause (a), in each case together with any interest, penalties, or additions to such Tax. (53) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a). (54) "Indemnifying Party" has the meaning set forth in Section 8.1(e). (55) "Indemnitee" has the meaning set forth in Section 8.1(d). (56) "Independent Accounting Firm" means such independent accounting firm of national reputation as is mutually appointed by Seller and Buyer. (57) "Inspection" means all tests, reviews, examinations, inspections, investigations, verifications, samplings and similar activities conducted by Buyer or its agents or Representatives with respect to the Purchased Assets prior to the Closing. 8 (58) "Intellectual Property" means all patents and patent rights, trademarks and trademark rights, copyrights and copyright rights owned by Seller and necessary for the operation and maintenance of the Purchased Assets, and all pending applications for registrations of patents, trademarks, and copyrights, as set forth as part of Schedule 2.1(l). (59) "Interconnection Agreements" means the Interconnection Agreements, between Seller and Buyer, the form of which is attached as Exhibit E hereto, under which Seller will provide Buyer with interconnection service to Seller's transmission facilities and whereby Buyer will provide Seller with continuing access to certain of the Purchased Assets after the Closing Date. (60) "Inventories" means coal, fuel oil or alternative fuel inventories, limestone, materials, spare parts, consumable supplies and chemical and gas inventories relating to the operation of a Plant located at, or in transit to, such Plant. (61) "Knowledge" means the actual knowledge of the corporate officers or managerial representatives of the specified Person charged with responsibility for the particular function as of the date of the this Agreement, or, with respect to any certificate delivered pursuant to this Agreement, the date of delivery of the certificate. (62) "Material Adverse Effect" means any change in, or effect on the Purchased Assets that is materially adverse to the operations or condition (financial or otherwise) of (i) the Aggregate Purchased Assets, taken as a whole, or (ii) a Specified Plant (as defined below) other than: (a) any change affecting the international, national, regional or local electric industry as a whole and not Seller specifically and exclusively; (b) any change or effect resulting from changes in the international, national, regional or local wholesale or retail markets for electric power; (c) any change or effect resulting from changes in the international, national, regional or local markets for any fuel used in connection with the Aggregate Purchased Assets including such Specified Plant; (d) any change or effect resulting from, changes in the North American, national, regional or local electric transmission systems or operations thereof; (e) any materially adverse change in or effect on the Aggregate Purchased Assets including such Specified Plant which is cured (including by the payment of money) before the Termination Date; (f) any order of any court or Governmental Authority or legislature applicable to providers of generation, transmission or distribution of electricity generally that imposes restrictions, regulations or other requirements thereon; and (g) any change or effect resulting from action or inaction by a Governmental 9 Authority with respect to an independent system operator or retail access in Pennsylvania or New Jersey. As used herein, each of the following shall be a "Specified Plant": (1) the Shawville Station and associated Purchased Assets to be conveyed to Buyer pursuant to the Related Purchase Agreement with Penelec; (2) the Portland Station and associated Purchased Assets to be conveyed to Buyer pursuant to the Related Purchase Agreement with Met-Ed; and (3) collectively, all Purchased Assets to be conveyed to Buyer under the Related Purchase Agreement to which GPU, JCP&L and Met-Ed are parties. (63) "Merrill Creek Sublease Agreement" means the sublease agreement, substantially in the form of Exhibit H hereto, pursuant to which Seller will sublease to Buyer certain entitlements from the Merrill Creek Reservoir Project, as specified in Exhibit H. (64) "Met-Ed" means Metropolitan Edison Company, a Pennsylvania corporation. (65) "NJBPU" means the New Jersey Board of Public Utilities and any successor agency thereto. (66) "NJDEP" means the New Jersey Department of Environmental Protection and any successor agency thereto. (67) "Non-Union Employees" has the meaning as set forth in Sections 6.10(b) and (m). (68) "Penelec" means Pennsylvania Electric Company, a Pennsylvania corporation. (69) "Permits" has the meaning set forth in Section 4.14. (70) "Permitted Encumbrances" means: (i) the Easements; (ii) those Encumbrances set forth in Schedule 1.1(70); (iii) statutory liens for Taxes or other governmental charges or assessments not yet due or delinquent or the validity of which is being contested in good faith by appropriate proceedings provided that the aggregate amount for all Aggregate Purchased Assets being so contested does not exceed $500,000; (iv) mechanics', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business relating to obligations as to which there is no default on the part of Seller or the validity of which are being contested in good faith, and which do not, individually or in the aggregate with respect to all Aggregate Purchased Assets exceed $500,000; (v) zoning, entitlement, conservation restriction and other land use and environmental regulations by Governmental Authorities; and (vi) such other liens, imperfections in or failure of title, charges, 10 easements, restrictions and Encumbrances which do not materially, individually or in the aggregate, detract from the value of the Aggregate Purchased Assets as currently used or materially interfere with the present use of the Aggregate Purchased Assets and neither secure indebtedness, nor individually or in the aggregate have a value exceeding $30 million for all Aggregate Purchased Assets. (71) "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, or governmental entity or any department or agency thereof. (72) "Plants" means the generating stations and related assets as more fully identified on Schedule 2.1 attached hereto. (73) "Pollution Control Revenue Bonds" means the bonds listed on Schedule 6.12. (74) "Post-Closing Adjustment" has the meaning set forth in Section 3.3(c). (75) "Post-Closing Statement" has the meaning set forth in Section 3.3(c). (76) "Proprietary Information" of a Party means all information about the Party or its Affiliates, including their respective properties or operations, furnished to the other Party or its Representatives by the Party or its Representatives, after the date hereof, regardless of the manner or medium in which it is furnished. Proprietary Information does not include information that: (a) is or becomes generally available to the public, other than as a result of a disclosure by the other Party or its Representatives; (b) was available to the other Party on a nonconfidential basis prior to its disclosure by the Party or its Representatives; (c) becomes available to the other Party on a nonconfidential basis from a person, other than the Party or its Representatives, who is not otherwise bound by a confidentiality agreement with the Party or its Representatives, or is not otherwise under any obligation to the Party or any of its Representatives not to transmit the information to the other Party or its Representatives; (d) is independently developed by the other Party; or (e) was disclosed pursuant to the Confidentiality Agreement and remains subject to the terms and conditions of the Confidentiality Agreement. (77) "Purchased Assets" has the meaning set forth in Section 2.1. (78) "Purchase Price" has the meaning set forth in Section 3.2. 11 (79) "Qualifying Offer" has the meaning set forth in Section 6.10(b). (80) "Real Property" has the meaning set forth in Section 2.1(a). (81) "Real Property Leases" has the meaning set forth in Section 4.6. (82) "Related Purchase Agreements" has the meaning set forth in Section 7.1(l). (83) "Release" means release, spill, leak, discharge, dispose of, pump, pour, emit, empty, inject, leach, dump or allow to escape into or through the environment. (84) "Remediation" means action of any kind to address a Release or the presence of Hazardous Substances at a Site or an off-Site location including, without limitation, any or all of the following activities to the extent they relate to or arise from the presence of a Hazardous Substance at a Site or an off-Site location: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (b) obtaining any permits, consents, approvals or authorizations of any Governmental Authority necessary to conduct any such activity; (c) preparing and implementing any plans or studies for any such activity; (d) obtaining a written notice from a Governmental Authority with jurisdiction over a Site or an off-Site location under Environmental Laws that no material additional work is required by such Governmental Authority; (e) the use, implementation, application, installation, operation or maintenance of removal actions on a Site or an off-Site location, remedial technologies applied to the surface or subsurface soils, excavation and off-Site treatment or disposal of soils, systems for long term treatment of surface water or ground water, engineering controls or institutional controls; and (f) any other activities reasonably determined by a Party to be necessary or appropriate or required under Environmental Laws to address the presence or Release of Hazardous Substances at a Site or an off-Site location. (85) "Replacement Welfare Plans" has the meaning set forth in Section 6.10(e) (86) "Representatives" of a Party means the Party's Affiliates and their directors, officers, employees, agents, partners, advisors (including, without limitation, accountants, counsel, environmental consultants, financial advisors and other authorized representatives) and parents and other controlling persons. 12 (87) "SEC" means the Securities and Exchange Commission and any successor agency thereto. (88) "Seller's Agreements" means those contracts, agreements, licenses and leases relating to the ownership, operation and maintenance of the Plants and being assigned to Buyer as part of the Purchased Assets, including without limitation the Collective Bargaining Agreement and the agreements set forth in Schedule 4.12(a). (89) "Seller's Indemnitee" has the meaning set forth in Section 8.1(a). (90) "Seller's Material Adverse Effect" has the meaning set forth in Section 7.2(c). (91) "Seller's Required Regulatory Approvals" has the meaning set forth in Section 4.3(b). (92) "Site" means, with respect to any Plant, the Real Property (including improvements) forming a part of, or used or usable in connection with the operation of, such Plant, including any disposal sites included in the Real Property. Any reference to the Sites shall include, by definition, the surface and subsurface elements, including the soils and groundwater present at the Sites, and any reference to items "at the Sites" shall include all items "at, on, in, upon, over, across, under and within" the Site. (93) "Subsidiary" when used in reference to any Person means any entity of which outstanding securities having ordinary voting power to elect a majority of the Board of Directors or other Persons performing similar functions of such entity are owned directly or indirectly by such Person. (94) "System Council" means System Council U-3. (95) "Tangible Personal Property" has the meaning set forth in Section 2.1(c). (96) "Taxes" means all taxes, charges, fees, levies, penalties or other assessments imposed by any federal, state or local or foreign taxing authority, including, but not limited to, income, excise, property, sales, transfer, franchise, payroll, withholding, social security, gross receipts, license, stamp, occupation, employment or other taxes, including any interest, penalties or additions attributable thereto. (97) "Tax Return" means any return, report, information return, declaration, claim for refund or other document 13 (including any schedule or related or supporting information) required to be supplied to any taxing authority with respect to Taxes including amendments thereto. (98) "Termination Date" has the meaning set forth in Section 9.1(b). (99) "Third Party Claim" has the meaning set forth in Section 8.2(a). (100) "Transferable Permits" means those Permits and Environmental Permits which may be lawfully transferred to or assumed by Buyer without a filing with, notice to, consent or approval of any Governmental Authority, and are set forth in Schedule 1.1 (100). (101) "Transferred Employees" means Transferred Non-Union Employees and Transferred Union Employees. (102) "Transferred Non-Union Employees" has the meaning set forth in Section 6.10(b). (103) "Transferred Union Employees" has the meaning set forth in Section 6.10(b). (104) "Transferring Employee Records" means all records related to personnel of Seller, Genco, GPUN or GPUS who will become employees of Buyer only to the extent such records pertain to: (i) skill and development training and biographies, (ii) seniority histories, (iii) salary and benefit information, including benefit census and valuation data, (iv) Occupational, Safety and Health Administration reports, and (v) active medical restriction forms. (105) "Transition Power Purchase Agreement" means the agreement between Seller and Buyer, a copy of which is attached as Exhibit G hereto, executed on the date hereof, relating to the sale of installed capacity to Seller for a specified period of time following the Closing Date. (106) "Transmission Assets" has the meaning set forth in Section 2.2(a). (107) "Union" means System Council. (108) "Union Employees" has the meaning set forth in Sections 6.10(a) and (m). (109) "USEPA" means the United States Environmental Protection Agency and any successor agency thereto. 14 (110) "Year 2000 Compliant" has the meaning set forth in Section 4.20. "Year 2000 Compliance" has a meaning correlative to the foregoing. (111) "WARN Act" means the Federal Worker Adjustment Retraining and Notification Act of 1988, as amended. 1.2 Certain Interpretive Matters. In this Agreement, unless the context otherwise requires, the singular shall include the plural, the masculine shall include the feminine and neuter, and vice versa. The term "includes" or "including" shall mean "including without limitation." References to a Section, Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule of this Agreement, and reference to a given agreement or instrument shall be a reference to that agreement or instrument as modified, amended, supplemented and restated through the date as of which such reference is made. ARTICLE II PURCHASE AND SALE 2.1 Transfer of Assets. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, at the Closing Seller will sell, assign, convey, transfer and deliver to Buyer, and Buyer will purchase, assume and acquire from Seller, free and clear of all Encumbrances (except for Permitted Encumbrances), and subject to Sections 2.2 and 7.3 and the other terms and conditions of this Agreement, all of Seller's right, title and interest in and to all assets constituting, or used in and necessary for generation purposes to the operation of, the Plants identified in Schedule 2.1 including without limitation those assets described below (but excluding the Excluded Assets), each as in existence on the Closing Date (collectively, "Purchased Assets"): (a) Those certain parcels of real property (including all buildings, facilities and other improvements thereon and all appurtenances thereto) described in Schedule 4.10 (the "Real Property"), except as otherwise constituting part of the Excluded Assets; (b) All Inventories; (c) All machinery, mobile or otherwise, equipment (including communications equipment), vehicles, tools, furniture and furnishings and other personal property located on or used principally in connection with the Real Property on the Closing 15 Date, including, without limitation, the items of personal property included in Schedule 2.1(c), together with all the personal property of Seller used principally in the operation of the Plants and listed in Schedule 2.1(c), other than property used or primarily usable as part of the Transmission Assets or otherwise constituting part of the Excluded Assets (collectively, "Tangible Personal Property"); (d) Subject to the provisions of Section 6.5(d), all Seller's Agreements; (e) Subject to the provisions of Section 6.5(d), all Real Property Leases; (f) All Transferable Permits; (g) All books, operating records, operating, safety and maintenance manuals, engineering design plans, documents, blueprints and as built plans, specifications, procedures and similar items of Seller relating specifically to the aforementioned assets and necessary for the operation of the Plants (subject to the right of Seller to retain copies of same for its use) other than such items which are proprietary to third parties and accounting records; (h) Subject to Section 6.1, all Emission Reduction Credits associated with the Plants and identified in Schedule 2.1(h), and all Emission Allowances that have accrued prior to, or that accrue on or after, the date of this Agreement but prior to the Closing Date; (i) All unexpired, transferable warranties and guarantees from third parties with respect to any item of Real Property or personal property constituting part of the Purchased Assets, as of the Closing Date; (j) The names of the Plants. It is expressly understood that Seller is not assigning or transferring to Buyer any right to use the names "Jersey Central Power & Light Company", "JCP&L", "Metropolitan Edison Company", "Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU Generation", "GPU Nuclear", "GPU Service" and "GPU Genco", or any related or similar trade names, trademarks, service marks, corporate names and logos or any part, derivative or combination thereof; (k) All drafts, memoranda, reports, information, technology, and specifications relating to Seller's plans for Year 2000 Compliance with respect to the Purchased Assets; 16 (l) The Intellectual Property described on Schedule 2.1(l); and (m) The substation equipment set forth in Schedule A to the Interconnection Agreement and designated therein as being transferred to Buyer. 2.2 Excluded Assets. Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement will constitute or be construed as conferring on Buyer, and Buyer is not acquiring, any right, title or interest in or to the following specific assets which are associated with the Purchased Assets, but which are hereby specifically excluded from the sale and the definition of Purchased Assets herein (the "Excluded Assets"): (a) Except as expressly identified in Schedule 2.1(c), the electrical transmission or distribution facilities (as opposed to generation facilities) of Seller or any of its Affiliates located at the Sites or forming part of the Plants (whether or not regarded as a "transmission" or "generation" asset for regulatory or accounting purposes), including all switchyard facilities, substation facilities and support equipment, as well as all permits, contracts and warranties, to the extent they relate to such transmission and distribution assets (collectively, the "Transmission Assets"), and those certain assets, facilities and agreements all as identified on Schedule 2.2(a) attached hereto; (b) Certain revenue meters and remote testing units, drainage pipes and systems, as identified in the Easement Agreement; (c) Certificates of deposit, shares of stock, securities, bonds, debentures, evidences of indebtedness, and interests in joint ventures, partnerships, limited liability companies and other entities; (d) All cash, cash equivalents, bank deposits, accounts and notes receivable (trade or otherwise), and any income, sales, payroll or other tax receivables; (e) The rights of Seller and its Affiliates to the names "Jersey "Central Power & Light Company", "JCP&L", "Metropolitan Edison Company", "Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU Generation", "GPU Nuclear", "GPU Service" and "GPU Genco" or any related or similar trade names, trademarks, service marks, corporate names or logos, or any part, derivative or combination thereof; 17 (f) All tariffs, agreements and arrangements to which Seller is a party for the purchase or sale of electric capacity and/or energy or for the purchase of transmission or ancillary services; (g) The rights of Seller in and to any causes of action against third parties (including indemnification and contribution), other than to the extent relating to any Assumed Liability, relating to any Real Property or personal property, Permits, Environmental Permits, Taxes, Real Property Leases or Seller's Agreements, if any, including any claims for refunds, prepayments, offsets, recoupment, insurance proceeds, condemnation awards, judgments and the like, whether received as payment or credit against future liabilities, relating specifically to the Plants or the Sites and relating to any period prior to the Closing Date; (h) All personnel records of Seller or its Affiliates relating to the Transferred Employees other than Transferring Employee Records or other records, the disclosure of which is required by law, or legal or regulatory process or subpoena; and (i) Any and all of Seller's rights in any contract representing an intercompany transaction between Seller and an Affiliate of Seller, whether or not such transaction relates to the provision of goods and services, payment arrangements, intercompany charges or balances, or the like, except for any contracts listed on Schedule 4.12(a). 2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to Seller the Assignment and Assumption Agreement pursuant to which Buyer shall assume and agree to discharge when due, without recourse to Seller, all of the following liabilities and obligations of Seller, direct or indirect, known or unknown, absolute or contingent, which relate to the Purchased Assets, other than Excluded Liabilities, in accordance with the respective terms and subject to the respective conditions thereof (collectively, "Assumed Liabilities"): (a) All liabilities and obligations of Seller arising on or after the Closing Date under Seller's Agreements, the Real Property Leases, and the Transferable Permits in accordance with the terms thereof, including, without limitation, (i) the contracts, licenses, agreements and personal property leases entered into by Seller with respect to the Purchased Assets, which are disclosed on Schedule 4.12(a) or not required by Section 4.12(a) to be so disclosed, and (ii) the contracts, licenses, agreements and personal property leases entered into by Seller with respect to the Purchased Assets after the date hereof consistent with the terms of this Agreement, except in each case 18 to the extent such liabilities and obligations, but for a breach or default by Seller, would have been paid, performed or otherwise discharged on or prior to the Closing Date or to the extent the same arise out of any such breach or default or out of any event which after the giving of notice would constitute a default by Seller; (b) All liabilities and obligations associated with the Purchased Assets in respect of Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof; (c) All liabilities and obligations with respect to the Transferred Employees arising on or after the Closing Date (i) for which Buyer is responsible pursuant to Section 6.10 and (ii) relating to the grievances and arbitration proceedings arising out of or under the Collective Bargaining Agreement prior to, on or after the Closing Date; (d) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with (i) any violation or alleged violation of Environmental Laws, whether prior to, on or after the Closing Date, with respect to the ownership or operation of any of the Purchased Assets; (ii) loss of life, injury to persons or property or damage to natural resources (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Purchased Assets prior to, on or after the Closing Date, including, but not limited to, Hazardous Substances contained in building materials at or adjacent to the Purchased Assets or in the soil, surface water, sediments, groundwater, landfill cells, or in other environmental media at or near the Purchased Assets; and (iii) the Remediation (whether or not such Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances that are present or have been Released prior to, on or after the Closing Date at, on, in, under, adjacent to or migrating from, the Purchased Assets or in the soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to the Purchased Assets; provided, that nothing set forth in this subsection 2.3(d) shall require Buyer to assume any liabilities or obligations that are expressly excluded in Section 2.4 including, without limitation, liability for toxic torts as set forth in Section 2.4(i). 19 (e) All liabilities and obligations of Seller with respect to the Purchased Assets under the agreements or consent orders set forth on Schedule 4.7 arising on or after the Closing; and (f) With respect to the Purchased Assets, any Tax that may be imposed by any federal, state or local government on the ownership, sale, operation or use of the Purchased Assets on or after the Closing Date, except for any Income Taxes attributable to income received by Seller. 2.4 Excluded Liabilities. Buyer shall not assume or be obligated to pay, perform or otherwise discharge the following liabilities or obligations (the "Excluded Liabilities"): (a) Any liabilities or obligations of Seller that are not expressly set forth as liabilities or obligations being assumed by Buyer in Section 2.3 and any liabilities or obligations in respect of any Excluded Assets or other assets of Seller which are not Purchased Assets; (b) Any liabilities or obligations in respect of Taxes attributable to the ownership, operation or use of Purchased Assets for taxable periods, or portions thereof, ending before the Closing Date, except for Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof; (c) Any liabilities or obligations of Seller accruing under any of Seller's Agreements prior to the Closing Date; (d) Any and all asserted or unasserted liabilities or obligations to third parties (including employees) for personal injury or tort, or similar causes of action arising solely out of the ownership or operation of the Purchased Assets prior to the Closing Date, other than any liabilities or obligations which have been assumed by Buyer in Section 2.3(d); (e) Any fines, penalties or costs imposed by a Governmental Authority resulting from (i) an investigation, proceeding, request for information or inspection before or by a Governmental Authority pending prior to the Closing Date but only regarding acts which occurred prior to the Closing Date, or (ii) illegal acts, willful misconduct or gross negligence of Seller prior to the Closing Date, other than, any such fines, penalties or costs which have been assumed by Buyer in Section 2.3(d); (f) Any payment obligations of Seller for goods delivered or services rendered prior to the Closing Date, including, but not limited to, rental payments pursuant to the Real Property Leases; 20 (g) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with loss of life, injury to persons or property or damage to natural resources (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) to the extent caused (or allegedly caused) by the off-Site disposal, storage, transportation, discharge, Release, or recycling of Hazardous Substances, or the arrangement for such activities, of Hazardous Substances, prior to the Closing Date, in connection with the ownership or operation of the Purchased Assets, provided that for purposes of this Section "off-Site" does not include any location to which Hazardous Substances disposed of or Released at the Purchased Assets have migrated; (h) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with the investigation and/or Remediation (whether or not such investigation or Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances that are disposed, stored, transported, discharged, Released, recycled, or the arrangement of such activities, prior to the Closing Date, in connection with the ownership or operation of the Purchased Assets, at any off-Site location, provided that for purposes of this Section "off-Site" does not include any location to which Hazardous Substances disposed of or Released at the Purchased Assets have migrated; (i) Third party liability for toxic torts arising as a result of or in connection with loss of life or injury to persons (whether or not such loss or injury arose or was made manifest on or after the Closing Date) caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Purchased Assets prior to the Closing Date; (j) Civil or criminal fines or penalties wherever assessed or incurred for violations of Environmental Laws arising from the operation of the Purchased Assets prior to the Closing Date; (k) Subject to Section 6.10, any liabilities or obligations relating to any Benefit Plan maintained by Seller or any trade or business (whether or not incorporated) which is or ever has been under common control, or which is or ever has been treated as a single employer, with Seller under Section 414(b), 21 (c), (m) or (o) of the Code ("ERISA Affiliate") or to which Seller and any ERISA Affiliate contributed thereunder (the "ERISA Affiliate Plans"), including but not limited to any liability with respect to any such plan (i) for benefits payable under such plan; (ii) to the Pension Benefit Guaranty Corporation under Title IV of ERISA; (iii) relating to any such plan that is a multi-employer plan within the meaning of Section 3(37) of ERISA; (iv) for non-compliance with the notice and benefit continuation requirements of COBRA; (v) for noncompliance with ERISA or any other applicable laws; or (vi) arising out of or in connection with any suit, proceeding or claim which is brought against Buyer, any Benefit Plan, ERISA Affiliate Plan, or any fiduciary or former fiduciary of any such Benefit Plan or ERISA Affiliate Plan; (l) Subject to Section 6.10, any liabilities or obligations relating to the employment or termination of employment, by Seller, or any Affiliate of Seller, of any individual, that is attributable to any actions or inactions (including discrimination, wrongful discharge, unfair labor practices or constructive termination) by Seller prior to the Closing Date other than such actions or inactions taken at the written direction of Buyer; (m) Subject to Section 6.10, any obligations for wages, overtime, employment taxes, severance pay, transition payments in respect of compensation or similar benefits accruing or arising prior to the Closing under any term or provision of any contract, plan, instrument or agreement relating to any of the Purchased Assets; (n) Any liability of Seller arising out of a breach by Seller or any of its Affiliates of any of their respective obligations under this Agreement or the Ancillary Agreements; and (o) Any liability relating to the Pollution Control Revenue Bonds except as provided in Section 6.12. 2.5 Control of Litigation. The Parties agree and acknowledge that Seller shall be entitled exclusively to control, defend and settle any litigation, administrative or regulatory proceeding, and any investigation or Remediation activities (including without limitation any environmental mitigation or Remediation activities), arising out of or related to any Excluded Liabilities, and Buyer agrees to cooperate fully in connection therewith; provided, however, that without Buyer's written consent, which shall not be unreasonably withheld or delayed, Seller shall not settle any such litigation, administrative or regulatory proceeding which would result in a material adverse effect on the related Purchased Assets. 22 ARTICLE III THE CLOSING 3.1 Closing. Upon the terms and subject to the satisfaction of the conditions contained in Article VII of this Agreement, the sale, assignment, conveyance, transfer and delivery of the Purchased Assets to Buyer, the payment of the Purchase Price to Seller, and the consummation of the other respective obligations of the Parties contemplated by this Agreement shall take place at a closing (the "Closing"), to be held at the offices of Berlack, Israels & Liberman LLP, 120 West 45th Street, New York, New York at 10:00 a.m. local time, or another mutually acceptable time and location, on the date that is fifteen (15) Business Days following the date on which the last of the conditions precedent to Closing set forth in Article VII of this Agreement have been either satisfied or waived by the Party for whose benefit such conditions precedent exist or such other date as the Parties may mutually agree. The date of Closing is hereinafter called the "Closing Date." The Closing shall be effective for all purposes as of 12:01 a.m. on the Closing Date. 3.2 Payment of Purchase Price. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, in consideration of the aforesaid sale, assignment, conveyance, transfer and delivery of the Purchased Assets, Buyer will pay or cause to be paid to Seller at the Closing an aggregate amount of one hundred eighty-seven million one hundred seventy-one thousand three hundred seventy United States Dollars (U.S. $187,171,370.00) (the "Purchase Price") plus or minus any adjustments pursuant to the provisions of this Agreement, by wire transfer of immediately available funds denominated in U.S. dollars or by such other means as are agreed upon by Seller and Buyer. 3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at the Closing, the Purchase Price shall be adjusted, without duplication, to account for the items set forth in this Section 3.3(a): (i) The Purchase Price shall be increased or decreased, as applicable, to reflect the difference between the book value of all Inventories as of the Closing Date and the value of all Inventories as of June 30, 1998 as reflected on Schedule 3.3(a)(i). (ii) The Purchase Price shall be adjusted to 23 account for the items prorated as of the Closing Date pursuant to Section 3.5. (iii) The Purchase Price shall be increased by the amount expended, or for which liabilities are incurred, by Seller between the date hereof and the Closing Date for capital additions to or replacements of property, plant and equipment included in the Purchased Assets and other expenditures or repairs on property, plant and equipment included in the Purchased Assets that would be capitalized by Seller in accordance with normal accounting policies of Seller and its Affiliates (together, "Capital Expenditures"), which are not described on Schedule 6.1 and which either (A) are mandated after the date of this Agreement by any Governmental Authority (subject to Buyer's right reasonably to direct Seller to contest such mandates by appropriate proceedings at Buyer's expense and provided there is no adverse impact on the Purchased Assets); or (B) do not fall within category (A) above but do not exceed in the aggregate $2 million for all Aggregate Purchased Assets; or (C) are approved in writing by Buyer. (b) At least ten (10) Business Days prior to the Closing Date, Seller shall prepare and deliver to Buyer an estimated closing statement (the "Estimated Closing Statement") that shall set forth Seller's best estimate of the adjustments to the Purchase Price required by Section 3.3(a) (the "Estimated Adjustment"). Within five (5) Business Days following the delivery of the Estimated Closing Statement by Seller to Buyer, Buyer may object in good faith to the Estimated Adjustment in writing. If Buyer objects to the Estimated Adjustment, the Parties shall attempt to resolve their differences by negotiation. If the Parties are unable to do so within three (3) Business Days prior to the Closing Date (or if Buyer does not object to the Estimated Adjustment), the Purchase Price shall be adjusted (the "Closing Adjustment") for the Closing by the amount of the Estimated Adjustment not in dispute. The disputed portion shall be paid as a Post-Closing Adjustment to the extent required by Section 3.3(c). (c) Within sixty (60) days following the Closing Date, Seller shall prepare and deliver to Buyer a final closing statement (the "Post-Closing Statement") that shall set forth all adjustments to the Purchase Price required by Section 3.3(a) (the "Post-Closing Adjustment"). The Post-Closing Statement shall be prepared using the same accounting principles, policies and methods as Seller has historically used in connection with the calculation of the items reflected on such Post-Closing Statement. Within thirty (30) days following the delivery of the Post-Closing Statement by Seller to Buyer, Buyer may object to 24 the Post-Closing Adjustment in writing. Seller agrees to cooperate with Buyer to provide Buyer and Buyer's Representatives information used to prepare the Post-Closing Statement and information relating thereto. If Buyer objects to the Post-Closing Adjustment, the Parties shall attempt to resolve such dispute by negotiation. If the Parties are unable to resolve such dispute within thirty (30) days of any objection by Buyer, the Parties shall appoint the Independent Accounting Firm, which shall, at Seller's and Buyer's joint expense, review the Post-Closing Adjustment and determine the appropriate adjustment to the Purchase Price, if any, within thirty (30) days of such appointment. The Parties agree to cooperate with the Independent Accounting Firm and provide it with such information as it reasonably requests to enable it to make such determination. The finding of such Independent Accounting Firm shall be binding on the Parties hereto. Upon determination of the appropriate adjustment by agreement of the Parties or by binding determination of the Independent Accounting Firm, if the Post-Closing Adjustment is more or less than the Closing Adjustment, the Party owing the difference shall deliver such difference to the other Party no later than two (2) Business Days after such determination, in immediately available funds or in any other manner as reasonably requested by the payee. 3.4 Allocation of Purchase Price. Buyer and Seller shall endeavor to agree upon an allocation among the Purchased Assets of the sum of the Purchase Price and the Assumed Liabilities in a manner consistent with the provisions of Section 1060 of the Code and the Treasury Regulations thereunder within sixty (60) days of the date of this Agreement. Each of Buyer and Seller agrees to file Internal Revenue Service Form 8594, and all federal, state, local and foreign Tax Returns, in accordance with any such agreed to allocation. Each of Buyer and Seller shall report the transactions contemplated by this Agreement for federal Tax and all other Tax purposes in a manner consistent with any such agreed to allocation determined pursuant to this Section 3.4. Each of Buyer and Seller agrees to provide the other promptly with any information required to complete Form 8594. Buyer and Seller shall notify and provide the other with reasonable assistance in the event of an examination, audit or other proceeding regarding any allocation of the Purchase Price agreed to pursuant to this Section 3.4. 3.5 Prorations. (a) Buyer and Seller agree that all of the items normally prorated, including those listed below (but not including Income Taxes), relating to the business and operation of the Purchased Assets shall be prorated as of the Closing Date, with Seller liable to the extent such items relate to any time period prior to the Closing Date, and Buyer liable to the extent such items relate to periods commencing with the Closing Date 25 (measured in the same units used to compute the item in question, otherwise measured by calendar days): (i) Personal property, real estate and occupancy Taxes, assessments and other charges, if any, on or with respect to the business and operation of the Purchased Assets; (ii) Rent, Taxes and all other items (including prepaid services or goods not included in Inventory) payable by or to Seller under any of Seller's Agreements; (iii) Any permit, license, registration, compliance assurance fees or other fees with respect to any Transferable Permit; (iv) Sewer rents and charges for water, telephone, electricity and other utilities; and (v) Rent and Taxes and other items payable by Seller under the Real Property Leases assigned to Buyer. (b) In connection with the prorations referred to in (a) above, in the event that actual figures are not available at the Closing Date, the proration shall be based upon the actual Taxes or other amounts accrued through the Closing Date or paid for the most recent year (or other appropriate period) for which actual Taxes or other amounts paid are available. Such prorated Taxes or other amounts shall be re-prorated and paid to the appropriate Party within sixty (60) days of the date that the previously unavailable actual figures become available. The prorations shall be based on the number of days in a year or other appropriate period (i) before the Closing Date and (ii) including and after the Closing Date. Seller and Buyer agree to furnish each other with such documents and other records as may be reasonably requested in order to confirm all adjustment and proration calculations made pursuant to this Section 3.5. 3.6 Deliveries by Seller. At the Closing, Seller will deliver, or cause to be delivered, the following to Buyer: (a) The Bill of Sale, duly executed by Seller; (b) Copies of any and all governmental and other third party consents, waivers or approvals required with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement; (c) The opinions of counsel and officer's certificates contemplated by Section 7.1; 26 (d) One or more bargain and sale deeds with covenants against grantors acts, conveying the Real Property to Buyer, in substantially the form of Exhibit F hereto, duly executed and acknowledged by Seller and in recordable form; (e) The Assignment and Assumption Agreement and any Ancillary Agreements which are not executed on the date hereof, duly executed by Seller; (f) A FIRPTA Affidavit, duly executed by Seller; (g) Copies, certified by the Secretary or Assistant Secretary of Seller, of corporate resolutions authorizing the execution and delivery of this Agreement and all of the agreements and instruments to be executed and delivered by Seller in connection herewith, and the consummation of the transactions contemplated hereby; (h) A certificate of the Secretary or Assistant Secretary of Seller identifying the name and title and bearing the signatures of the officers of Seller authorized to execute and deliver this Agreement and the other agreements and instruments contemplated hereby; (i) Certificates of Good Standing with respect to Seller, issued by the Secretary of the State of Seller's state of incorporation; (j) To the extent available, originals of all Seller's Agreements, Real Property Leases, Permits, Environmental Permits, and Transferable Permits and, if not available, true and correct copies thereof, together with the items referred to in Section 2.1(g); (k) All such other instruments of assignment, transfer or conveyance as shall, in the reasonable opinion of Buyer and its counsel, be necessary or desirable to transfer to Buyer the Purchased Assets, in accordance with this Agreement and where necessary or desirable in recordable form; (l) Notices, signed by Seller, to all other parties to the material Seller's Agreements where notice to such parties is required under the terms of such Seller's Agreements or pursuant to Section 6.5(d) hereof; (m) Reliance letters from Woodward & Clyde with respect to the Environmental Reports prepared by Woodward & Clyde concerning the Purchased Assets and made available for review by Buyer; and 27 (n) Such other agreements, documents, instruments and writings as are required to be delivered by Seller at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. 3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or cause to be delivered, the following to Seller: (a) The Purchase Price, as adjusted pursuant to Section 3.3, by wire transfer of immediately available funds in accordance with Seller's instructions or by such other means as may be agreed to by Seller and Buyer; (b) The opinions of counsel and officer's certificates contemplated by Section 7.2; (c) The Assignment and Assumption Agreement and any Ancillary Agreements which are not executed on the date hereof, duly executed by Buyer; (d) Copies, certified by the Secretary or Assistant Secretary of Buyer, of resolutions authorizing the execution and delivery of this Agreement, the Guaranty and all of the agreements and instruments to be executed and delivered by Buyer in connection herewith, and the consummation of the transactions contemplated hereby; (e) A certificate of the Secretary or Assistant Secretary of Buyer, identifying the name and title and bearing the signatures of the officers of Buyer authorized to execute and deliver this Agreement, the Guaranty and the other agreements contemplated hereby; (f) All such other instruments of assumption as shall, in the reasonable opinion of Seller and its counsel, be necessary for Buyer to assume the Assumed Liabilities in accordance with this Agreement; (g) Copies of any and all governmental and other third party consents, waivers or approvals obtained by Buyer with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement and where necessary or desirable in recordable forms; (h) Certificates of Insurance relating to the insurance policies required pursuant to Article 10 of the Interconnection Agreement; and (i) Such other agreements, documents, instruments and writings as are required to be delivered by Buyer at or prior to 28 the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. 3.8 Ancillary Agreements. The Parties acknowledge that the Ancillary Agreements, other than the Merrill Creek Sublease Agreement and Easement Agreements have been executed on the date hereof. 3.9 Easement Agreements. At the Closing, Buyer and Seller shall execute for each Site an Easement Agreement in the form attached hereto as Exhibit C, completed as required to cause the entity owning such Site to grant such Easements and licenses as are contemplated by such form of agreement and Exhibits B (Distribution Facilities), Exhibits C (Transmission Facilities), Exhibits F (Distribution Substation), and Exhibits G (Main Substation) thereto, forms of which are attached thereto. Such forms of Exhibits B, C, F and G to the agreements are subject to revision as the Parties may agree. The Parties shall engage in reasonable and good faith negotiations regarding such revisions so as to minimize the impact of the Seller's Easements, Easement areas and licenses on the Sites and Buyer's use thereof, consistent with the enjoyment by Seller of such Easements and license rights as Seller reasonably requires to continue its use, operation and maintenance of the Excluded Assets in the places where they are located on the Closing Date. The Parties shall also engage in reasonable, good faith negotiations to agree upon the (i) provisions of the Agreement relating to the Site known as Forked River and (ii) rules and regulations under which Buyer will grant to Seller access to the Sites, and under which Seller will grant to Buyer access to Seller's Easements and Easement areas. Such rules and regulations shall be memorialized as Exhibit J to each agreement. ARTICLE IV REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER Seller represents and warrants to Buyer as follows: 4.1 Incorporation; Qualification. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation and has all requisite corporate power and authority to own, lease, and operate its material properties and assets and to carry on its business as is now being conducted. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which its business as now being conducted 29 shall require it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect. Seller has heretofore delivered to Buyer true, complete and correct copies of its Certificate of Incorporation and Bylaws as currently in effect. 4.2 Authority Relative to this Agreement. Seller has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by it hereby. The execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated by Seller hereby have been duly and validly authorized by all necessary corporate action required on the part of Seller and this Agreement has been duly and validly executed and delivered by Seller. Subject to the receipt of Seller's Required Regulatory Approvals, this Agreement constitutes the legal, valid and binding agreement of Seller, enforceable against Seller in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 4.3 Consents and Approvals; No Violation. (a) Except as set forth in Schedule 4.3(a), and subject to obtaining Seller's Required Regulatory Approvals, neither the execution and delivery of this Agreement by Seller nor the consummation by Seller of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws of Seller, (ii) result in a default (or give rise to any right of termination, consent, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Seller is a party or by which it, or any of the Purchased Assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which, would not, individually or in the aggregate, create a Material Adverse Effect; or (iii) constitute violations of any law, regulation, order, judgment or decree applicable to Seller, which violations, individually or in the aggregate, would create a Material Adverse Effect, or create any Encumbrance other than a Permitted Encumbrance. (b) Except as set forth in Schedule 4.3(b), (the filings and approvals referred to in Schedule 4.3(b) are collectively referred to as the "Seller's Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority by or for Seller is necessary for 30 the execution and delivery of this Agreement by Seller, or the consummation by Seller of the transactions contemplated hereby, other than (i) such consents, approvals, filings or notices which, if not obtained or made, will not prevent Seller from performing its material obligations hereunder and (ii) such consents, approvals, filings or notices which become applicable to Seller or the Purchased Assets as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged. 4.4 Insurance. Except as set forth in Schedule 4.4, all material policies of fire, liability, workers' compensation and other forms of insurance owned or held by, or on behalf of, Seller with respect to the business, operations or employees at the Plants or the Purchased Assets are in full force and effect, all premiums with respect thereto covering all periods up to and including the date hereof have been paid (other than retroactive premiums which may be payable with respect to comprehensive general liability and workers' compensation insurance policies), and no notice of cancellation or termination has been received with respect to any such policy which was not replaced on substantially similar terms prior to the date of such cancellation. Except as described in Schedule 4.4, within the 36 months preceding the date of this Agreement, Seller has not been refused any insurance with respect to the Purchased Assets nor has coverage been limited by any insurance carrier to which Seller has applied for any such insurance or with which Seller has carried insurance during the last 12 months. 4.5 Title and Related Matters. Except as set forth in Schedule 4.5 and subject to Permitted Encumbrances, (i) Seller is the owner of record title to the Real Property (or the interest in the Real Property as set forth in Schedule 2.1) and has good and valid title to the other Purchased Assets which it purports to own, free and clear of all material Encumbrances of which the Seller has knowledge and (ii) Seller shall convey to Buyer such title with respect to the Real Property or interest therein as a reputable title company doing business in the Commonwealth of Pennsylvania would insure. 4.6 Real Property Leases. Schedule 4.6 lists, as of the date of this Agreement, all material real property leases under which Seller is a lessee or lessor and which relate to the Purchased Assets ("Real Property Leases"). Except as set forth in Schedule 4.6, all such leases are valid, binding and enforceable against Seller in accordance with their terms; there are no existing material defaults by Seller or, to Seller's Knowledge, any other party thereunder; and no event has occurred 31 which (whether with or without notice, lapse of time or both) would constitute a material default by Seller or, to Seller's Knowledge, any other party thereunder. Seller has delivered to Buyer true, correct and complete copies of each of the material Real Property Leases. 4.7 Environmental Matters. Except as disclosed in Schedule 4.7 or in the "Phase I" and "Phase II" environmental site assessments prepared by Seller's outside environmental consultants ("Environmental Reports") and made available for inspection by Buyer: (a) Seller holds, and is in substantial compliance with, all permits, certificates, certifications, licenses and governmental authorizations under Environmental Laws ("Environmental Permits") that are required for Seller to conduct the business and operations of the Purchased Assets, and each of Seller is otherwise in compliance with applicable Environmental Laws with respect to the business and operations of such Purchased Assets except for such failures to hold or comply with required Environmental Permits, or such failures to be in compliance with applicable Environmental Laws, as would not, individually or in the aggregate, create a Material Adverse Effect; (b) Seller has not received any written request for information, or been notified that it is a potentially responsible party, under CERCLA or any similar state law with respect to the Real Property or any other Purchased Assets; (c) Seller has not entered into or agreed to any consent decree or order relating to the Purchased Assets, or is not subject to any outstanding judgment, decree, or judicial order relating to compliance with any Environmental Law or to investigation or cleanup of Hazardous Substances under any Environmental Law relating to the Purchased Assets. (d) To Seller's Knowledge, no Releases of Hazardous Substances have occurred at, from, in, on, or under any Site, and no Hazardous Substances are present in, on, about or migrating from any such Site that could give rise to an Environmental Claim related to the Purchased Assets for which Remediation reasonably could be required, except in any such case to the extent that any such Releases would not, individually or in the aggregate, create a Material Adverse Effect. The representations and warranties made in this Section 4.7 are Seller's exclusive representations and warranties relating to environmental matters. 32 4.8 Labor Matters. Seller has previously delivered to Buyer a true and correct copy of the Collective Bargaining Agreement, which is the only collective bargaining agreement to which it is a party or is subject and which relates to the business and operations of the Purchased Assets. With respect to the business or operations of such Purchased Assets, except to the extent set forth in Schedule 4.8 and except for such matters as will not, individually or in the aggregate, create a Material Adverse Effect, Seller (a) is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours; (b) has not received written notice of any unfair labor practice complaint against it pending before the National Labor Relations Board; (c) no arbitration proceeding arising out of or under any collective bargaining agreement is pending against Seller; and (d) Seller has not experienced any work stoppage within the three-year period prior to the date hereof and to Seller's Knowledge none is currently threatened. 4.9 Benefit Plans: ERISA. (a)Schedule 4.9(a) lists all deferred compensation, profit-sharing, retirement and pension plans, including multiemployer plans, and all material bonus, fringe benefit and other employee benefit plans maintained or with respect to which contributions are made by Seller, Genco, GPUN or GPUS in respect of the current employees of Seller, Genco, GPUN or GPUS connected with the Purchased Assets ("Benefit Plans"). True and complete copies of all Benefit Plans have been made available to Buyer. (b) Except as set forth in Schedule 4.9(b), Seller and the ERISA Affiliates have fulfilled their respective obligations under the minimum funding requirements of Section 302 of ERISA, and Section 412 of the Code, with respect to each Benefit Plan which is an "employee pension benefit plan" as defined in Section 3(2) of ERISA and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and the Code and has been administered in all material respects in accordance with its terms as set forth in the documents governing such Benefit Plan. Except as set forth in Schedule 4.9(b), neither Seller nor any ERISA Affiliate has incurred any liability under Section 4062(b) of ERISA to the Pension Benefit Guaranty Corporation in connection with any Benefit Plan which is subject to Title IV of ERISA or any withdrawal liability with respect to any Benefit Plan, within the meaning of Section 4021 of ERISA, nor is there any reportable event (as defined in Section 4043 of ERISA) with respect to any Benefit Plan. Except as set forth in Schedule 4.9(b), the Internal Revenue Service has issued a letter for each Benefit Plan which is intended to be qualified under Section 401(a) of the Code, which letter determines that such plan is qualified and exempt from United States Federal Income 33 Tax under Section 401(a) and 501(a) of the Code, and Seller is not aware of any occurrence since the date of any such determination letter which would affect adversely such qualification or tax exemption. (c) Neither Seller nor any ERISA Affiliate has engaged in any transaction described in Section 4069(a) or Section 4212(c) of ERISA. No Benefit Plan is a multiemployer plan. (d) Seller and Sellers' Affiliates have materially complied in good faith with the notice and continuation requirements of Section 4980B of the Code, and Part 6 of Subtitle B of Title I of ERISA with respect to any Benefit Plan. Seller and each ERISA Affiliate have complied in all material respects with the requirements of Part 7 of Title I of ERISA. 4.10 Real Property. Schedule 4.10 contains a description of the Real Property included in the Purchased Assets. Copies of any current surveys, abstracts or title opinions in Seller's possession and any policies of title insurance in force and in the possession of Seller with respect to the Real Property have heretofore been made available to Buyer (without making any representation or warranty as to the accuracy or completeness thereof). Except as set forth in Schedule 4.10A, no real property other than the Real Property is necessary for Buyer to own, maintain and operate the Purchased Assets as they are currently used. 4.11 Condemnation. Except as set forth in Schedule 4.11, Seller has not received any written notices of and otherwise has no Knowledge of any pending or threatened proceedings or governmental actions to condemn or take by power of eminent domain all or any part of the Purchased Assets. 4.12 Contracts and Leases. (a) Schedule 4.12(a) lists each written contract, license, agreement, or personal property lease which is material to the business or operations of the Purchased Assets, other than any contract, license, agreement or personal property lease which is listed or described on another Schedule, or which is expected to expire or terminate prior to the Closing Date, or which provides for annual payments by Seller after the date hereof of less than $250,000 or payments by Seller after the date hereof of less than $1,000,000 in the aggregate. (b) Except as disclosed in Schedule 4.12(b), each Seller's Agreement (i) constitutes a legal, valid and binding obligation of Seller and, to Seller's Knowledge, constitutes a valid and binding obligation of the other parties thereto, and (ii) may be transferred to Buyer pursuant to this Agreement 34 without the consent of the other parties thereto and will continue in full force and effect thereafter, unless in any such case the impact of such lack of legality, validity or binding nature, or inability to transfer, would not, individually or in the aggregate, create a Material Adverse Effect. (c) Except as set forth in Schedule 4.12(c), there is not, under Seller's Agreements, any default or event which, with notice or lapse of time or both, would constitute a default on the part of Seller or to Seller's Knowledge, any of the other parties thereto, except such events of default and other events which would not, individually or in the aggregate, create a Material Adverse Effect. 4.13 Legal Proceedings, etc. Except as set forth in Schedule 4.13, there are no actions or proceedings pending (or to Seller's knowledge overtly threatened) against Seller before any court, arbitrator or Governmental Authority, which could, individually or in the aggregate, reasonably be expected to create a Material Adverse Effect. Except as set forth in Schedule 4.13, Seller is not subject to any outstanding judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator or Governmental Authority which would, individually or in the aggregate, create a Material Adverse Effect. 4.14 Permits. (a) Seller has all permits, licenses, franchises and other governmental authorizations, consents and approvals, (other than Environmental Permits, which are addressed in Section 4.7 hereof) (collectively, "Permits") necessary to permit Seller to own and operate the Purchased Assets except where the failure to have such Permits would not, individually or in the aggregate, create a Material Adverse Effect. Except as disclosed on Schedule 4.14(a), Seller has not received any notification that it is in violation of any such Permits, except notifications of violations which would not, individually or in the aggregate, create a Material Adverse Effect. Seller is in compliance with all such Permits except where non-compliance would not, individually or in the aggregate, create a Material Adverse Effect. (b) Schedule 4.14(b) sets forth all material Permits and Environmental Permits, other than Transferable Permits (which are set forth on Schedule 1.1(100)) related to the Purchased Assets. 4.15 Taxes. Seller has filed all returns required to be filed by it with respect to any Tax relating to the Purchased Assets, and Seller has paid all Taxes that have become due as indicated thereon, except where such Tax is being contested in 35 good faith by appropriate proceedings, or where the failure to so file or pay would not reasonably be expected to create a Material Adverse Effect. Seller has complied in all material respects with all applicable laws, rules and regulations relating to withholding Taxes relating to Transferred Employees. All Tax Returns relating to the Purchased Assets are true, correct and complete in all material respects. Except as set forth in Schedule 4.15, no notice of deficiency or assessment has been received from any taxing authority with respect to liabilities for Taxes of Seller in respect of the Purchased Assets, which have not been fully paid or finally settled, and any such deficiency shown in Schedule 4.15 is being contested in good faith through appropriate proceedings. Except as set forth in Schedule 4.15, there are no outstanding agreements or waivers extending the applicable statutory periods of limitation for Taxes associated with the Purchased Assets that will be binding upon Buyer after the Closing. None of the Purchased Assets is property that is required to be treated as being owned by any other person pursuant to the so-called safe harbor lease provisions of former Section 168(f) of the Code, and none of the Purchased Assets is "tax-exempt use" property within the meaning of Section 168(h) of the Code. Schedule 4.15 sets forth the taxing jurisdictions in which Seller owns assets or conducts business that require a notification to a taxing authority of the transactions contemplated by this Agreement, if the failure to make such notification, or obtain Tax clearance certificates in connection therewith, would either require Buyer to withhold any portion of the Purchase Price or subject Buyer to any liability for any Taxes of Seller. 4.16 Intellectual Property. Schedule 2.1(l) sets forth all Intellectual Property used in and, individually or in the aggregate with other Intellectual Property, material to the operation or business of the Purchased Assets, each of which Seller or its Affiliates either has all right, title and interest in or valid and binding rights under contract to use. Except as disclosed in Schedule 4.16, (i) Seller is not, nor has it received any notice that it is, in default (or with the giving of notice or lapse of time or both, would be in default), under any contract to use such Intellectual Property, and (ii) to Seller's Knowledge, such Intellectual Property is not being infringed by any other Person. Seller has not received notice that it is infringing any Intellectual Property of any other Person in connection with the operation or business of the Purchased Assets, and Seller to its Knowledge, is not infringing any Intellectual Property of any other Person the effect of which, individually or in the aggregate, would have a Material Adverse Effect. 4.17 Capital Expenditures. Except as set forth in Schedule 36 6.1, there are no capital expenditures associated with the Purchased Assets that are planned by Seller through December 31, 1999. 4.18 Compliance With Laws. Seller is in compliance with all applicable laws, rules and regulations with respect to the ownership or operation of the Purchased Assets except where the failure to be in compliance would not, individually or in the aggregate, create a Material Adverse Effect. 4.19 PUHCA. Seller is a wholly owned subsidiary of GPU, Inc., which is a holding company registered under the Public Utility Holding Company Act of 1935. 4.20 DISCLAIMERS REGARDING PURCHASED ASSETS. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED ASSETS ARE SOLD "AS IS, WHERE IS", AND SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO LIABILITIES, OPERATIONS OF THE PLANTS, THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF THE PURCHASED ASSETS AND SELLER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING BUT NOT LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER SELLER POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER FURTHER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE CONDITION OF THE PURCHASED ASSETS OR THE SUITABILITY OF THE PURCHASED ASSETS FOR OPERATION AS A POWER PLANT AND NO SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION PROVIDED BY OR COMMUNICATIONS MADE BY SELLER OR ITS REPRESENTATIVES, OR BY ANY BROKER OR INVESTMENT BANKER, WILL CAUSE OR CREATE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS. Seller makes no warranties and representations of any kind, whether direct or implied, that any of the hardware, software, and firmware products (including embedded microcontrollers in non-computer equipment) which may be included in the Purchased 37 Assets to be transferred under this Agreement (the "Computer Systems") is Year 2000 Compliant. For purposes hereof, "Year 2000 Compliant" shall mean that the Computer Systems will correctly differentiate between years, in different centuries, that end in the same two digits, and will accurately process date/time data (including, but not limited to, calculating, comparing, and sequencing) from, into, and between the twentieth and twenty-first centuries, including leap year calculations. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: 5.1 Organization. Buyer is a Delaware corporation, duly organized, validly existing and in good standing under the laws of the state of its organization and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as is now being conducted. Buyer is, or by the Closing will be, qualified to do business in the State of New Jersey. Buyer has heretofore delivered to Seller complete and correct copies of its Certificate of Incorporation and Bylaws (or other similar governing documents) as currently in effect. 5.2 Authority Relative to this Agreement. Buyer has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by it hereby. The execution and delivery of this Agreement by Buyer and the consummation of the transactions contemplated hereby by Buyer has been duly and validly authorized by all necessary corporate action required on the part of Buyer. This Agreement have been duly and validly executed and delivered by Buyer. Subject to the receipt of Buyer Required Regulatory Approvals, this Agreement constitutes a legal, valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 5.3 Consents and Approvals; No Violation. (a) Except as set forth in Schedule 5.3(a), and subject to obtaining Buyer Required Regulatory Approvals, neither the execution and delivery of this Agreement by Buyer nor the consummation by Buyer of the transactions contemplated hereby 38 will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws (or other similar governing documents) of Buyer, or (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Buyer or any of its Subsidiaries is a party or by which any of their respective assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, have a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Buyer ("Buyer Material Adverse Effect") or (iii) violate any law, regulation, order, judgment or decree applicable to Buyer, which violations, individually or in the aggregate, would create a Buyer Material Adverse Effect. (b) Except as set forth in Schedule 5.3(b) (the filings and approvals referred to in such Schedule are collectively referred to as the "Buyer Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for Buyer's execution and delivery of this Agreement, or the consummation by Buyer of the transactions contemplated hereby, other than such consents, approvals, filings or notices, which, if not obtained or made, will not prevent Buyer from performing its obligations under this Agreement. 5.4 Availability of Funds. Buyer has sufficient funds and lines of credit available to it or has received binding written commitments from creditworthy financial institutions, copies of which have been provided to Seller, to provide sufficient funds on the Closing Date to pay the Purchase Price and to permit Buyer to timely perform all of its obligations under this Agreement. 5.5 Legal Proceedings. There are no actions or proceedings pending against Buyer before any court or arbitrator or Governmental Authority, which, individually or in the aggregate, could reasonably be expected to create a Buyer Material Adverse Effect. Buyer is not subject to any outstanding judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator or Governmental Authority which would, individually or in the aggregate, create a Buyer Material Adverse Effect. 5.6 No Knowledge of Seller's Breach. Buyer has no Knowledge of any breach by Seller of any representation or warranty of Seller, or of any other condition or circumstance that would excuse Buyer from its timely performance of its 39 obligations hereunder. Buyer shall notify Seller promptly if any such information comes to its attention prior to the Closing. 5.7 Qualified Buyer. Buyer is qualified to obtain any Permits and Environmental Permits necessary for Buyer to own and operate the Purchased Assets as of the Closing. Without limiting the foregoing, Buyer is not aware of any reason or circumstance that would prevent Buyer from procuring Buyer Required Regulatory Approvals associated with Exempt Wholesale Generator (as defined in the Public Utility Holding Company Act of 1935) status and market-based rate authorization specified in items 3 and 2 of Schedule 5.3(b). 5.8 Inspections. Without limitation of Seller's representations, warranties and covenants contained in this Agreement or the Ancillary Agreements, Buyer acknowledges and agrees that it has, prior to its execution of this Agreement, (i) reviewed the Environmental Reports, (ii) had full opportunity to conduct to its satisfaction Inspections of the Purchased Assets, including the Sites, and (iii) fully completed and approved the results of all Inspections of the Purchased Assets. Subject to the restrictions set forth in Section 6.2(a), Buyer acknowledges that it is satisfied through such review and Inspections that no further investigation and study on or of the Sites is necessary for the purposes of acquiring the Purchased Assets for Buyer's intended use. Buyer acknowledges and agrees that it hereby assumes the risk that adverse past, present, and future physical characteristics and Environmental Conditions may not have been revealed by its Inspections and the investigations of the Purchased Assets contained in the Environmental Reports. In making its decision to execute this Agreement, and to purchase the Purchased Assets, Buyer has relied on and will rely upon, among other things, the results of its Inspections and the Environmental Reports. 5.9 WARN Act. Buyer does not intend to engage in a Plant Closing or Mass Layoff as such terms are defined in the WARN Act within sixty days of the Closing Date. ARTICLE VI COVENANTS OF THE PARTIES 6.1 Conduct of Business Relating to the Purchased Assets. (a) Except as described in Schedule 6.1 or as expressly contemplated by this Agreement or to the extent Buyer otherwise consents in writing, during the period from the date of this Agreement to the Closing Date, Seller (i) will operate the 40 Purchased Assets in the ordinary course of business consistent with the past practices of Seller, or its Affiliates or with Good Utility Practices, (ii) shall use all Commercially Reasonable Efforts to preserve intact such Purchased Assets, and endeavor to preserve the goodwill and relationships with customers, suppliers and others having business dealings with it, (iii) shall maintain the insurance coverage described in Section 4.4, (iv) shall comply with all applicable laws relating to the Purchased Assets, including without limitation, all Environmental Laws, except where the failure to so comply would not result in a Material Adverse Effect, and (v) shall continue with Seller's program, or (at Buyer's expense) as Buyer may direct, to install such equipment or software with respect to Year 2000 Compliance in accordance with Seller's plans referred to in Section 2.1(k). Without limiting the generality of the foregoing, and, except as (x) contemplated in this Agreement, (y) described in Schedule 6.1, or (z) required under applicable law or by any Governmental Authority, prior to the Closing Date, without the prior written consent of Buyer, Seller shall not with respect to the Purchased Assets: (i) Make any material change in the levels of Inventories customarily maintained by Seller or its Affiliates with respect to the Purchased Assets, other than changes which are consistent with Good Utility Practices; (ii) Sell, lease (as lessor), encumber, pledge, transfer or otherwise dispose of, any material Purchased Assets individually or in the aggregate (except for Purchased Assets used, consumed or replaced in the ordinary course of business consistent with past practices of Seller or its Affiliates or with Good Utility Practices) other than to encumber Purchased Assets with Permitted Encumbrances; (iii) Modify, amend or voluntarily terminate prior to the expiration date any of Seller's Agreements or Real Property Leases or any of the Permits or Environmental Permits associated with such Purchased Assets in any material respect, other than (a) in the ordinary course of business, to the extent consistent with the past practices of Seller or its Affiliates or with Good Utility Practices, (b) with cause, to the extent consistent with past practices of Seller or its Affiliates or with Good Utility Practices, or (c) as may be required in connection with transferring Seller's rights or obligations thereunder to Buyer pursuant to this Agreement; (iv) Except as otherwise provided herein, enter into any commitment for the purchase, sale, or transportation of fuel having a term greater than six months 41 and not terminable on or before the Closing Date either (i) automatically, or (ii) by option of Seller (or, after the Closing, by Buyer) in its sole discretion, if the aggregate payment under such commitment for fuel and all other outstanding commitments for fuel not previously approved by Buyer would exceed $1,000,000 for all Aggregate Purchased Assets; (v) Sell, lease or otherwise dispose of Emission Allowances, or Emission Reduction Credits identified in Schedule 2.1(h), except to the extent necessary to operate the Purchased Assets in accordance with this Section 6.1; (vi) Except as otherwise provided herein, enter into any contract, agreement, commitment or arrangement relating to the Purchased Assets that individually exceeds $250,000 or in the aggregate exceeds $1,000,000 unless it is terminable by Seller (or, after the Closing, by Buyer) without penalty or premium upon no more than sixty (60) days notice; (vii) Except as otherwise required by the terms of the Collective Bargaining Agreement, (a) hire at, or transfer to the Purchased Assets, any new employees prior to the Closing, other than to fill vacancies in existing positions in the reasonable discretion of Seller, (b) increase salaries or wages of employees employed in connection with the Purchased Assets prior to the Closing other than in the ordinary course of business and in accordance with Seller's past practices, (c) take any action prior to the Closing to effect a change in a Collective Bargaining Agreement, or (d) take any action prior to the Closing to increase the aggregate benefits payable to the employees employed in connection with the Purchased Assets other than increases for Non-Union Employees in the ordinary course of business and in accordance with Seller's past practices or (e) enter into any employment contracts with employees at the Purchased Assets or any collective bargaining agreements with labor organizations representing such employees; (viii) Make any Capital Expenditures except as permitted by Section 3.3(a)(iii) or for Seller's account; and (ix) Except as otherwise provided herein, enter into any written or oral contract, agreement, commitment or arrangement with respect to any of the proscribed 42 transactions set forth in the foregoing paragraphs (i) through (viii). 6.2 Access to Information. (a) Between the date of this Agreement and the Closing Date, Seller will, at reasonable times and upon reasonable notice: (i) give Buyer and its Representatives reasonable access to its managerial personnel and to all books, records, plans, equipment, offices and other facilities and properties constituting the Purchased Assets; (ii) furnish Buyer with such financial and operating data and other information with respect to the Purchased Assets as Buyer may from time to time reasonably request, and permit Buyer to make such reasonable Inspections thereof as Buyer may request; (iii) furnish Buyer at its request a copy of each material report, schedule or other document filed by Seller or any of its Affiliates with respect to the Purchased Assets with the SEC, FERC, NJDEP, NJBPU or any other Governmental Authority; and (iv) furnish Buyer with all such other information as shall be reasonably necessary to enable Buyer to verify the accuracy of the representations and warranties of Seller contained in this Agreement; provided, however, that (A) any such inspections and investigations shall be conducted in such a manner as not to interfere unreasonably with the operation of the Purchased Assets, (B) Seller shall not be required to take any action which would constitute a waiver of the attorney-client privilege, and (C) Seller need not supply Buyer with any information which Seller is under a legal or contractual obligation not to supply. Notwithstanding anything in this Section 6.2 to the contrary, Seller will only furnish or provide such access to Transferring Employee Records and will not furnish or provide access to other employee personnel records or medical information unless required by law or specifically authorized by the affected employee, nor shall Buyer have the right to administer to any of Seller's employees any skills, aptitudes, psychological profile, or other employment related test. Buyer shall not have the right to perform or conduct any environmental sampling or testing at, in, on, or underneath the Purchased Assets. (b) Each Party shall, and shall use its best efforts to cause its Representatives to, (i) keep all Proprietary Information of the other Party confidential and not to disclose or reveal any such Proprietary Information to any person other than such Party's Representatives and (ii) not use such Proprietary Information other than in connection with the consummation of the transactions contemplated hereby. After the Closing Date, any Proprietary Information to the extent related to the Purchased Assets shall no longer be subject to the restrictions set forth herein. The obligations of the Parties 43 under this Section 6.2(b) shall be in full force and effect for three (3) years from the date hereof and will survive the termination of this Agreement, the discharge of all other obligations owed by the Parties to each other and the closing of the transactions contemplated by this Agreement. (c) For a period of seven (7) years after the Closing Date (or such longer period as may be required by applicable law or Section 6.8(f)), each Party and its Representatives shall have reasonable access to all of the books and records of the Purchased Assets, including all Transferring Employee Records in the possession of the other Party to the extent that such access may reasonably be required by such Party in connection with the Assumed Liabilities or the Excluded Liabilities, or other matters relating to or affected by the operation of the Purchased Assets. Such access shall be afforded by the Party in possession of any such books and records upon receipt of reasonable advance written notice and during normal business hours. The Party exercising this right of access shall be solely responsible for any costs or expenses incurred by it or the other Party with respect to such access pursuant to this Section 6.2(c). If the Party in possession of such books and records shall desire to dispose of any books and records upon or prior to the expiration of such seven-year period (or any such longer period), such Party shall, prior to such disposition, give the other Party a reasonable opportunity at such other Party's reasonable expense, to segregate and remove such books and records as such other Party may select. (d) Notwithstanding the terms of Section 6.2(b) above, the Parties agree that prior to the Closing Buyer may reveal or disclose Proprietary Information to any other Persons in connection with Buyer's financing of its purchase of the Purchased Assets or any equity participation in Buyer's purchase of the Purchased Assets (provided that such Persons agree in writing to maintain the confidentiality of the Proprietary Information in accordance with this Agreement). (e) Upon the other Party's prior written approval (which will not be unreasonably withheld or delayed), either Party may provide Proprietary Information of the other Party to the NJBPU, the SEC, the FERC or any other Governmental Authority with jurisdiction or any stock exchange, as may be necessary to obtain Seller's Required Regulatory Approvals, or Buyer Required Regulatory Approvals, respectively, or to comply generally with any relevant law or regulation. The disclosing Party will seek confidential treatment for the Proprietary Information provided to any Governmental Authority and the disclosing Party will 44 notify the other Party as far in advance as is practicable of its intention to release to any Governmental Authority any Proprietary Information. (f) Except as specifically provided herein or in the Confidentiality Agreement, nothing in this Section shall impair or modify any of the rights or obligations of Buyer or its Affiliates under the Confidentiality Agreement, all of which remain in effect until termination of such agreement in accordance with its terms. (g) Except as may be permitted in the Confidentiality Agreement, Buyer agrees that, prior to the Closing Date, it will not contact any vendors, suppliers, employees, or other contracting parties of Seller or its Affiliates with respect to any aspect of the Purchased Assets or the transactions contemplated hereby, without the prior written consent of Seller, which consent shall not be unreasonably withheld. (h) (i) Buyer shall be entitled to inspect, in accordance with this Section 6.2(h), all of the Purchased Assets located adjacent to any Point of Interconnection (as defined in the Interconnection Agreement), as shown in Schedule A to the Interconnection Agreement, to verify and/or determine the accuracy of the data, drawings, and records described in such Schedule. The Parties shall cooperate to schedule Buyer's inspection at the Plants so that any interference with the operation of the Plants is minimized, to the extent reasonably feasible, and so that Buyer may complete its inspections of the Plants within thirty (30) working days of commencement of inspections and within two (2) months after the execution of this Agreement. (ii) Seller shall provide, or shall cause to be provided, to Buyer, access to the Plants at the times scheduled for the inspections referred to in clause (i) above. Seller shall provide qualified engineering, operations, and maintenance personnel to escort Buyer's personnel and to assist Buyer's personnel in conducting the inspections. Seller and Buyer shall each bear their own costs of participating in the inspections. At a mutually convenient time not more than one (1) month after Buyer has completed its inspections, the Parties shall meet to discuss whether, as a result of the inspections, it is appropriate to modify Schedule A to the Interconnection Agreement to portray more accurately the Points of Interconnection. Any modification to any portion of Schedule A of the Interconnection Agreement to which the Parties agree shall thereafter be deemed part of Schedule A of the Interconnection Agreement for all purposes under the Interconnection Agreement. 45 6.3 Public Statements. Subject to the requirements imposed by any applicable law or any Governmental Authority or stock exchange, prior to the Closing Date, no press release or other public announcement or public statement or comment in response to any inquiry relating to the transactions contemplated by this Agreement shall be issued or made by any Party without the prior approval of the other Parties (which approval shall not be unreasonably withheld). The Parties agree to cooperate in preparing such announcements. 6.4 Expenses. Except to the extent specifically provided herein, whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the Party incurring such costs and expenses. Notwithstanding anything to the contrary herein, Buyer will be responsible for (a) all costs and expenses associated with the obtaining of any title insurance policy and all endorsements thereto that Buyer elects to obtain and (b) all filing fees under the HSR Act. 6.5 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the Parties hereto shall use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the purchase and sale of the Purchased Assets pursuant to this Agreement and the assumption of the Assumed Liabilities, including without limitation using its best efforts to ensure satisfaction of the conditions precedent to each Party's obligations hereunder, including obtaining all necessary consents, approvals, and authorizations of third parties and Governmental Authorities required to be obtained in order to consummate the transactions hereunder, and to effectuate a transfer of the Transferable Permits to Buyer. Buyer agrees to perform all conditions required of Buyer in connection with Seller's Required Regulatory Approvals, other than those conditions which would create a Buyer Material Adverse Effect. Neither of the Parties hereto shall, without prior written consent of the other Party, take or fail to take any action, which might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. (b) Buyer agrees that prior to the Closing Date, neither Buyer nor any of its Affiliates will enter into any other contract to acquire, nor acquire, electric generation facilities located in the control area recognized by the North American 46 Reliability Council as the PJM Control Area if the proposed acquisition of such additional electric generation facilities might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. Buyer shall give Seller reasonable advance notice (and in any event not less than 30 days) before Buyer enters into contracts to acquire or acquires any electric generation facility located in said PJM Control Area. (c) In the event that any Purchased Asset shall not have been conveyed to Buyer at the Closing, Seller shall, subject to Section 6.5(d) and (e), use Commercially Reasonable Efforts to convey such asset to Buyer as promptly as is practicable after the Closing. In the event that any Easement shall not have been granted by Buyer to Seller at the Closing, Buyer shall use Commercially Reasonable Efforts to grant such Easement to Seller as promptly as is practicable after the Closing. (d) To the extent that Seller's rights under any Seller's Agreement or Real Property Lease may not be assigned without the consent of another Person which consent has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign the same, if an attempted assignment would constitute a breach thereof or be unlawful. Seller and Buyer agree that if any consent to an assignment of any material Seller's Agreement or Real Property Lease shall not be obtained or if any attempted assignment would be ineffective or would impair Buyer's rights and obligations under the material Seller's Agreement or Real Property Lease in question, so that Buyer would not in effect acquire the benefit of all such rights and obligations, Seller, at Buyer's option and to the maximum extent permitted by law and such material Seller's Agreement or Real Property Lease, shall, after the Closing Date, appoint Buyer to be Seller's agent with respect to such material Seller's Agreement or Real Property Lease, or, to the maximum extent permitted by law and such material Seller's Agreement or Real Property Lease, enter into such reasonable arrangements with Buyer or take such other actions as are necessary to provide Buyer with the same or substantially similar rights and obligations of such material Seller's Agreement or Real Property Lease as Buyer may reasonably request. Seller and Buyer shall cooperate and shall each use Commercially Reasonable Efforts prior to and after the Closing Date to obtain an assignment of such material Seller's Agreement or Real Property Lease to Buyer. (e) To the extent that Seller's rights under any warranty or guaranty described in Section 2.1(i) may not be assigned without the consent of another Person, which consent has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign same, if an attempted 47 assignment would constitute a breach thereof, or be unlawful. Seller and Buyer agree that if any consent to an assignment of any such warranty or guaranty shall not be obtained, or if any attempted assignment would be ineffective or would impair Buyer's rights and obligations under the warranty or guaranty in question, so that Buyer would not in effect acquire the benefit of all such rights and obligations, Seller, at Buyer's expense, shall use Commercially Reasonable Efforts, to the extent permitted by law and such warranty or guaranty, to enforce such warranty or guaranty for the benefit of Buyer so as to provide Buyer to the maximum extent possible with the benefits and obligations of such warranty or guaranty. (f) Between the date hereof and the Closing, Buyer shall have the right to commence the regulatory approval processes associated with the construction and operation of new, modified or repowered electric generating units and associated equipment at the Real Property. Seller shall provide reasonable assistance to Buyer, under Buyer's reasonable direction, in obtaining all Permits required (i) to own and operate the Purchased Assets as contemplated by the Agreement and the Ancillary Agreements and (ii) to construct and operate such new or modified facilities, provided, however, that Buyer shall reimburse Seller for all reasonable costs incurred by Seller in its assistance of Buyer hereunder. (g) Seller agrees to use Commercially Reasonable Efforts (consistent with the PJM Regional Transmission Expansion Protocol) to assist Buyer, at Buyer's sole expense, in Buyer's efforts to increase the generation capacity at Forked River and to interconnect any such new Forked River capacity with PJM as soon as practicable. To the extent that Seller plans to decommission certain of Seller's generation capacity at Oyster Creek, Seller further agrees to use Commercially Reasonable Efforts (consistent with the PJM Regional Transmission Expansion Protocol) to allow such new Forked River capacity to replace (by assignment or otherwise) the decommissioned Oyster Creek generation capacity (for interconnection purposes with PJM) so as to minimize Buyer's interconnection costs for any such new Forked River capacity. 6.6 Consents and Approvals. (a) As promptly as possible after the date of this Agreement, Seller and Buyer, as applicable, shall each file or cause to be filed with the Federal Trade Commission and the United States Department of Justice any notifications required to be filed under the HSR Act and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. The Parties shall use their respective best 48 efforts to respond promptly to any requests for additional information made by either of such agencies, and to cause the waiting periods under the HSR Act to terminate or expire at the earliest possible date after the date of filing. Buyer will pay all filing fees under the HSR Act but each Party will bear its own costs of the preparation of any filing. (b) As promptly as possible after the date of this Agreement, Buyer shall file with the FERC an application requesting Exempt Wholesale Generator status for Buyer, which filing may be made individually by Buyer or jointly with Seller in conjunction with other filings to be made with the FERC under this Agreement, as reasonably determined by the Parties. Prior to Buyer's submission of that application with the FERC, Buyer shall submit such application to Seller for review and comment and Buyer shall incorporate into the application any revisions reasonably requested by Seller. Buyer shall be solely responsible for the cost of preparing and filing this application, any petition(s) for rehearing, or any re-application. If Buyer's initial application for Exempt Wholesale Generator status is rejected by the FERC, Buyer agrees to petition the FERC for rehearing and/or to re-submit an application with the FERC, as reasonably required by Seller, provided that in either case the action directed by Seller does not create a Buyer Material Adverse Effect. (c) As promptly as possible after the date of this Agreement, Buyer shall file with the FERC an application requesting authorization under Section 205 of the Federal Power Act to sell electric generating capacity and energy, but not other services, including, without limitation, ancillary services, at wholesale at market-based rates, which filing may be made individually by Buyer or jointly with Seller in conjunction with other filings to be made with the FERC under this Agreement, as reasonably determined by the Parties. Prior to the filing of that application with the FERC, Buyer shall submit such application to Seller for review and comment and Buyer shall incorporate into the application any revisions reasonably requested by Seller. Buyer shall be solely responsible for the cost of preparing and filing this application, any petition(s) for rehearing, or any reapplication. If Buyer's initial application for market-based rate authorization results in a FERC request for additional information or is rejected by the FERC, Buyer shall provide that information promptly, to petition the FERC for rehearing and/or to re-submit an application with the FERC, as reasonably required by Seller, provided that Seller shall have a reasonable opportunity to make changes to such a petition or re-submission application and, provided further, that the action directed by Seller does not create a Buyer Material Adverse Effect. 49 (d) As promptly as possible, and in any case within sixty (60) days, after the date of this Agreement, Seller and Buyer, as applicable, shall file with the NJBPU, the FERC and any other Governmental Authority, and make any other filings required to be made with respect to the transactions contemplated hereby. The Parties shall respond promptly to any requests for additional information made by such agencies, and use their respective best efforts to cause regulatory approval to be obtained at the earliest possible date after the date of filing. Each Party will bear its own costs of the preparation of any such filing. (e) Without limitation of Section 10.11, Seller and Buyer shall cooperate with each other and promptly prepare and file notifications with, and request Tax clearances from, state and local taxing authorities in jurisdictions in which a portion of the Purchase Price may be required to be withheld or in which Buyer would otherwise be liable for any Tax liabilities of Seller pursuant to such state and local Tax law. (f) Buyer shall have the primary responsibility for securing the transfer, reissuance or procurement of the Permits and Environmental Permits (other than Transferable Permits) effective as of the Closing Date. Seller shall cooperate with Buyer's efforts in this regard and assist in any transfer or reissuance of a Permit or Environmental Permit held by Seller or the procurement of any other Permit or Environmental Permit when so requested by Buyer. 6.7 Fees and Commissions. Seller, on the one hand, and Buyer, on the other hand, represent and warrant to the other that, except for Goldman, Sachs & Co., which are acting for and at the expense of Seller, no broker, finder or other Person is entitled to any brokerage fees, commissions or finder's fees in connection with the transaction contemplated hereby by reason of any action taken by the Party making such representation. Seller, on the one hand, and Buyer, on the other hand, will pay to the other or otherwise discharge, and will indemnify and hold the other harmless from and against, any and all claims or liabilities for all brokerage fees, commissions and finder's fees (other than the fees, commissions and finder's fees payable to the parties listed above) incurred by reason of any action taken by the indemnifying party. 6.8 Tax Matters. (a) All transfer and sales taxes incurred in connection with this Agreement and the transactions contemplated hereby (including, without limitation, (a) New Jersey sales tax; and (b) the New Jersey realty transfer taxes on conveyances of interests in real property, shall be borne by Buyer. Seller 50 shall file, to the extent required by, or permissible under, applicable law, all necessary Tax Returns and other documentation with respect to all such transfer and sales taxes, and, if required by applicable law, Buyer shall join in the execution of any such Tax Returns and other documentation. Prior to the Closing Date, to the extent applicable, Buyer shall provide to Seller appropriate certificates of Tax exemption from each applicable taxing authority. (b) With respect to Taxes to be prorated in accordance with Section 3.5 of this Agreement, Buyer shall prepare and timely file all Tax Returns required to be filed after the Closing Date with respect to the Purchased Assets, if any, and shall duly and timely pay all such Taxes shown to be due on such Tax Returns. Buyer's preparation of any such Tax Returns shall be subject to Seller's approval, which approval shall not be unreasonably withheld. Buyer shall make such Tax Returns available for Seller's review and approval no later than fifteen (15) Business Days prior to the due date for filing each such Tax Return. (c) Within fifteen (15) Business Days after receipt of a Tax Return referred to in Section 6.8(b), Seller shall pay to Buyer Seller's share of the amount shown on such Tax Return, less payments on account of such Taxes previously made by Seller. To the extent that Seller's previous payments exceed Seller's share, the Buyer shall pay such excess to Seller. With respect to real estate taxes, evidence of payment shall be delivered by Seller to Buyer at the Closing. (d) Buyer and Seller shall provide the other with such assistance as may reasonably be requested by the other Party in connection with the preparation of any Tax Return, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to liability for Taxes, and each shall retain and provide the requesting party with any records or information which may be relevant to such return, audit, examination or proceedings. Any information obtained pursuant to this Section 6.8(d) or pursuant to any other Section hereof providing for the sharing of information or review of any Tax Return or other instrument relating to Taxes shall be kept confidential by the parties hereto. Schedule 6.8 sets forth procedures to be followed with respect to the tax appeals and audits referred to therein. (e) Disputes. In the event that a dispute arises between Seller and Buyer as to the amount of Taxes, or indemnification, or the amount of any allocation of Purchase Price under Section 3.4 hereof, the parties shall attempt in good faith to resolve such dispute, and any agreed upon amount shall 51 be paid to the appropriate party. If such dispute is not resolved 30 days thereafter, the parties shall submit the dispute to the Independent Accounting firm for resolution, which resolution shall be final, conclusive and binding on the parties. Notwithstanding anything in this Agreement to the contrary, the fees and expenses of the Independent Accounting Firm in resolving the dispute shall be borne equally by Seller and Buyer. Any payment required to be made as a result of the resolution of the dispute by the Independent Accounting firm shall be made within ten days after such resolution, together with any interest determined by the Independent Accounting Firm to be appropriate. (f) Cooperation. Buyer and Seller shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns pursuant to this Agreement and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other Party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees (to the extent such employees were responsible for the preparation, maintenance or interpretation of information and documents relevant to Tax matters or to the extent required as witnesses in any Tax proceedings), available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Parties agree to give the other Party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Party so requests, Buyer or Seller, as the case may be, shall allow the other Party to take possession of such books and records. Buyer and Seller further agree, upon request, to use their best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). 6.9 Advice of Changes. Prior to the Closing, each Party will promptly advise the other in writing with respect to any matter arising after execution of this Agreement of which that Party obtains Knowledge and which, if existing or occurring at the date of this Agreement, would have been required to be set forth in this Agreement, including any of the Schedules hereto. Seller may at any time notify Buyer of any development causing a breach of any of its representations and warranties in Article IV. Unless Buyer has the right to terminate this Agreement pursuant to Section 9.1(f) below by reason of the developments and exercises that right within the period of fifteen (15) days after such right accrues, the written notice pursuant to this 52 Section 6.9 will be deemed to have amended this Agreement, including the appropriate Schedule, to have qualified the representations and warranties contained in Article IV above, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the development. 6.10 Employees. (a) At least 90 days prior to the Closing Date (but in no case sooner than ninety (90) days after the date hereof), Buyer shall provide Seller with notice of its Union Employee staffing level requirements (which Buyer may determine in its sole discretion), listed by classification and operation, and shall be required to make reasonable efforts to offer employment to that number of Union Employees necessary to satisfy such staffing level requirements. As used herein, "Union Employees" means such employees of Seller who are covered by a Collective Bargaining Agreement as defined in Section 6.10(d) below, and who are listed in, or whose employment responsibilities are listed in, Schedule 6.10(a)(i) as "Plant Employees" or "Dedicated Support Staff" as associated with the Plants purchased by Buyer. Any offers of employment shall be made at least 60 days prior to the Closing Date. In each classification, Union Employees shall be so offered employment in order of their seniority. (b) Buyer is also entitled to determine its Non-Union Employee staffing level requirements in its sole discretion, and shall make reasonable efforts to make offers of employment with Buyer or any of its Affiliates, effective on the Closing Date, to Non-Union Employees consistent with such staffing levels. As used herein, "Non-Union Employees" means such salaried employees of Seller, Genco, GPUN or GPUS who are listed in, or whose employment responsibilities are listed in, Schedule 6.10(b) as "Plant Employees" or "Dedicated Support Staff". Any offers of employment shall be made at least sixty (60) days prior to the Closing Date. Each person who becomes employed by Buyer or any of its Affiliates pursuant to Section 6.10(a) or (b) (whether pursuant to a Qualifying Offer or otherwise) shall be referred to herein as a "Transferred Union Employee" or "Transferred Non-Union Employee", respectively. At least forty-five (45) days prior to the Closing Date, Buyer shall provide Seller with notice of those Non-Union Employees to whom it made a Qualifying Offer. As used herein, the term "Qualifying Offer" means an offer of employment at an annual level of compensation that is at least 85% of the employee's current total annual cash compensation (consisting of base salary and target incentive bonus) at the time the offer is made. Schedule 6.10(b) sets forth, for each of the Non-Union Employees listed therein, his or her current base salaries and target incentive bonuses. 53 (c) All offers of employment made pursuant to Sections 6.10(a) or (b) shall be made in accordance with all applicable laws and regulations, and in addition, for Union Employees, in accordance with seniority and all other applicable provisions of the Collective Bargaining Agreement. (d) Schedule 6.10(d) sets forth the collective bargaining agreement, and amendments thereto, to which Seller is a party with the Union in connection with the Purchased Assets ("Collective Bargaining Agreement"). Transferred Union Employees shall retain their seniority and receive full credit for service with Seller in connection with entitlement to vacation and all other benefits and rights under the Collective Bargaining Agreement and under each compensation, retirement or other employee benefit plan or program Buyer is required to maintain for Transferred Union Employees pursuant to the Collective Bargaining Agreement. With respect to Transferred Union Employees, effective as of the Closing Date, Buyer shall assume the Collective Bargaining Agreement for the duration of its term as it relates to Transferred Union Employees to be employed at the Plants in positions covered by the Collective Bargaining Agreement and shall thereafter comply with all applicable obligations under the Collective Bargaining Agreement. Consistent with its obligations under the Collective Bargaining Agreement and applicable laws, Buyer shall be required to establish and maintain a pension plan and other employee benefit programs for the Transferred Union Employees for the duration of the term of the Collective Bargaining Agreement which are substantially equivalent to Seller's plans and programs in effect for the Transferred Union Employees immediately prior to the Closing Date (the "Seller's Plans"), and which provide at least the same level of benefits or coverage as do Seller's Plans for the duration of the Collective Bargaining Agreement. Buyer further agrees to recognize the Union as the collective bargaining agent for the applicable Transferred Union Employees. (e) Transferred Non-Union Employees shall be eligible to commence participation in welfare benefit plans of Buyer or its Affiliates as may be made available by Buyer (the "Replacement Welfare Plans"). Buyer shall (i) waive all limitations as to pre-existing condition exclusions and waiting periods with respect to the Transferred Non-Union Employees under the Replacement Welfare Plans, other than, but only to the extent of, limitations or waiting periods that were in effect with respect to such employees under the welfare plans maintained by Seller, Genco, GPUN or GPUS or their Affiliates and that have not been satisfied as of the Closing Date, and (ii) provide each Transferred Non-Union Employee with credit for any co-payments and deductibles paid prior to the Closing Date in satisfying any 54 deductible or out-of-pocket requirements under the Replacement Welfare Plans (on a pro-rata basis in the event of a difference in plan years). (f) Transferred Non-Union Employees shall be given credit for all service with Seller, Genco, GPUN, GPUS and their Affiliates under all deferred compensation, profit-sharing, 401(k), retirement pension, incentive compensation, bonus, fringe benefit and other employee benefit plans, programs and arrangements of Buyer ("Buyer Benefit Plans") in which they may become participants. The service credit so given shall be for purposes of eligibility and vesting, but shall not be for purposes of level of benefits and benefit accrual except to the extent that the Buyer Benefit Plans otherwise provide. (g) To the extent allowable by law, Buyer shall take any and all necessary action to cause the trustee of any defined contribution plan of Buyer or its Affiliates in which any Transferred Employee becomes a participant to accept a direct "rollover" of all or a portion of said employee's "eligible rollover distribution" within the meaning of Section 402 of the Code from the GPU Companies Employee Savings Plan for Non-Bargaining Employees or from the Employee Savings Plan for Bargaining Unit Employees maintained by JCP&L, Met-Ed or Penelec (the "Seller's Savings Plans") if requested to do so by the Transferred Employee. Buyer agrees that the property so rolled over and the assets so transferred may include promissory notes evidencing loans from Seller's Savings Plans to Transferred Employees that are outstanding as of the Closing Date. However, except as otherwise provided in Section 6.10(d), any defined contribution plan of Buyer or its Affiliates accepting such a rollover or transfer shall not be required to make any further loans to any Transferred Employee after the Closing Date. (h) Buyer shall pay or provide to Transferred Employees the benefits described in subparagraphs (i), (ii) and (iii) of this Section 6.10(h), and shall reimburse Seller for the cost of the benefits Seller or Seller's Affiliates will provide to Union Employees and Non-Union Employees in accordance with subparagraph (iv) of this Section 6.10(h). (i) Buyer shall make a transition incentive payment in the amount of $2,500 to each Transferred Union Employee. Payment shall be made as soon as practicable after, but in any event no later than 60 days following, the Closing Date. (ii) In the case of each Transferred Non-Union Employee who is initially assigned by Buyer to a principal place of work that is at least 50 miles farther from the 55 employee's principal residence than was his principal place of work immediately prior to the Closing Date and who relocates his or her principal residence to the vicinity of his or her new principal place of work within 12 months following the Closing Date, Buyer shall reimburse the employee for all "moving expenses" within the meaning of Section 217(b) of the Code incurred by the employee and other members of his or her household in connection with such relocation, up to a maximum aggregate amount of $5,000. Claims for reimbursement for such expenses shall be filed in accordance with such procedures, and shall be accompanied by such substantiation of the expenses for which reimbursement is sought, as Buyer may reasonably request. All claims for reimbursement shall be processed, and qualifying expenses shall be reimbursed, as soon as practicable after, but in any event no later than 60 days following, the date on which the employee's claim for reimbursement is submitted to Buyer. (iii) Buyer shall provide the severance benefits described in Section 1 of Schedule 6.10(h) to each Transferred Employee who is "Involuntarily Terminated" (as defined below) (a) within 12 months after the Closing Date or (b), in the case of any Transferred Non-Union Employee who had attained age 50 and had completed at least 10 Years of Service (as defined in Section 1(c) of Schedule 6.10(h)) prior to the Closing Date, on or any time prior to June 30, 2004. For purposes of this Section 6.10(h) and Schedule 6.10(h), a Transferred Employee shall be treated as "Involuntarily Terminated" if his or her employment with Buyer and all of its Affiliates is terminated by Buyer or any of its Affiliates for any reason other than for cause or disability. Buyer shall require any Transferred Employee who is Involuntarily Terminated, as a condition to receiving the severance benefits described in Section 1(b), (c), (d), (e) and (f) of Schedule 6.10(h), to execute a release of claims against Seller, Genco, GPUN or GPUS, as applicable, and all of their Affiliates, and Buyer, in such form as Buyer and Seller shall agree upon. (iv) At the Closing or as soon thereafter as practicable, but in any event no later than 60 days following the Closing Date, Buyer shall pay to Seller, in addition to all other amounts to be paid by Buyer to Seller hereunder, an amount equal to Buyer's Allocable Share (as defined below) of the aggregate estimated cost that Seller or any of Seller's Affiliates will or may incur in providing the severance, pension, health care and group term life insurance benefits described in Section 2 of Schedule 6.10(h) to the Union Employees and Non-Union Employees 56 therein described (collectively the "Termination Benefits"). The estimated cost of such benefits shall be calculated by the actuarial firm regularly engaged to provide actuarial services to the GPU Companies with respect to their pension, health care and life insurance plans, and shall be determined using the same assumptions as to mortality, turnover, interest rate and other actuarial assumption as used by such firm in determining the cost of benefits under the GPU Companies' pension, health and group term life insurance plans for purposes of their most recently issued financial statements prior to the Closing Date. For purposes of the foregoing, Buyer's "Allocable Share" shall be calculated as set forth in Schedule 6.10(h)(iv). (i) Buyer shall not be responsible for any payments required under any voluntary early retirement plan, program or arrangement offered by Seller, Genco, GPUN or GPUS in connection with the transfer of the Purchased Assets. Within thirty (30) days following the last day that any Union Employee or Non-Union Employee may elect to participate in any such plan offered by Seller, Genco, GPUN or GPUS, Seller shall provide Buyer with a list of all such employees who have so elected. (j) Seller shall be responsible, with respect to the Purchased Assets, for performing and discharging all requirements under the WARN Act and under applicable state and local laws and regulations for the notification of its employees of any "employment loss" within the meaning of the WARN Act which occurs prior to the Closing Date. (k) Buyer shall not be responsible for extending COBRA continuation coverage to any employees and former employees of Seller, Genco, GPUN or GPUS, or to any qualified beneficiaries of such employees and former employees, who become or became entitled to COBRA continuation coverage before the Closing, including those for whom the Closing occurs during their COBRA election period. (l) Seller or Seller's Affiliates shall pay to all Transferred Employees all compensation, bonus, vacation and holiday compensation, pension, profit sharing and other deferred compensation benefits, workers' compensation, or other employment benefits to which they are entitled under the terms of the applicable compensation or benefit programs at such times as are provided therein. (m) Individuals who are otherwise "Union Employees" as defined in Section 6.10(a) or "Non-Union Employees" as defined in Section 6.10(b) but who on any date are not actively at work due to a leave of absence covered by the Family and Medical Leave Act 57 ("FMLA"), or due to any other authorized leave of absence, shall nevertheless be treated as "Union Employees" or as "Non-Union Employees", as the case may be, on such date if they are able (i) to return to work within the protected period under the FMLA or such other leave (which in any event shall not extend more than twelve (12) weeks after the Closing Date), whichever is applicable, and (ii) to perform the essential functions of their jobs, with or without a reasonable accommodation. 6.11 Risk of Loss. (a) From the date hereof through the Closing Date, all risk of loss or damage to the property included in the Purchased Assets shall be borne by Seller, other than loss or damage caused by the acts or negligence of Buyer or any Buyer Representative, which loss or damage shall be the responsibility of Buyer. (b) If, before the Closing Date, all or any portion of the Purchased Assets is (i) taken by eminent domain or is the subject of a pending or (to the Knowledge of Seller) contemplated taking which has not been consummated, or (ii) damaged or destroyed by fire or other casualty, Seller shall notify Buyer promptly in writing of such fact, and (x) in the case of a condemnation, Seller shall assign or pay, as the case may be, any proceeds thereof to Buyer at the Closing and (y) in the case of a casualty, Seller shall either restore the damage or assign the insurance proceeds therefor (and pay the amount of any deductible and/or self-insured amount in respect of such casualty) to Buyer at the Closing. Notwithstanding the above, if such casualty or loss results in a Material Adverse Effect, Buyer and Seller shall negotiate to settle the loss resulting from such taking (and such negotiation shall include, without limitation, the negotiation of a fair and equitable adjustment to the Purchase Price). If no such settlement is reached within sixty (60) days after Seller has notified Buyer of such casualty or loss, then Buyer or Seller may terminate this Agreement pursuant to Section 9.1(h). In the event of damage or destruction which Seller elects to restore, Seller will have the right to postpone the Closing for up to four (4) months. Buyer will have the right to inspect and observe, or have its representatives inspect or observe, all repairs necessitated by any such damage or destruction. 6.12 Additional Covenants of Buyer. Notwithstanding any other provision hereof, Buyer covenants and agrees that, after the Closing Date, Buyer will not make any modifications to the Purchased Assets or take any action which, in and of itself, results in a loss of the exclusion of interest on the Pollution Control Revenue Bonds issued on behalf of Seller in connection with the Purchased Assets from gross income for federal income purposes under Section 103 of the Code. Actions with respect to 58 the Purchased Assets shall not constitute a breach by the Buyer of this Section 6.12 in the following circumstances: (i) Buyer ceases to use or decommissions any of the Purchased Assets or subsequently repowers such Purchased Assets that are no longer used or decommissioned (but does not hold such Purchased Assets for sale); (ii) Buyer acts with respect to the Purchased Assets in order to comply with requirements under applicable federal, state or local environmental or other laws or regulations; or (iii) Buyer acts in a manner the Seller (i.e. a reasonable private provider of electricity of similar stature as Seller) would have acted during the term of the Pollution Control Revenue Bonds (including, but not limited to, applying new technology). In the event Buyer acts or anticipates acting in a manner that will cause a loss of the exclusion of interest on the Pollution Control Revenue Bonds from gross income for federal income tax purposes, at the request of Buyer, Seller shall take any remedial actions permitted under the federal income tax law that would prevent a loss of such inclusion of interest from gross income on the Pollution Control Revenue Bonds. Buyer further covenants and agrees that, in the event that Buyer transfers any of the Purchased Assets, Buyer shall obtain from its transferee a covenant and agreement that is analogous to Buyer's covenant and agreement pursuant to the immediately preceding sentence, as well as a covenant and agreement that is analogous to that of this sentence. In addition, Buyer shall not, without 60 days advanced written notice to Seller (to the extent practicable under the circumstances), take any action which would result in (x) a change in the use of the assets financed with the Pollution Revenue Control Bonds from the use in which such assets were originally intended, or (y) a sale of such assets separate from the generating assets to which they relate provided that no notice is required of the events set forth in clauses (i),(ii), or (iii) above. This covenant shall survive Closing and shall continue in effect so long as the pollution control bonds remain outstanding. 6.13 Additional Forked River Covenants. The covenants set forth in Schedule 6.13 shall be applicable to Buyer to the same extent as if set forth herein. ARTICLE VII CONDITIONS 7.1 Conditions to Obligations of Buyer. The obligation of Buyer to effect the purchase of the Purchased Assets and the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver by Buyer) of the following conditions: 59 (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated. (b) No preliminary or permanent injunction or other order or decree by any federal or state court or Governmental Authority which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority which prohibits the consummation of the sale of the Purchased Assets; (c) Buyer shall have received all of Buyer's Required Regulatory Approvals, and such approvals shall contain no conditions or terms which would result in a Material Adverse Effect; (d) Seller shall have performed and complied in all material respects with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Seller on or prior to the Closing Date; (e) The representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date; (f) Buyer shall have received certificates from an authorized officer of Seller, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Section 7.1(d) and (e) have been satisfied by Seller; (g) Buyer shall have received an opinion from Seller's counsel reasonably acceptable to Buyer, dated the Closing Date and reasonably satisfactory in form and substance to Buyer and its counsel, substantially to the effect that: (i) Seller is a corporation duly incorporated, validly existing and in good standing under the laws of its state of incorporation and has the corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as is now conducted, and to execute and deliver the Agreement and each Ancillary Agreement and to consummate the transactions contemplated thereby; and the execution and delivery of the Agreement by Seller and the consummation of the sale of the Purchased Assets and the other transactions contemplated thereby have 60 been duly and validly authorized by all necessary corporate action required on the part of Seller; (ii) The Agreement and each Ancillary Agreement have been duly and validly executed and delivered by Seller and constitute legal, valid and binding agreements of Seller enforceable in accordance with their terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity); (iii) The execution, delivery and performance of the Agreement and each Ancillary Agreement by Seller do not (A) conflict with the Certificate of Incorporation or Bylaws of Seller or (B) to the knowledge of such counsel, constitute a violation of or default under those agreements or instruments set forth on a Schedule attached to the opinion and which have been identified to such counsel as all the agreements and instruments which are material to the business or financial condition of Seller; (iv) The Bill of Sale, the deeds, the Assignment and Assumption Agreement and other transfer instruments described in Section 3.6 have been duly executed and delivered and are in proper form to transfer to Buyer such title as was held by Seller to the Purchased Assets; and (v) No consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery of this Agreement by Seller, or the consummation by Seller of the transactions contemplated hereby, other than (i) such consents, approvals, filings or notices set forth in Schedule 4.3(b) or which, if not obtained or made, will not prevent Seller from performing its material obligations hereunder and (ii) such consents, approvals, filings or notices which become applicable to Seller or the Purchased Assets as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged; and In rendering the foregoing opinion, Seller's counsel may rely on opinions of counsel as to local laws reasonably acceptable to Buyer. (h) Seller shall have delivered, or caused to be 61 delivered, to Buyer at the Closing, Seller's closing deliveries described in Section 3.6. (i) Since the date of this Agreement, no Material Adverse Effect shall have occurred and be continuing. (j) Buyer shall have received (at Buyer's cost) from a title insurance company and surveyor reasonably acceptable to Buyer an ALTA owner's title policy, and ALTA survey together with all endorsements reasonably requested by Buyer as are available, insuring title to all of the Real Property included in the Aggregate Purchased Assets, subject only to Permitted Encumbrances. Seller shall provide Buyer with a copy of a preliminary title report and survey for the Real Property as soon as available. (k) The closings under the Purchase and Sale Agreements between Met-Ed and Buyer, Penelec and Buyer, and JCP&L, Met-Ed and GPU and Buyer (collectively, the "Related Purchase Agreements") shall have occurred or shall occur concurrently with the Closing and all conditions to the obligations of Buyer under the Related Purchase Agreements shall have been satisfied or waived by Buyer. (l) Buyer shall have received all Permits and Environmental Permits, to the extent necessary, to own and operate the Plants in accordance with past emissions and operating practices, except for those Permits and Environmental Permits, the absence of which would not in the aggregate have a Material Adverse Effect. (m) Seller's Required Regulatory Approvals shall contain no conditions or terms which would result in a Material Adverse Effect. (n) Neither the Real Property nor any portion thereof shall be part of a tax lot which includes any real property and/or buildings, facilities or other improvements other than that which comprises the Real Property. (o) No Site, or any portion thereof (other than the Development Properties listed on Schedule 2.1), shall be subject to a zoning classification or classifications, rule or regulation, or variance or special exception which does not constitute a separate zoning lot or lots which, individually or in the aggregate, does not permit such Site or any portion thereof to be used as the same (i) is currently used for generation purposes or (ii) was historically used for generation purposes while under Seller's current ownership or the ownership of any Affiliate thereof, unless the failure of such 62 Site or any portion thereof to be zoned to permit such use shall not result in a Material Adverse Effect. 7.2 Conditions to Obligations of Seller. The obligation of Seller to effect the sale of the Purchased Assets and the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver by Seller) of the following conditions: (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated; (b) No preliminary or permanent injunction or other order or decree by any federal or state court which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority in the United States which prohibits the consummation of the sale of the Purchased Assets; (c) Seller shall have received all of Seller's Required Regulatory Approvals applicable to them, containing no conditions or terms which would materially diminish the benefit of this Agreement to Seller or result in a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Seller ("Seller Material Adverse Effect"); (d) All consents and approvals for the consummation of the sale of the Purchased Assets contemplated hereby required under the terms of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Seller is party or by which Seller, or any of the Purchased Assets, may be bound, shall have been obtained, other than those which if not obtained, would not, individually and in the aggregate, create a Material Adverse Effect; (e) Buyer shall have performed and complied with in all material respects the covenants and agreements contained in this Agreement which are required to be performed and complied with by Buyer on or prior to the Closing Date; (f) The representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date; 63 (g) Seller shall have received a certificate from an authorized officer of Buyer, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Sections 7.2(e) and (f) have been satisfied by Buyer; (h) Effective upon Closing, Buyer shall have assumed, as set forth in Section 6.10, all of the applicable obligations under the Collective Bargaining Agreement as they relate to Transferred Union Employees; (i) Seller shall have received an opinion from Buyer's counsel reasonably acceptable to Seller, dated the Closing Date and satisfactory in form and substance to Seller and its counsel, substantially to the effect that: (i) Buyer is a Delaware corporation duly organized, validly existing and in good standing under the laws of the state of its organization and is qualified to do business in the State of New Jersey and has the full corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as is now conducted, and to execute and deliver the Agreement and the Ancillary Agreements by Buyer and to consummate the transactions contemplated thereby; and the execution and delivery of the Agreement and the Ancillary Agreements by Buyer and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action required on the part of Buyer; (ii) The Agreement and the Ancillary Agreements have been duly and validly executed and delivered by Buyer, and constitute legal, valid and binding agreements of Buyer, enforceable against Buyer, in accordance with their terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting or relating to enforcement of creditor's rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity); (iii) The execution, delivery and performance of the Agreement and the Ancillary Agreements by Buyer do not (A) conflict with the Certificate of Incorporation or Bylaws (or other organizational documents), as currently in effect, of Buyer or (B) to the knowledge of such counsel, constitute a violation of or default under those agreements or instruments set forth on a Schedule attached to the opinion and which have been identified to such counsel as all the 64 agreements and instruments which are material to the business or financial condition of Buyer; (iv) The Assignment and Assumption Agreement and other transfer instruments described in Section 3.7 are in proper form for Buyer to assume the Assumed Liabilities; and (v) No consent or approval of, filing with, or notice to, any Governmental Authority is necessary for Buyer's execution and delivery of the Agreement and the Ancillary Agreements, or the consummation by Buyer of the transactions contemplated hereby and thereby, other than such consents, approvals, filings or notices, which, if not obtained or made, will not prevent Buyer from performing its respective obligations under the Agreement, the Ancillary Agreements and Guaranty. (j) Buyer shall have delivered, or caused to be delivered, to Seller at the Closing, Buyer's closing deliveries described in Section 3.7. 7.3 Zoning Condition Adjustments. (a) In the event that any Site or any portion thereof, (other than the Development Properties listed in Schedule 2.1) shall be subject to a zoning classification or classifications, rule or regulation, or a variance or special exception, which does not permit or otherwise restrict the Site or any portion thereof, to be used as the same (i) is currently used for generation purposes or (ii) was historically used for generation purposes while under Seller's current ownership or the ownership of any Affiliate thereof for generation purposes, and if such failure shall result in a material adverse effect on the use of such Site for generating purposes as currently used (or as so historically used), then, in such case, Buyer may prior to the Closing on written notice to the Seller, exclude from the Purchased Assets such Site and the Purchased Assets related to such Site. Buyer and Seller shall thereupon negotiate a fair and equitable adjustment to the Purchase Price or, failing such agreement within 30 days, the adjustment shall be determined by appraisal in accordance with Section 7.3(b), the cost of which shall be shared equally be Buyer and Seller. (b) The Parties shall select an Appraiser (as defined below) within 30 days of the expiration of the 30 day period referred to in Section 7.3(a). In the event the Parties cannot within such period agree on a single Appraiser, the Parties shall each within 15 days select a separate Appraiser, and such Appraisers shall within 15 days, later designate a third Appraiser to act hereunder. The Appraiser shall be instructed to 65 provide a written report of the appropriate reduction of the Purchase Price to be allocated to the excluded Site (and associated Purchased Assets). Each of the Parties may submit such materials and information to the Appraiser as it deems appropriate and shall use its Commercially Reasonable Efforts to cause the Appraiser to render its decision within 60 days after the matter has been submitted to it. The determination of the Appraiser shall be final and binding on the Parties. As used herein, "Appraiser" means an individual who has a minimum of ten (10) years of relevant experience in valuing electric generation facilities and has an MAI designation of the Appraisal Institute. (c) Buyer agrees to use Commercially Reasonable Efforts at its expense and in consultation with Seller to mitigate any adverse zoning restrictions which could cause a failure of the Closing condition in Section 7.1(o), or require a Purchase Price adjustment under this Section 7.3, including by seeking a re-zoning or zoning variance of the applicable Site. ARTICLE VIII INDEMNIFICATION 8.1 Indemnification. (a) Buyer shall indemnify, defend and hold harmless Seller, its officers, directors, employees, shareholders, Affiliates and agents (each, a "Seller's Indemnitee") from and against any and all claims, demands, suits, losses, liabilities, damages, obligations, payments, costs and expenses (including, without limitation, the costs and expenses of any and all actions, suits, proceedings, assessments, judgments, settlements and compromises relating thereto and reasonable attorneys' fees and reasonable disbursements in connection therewith) (each, an "Indemnifiable Loss"), asserted against or suffered by any Seller's Indemnitee relating to, resulting from or arising out of (i) any breach by Buyer of any covenant or agreement of Buyer contained in this Agreement or the representations and warranties contained in Sections 5.1, 5.2 and 5.3, (ii) the Assumed Liabilities, (iii) any loss or damages resulting from or arising out of any Inspection, or (iv) any Third Party Claims against Seller's Indemnitee arising out of or in connection with Buyer's ownership or operation of the Plants and other Purchased Assets on or after the Closing Date (other than Third Party Claims which arise out of acts by Buyer permitted by Section 6.12 hereof). (b) Seller shall indemnify, defend and hold harmless Buyer, its officers, directors, employees, shareholders, Affiliates and agents (each, a "Buyer Indemnitee") from and 66 against any and all Indemnifiable Losses asserted against or suffered by any Buyer Indemnitee relating to, resulting from or arising out of (i) any breach by Seller of any covenant or agreement of Seller contained in this Agreement or the representations and warranties contained in Sections 4.1, 4.2 and 4.3, (ii) the Excluded Liabilities, (iii) noncompliance by Seller with any bulk sales or transfer laws as provided in Section 10.11, or (iv) any Third Party Claims against a Buyer Indemnitee arising out of or in connection with Seller's ownership or operation of the Excluded Assets on or after the Closing Date. (c) Each party, for itself and on behalf of its Representatives and Affiliates, does hereby release, hold harmless and forever discharge the other party, its Representatives and Affiliates, from any and all Indemnifiable Losses of any kind or character, whether known or unknown, hidden or concealed, resulting from or arising out of any Environmental Condition or violation of Environmental Law relating to the Purchased Assets, provided that Seller's release of Buyer shall not extend to any of Buyer's Assumed Liabilities set forth in Section 2.3, and provided further that Buyer's release of Seller shall not extend to any of Seller's Excluded Liabilities set forth in Section 2.4. Subject to the foregoing proviso, each party hereby waives any and all rights and benefits with respect to such Indemnifiable Losses that it now has, or in the future may have conferred upon it by virtue of any statute or common law principle which provides that a general release does not extend to claims which a party does not know or suspect to exist in its favor at the time of executing the release, if knowledge of such claims would have materially affected such party's settlement with the obligor. In this connection, each party hereby acknowledges that it is aware that factual matters, now unknown to it, may have given or may hereafter give rise to Indemnifiable Losses that are presently unknown, unanticipated and unsuspected, and it further agrees that this release has been negotiated and agreed upon in light of that awareness and it nevertheless hereby intends to release the other party and its Representatives and Affiliates from the Indemnifiable Losses described in the first sentence of this paragraph. (d) Notwithstanding anything to the contrary contained herein: (i) Any Person entitled to receive indemnification under this Agreement (an "Indemnitee") shall use Commercially Reasonable Efforts to mitigate all losses, damages and the like relating to a claim under these indemnification provisions, including availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity. 67 The Indemnitee's Commercially Reasonable Efforts shall include the reasonable expenditure of money to mitigate or otherwise reduce or eliminate any loss or expenses for which indemnification would otherwise be due, and the Indemnitor shall reimburse the Indemnitee for the Indemnitee's reasonable expenditures in undertaking the mitigation. (ii) Any Indemnifiable Loss shall be net of the dollar amount of any insurance or other proceeds actually receivable by the Indemnitee or any of its Affiliates with respect to the Indemnifiable Loss, but shall not take into account any income tax benefits to the Indemnitee or any Income Taxes attributable to the receipt of any indemnification payments hereunder. Any party seeking indemnity hereunder shall use Commercially Reasonable Efforts to seek coverage (including both costs of defense and indemnity) under applicable insurance policies with respect to any such Indemnifiable Loss. (e) The expiration or termination of any covenant or agreement shall not affect the Parties' obligations under this Section 8.1 if the Indemnitee provided the Person required to provide indemnification under this Agreement (the "Indemnifying Party") with proper notice of the claim or event for which indemnification is sought prior to such expiration, termination or extinguishment. (f) Except to the extent otherwise provided in Article IX, the rights and remedies of Seller and Buyer under this Article VIII are exclusive and in lieu of any and all other rights and remedies which Seller and Buyer may have under this Agreement or otherwise for monetary relief, with respect to (i) any breach of or failure to perform any covenant, agreement, or representation or warranty set forth in this Agreement, after the occurrence of the Closing, or (ii) the Assumed Liabilities or the Excluded Liabilities, as the case may be. The indemnification obligations of the Parties set forth in this Article VIII apply only to matters arising out of this Agreement, excluding the Ancillary Agreements. Any Indemnifiable Loss arising under or pursuant to an Ancillary Agreement shall be governed by the indemnification obligations, if any, contained in the Ancillary Agreement under which the Indemnifiable Loss arises. (g) Notwithstanding anything to the contrary herein, no party (including an Indemnitee) shall be entitled to recover from any other party (including an Indemnifying Party) for any liabilities, damages, obligations, payments losses, costs, or expenses under this Agreement any amount in excess of the actual compensatory damages, court costs and reasonable attorney's and other advisor fees suffered by such party. Buyer and Seller 68 waive any right to recover punitive, incidental, special, exemplary and consequential damages arising in connection with or with respect to this Agreement. The provisions of this Section 8.1(g) shall not apply to indemnification for a Third Party Claim. 8.2 Defense of Claims. (a) If any Indemnitee receives notice of the assertion of any claim or of the commencement of any claim, action, or proceeding made or brought by any Person who is not a party to this Agreement or any Affiliate of a Party to this Agreement (a "Third Party Claim") with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying Party reasonably prompt written notice thereof, but in any event such notice shall not be given later than ten (10) calendar days after the Indemnitee's receipt of notice of such Third Party Claim. Such notice shall describe the nature of the Third Party Claim in reasonable detail and shall indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be sustained by the Indemnitee. The Indemnifying Party will have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third Party Claim at such Indemnifying Party's expense and by such Indemnifying Party's own counsel, provided that the counsel for the Indemnifying Party who shall conduct the defense of such Third Party Claim shall be reasonably satisfactory to the Indemnitee. The Indemnitee shall cooperate in good faith in such defense at such Indemnitee's own expense. If an Indemnifying Party elects not to assume the defense of any Third Party Claim, the Indemnitee may compromise or settle such Third Party Claim over the objection of the Indemnifying Party, which settlement or compromise shall conclusively establish the Indemnifying Party's liability pursuant to this Agreement. (b) (i) If, within ten (10) calendar days after an Indemnitee provides written notice to the Indemnifying Party of any Third Party Claims, the Indemnitee receives written notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third Party Claim as provided in Section 8.2(a), the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided, however, that if the Indemnifying Party shall fail to take reasonable steps necessary to defend diligently such Third Party Claim within twenty (20) calendar days after receiving notice from the Indemnitee that the Indemnitee believes the Indemnifying Party has failed to take such steps, the Indemnitee may assume its own defense and the Indemnifying Party shall be liable for all reasonable expenses thereof. (ii) Without the prior written 69 consent of the Indemnitee, the Indemnifying Party shall not enter into any settlement of any Third Party Claim which would lead to liability or create any financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to the Indemnitee to that effect. If the Indemnitee fails to consent to such firm offer within ten (10) calendar days after its receipt of such notice, the Indemnifying Party shall be relieved of its obligations to defend such Third Party Claim and the Indemnitee may contest or defend such Third Party Claim. In such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will be the amount of such settlement offer plus reasonable costs and expenses paid or incurred by Indemnitee up to the date of said notice. (c) Any claim by an Indemnitee on account of an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct Claim") shall be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable, but in any event such notice shall not be given later than ten (10) calendar days after the Indemnitee becomes aware of such Direct Claim, and the Indemnifying Party shall have a period of thirty (30) calendar days within which to respond to such Direct Claim. If the Indemnifying Party does not respond within such thirty (30) calendar day period, the Indemnifying Party shall be deemed to have accepted such claim. If the Indemnifying Party rejects such claim, the Indemnitee will be free to seek enforcement of its right to indemnification under this Agreement. (d) If the amount of any Indemnifiable Loss, at any time subsequent to the making of an indemnity payment in respect thereof, is reduced by recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by, from or against any other entity, the amount of such reduction, less any costs, expenses or premiums incurred in connection therewith (together with interest thereon from the date of payment thereof at the publicly announced prime rate then in effect of Chase Manhattan Bank) shall promptly be repaid by the Indemnitee to the Indemnifying Party. (e) A failure to give timely notice as provided in this Section 8.2 shall not affect the rights or obligations of 70 any Party hereunder except if, and only to the extent that, as a result of such failure, the Party which was entitled to receive such notice was actually prejudiced as a result of such failure. ARTICLE IX TERMINATION 9.1 Termination.(a) This Agreement may be terminated at any time prior to the Closing Date by mutual written consent of Seller and Buyer. (b) This Agreement may be terminated by Seller or Buyer if (i) any Federal or state court of competent jurisdiction 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 nonappeallable or (ii) any statute, rule, order or regulation shall have been enacted or issued by any Governmental Authority which, directly or indirectly, prohibits the consummation of the Closing; or (iii) the Closing contemplated hereby shall have not occurred on or before the day which is 12 months from the date of this Agreement (the "Termination Date"); provided that the right to terminate this Agreement under this Section 9.1(b) (iii) shall not be available to any Party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; and provided, further, that if on the day which is 12 months from the date of this Agreement the conditions to the Closing set forth in Section 7.1(b) or (c) or 7.2(b), (c) or (d) shall not have been fulfilled but all other conditions to the Closing shall be fulfilled or shall be capable of being fulfilled, then the Termination Date shall be the day which is 18 months from the date of this Agreement. (c) Except as otherwise provided in this Agreement, this Agreement may be terminated by Buyer if any of Buyer Required Regulatory Approvals, the receipt of which is a condition to the obligation of Buyer to consummate the Closing as set forth in Section 7.1(c), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted but contains terms or conditions which do not satisfy the closing condition in Section 7.1(c). (d) This Agreement may be terminated by Seller, if any of Seller's Required Regulatory Approvals, the receipt of which is a condition to the obligation of Seller to consummate the Closing as set forth in Section 7.2(c), shall have been denied (and a petition for rehearing or refiling of an application 71 initially denied without prejudice shall also have been denied) or shall have been granted but contains terms or conditions which do not satisfy the closing condition in Section 7.2(c). (e) This Agreement may be terminated by Buyer if there has been a violation or breach by Seller of any covenant, representation or warranty contained in this Agreement which has resulted in a Material Adverse Effect and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Seller of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Buyer. (f) This Agreement may be terminated by Seller, if there has been a material violation or breach by Buyer of any covenant, representation or warranty contained in this Agreement and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Buyer of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Seller. (g) This Agreement may be terminated by Seller if there shall have occurred any change that is materially adverse to the business, operations or conditions (financial or otherwise) of Buyer. (h) This Agreement may be terminated by either of Seller or Buyer in accordance with the provisions of Section 6.11(b). 9.2 Procedure and Effect of No-Default Termination. In the event of termination of this Agreement by either or both of the Parties pursuant to Section 9, written notice thereof shall forthwith be given by the terminating Party to the other Party, whereupon, if this Agreement is terminated pursuant to any of Sections 9.1(a) through (d) and 9.1(g) and (h), the liabilities of the Parties hereunder will terminate, except as otherwise expressly provided in this Agreement, and thereafter neither Party shall have any recourse against the other by reason of this Agreement. ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified or supplemented only by written agreement of Seller and Buyer. 10.2 Waiver of Compliance; Consents. Except as otherwise 72 provided in this Agreement, any failure of any of the Parties to comply with any obligation, covenant, agreement or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver of such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent failure to comply therewith 10.3 No Survival. Each and every representation, warranty and covenant contained in this Agreement (other than the covenants contained in Sections 3.3(c), 3.4, 3.5(b), 3.5(c), 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.12, 6.13 and in Articles VIII and X, which provisions shall survive the delivery of the deed(s) and the Closing in accordance with their terms and the representations and warranties set forth in Sections 4.1, 4.2, 4.3, 5.1, 5.2 and 5.3, which representations and warranties and any claims arising under Section 6.1 shall survive the Closing for eighteen (18) months from the Closing Date) shall expire with, and be terminated and extinguished by the consummation of the sale of the Purchased Assets and shall merge into the deed(s) pursuant hereto and the transfer of the Assumed Liabilities pursuant to this Agreement and such representations, warranties and covenants shall not survive the Closing Date; and none of Seller, Buyer or any officer, director, trustee or Affiliate of any of them shall be under any liability whatsoever with respect to any such representation, warranty or covenant. 10.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission, or mailed by overnight courier or registered or certified mail (return receipt requested), postage prepaid, to the recipient Party at its address (or at such other address or facsimile number for a Party as shall be specified by like notice; provided however, that notices of a change of address shall be effective only upon receipt thereof): (a) If to Seller, to: c/o GPU Service, Inc. 300 Madison Avenue Morristown, New Jersey 07962 Attention: Mr. David C. Brauer Vice President with a copy to: Berlack, Israels & Liberman LLP 120 West 45th Street 73 New York, New York 10036 Attention: Douglas E. Davidson, Esq. (b) if to Buyer, to: Sithe Energies, Inc. 450 Lexington Avenue New York, New York 10017 Attention: Mr. David Tohir and Hyun Park, Esq. with a copy to: Latham & Watkins Suite 1300 1001 Pennsylvania Avenue, N.W. Washington, D.C. 20004 Attention: W. Harrison Wellford, Esq. 10.5 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any Party hereto, including by operation of law, without the prior written consent of each other Party, nor is this Agreement intended to confer upon any other Person except the Parties hereto any rights, interests, obligations or remedies hereunder. No provision of this Agreement shall create any third party beneficiary rights in any employee or former employee of Seller (including any beneficiary or dependent thereof) in respect of continued employment or resumed employment, and no provision of this Agreement shall create any rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. Notwithstanding the foregoing, without the prior written consent of Seller, (i) Buyer may assign all of its rights and obligations hereunder to any majority owned Subsidiary (direct or indirect) and upon Seller's receipt of notice from Buyer of any such assignment, such assignee will be deemed to have assumed, ratified, agreed to be bound by and perform all such obligations, and all references herein to "Buyer" shall thereafter be deemed to be references to such assignee, in each case without the necessity for further act or evidence by the Parties hereto or such assignee, and (ii) Buyer or its permitted assignee may assign, transfer, pledge or otherwise dispose of (absolutely or as security) its rights and interests hereunder to a trustee, lending institutions or other party for the purposes of leasing, financing or refinancing the 74 Purchased Assets, including such an assignment, transfer or other disposition upon or pursuant to the exercise of remedies with respect to such leasing, financing or refinancing, or by way of assignments, transfers, pledges, or other dispositions in lieu thereof (and any such assignee may fully exercise its rights hereunder or under any other agreement and pursuant to such assignment without any further prior consent of any party hereto); provided, however, that no such assignment in clause (i) or (ii) shall relieve or discharge the assignor from any of its obligations hereunder. Seller agrees, at Buyer's expense, to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights and interests hereunder so long as Seller's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. 10.6 Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York (without giving effect to conflict of law principles) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. THE PARTIES HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE AND FEDERAL COURTS IN AND FOR NEW YORK COUNTY, NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 10.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.8 Interpretation. The articles, section and schedule headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. 10.9 Schedules and Exhibits. Except as otherwise provided in this Agreement, all Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. 75 10.10 Entire Agreement. This Agreement, the Confidentiality Agreement, and the Ancillary Agreements including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein, embody the entire agreement and understanding of the Parties hereto in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein or therein. It is expressly acknowledged and agreed that there are no restrictions, promises, representations, warranties, covenants or undertakings contained in any material made available to Buyer pursuant to the terms of the Confidentiality Agreement (including the Offering Memorandum dated April 1998, previously delivered to Buyer by Seller and Goldman, Sachs & Co.). This Agreement supersedes all prior agreements and understandings between the Parties other than the Confidentiality Agreement with respect to such transactions. 10.11 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything in this Agreement to the contrary, Seller may, in its sole discretion, not comply with the provision of the bulk sales laws of any jurisdiction in connection with the transactions contemplated by this Agreement. Buyer hereby waives compliance by Seller with the provisions of the bulk sales laws of all applicable jurisdictions. 10.12 U.S. Dollars. Unless otherwise stated, all dollar amounts set forth herein are United States (U.S.) dollars. 10.13 Zoning Classification. Without limitation of Sections 7.1(o) and 7.3, Buyer acknowledges that the Real Properties are zoned as set forth in Schedule 10.13. 10.14 Sewage Facilities. Except as set forth in Schedule 10.14, Buyer acknowledges that there is no community (municipal) sewage system available to serve the Real Property. 76 IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. SITHE ENERGIES, INC. JERSEY CENTRAL POWER & LIGHT COMPANY By:_____________________________ By:______________________ Name: Name: Title: Title: 77 LIST OF EXHIBITS AND SCHEDULES EXHIBITS Exhibit A Form of Assignment and Assumption Agreement Exhibit B Form of Bill of Sale Exhibit C Form of Easement and Attachment Agreement Exhibit D Form of FIRPTA Affidavit Exhibit E Form of Interconnection Agreement Exhibit F Form of Deeds Exhibit G Form of Transition Power Purchase Agreement Exhibit H Form of Merrill Creek Sublease SCHEDULES 1.1(70) Permitted Encumbrances 1.1(100) Transferable Permits (both environmental and non- environmental) 2.1 Schedule of Purchased Assets 2.1(c) Schedule of Tangible Personal Property to be Conveyed to Buyer 2.1(h) Schedule of Emission Reduction Credits 2.1(l) Intellectual Property 2.2(a) Description of Transmission and other Assets not included in Conveyance 3.3(a)(i) Schedule of Inventory 4.3(a) Third Party Consents 4.3(b) Seller's Required Regulatory Approvals 4.4 Insurance Exceptions 4.5 Exceptions to Title 4.6 Real Property Leases 4.7 Schedule of Environmental Matters 4.8 Schedule of Noncompliance with Employment Laws 4.9(a) Schedule of Benefit Plans 4.9(b) Benefit Plan Exceptions 4.l0 Description of Real Property 4.10A Real Property Matters 4.11 Notices of Condemnation 4.12(a) List of Contracts 4.12(b) List of Non-assignable Contracts 4.12(c) List of Defaults under the Contracts 4.13 List of Litigation 4.14(a) List of Permit Violations 4.14(b) List of material Permits (other than Transferable Permits) 4.15 Tax Matters 4.16 Intellectual Property Exceptions 5.3(a) Third Party Consents 5.3(b) Buyer's Required Regulatory Approvals 6.1 Schedule of Permitted Activities prior to Closing 6.8 Tax Appeals 6.10(a)(i) Plant and Support Staff (Union) 6.10(b) Schedule of Non-Union Employees 6.10(d) Collective Bargaining Agreements 6.10(h) Schedule of Severance Benefits 6.10(h)(iv) Allocable Share Percentages 6.12 Pollution Control Revenue Bonds 6.13 Additional Forked River Covenants 10.13 Zoning 10.14 Sewage Matters EX-10 18 EX. 10-MM PURCHASE & SALE AGREEMENT JCP&L & ME Exhibit 10-MM PRIVILEGED AND CONFIDENTIAL [Keystone - Conemaugh] EXECUTION COPY PURCHASE AND SALE AGREEMENT BY AND AMONG JERSEY CENTRAL POWER & LIGHT COMPANY and METROPOLITAN EDISON COMPANY as SELLERS, GPU, INC. and SITHE ENERGIES, INC., as BUYER Dated as of October 29, 1998 TABLE OF CONTENTS Page ARTICLE I 2 1.1 Definitions 2 1.2 Certain Interpretive Matters 16 ARTICLE II 16 2.1 Transfer of Assets 16 2.2 Excluded Assets 18 2.3 Assumed Liabilities 19 2.4 Excluded Liabilities 21 2.5 Control of Litigation 24 2.6 Genco's Assets and Liabilities 24 ARTICLE III 24 3.1 Closing 24 3.2 Payment of Purchase Price 25 3.3 Adjustment to Purchase Price 25 3.4 Allocation of Purchase Price 27 3.5 Prorations 27 3.6 Deliveries by Seller 28 3.7 Deliveries by Buyer 30 3.8 Ancillary Agreements 31 ARTICLE IV 31 4.1 Incorporation; Qualification 31 4.2 Authority Relative to this Agreement 31 4.3 Consents and Approvals; No Violation 32 4.4 Insurance 32 4.5 Title and Related Matters 33 4.6 Real Property Leases 33 4.7 Environmental Matters 33 4.8 Labor Matters 34 4.9 Benefit Plans: ERISA 35 4.10 Real Property 36 4.11 Condemnation 36 4.12 Contracts and Leases 36 4.13 Legal Proceedings, etc 36 4.14 Permits 37 4.15 Taxes 37 4.16 Intellectual Property 38 4.17 Capital Expenditures 38 4.18 Compliance With Laws 38 4.19 PUHCA 38 4.20 Disclaimers Regarding Purchased Assets 38 ARTICLE IVA 40 4A.1. Incorporation; Qualification 40 4A.2. Authority Relative to this Agreement 40 4A.3. Consents and Approvals; No Violation 41 4A.4. Genco Tax Matters 41 4A.5 Subsidiaries 43 4A.6. Capitalization 43 4A.7. Operating Agreements 44 4A.8. Financial Statements 44 ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER 44 5.1 Organization 44 5.2 Authority Relative to this Agreement 45 5.3 Consents and Approvals; No Violation 45 5.4 Availability of Funds 46 5.5 Legal Proceedings 46 5.6 No Knowledge of Sellers' Breach 46 5.7 Qualified Buyer 46 5.8 Inspections 46 5.9 WARN Act 47 5.10 Securities Laws 47 ARTICLE VI 47 6.1 Conduct of Business Relating to the Purchased Assets 47 6.2 Access to Information 49 6.3 Public Statements 52 6.4 Expenses 52 6.5 Further Assurances 52 6.6 Consents and Approvals 54 6.7 Fees and Commissions 56 6.8 Tax Matters 56 6.9 Advice of Changes 64 6.10 Employees 65 6.11 Risk of Loss 70 6.12 Additional Covenants of Buyer 71 6.13 Name Change 72 ARTICLE VII 72 7.1 Conditions to Obligations of Buyer 72 7.2 Conditions to Obligations of Sellers 76 7.3 Zoning Condition Adjustments 78 ARTICLE VIII 79 8.1 Indemnification 79 8.2 Defense of Claims 82 ARTICLE IX 84 9.1 Termination 84 9.2 Procedure and Effect of No-Default Termination 86 ARTICLE X 86 10.1 Amendment and Modification 86 10.2 Waiver of Compliance; Consents 86 10.3 No Survival 86 10.4 Notices 87 10.5 Assignment 88 10.6 Governing Law 88 10.7 Counterparts 89 10.8 Interpretation 89 10.9 Schedules and Exhibits 89 10.10 Entire Agreement 89 10.11 Bulk Sales Laws 90 10.12 U.S. Dollars 90 10.13 Zoning Classification 90 10.14 Sewage Facilities 90 10.15 GPU 90 PURCHASE AND SALE AGREEMENT PURCHASE AND SALE AGREEMENT, dated as of October 29, 1998, by and among Jersey Central Power & Light Company, a New Jersey corporation ("JCP&L"), and Metropolitan Edison Company, a Pennsylvania corporation ("Met-Ed")(each a "Seller" and collectively "Sellers"), GPU, Inc., a Pennsylvania corporation ("GPU"), and Sithe Energies, Inc., a Delaware corporation ("Buyer"). Sellers, GPU and Buyer are referred to individually as a "Party," and collectively as the "Parties." W I T N E S S E T H WHEREAS, Buyer desires to purchase, and Sellers desire to sell, their interests in the Purchased Assets (as defined herein) upon the terms and conditions hereinafter set forth in this Agreement; WHEREAS, simultaneous herewith Buyer is entering into substantially similar Purchase and Sale Agreements with Sellers' affiliates providing for Buyer's purchase of the remainder of the Aggregate Purchased Assets (as hereinafter defined); and WHEREAS, Buyer desires to purchase, and GPU desires to sell, the Genco Stock (as defined herein) upon the terms and conditions hereinafter set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms have the meanings specified in this Section 1.1. (1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. (2) "Agreement" means this Purchase and Sale Agreement together with the Schedules and Exhibits hereto, as the same may be from time to time amended. 2 (3) "Aggregate Purchased Assets" means, collectively, the Purchased Assets (as defined herein) and the Purchased Assets (as defined in each Related Purchase Agreement). (4) "Ancillary Agreements" means the Transition Power Purchase Agreements, as the same may be from time to time amended. (5) "Assignment and Assumption Agreement" means the Assignment and Assumption Agreement between Sellers and Buyer substantially in the form of Exhibit A hereto, by which Sellers shall, subject to the terms and conditions hereof, assign Sellers' Agreements, the Real Property Leases, certain intangible assets and other Purchased Assets to Buyer and whereby Buyer shall assume the Assumed Liabilities. (6) "Assumed Liabilities" has the meaning set forth in Section 2.3. (7) "Benefit Plans" has the meaning set forth in Section 4.9. (8) "Bill of Sale" means the Bill of Sale, substantially in the form of Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible Personal Property included in the Purchased Assets transferred to Buyer at the Closing. (9) "Business Day" shall mean any day other than Saturday, Sunday and any day on which banking institutions in the State of New Jersey or the Commonwealth of Pennsylvania are authorized by law or other governmental action to close. (10) "Buyer Benefit Plans" has the meaning set forth in Section 6.10(f). (11) "Buyer Indemnitee" has the meaning set forth in Section 8.1(b). (12) "Buyer Material Adverse Effect" has the meaning set forth in Section 5.3(a). (13) "Buyer Required Regulatory Approvals" has the meaning set forth in Section 5.3(b). (14) "Capital Expenditures" has the meaning set forth in Section 3.3(a). (15) "CERCLA" means the Federal Comprehensive Environmental Response, Compensation, and Liability Act, as amended. 3 (16) "Closing" has the meaning set forth in Section 3.1. (17) "Closing Adjustment" has the meaning set forth in Section 3.3(b). (18) "Closing Date" has the meaning set forth in Section 3.1. (19) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. (20) "Code" means the Internal Revenue Code of 1986, as amended. (21) "Collective Bargaining Agreement" has the meaning set forth in Section 6.10(d). (22) "Commercially Reasonable Efforts" means efforts which are reasonably within the contemplation of the Parties at the time of executing this Agreement and which do not require the performing Party to expend any funds other than expenditures which are customary and reasonable in transactions of the kind and nature contemplated by this Agreement in order for the performing Party to satisfy its obligations hereunder. (23) "Computer Systems" has the meaning set forth in Section 4.20. (24) "Confidentiality Agreement" means the Confidentiality Agreement, dated March 2, 1998, by and between each Seller and Buyer. (25) "Direct Claim" has the meaning set forth in Section 8.2(c). (26) "Emission Allowance" means all present and future authorizations to emit specified units of pollutants or Hazardous Substances, which units are established by the Governmental Authority with jurisdiction over the Plants under (i) an air pollution control and emission reduction program designed to mitigate global warming, interstate or intra-state transport of air pollutants; (ii) a program designed to mitigate impairment of surface waters, watersheds, or groundwater; or (iii) any pollution reduction program with a similar purpose. Emission Allowances include allowances, as described above, regardless as to whether the Governmental Authority establishing such Emission Allowances designates such allowances by a name other than "allowances." 4 (27) "Emission Reduction Credits" means credits, in units that are established by the Governmental Authority with jurisdiction over the Plants that have obtained the credits, resulting from reductions in the emissions of air pollutants from an emitting source or facility (including, without limitation, and to the extent allowable under applicable law, reductions from shut-downs or control of emissions beyond that required by applicable law) that: (i) have been identified by the PaDEP as complying with applicable Pennsylvania law governing the establishment of such credits (including, without limitation, that such emissions reductions are enforceable, permanent, quantifiable and surplus) and listed in the Emissions Reduction Credit Registry maintained by the PaDEP or with respect to which such identification and listing are pending; or (ii) have been certified by any other applicable Governmental Authority as complying with the law and regulations governing the establishment of such credits (including, without limitation, certification that such emissions reductions are enforceable, permanent, quantifiable and surplus). The term includes Emission Reduction Credits that have been approved by the PaDEP and are awaiting USEPA approval. The term also includes certified air emissions reductions, as described above, regardless as to whether the Governmental Authority certifying such reductions designates such certified air emissions reductions by a name other than "emission reduction credits." (28) "Encumbrances" means any mortgages, pledges, liens, security interests, conditional and installment sale agreements, activity and use limitations, conservation easements, deed restrictions, encumbrances and charges of any kind. (29) "Environmental Claim" means any and all pending and/or threatened administrative or judicial actions, suits, orders, claims, liens, notices, notices of violations, investigations, complaints, requests for information, proceedings, or other written communication, whether criminal or civil, pursuant to or relating to any applicable Environmental Law by any person (including, but not limited to, any Governmental Authority, private person and citizens' group) based upon, alleging, asserting, or claiming any actual or potential (a) violation of, or liability under any Environmental Law, (b) violation of any Environmental Permit, or (c) liability for investigatory costs, cleanup costs, removal costs, remedial costs, response costs, natural resource damages, property damage, personal injury, fines, or penalties arising out of, based on, 5 resulting from, or related to the presence, Release, or threatened Release into the environment of any Hazardous Substances at any location related to the Purchased Assets, including, but not limited to, any off-Site location to which Hazardous Substances, or materials containing Hazardous Substances, were sent for handling, storage, treatment, or disposal. (30) "Environmental Condition" means the presence or Release to the environment, whether at the Sites or at an off-Sites location, of Hazardous Substances, including any migration of those Hazardous Substances through air, soil or groundwater to or from the Sites or any off-Site location regardless of when such presence or Release occurred or is discovered. (31) "Environmental Laws" means all applicable Federal, state and local, provincial and foreign, civil and criminal laws, regulations, rules, ordinances, codes, decrees, judgments, directives, or judicial or administrative orders relating to pollution or protection of the environment, natural resources or human health and safety, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Substances (including, without limitation, Releases to ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport, disposal or handling of Hazardous Substances. "Environmental Laws" include, without limitation, CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Oil Pollution Act (33 U.S.C. Section 2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.),the Pennsylvania Hazardous Sites Cleanup Act (35 P.S. Section 6020.101 et seq.), the Pennsylvania Solid Waste Management Act (35 P.S. Section 6018.101 et seq.), the Pennsylvania Clean Stream Law (35 P.S. Section 691.1 et seq.), and all applicable other state laws analogous to any of the above. (32) "Environmental Permits" has the meaning set forth in Section 4.7(a). (33) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 6 (34) "ERISA Affiliate" has the meaning set forth in Section 2.4(k). (35) "ERISA Affiliate Plans" has the meaning set forth in Section 2.4(k). (36) "Estimated Adjustment" has the meaning set forth in Section 3.3(b). (37) "Estimated Closing Statement" has the meaning set forth in Section 3.3(b). (38) "Excluded Assets" has the meaning set forth in Section 2.2. (39) "Excluded Liabilities" has the meaning set forth in Section 2.4. (40) "Facilities Act" has the meaning set forth in Section 10.14. (41) "FERC" means the Federal Energy Regulatory Commission or any successor agency thereto. (42) "FIRPTA Affidavit" means the Foreign Investment in Real Property Tax Act Certification and Affidavit, substantially in the form of Exhibit C hereto. (43) "Genco" means GPU Generation, Inc., a Pennsylvania corporation and wholly-owned subsidiary of GPU. (44) "Genco Stock" means all of the issued and outstanding shares of common stock, par value $20 per share, of Genco owned beneficially and of record by GPU and comprising the only authorized shares of stock of Genco at and as of the Closing. (45) "Good Utility Practices" mean any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or previously engaged in by Sellers (in its operation of the Purchased Assets) or any of the practices, methods or acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Good Utility Practices are not intended to be limited to the optimum practices, methods or acts to the exclusion of all others, but rather to be acceptable practices, methods or acts 7 generally accepted in the industry or previously engaged in by Sellers (in its operation of the Purchased Assets). (46) "Governmental Authority" means any federal, state, local or other governmental, regulatory or administrative agency, commission, department, board, or other governmental subdivision, court, tribunal, arbitrating body or other governmental authority. (47) "GPU" means GPU, Inc., a Pennsylvania corporation and parent company of Sellers and Genco. (48) "GPU Intercompany Tax Allocation Agreement" has the meaning set forth in Section 6.8(e)(2)(ii). (49) "GPUN" means GPU Nuclear, Inc., a New Jersey corporation and a wholly-owned subsidiary of GPU. (50) "GPUS" means GPU Service, Inc., a Pennsylvania corporation and a wholly-owned subsidiary of GPU. (51) "Hazardous Substances" means (a) any petrochemical or petroleum products, coal ash, oil, radioactive materials, radon gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid which may contain levels of polychlorinated biphenyls; (b) 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; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any applicable Environmental Law. (52) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. (53) "IBEW 459" means Local 459 of the International Brotherhood of Electrical Workers. (54) "Income Tax" means any federal, state, local or foreign Tax (a) based upon, measured by or calculated with respect to net income, profits or receipts (including, without limitation, capital gains Taxes and minimum Taxes) or (b) based upon, measured by or calculated with respect to multiple bases (including, without limitation, corporate franchise taxes) if one 8 or more of the bases on which such Tax may be based, measured by or calculated with respect to, is described in clause (a), in each case together with any interest, penalties, or additions to such Tax. (55) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a). (56) "Indemnifying Party" has the meaning set forth in Section 8.1(e). (57) "Indemnitee" has the meaning set forth in Section 8.1(d). (58) "Independent Accounting Firm" means such independent accounting firm of national reputation as is mutually appointed by Sellers and Buyer. (59) "Inspection" means all tests, reviews, examinations, inspections, investigations, verifications, samplings and similar activities conducted by Buyer or its agents or Representatives with respect to the Purchased Assets prior to the Closing. (60) "Intellectual Property" means all patents and patent rights, trademarks and trademark rights, copyrights and copyright rights owned by Sellers and necessary for the operation and maintenance of the Purchased Assets, and all pending applications for registrations of patents, trademarks, and copyrights, as set forth as part of Schedule 2.1(l). (61) "Inventories" means coal, fuel oil or alternative fuel inventories, limestone, materials, spare parts, consumable supplies and chemical and gas inventories relating to the operation of a Plant located at, or in transit to, such Plant. (62) "Knowledge" means the actual knowledge of the corporate officers or managerial representatives of the specified Person charged with responsibility for the particular function as of the date of the this Agreement, or, with respect to any certificate delivered pursuant to this Agreement, the date of delivery of the certificate. (63) "Material Adverse Effect" means any change in, or effect on the Purchased Assets that is materially adverse to the operations or condition (financial or otherwise) of (i) the Aggregate Purchased Assets, taken as a whole, or (ii) a Specified Plant (as defined below) other than: (a) any change affecting the international, national, regional or local electric industry as a whole and not Sellers specifically and exclusively; (b) any 9 change or effect resulting from changes in the international, national, regional or local wholesale or retail markets for electric power; (c) any change or effect resulting from changes in the international, national, regional or local markets for any fuel used in connection with the Aggregate Purchased Assets including such Specified Plant; (d) any change or effect resulting from, changes in the North American, national, regional or local electric transmission systems or operations thereof; (e) any materially adverse change in or effect on the Aggregate Purchased Assets including such Specified Plant which is cured (including by the payment of money) before the Termination Date; (f) any order of any court or Governmental Authority or legislature applicable to providers of generation, transmission or distribution of electricity generally that imposes restrictions, regulations or other requirements thereon; and (g) any change or effect resulting from action or inaction by a Governmental Authority with respect to an independent system operator or retail access in Pennsylvania or New Jersey. As used herein, each of the following shall be a "Specified Plant": (1) the Shawville Station and associated Purchased Assets to be conveyed to Buyer pursuant to the Related Purchase Agreement with Penelec; (2) the Portland Station and associated Purchased Assets to be conveyed to Buyer pursuant to the Related Purchase Agreement to which Met-Ed is a party; and (3) collectively, all Purchased Assets to be conveyed to Buyer under this Agreement. (64) "NJBPU" means the New Jersey Board of Public Utilities and any successor agency thereto. (65) "Non-Union Employees" has the meaning as set forth in Sections 6.10(b) and (m). (66) "Operating Agreements" has the meaning set forth in Section 4A.7 (67) "Owners Agreements" means the Memorandum of Owners Agreement for Conemaugh Steam Electric Station by and among Atlantic City Electric Company, Baltimore Gas and Electric Company, Delamarva Power and Light Company, Metropolitan Edison Company, Pennsylvania Power and Light Company, Philadelphia Electric Company, Potomac Electric Power Company, Public Service Electric and Gas Company and United Gas Improvement Company, dated August 1, 1966 as amended (the "Conemaugh Agreement"), that certain Memorandum of Owners Agreement re: Keystone Electric Generation Station by and among Atlantic City Electric Company, Baltimore Gas and Electric Company, Delaware Power and Light Company, Jersey Central Power and Light Company, Pennsylvania Power and Light Company, Philadelphia Electric Company and Public Service Electric and Gas Company 10 dated December 7, 1964, as amended(the "Keystone Agreement"), being attached hereto as Schedule 1.1(67). (68) "PaDEP" means the Pennsylvania Department of Environmental Protection and any successor agency thereto. (69) "PaPUC" means the Pennsylvania Public Utility Commission and any successor agency thereto. (70) "Penelec" means Pennsylvania Electric Company, a Pennsylvania corporation. (71) "Permits" has the meaning set forth in Section 4.14. (72) "Permitted Encumbrances" means: (i) the Easements; (ii) those Encumbrances set forth in Schedule 1.1(72); (iii) statutory liens for Taxes or other governmental charges or assessments not yet due or delinquent or the validity of which is being contested in good faith by appropriate proceedings provided that the aggregate amount for all Aggregate Purchased Assets being so contested does not exceed $500,000; (iv) mechanics', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business relating to obligations as to which there is no default on the part of Sellers or the validity of which are being contested in good faith, and which do not, individually or in the aggregate, with respect to all Aggregate Purchased Assets exceed $500,000; (v) zoning, entitlement, conservation restriction and other land use and environmental regulations by Governmental Authorities; and (vi) such other liens, imperfections in or failure of title, charges, easements, restrictions and Encumbrances which do not materially, individually or in the aggregate, detract from the value of the Aggregate Purchased Assets as currently used or materially interfere with the present use of the Aggregate Purchased Assets and neither secure indebtedness, nor individually or in the aggregate have a value exceeding $30 million for all Aggregate Purchased Assets. (73) "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, or governmental entity or any department or agency thereof. (74) "Plants" means the generating stations and related assets as more fully identified on Schedule 2.1 attached hereto. (75) "Pollution Control Revenue Bonds" means the bonds listed on Schedule 6.12. 11 (76) "Post-Closing Adjustment" has the meaning set forth in Section 3.3(c). (77) "Post-Closing Statement" has the meaning set forth in Section 3.3(c). (78) "Proprietary Information" of a Party means all information about the Party or its Affiliates, including their respective properties or operations, furnished to the other Party or its Representatives by the Party or its Representatives, after the date hereof, regardless of the manner or medium in which it is furnished. Proprietary Information does not include information that: (a) is or becomes generally available to the public, other than as a result of a disclosure by the other Party or its Representatives; (b) was available to the other Party on a nonconfidential basis prior to its disclosure by the Party or its Representatives; (c) becomes available to the other Party on a nonconfidential basis from a person, other than the Party or its Representatives, who is not otherwise bound by a confidentiality agreement with the Party or its Representatives, or is not otherwise under any obligation to the Party or any of its Representatives not to transmit the information to the other Party or its Representatives; (d) is independently developed by the other Party; or (e) was disclosed pursuant to the Confidentiality Agreement and remains subject to the terms and conditions of the Confidentiality Agreement. (79) "Purchased Assets" has the meaning set forth in Section 2.1. (80) "Purchase Price" has the meaning set forth in Section 3.2. (81) "PURTA" has the meaning set forth in Section 3.5(c). (82) "PURTA Surcharge" has the meaning set forth in Section 3.5(c). (83) "Qualifying Offer" has the meaning set forth in Section 6.10(b). (84) "Real Property" has the meaning set forth in Section 2.1(a). (85) "Real Property Leases" has the meaning set forth in Section 4.6. (86) "Related Purchase Agreements" has the meaning set forth in Section 7.1(l). 12 (87) "Release" means release, spill, leak, discharge, dispose of, pump, pour, emit, empty, inject, leach, dump or allow to escape into or through the environment. (88) "Remediation" means action of any kind to address a Release or the presence of Hazardous Substances at a Site or an off-Site location including, without limitation, any or all of the following activities to the extent they relate to or arise from the presence of a Hazardous Substance at a Site or an off-Site location: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (b) obtaining any permits, consents, approvals or authorizations of any Governmental Authority necessary to conduct any such activity; (c) preparing and implementing any plans or studies for any such activity; (d) obtaining a written notice from a Governmental Authority with jurisdiction over a Site or an off-Site location under Environmental Laws that no material additional work is required by such Governmental Authority; (e) the use, implementation, application, installation, operation or maintenance of removal actions on a Site or an off-Site location, remedial technologies applied to the surface or subsurface soils, excavation and off-Site treatment or disposal of soils, systems for long term treatment of surface water or ground water, engineering controls or institutional controls; and (f) any other activities reasonably determined by a Party to be necessary or appropriate or required under Environmental Laws to address the presence or Release of Hazardous Substances at a Site or an off-Site location. (89) "Replacement Welfare Plans" has the meaning set forth in Section 6.10(e) (90) "Representatives" of a Party means the Party's Affiliates and their directors, officers, employees, agents, partners, advisors (including, without limitation, accountants, counsel, environmental consultants, financial advisors and other authorized representatives) and parents and other controlling persons. (91) "SEC" means the Securities and Exchange Commission and any successor agency thereto. (92) "Sellers' Agreements" means those contracts, agreements, licenses and leases relating to the ownership, operation and maintenance of the Plants and being assigned to Buyer as part of the Purchased Assets, including without limitation the Collective Bargaining Agreement and the Owners Agreements and the agreements identified on Schedule 4.12(a). 13 (93) "Sellers' Indemnitee" has the meaning set forth in Section 8.1 ------------------- (a). (94) "Sellers' Material Adverse Effect" has the meaning set forth in Section 7.2(c). (95) "Sellers' Required Regulatory Approvals" has the meaning set forth in Section 4.3(b). (96) "Site" means, with respect to any Plant, the Real Property (including improvements) forming a part of, or used or usable in connection with the operation of, such Plant, including any disposal sites included in the Real Property. Any reference to the Sites shall include, by definition, the surface and subsurface elements, including the soils and groundwater present at the Sites, and any reference to items "at the Sites" shall include all items "at, on, in, upon, over, across, under and within" the Site. (97) "Subsidiary" when used in reference to any Person means any entity of which outstanding securities having ordinary voting power to elect a majority of the Board of Directors or other Persons performing similar functions of such entity are owned directly or indirectly by such Person. (98) "Tangible Personal Property" has the meaning set forth in Section 2.1(c). (99) "Tax Affiliate" means any entity that is a member of an affiliated group of corporations (within the meaning of Section 1504(a) of the Code) filing a consolidated U.S. federal Income Tax Return, or a group of corporations filing a consolidated or combined Tax Return for state, local or foreign purposes (each a "Consolidated Group"), if Genco could be held liable for the Taxes of such entity or Consolidated Group. (100) "Tax Contest" has the meaning set forth in Section 6.8(e)(4)(i). (101) "Taxes" means all taxes, charges, fees, levies, penalties or other assessments imposed by any federal, state or local or foreign taxing authority, including, but not limited to, income, excise, property, sales, transfer, franchise, payroll, withholding, social security, gross receipts, license, stamp, occupation, employment or other taxes, including any interest, penalties or additions attributable thereto. (102) "Tax Return" means any return, report, information return, declaration, claim for refund or other document (including any schedule or 14 related or supporting information) required to be supplied to any taxing authority with respect to Taxes including amendments thereto. (103) "Termination Date" has the meaning set forth in Section 9.1(b). (104) "Third Party Claim" has the meaning set forth in Section 8.2(a). (105) "Transferable Permits" means those Permits and Environmental Permits which may be lawfully transferred to or assumed by Buyer without a filing with, notice to, consent or approval of any Governmental Authority, and are set forth in Schedule 1.1 (105). (106) "Transferred Employees" means Transferred Non-Union Employees and Transferred Union Employees. (107) "Transferred Non-Union Employees" has the meaning set forth in Section 6.10(b). (108) "Transferred Union Employees" has the meaning set forth in Section 6.10(b). (109) "Transferring Employee Records" means all records related to personnel of Sellers, Genco, GPUN or GPUS who will become employees of Buyer only to the extent such records pertain to: (i) skill and development training and biographies, (ii) seniority histories, (iii) salary and benefit information including benefit census and valuation data, (iv) Occupational, Safety and Health Administration reports, and (v) active medical restriction forms. (110) "Transition Power Purchase Agreements" means the agreements between Sellers and Buyer, copies of which are attached as Exhibit E hereto, executed on the date hereof, relating to the sale of installed capacity to Sellers for a specified period of time following the Closing Date. (111) "Transmission Assets" has the meaning set forth in Section 2.2(a). (112) "Union" means IBEW 459. (113) "Union Employees" has the meaning set forth in Sections 6.10(a) and (m). 15 (114) "USEPA" means the United States Environmental Protection Agency and any successor agency thereto. (115) "Year 2000 Compliant" has the meaning set forth in Section 4.20. "Year 2000 Compliance" has a meaning correlative to the foregoing. (116) "WARN Act" means the Federal Worker Adjustment Retraining and Notification Act of 1988, as amended. 1.2 Certain Interpretive Matters. In this Agreement, unless the context otherwise requires, the singular shall include the plural, the masculine shall include the feminine and neuter, and vice versa. The term "includes" or "including" shall mean "including without limitation." References to a Section, Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule of this Agreement, and reference to a given agreement or instrument shall be a reference to that agreement or instrument as modified, amended, supplemented and restated through the date as of which such reference is made. ARTICLE II PURCHASE AND SALE 2.1 Transfer of Assets. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, at the Closing each Seller will sell, assign, convey, transfer and deliver to Buyer, and Buyer will purchase, assume and acquire from such Seller, free and clear of all Encumbrances (except for Permitted Encumbrances), and subject to Sections 2.2 and 7.3 and the other terms and conditions of this Agreement, all of such Seller's right, title and interest in and to all assets constituting, or used in and necessary for generation purposes to the operation of, the Plants identified in Schedule 2.1 including without limitation those assets described below (but excluding the Excluded Assets), each as in existence on the Closing Date (collectively, "Purchased Assets"): (a) Those certain parcels of real property (including all buildings, facilities and other improvements thereon and all appurtenances thereto) described in Schedule 4.10 (the "Real Property"), except as otherwise constituting part of the Excluded Assets; (b) All Inventories; 16 (c) All machinery, mobile or otherwise, equipment (including communications equipment), vehicles, tools, furniture and furnishings and other personal property located on or used principally in connection with the Real Property on the Closing Date, including, without limitation, the items of personal property included in Schedule 2.1(c), together with all the personal property of Sellers used principally in the operation of the Plants and listed in Schedule 2.1(c), other than property used or primarily usable as part of the Transmission Assets or otherwise constituting part of the Excluded Assets (collectively, "Tangible Personal Property"); (d) Subject to the provisions of Section 6.5(d), all Sellers' Agreements; (e) Subject to the provisions of Section 6.5(d), all Real Property Leases; (f) All Transferable Permits; (g) All books, operating records, operating, safety and maintenance manuals, engineering design plans, documents, blueprints and as built plans, specifications, procedures and similar items of Sellers relating specifically to the aforementioned assets and necessary for the operation of the Plants (subject to the right of Sellers to retain copies of same for its use) other than such items which are proprietary to third parties and accounting records; (h) Subject to Section 6.1, all Emission Reduction Credits associated with the Plants and identified in Schedule 2.1(h), and all Emission Allowances that have accrued prior to, or that accrue on or after, the date of this Agreement but prior to the Closing Date; (i) All unexpired, transferable warranties and guarantees from third parties with respect to any item of Real Property or personal property constituting part of the Purchased Assets, as of the Closing Date; (j) The names of the Plants. It is expressly understood that Sellers are not assigning or transferring to Buyer any right to use the names "Jersey Central Power & Light Company", "JCP&L", "Metropolitan Edison Company", "Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU Generation", "GPU Nuclear", "GPU Service" and "GPU Genco", or any related or similar trade names, trademarks, service marks, corporate names and logos or any part, derivative or combination thereof; 17 (k) All drafts, memoranda, reports, information, technology, and specifications relating to Sellers' plans for Year 2000 Compliance with respect to the Purchased Assets; and (l) The Intellectual Property described on Schedule 2.1(l). In addition, GPU will sell, assign, convey, transfer and deliver to Buyer, and Buyer will purchase and acquire from GPU, free and clear of all Encumbrances, all of GPU's right, title and interest in and to the Genco Stock and all stock books, stock ledger, minute books, corporate seal, all corporate records and all other books and records of the type described in Section 2.1 above and relating to Genco. 2.2 Excluded Assets. Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement will constitute or be construed as conferring on Buyer, and Buyer is not acquiring, any right, title or interest in or to the following specific assets which are associated with the Purchased Assets, but which are hereby specifically excluded from the sale and the definition of Purchased Assets herein (the "Excluded Assets"): (a) Except as expressly identified in Schedule 2.1(c), the electrical transmission or distribution facilities (as opposed to generation facilities) of Sellers or any of their Affiliates located at the Sites or forming part of the Plants (whether or not regarded as a "transmission" or "generation" asset for regulatory or accounting purposes), including all switchyard facilities, substation facilities and support equipment, as well as all permits, contracts and warranties, to the extent they relate to such transmission and distribution assets (collectively, the "Transmission Assets"), and those certain assets, facilities and agreements all as identified on Schedule 2.2(a) attached hereto; (b) Certificates of deposit, shares of stock (except as provided in the last paragraph of Section 2.1 with respect to the Genco Stock), securities, bonds, debentures, evidences of indebtedness, and interests in joint ventures, partnerships, limited liability companies and other entities; (c) All cash, cash equivalents, bank deposits, accounts and notes receivable (trade or otherwise), and any income, sales, payroll or other tax receivables; (d) The rights of Sellers and their Affiliates to the names "Jersey "Central Power & Light Company", "JCP&L", "Metropolitan Edison Company", "Met-Ed", "Pennsylvania Electric Company", 18 "Penelec", "GPU", "GPU Energy", "GPU Generation", "GPU Nuclear", "GPU Service" and "GPU Genco" or any related or similar trade names, trademarks, service marks, corporate names or logos, or any part, derivative or combination thereof; (e) All tariffs, agreements and arrangements to which Sellers are a party for the purchase or sale of electric capacity and/or energy or for the purchase of transmission or ancillary services; (f) The rights of Sellers in and to any causes of action against third parties (including indemnification and contribution), other than to the extent relating to any Assumed Liability, relating to any Real Property or personal property, Permits, Environmental Permits, Taxes, Real Property Leases or Sellers' Agreements, if any, including any claims for refunds, prepayments, offsets, recoupment, insurance proceeds, condemnation awards, judgments and the like, whether received as payment or credit against future liabilities, relating specifically to the Plants or the Sites and relating to any period prior to the Closing Date; (g) All personnel records of Sellers or their Affiliates relating to the Transferred Employees other than Transferring Employee Records or other records, the disclosure of which is required by law, or legal or regulatory process or subpoena; and (h) Any and all of Sellers' rights in any contract representing an intercompany transaction between Sellers and an Affiliate of Sellers, whether or not such transaction relates to the provision of goods and services, payment arrangements, intercompany charges or balances, or the like, except for any contracts listed on Schedule 4.12(a). 2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to Sellers the Assignment and Assumption Agreement pursuant to which Buyer shall assume and agree to discharge when due, without recourse to Sellers, all of the following liabilities and obligations of Seller, direct or indirect, known or unknown, absolute or contingent, which relate to the Purchased Assets, other than Excluded Liabilities, in accordance with the respective terms and subject to the respective conditions thereof (collectively, "Assumed Liabilities"): (a) All liabilities and obligations of Sellers and GPU arising on or after the Closing Date under Sellers' Agreements, the Operating Agreements, the Real Property Leases, and the Transferable Permits in accordance with the terms thereof, including, without limitation, (i) the contracts, licenses, 19 agreements and personal property leases entered into by Sellers with respect to the Purchased Assets, which are disclosed on Schedule 4.12(a) or not required by Section 4.12(a) to be so disclosed, and (ii) the contracts, licenses, agreements and personal property leases entered into by Sellers with respect to the Purchased Assets after the date hereof consistent with the terms of this Agreement, except in each case to the extent such liabilities and obligations, but for a breach or default by Sellers, would have been paid, performed or otherwise discharged on or prior to the Closing Date or to the extent the same arise out of any such breach or default or out of any event which after the giving of notice would constitute a default by Sellers; (b) All liabilities and obligations associated with the Purchased Assets in respect of Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof; (c) All liabilities and obligations with respect to the Transferred Employees arising on or after the Closing Date (i) for which Buyer is responsible pursuant to Section 6.10 or (ii) relating to the grievances and arbitration proceedings arising out of or under the Collective Bargaining Agreement prior to, on or after the Closing Date; (d) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with (i) any violation or alleged violation of Environmental Laws, whether prior to, on or after the Closing Date, with respect to the ownership or operation of any of the Purchased Assets; (ii) loss of life, injury to persons or property or damage to natural resources (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Purchased Assets prior to, on or after the Closing Date, including, but not limited to, Hazardous Substances contained in building materials at or adjacent to the Purchased Assets or in the soil, surface water, sediments, groundwater, landfill cells, or in other environmental media at or near the Purchased Assets; and (iii) the Remediation (whether or not such Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances that are present or have been Released prior to, on or after the Closing Date at, on, in, under, adjacent to or migrating from, the Purchased Assets or in the soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to 20 the Purchased Assets; provided, that nothing set forth in this subsection 2.3(d) shall require Buyer to assume any liabilities or obligations that are expressly excluded in Section 2.4 including, without limitation, liability for toxic torts as set forth in Section 2.4(i). (e) All liabilities and obligations of Sellers with respect to the Purchased Assets under the agreements or consent orders set forth on Schedule 4.7 arising on or after the Closing; and (f) With respect to the Purchased Assets, any Tax that may be imposed by any federal, state or local government on the ownership, sale, operation or use of the Purchased Assets on or after the Closing Date, except for any Income Taxes attributable to income received by Sellers. 2.4 Excluded Liabilities. Buyer shall not assume or be obligated to pay, perform or otherwise discharge the following liabilities or obligations (the "Excluded Liabilities"): (a) Any liabilities or obligations of Sellers that are not expressly set forth as liabilities or obligations being assumed by Buyer in Section 2.3 and any liabilities or obligations in respect of any Excluded Assets or other assets of Sellers which are not Purchased Assets; (b) Any liabilities or obligations in respect of Taxes attributable to the ownership, operation or use of Purchased Assets for taxable periods, or portions thereof, ending before the Closing Date, except for Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof and any liability in respect of PURTA not otherwise expressly assumed by Buyer under Section 3.5 hereof; (c) Any liabilities or obligations of Sellers accruing under any of Sellers' Agreements or the Operating Agreements prior to the Closing Date; (d) Any and all asserted or unasserted liabilities or obligations to third parties (including employees) for personal injury or tort, or similar causes of action arising solely out of the ownership or operation of the Purchased Assets prior to the Closing Date, other than any liabilities or obligations which have been assumed by Buyer in Section 2.3(d); (e) Any fines, penalties or costs imposed by a Governmental Authority resulting from (i) an investigation, proceeding, request for information or inspection before or by a Governmental 21 Authority pending prior to the Closing Date but only regarding acts which occurred prior to the Closing Date, or (ii) illegal acts, willful misconduct or gross negligence of Sellers prior to the Closing Date, other than, any such fines, penalties or costs which have been assumed by Buyer in Section 2.3(d); (f) Any payment obligations of Sellers for goods delivered or services rendered prior to the Closing Date, including, but not limited to, rental payments pursuant to the Real Property Leases; (g) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with loss of life, injury to persons or property or damage to natural resources (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) to the extent caused (or allegedly caused) by the off-Site disposal, storage, transportation, discharge, Release, or recycling of Hazardous Substances, or the arrangement for such activities, of Hazardous Substances, prior to the Closing Date, in connection with the ownership or operation of the Purchased Assets, provided that for purposes of this Section "off-Site" does not include any location to which Hazardous Substances disposed of or Released at the Purchased Assets have migrated; (h) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with the investigation and/or Remediation (whether or not such investigation or Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances that are disposed, stored, transported, discharged, Released, recycled, or the arrangement of such activities, prior to the Closing Date, in connection with the ownership or operation of the Purchased Assets, at any off-Site location, provided that for purposes of this Section "off-Site" does not include any location to which Hazardous Substances disposed of or Released at the Purchased Assets have migrated; (i) Third party liability for toxic torts arising as a result of or in connection with loss of life or injury to persons (whether or not such loss or injury arose or was made manifest on or after the Closing Date) caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Purchased Assets prior to the Closing Date; 22 (j) Civil or criminal fines or penalties wherever assessed or incurred for violations of Environmental Laws arising from the operation of the Purchased Assets prior to the Closing Date; (k) Subject to Section 6.10, any liabilities or obligations relating to any Benefit Plan maintained by Sellers or any trade or business (whether or not incorporated) which is or ever has been under common control, or which is or ever has been treated as a single employer, with a Seller under Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which a Seller and any ERISA Affiliate contributed thereunder (the "ERISA Affiliate Plans"), including but not limited to any liability with respect to any such plan (i) for benefits payable under such plan; (ii) to the Pension Benefit Guaranty Corporation under Title IV of ERISA; (iii) relating to any such plan that is a multi-employer plan within the meaning of Section 3(37)A of ERISA; (iv) for non-compliance with the notice and benefit continuation requirements of COBRA; (v) for noncompliance with ERISA or any other applicable laws; or (vi) arising out of or in connection with any suit, proceeding or claim which is brought against Buyer, any Benefit Plan, ERISA Affiliate Plan, or any fiduciary or former fiduciary of any such Benefit Plan or ERISA Affiliate Plan; (l) Subject to Section 6.10, any liabilities or obligations relating to the employment or termination of employment, by a Seller, or any Affiliate of a Seller, of any individual, that is attributable to any actions or inactions (including discrimination, wrongful discharge, unfair labor practices or constructive termination) by the Sellers prior to the Closing Date other than such actions or inactions taken at the written direction of Buyer; (m) Subject to Section 6.10, any obligations for wages, overtime, employment taxes, severance pay, transition payments in respect of compensation or similar benefits accruing or arising prior to the Closing under any term or provision of any contract, plan, instrument or agreement relating to any of the Purchased Assets; (n) Any liability of a Seller arising out of a breach by Seller or any of its Affiliates of any of their respective obligations under this Agreement or the Ancillary Agreements; and (o) Any liability or obligation of Genco relating to the period prior to the Closing except for liabilities or obligations assumed by Buyer under Section 2.3; 23 (p) Any liability relating to the Pollution Control Revenue Bonds except as provided in Section 6.12. 2.5 Control of Litigation. The Parties agree and acknowledge that Sellers shall be entitled exclusively to control, defend and settle any litigation, administrative or regulatory proceeding, and any investigation or Remediation activities (including without limitation any environmental mitigation or Remediation activities), arising out of or related to any Excluded Liabilities, and Buyer agrees to cooperate fully in connection therewith; provided however, that without Buyer's written consent, which shall not be unreasonably withheld or delayed, Sellers shall not settle any such litigation, administrative or regulatory proceeding which would result in a material adverse effect on the related Purchased Assets. 2.6 Genco's Assets and Liabilities. Effective immediately prior to the Closing, GPU shall cause all assets of Genco other than the Operating Agreements to be transferred by Genco to GPU or one or more of GPU's Affiliates, and to cause all liabilities of Genco other than those relating to the Operating Agreements to be assumed by GPU or one or more of GPU's Affiliates. ARTICLE III THE CLOSING 3.1 Closing. Upon the terms and subject to the satisfaction of the conditions contained in Article VII of this Agreement, the sale, assignment, conveyance, transfer and delivery of the Purchased Assets to Buyer, the payment of the Purchase Price to Sellers, and the consummation of the other respective obligations of the Parties contemplated by this Agreement shall take place at a closing (the "Closing"), to be held at the offices of Berlack, Israels & Liberman LLP, 120 West 45th Street, New York, New York at 10:00 a.m. local time, or another mutually acceptable time and location, on the date that is fifteen (15) Business Days following the date on which the last of the conditions precedent to Closing set forth in Article VII of this Agreement have been either satisfied or waived by the Party for whose benefit such conditions precedent exist or such other date as the Parties may mutually agree. The date of 24 Closing is hereinafter called the "Closing Date." The Closing shall be effective for all purposes as of 12:01 a.m. on the Closing Date. 3.2 Payment of Purchase Price. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, in consideration of the aforesaid sale, assignment, conveyance, transfer and delivery of the Purchased Assets, Buyer will pay or cause to be paid to Sellers at the Closing an aggregate amount of five hundred forty six million seven hundred fifty thousand seven hundred forty one United States Dollars (U.S. $546,750,741.00) (the "Purchase Price") plus or minus any adjustments pursuant to the provisions of this Agreement, by wire transfer of immediately available funds denominated in U.S. dollars or by such other means as are agreed upon by Sellers and Buyer. 3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at the Closing, the Purchase Price shall be adjusted, without duplication, to account for the items set forth in this Section 3.3(a): (i) The Purchase Price shall be increased or decreased, as applicable, to reflect the difference between the book value of all Inventories as of the Closing Date and the value of all Inventories as of June 30, 1998 as reflected on Schedule 3.3(a)(i). (ii) The Purchase Price shall be adjusted to account for the items prorated as of the Closing Date pursuant to Section 3.5. (iii) The Purchase Price shall be increased by the amount expended, or for which liabilities are incurred, by Sellers between the date hereof and the Closing Date for capital additions to or replacements of property, plant and equipment included in the Purchased Assets and other expenditures or repairs on property, plant and equipment included in the Purchased Assets that would be capitalized by Sellers in accordance with normal accounting policies of Sellers and its Affiliates (together, "Capital Expenditures"), which are not described on Schedule 6.1 and which either (A) are mandated after the date of this Agreement by any Governmental Authority (subject to Buyer's right reasonably to direct Sellers to contest such mandates by appropriate proceedings at Buyer's expense and provided there is no adverse impact on the Purchased Assets); or (B) do not fall within category (A) above but do not exceed in 25 the aggregate $2 million for all Aggregate Purchased Assets; or (C) are approved in writing by Buyer. (b) At least ten (10) Business Days prior to the Closing Date, Sellers shall prepare and deliver to Buyer an estimated closing statement (the "Estimated Closing Statement") that shall set forth Sellers' best estimate of the adjustments to the Purchase Price required by Section 3.3(a) (the "Estimated Adjustment"). Within five (5) Business Days following the delivery of the Estimated Closing Statement by Sellers to Buyer, Buyer may object in good faith to the Estimated Adjustment in writing. If Buyer objects to the Estimated Adjustment, the Parties shall attempt to resolve their differences by negotiation. If the Parties are unable to do so within three (3) Business Days prior to the Closing Date (or if Buyer does not object to the Estimated Adjustment), the Purchase Price shall be adjusted (the "Closing Adjustment") for the Closing by the amount of the Estimated Adjustment not in dispute. The disputed portion shall be paid as a Post-Closing Adjustment to the extent required by Section 3.3(c). (c) Within sixty (60) days following the Closing Date, Sellers shall prepare and deliver to Buyer a final closing statement (the "Post-Closing Statement") that shall set forth all adjustments to the Purchase Price required by Section 3.3(a) (the "Post-Closing Adjustment"). The Post-Closing Statement shall be prepared using the same accounting principles, policies and methods as Sellers have historically used in connection with the calculation of the items reflected on such Post-Closing Statement. Within thirty (30) days following the delivery of the Post-Closing Statement by Sellers to Buyer, Buyer may object to the Post-Closing Adjustment in writing. Sellers agree to cooperate with Buyer to provide Buyer and Buyer's Representatives information used to prepare the Post-Closing Statement and information relating thereto. If Buyer objects to the Post-Closing Adjustment, the Parties shall attempt to resolve such dispute by negotiation. If the Parties are unable to resolve such dispute within thirty (30) days of any objection by Buyer, the Parties shall appoint the Independent Accounting Firm, which shall, at Sellers' and Buyer's joint expense, review the Post-Closing Adjustment and determine the appropriate adjustment to the Purchase Price, if any, within thirty (30) days of such appointment. The Parties agree to cooperate with the Independent Accounting Firm and provide it with such information as it reasonably requests to enable it to make such determination. The finding of such Independent Accounting Firm shall be binding on the Parties hereto. Upon determination of the appropriate adjustment by agreement of the Parties or by binding determination of the Independent Accounting Firm, if the Post- 26 Closing Adjustment is more or less than the Closing Adjustment, the Party owing the difference shall deliver such difference to the other Party no later than two (2) Business Days after such determination, in immediately available funds or in any other manner as reasonably requested by the payee. 3.4 Allocation of Purchase Price. Buyer and Sellers shall endeavor to agree upon an allocation among the Purchased Assets and the Genco Stock of the sum of the Purchase Price and the Assumed Liabilities in a manner consistent with the provisions of Section 1060 of the Code and the Treasury Regulations thereunder within sixty (60) days of the date of this Agreement provided that the portion of the Purchase Price allocated to the Genco Stock may not be less than $50,000. Each of Buyer and Sellers agree to file Internal Revenue Service Form 8594, and all federal, state, local and foreign Tax Returns, in accordance with any such agreed to allocation. Each of Buyer and Sellers shall report the transactions contemplated by this Agreement for federal Tax and all other Tax purposes in a manner consistent with any such agreed to allocation determined pursuant to this Section 3.4. Each of Buyer and Sellers agree to provide the other promptly with any information required to complete Form 8594. Buyer and Sellers shall notify and provide the other with reasonable assistance in the event of an examination, audit or other proceeding regarding any allocation of the Purchase Price agreed to pursuant to this Section 3.4. 3.5 Prorations. (a) Buyer and Sellers agree that all of the items normally prorated, including those listed below (but not including Income Taxes), relating to the business and operation of the Purchased Assets shall be prorated as of the Closing Date, with Sellers liable to the extent such items relate to any time period prior to the Closing Date, and Buyer liable to the extent such items relate to periods commencing with the Closing Date (measured in the same units used to compute the item in question, otherwise measured by calendar days): (i) Personal property, real estate and occupancy Taxes, assessments and other charges, if any, on or with respect to the business and operation of the Purchased Assets; (ii) Rent, Taxes and all other items (including prepaid services or goods not included in Inventory) payable by or to Seller under any of Sellers' Agreements; (iii) Any permit, license, registration, compliance assurance fees or other fees with respect to any Transferable Permit; 27 (iv) Sewer rents and charges for water, telephone, electricity and other utilities; and (v) Rent and Taxes and other items payable by Sellers under the Real Property Leases assigned to Buyer is a party. (b) In connection with the prorations referred to in (a) above, in the event that actual figures are not available at the Closing Date, the proration shall be based upon the actual Taxes or other amounts accrued through the Closing Date or paid for the most recent year (or other appropriate period) for which actual Taxes or other amounts paid are available. Such prorated Taxes or other amounts shall be re-prorated and paid to the appropriate Party within sixty (60) days of the date that the previously unavailable actual figures become available. The prorations shall be based on the number of days in a year or other appropriate period (i) before the Closing Date and (ii) including and after the Closing Date. Sellers and Buyer agree to furnish each other with such documents and other records as may be reasonably requested in order to confirm all adjustment and proration calculations made pursuant to this Section 3.5. (c) Notwithstanding anything to the contrary herein, no proration shall be made under this Section 3.5 with respect to Taxes payable under the Pennsylvania Public Utility Realty Tax Act ("PURTA") that are attributable the year in which the Closing occurs (the "Closing Year PURTA Tax"). Buyer shall be fully responsible and indemnify Seller for, and shall be entitled to receive all refunds relating to payments Buyer makes with respect to, the Closing Year PURTA Tax; provided, however, that any additional tax that is imposed in the year in which the Closing occurs pursuant to Section 1104-A(b) of PURTA or any successor provision thereof (a "PURTA Surcharge") but which relates to the previous year shall not be treated as the Closing Year PURTA Tax and Sellers shall be responsible for such PURTA Surcharge. 3.6 Deliveries by Sellers. At the Closing, each of the Sellers will deliver, or cause to be delivered, the following to Buyer: (a) The Bill of Sale, duly executed by the Sellers; (b) Copies of any and all governmental and other third party consents, waivers or approvals required with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement; 28 (c) The opinions of counsel and officer's certificates contemplated by Section 7.1; (d) One or more special warranty deeds conveying the Real Property to Buyer, in substantially the form of Exhibit D hereto, duly executed and acknowledged by Sellers and in recordable form; (e) The Assignment and Assumption Agreement and any Ancillary Agreements which are not executed on the date hereof, duly executed by Sellers; (f) A FIRPTA Affidavit, duly executed by Sellers; (g) Copies, certified by the Secretary or Assistant Secretary of each of the Sellers, of corporate resolutions authorizing the execution and delivery of this Agreement and all of the agreements and instruments to be executed and delivered by each of the Sellers in connection herewith, and the consummation of the transactions contemplated hereby; (h) A certificate of the Secretary or Assistant Secretary of each of the Sellers identifying the name and title and bearing the signatures of the officers of each of the Sellers authorized to execute and deliver this Agreement and the other agreements and instruments contemplated hereby; (i) Certificates of Good Standing or Subsistence, as applicable with respect to the Sellers and Genco, issued by the Secretary of the State of Sellers' and Genco's state of incorporation; (j) To the extent available, originals of all Sellers' Agreements, Real Property Leases, Permits, Environmental Permits, and Transferable Permits and, if not available, true and correct copies thereof, together with the items referred to in Section 2.1(g); (k) All such other instruments of assignment, transfer or conveyance as shall, in the reasonable opinion of Buyer and its counsel, be necessary or desirable to transfer to Buyer the Purchased Assets, in accordance with this Agreement and where necessary or desirable in recordable form; (l) Notices, signed by Sellers, to all other parties to the material Sellers' Agreements where notice to such parties is required under the terms of such Sellers' Agreements or pursuant to Section 6.5(d) hereof; 29 (m) Reliance letters from Woodward & Clyde with respect to the Environmental Reports prepared by Woodward & Clyde concerning the Purchased Assets and made available for review by Buyer. (n) Such other agreements, documents, instruments and writings as are required to be delivered by the Sellers at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. In addition, GPU will deliver, or cause to be delivered, to Buyer (i) a stock certificate or certificates representing the Genco Stock accompanied by a stock power duly endorsed to Buyer, (ii) certificates to the effect of Sections 3.6(g), (h) and (i) with respect to GPU and Genco; and (iii) resignations of all directors and officers of Genco. 3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or cause to be delivered, the following to Sellers: (a) The Purchase Price, as adjusted pursuant to Section 3.3, by wire transfer of immediately available funds in accordance with Sellers' instructions or by such other means as may be agreed to by Sellers and Buyer; (b) The opinions of counsel and officer's certificates contemplated by Section 7.2; (c) The Assignment and Assumption Agreement and any Ancillary Agreements which are not executed on the date hereof, duly executed by Buyer; (d) Copies, certified by the Secretary or Assistant Secretary of Buyer, of resolutions authorizing the execution and delivery of this Agreement, the Guaranty and all of the agreements and instruments to be executed and delivered by Buyer in connection herewith, and the consummation of the transactions contemplated hereby; (e) A certificate of the Secretary or Assistant Secretary of Buyer, identifying the name and title and bearing the signatures of the officers of Buyer authorized to execute and deliver this Agreement, the Guaranty and the other agreements contemplated hereby; (f) All such other instruments of assumption as shall, in the reasonable opinion of Sellers and its counsel, be necessary for Buyer to assume the Assumed Liabilities in accordance with this Agreement; 30 (g) Copies of any and all governmental and other third party consents, waivers or approvals obtained by Buyer with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement and where necessary or desirable in recordable forms; (h) Such other agreements, documents, instruments and writings as are required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. 3.8 Ancillary Agreements. The Parties acknowledge that the Ancillary Agreements have been executed on the date hereof. ARTICLE IV REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLERS Each Seller represents and warrants (as to itself and the Purchased Assets owned by it) to Buyer as follows: 4.1 Incorporation; Qualification. Such Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation and has all requisite corporate power and authority to own, lease, and operate its material properties and assets and to carry on its business as is now being conducted. Such Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which its business as now being conducted shall require it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect. Such Seller has heretofore delivered to Buyer true, complete and correct copies of its Certificate of Incorporation and Bylaws as currently in effect. 4.2 Authority Relative to this Agreement. Such Seller has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by it hereby. The execution and delivery of this Agreement by such Seller and the consummation of the transactions contemplated by such Seller hereby have been duly and validly authorized by all necessary corporate action required on the part of such Seller and this Agreement has been duly and validly executed and delivered by such Seller. Subject to the receipt of Sellers' Required Regulatory Approvals, this Agreement constitutes the legal, valid and binding agreement of such Seller, enforceable against such Seller in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, 31 moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 4.3 Consents and Approvals; No Violation. (a) Except as set forth in Schedule 4.3(a), and subject to obtaining Sellers' Required Regulatory Approvals, neither the execution and delivery of this Agreement by Sellers nor the consummation by Sellers of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws of such Seller, (ii) result in a default (or give rise to any right of termination, consent, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which such Seller is a party or by which it, or any of the Purchased Assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which, would not, individually or in the aggregate, create a Material Adverse Effect; or (iii) constitute violations of any law, regulation, order, judgment or decree applicable to such Seller, which violations, individually or in the aggregate, would create a Material Adverse Effect, or create any Encumbrance other than a Permitted Encumbrance. (b) Except as set forth in Schedule 4.3(b), (the filings and approvals referred to in Schedule 4.3(b) are collectively referred to as the "Sellers' Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery of this Agreement by, or for Sellers or Genco, such Seller, or the consummation by such Seller of the transactions contemplated hereby, other than (i) such consents, approvals, filings or notices which, if not obtained or made, will not prevent such Seller from performing its material obligations hereunder and (ii) such consents, approvals, filings or notices which become applicable to such Seller or the Purchased Assets as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged. 4.4 Insurance. Except as set forth in Schedule 4.4, all material policies of fire, liability, workers' compensation and other forms of insurance owned or held by, or on behalf of, such Seller with respect to the business, operations or employees at the Plants or the Purchased Assets are in full force and effect, 32 all premiums with respect thereto covering all periods up to and including the date hereof have been paid (other than retroactive premiums which may be payable with respect to comprehensive general liability and workers' compensation insurance policies), and no notice of cancellation or termination has been received with respect to any such policy which was not replaced on substantially similar terms prior to the date of such cancellation. Except as described in Schedule 4.4, within the 36 months preceding the date of this Agreement, neither Seller has been refused any insurance with respect to the Purchased Assets nor has coverage been limited by any insurance carrier to which such Seller has applied for any such insurance or with which such Seller has carried insurance during the last 12 months. 4.5 Title and Related Matters. Except as set forth in Schedule 4.5 and subject to Permitted Encumbrances, (i) such Seller is the owner of record title to the Real Property (or the interest in the Real Property as set forth in Schedule 2.1) and has good and valid title to the other Purchased Assets which it purports to own, free and clear of all material Encumbrances of which the Sellers have knowledge and (ii) such Seller shall convey to Buyer such title with respect to the Real Property or interest therein as a reputable title company doing business in the Commonwealth of Pennsylvania. 4.6 Real Property Leases. Schedule 4.6 lists, as of the date of this Agreement, all material real property leases under which such Seller is a lessee or lessor and which relate to the Purchased Assets ("Real Property Leases"). Except as set forth in Schedule 4.6, all such leases are valid, binding and enforceable against such Seller in accordance with their terms; there are no existing material defaults by such Seller or, to Sellers' Knowledge, any other party thereunder; and no event has occurred which (whether with or without notice, lapse of time or both) would constitute a material default by such Seller or, to Seller's Knowledge, any other party thereunder. Such Seller has delivered to Buyer true, correct and complete copies of each of the material Real Property Leases. 4.7 Environmental Matters. Except as disclosed in Schedule 4.7 or in the "Phase I" and "Phase II" environmental site assessments prepared by such Seller's outside environmental consultants ("Environmental Reports") and made available for inspection by Buyer: (a) Such Seller holds, and is in substantial compliance with, all permits, certificates, certifications, licenses and governmental authorizations under Environmental Laws ("Environmental Permits") that are required for such Seller 33 to conduct the business and operations of the Purchased Assets and such Seller is otherwise in compliance with applicable Environmental Laws with respect to the business and operations of such Purchased Assets except for such failures to hold or comply with required Environmental Permits, or such failures to be in compliance with applicable Environmental Laws, as would not, individually or in the aggregate, create a Material Adverse Effect; (b) Neither Seller has received any written request for information, or been notified that it is a potentially responsible party, under CERCLA or any similar state law with respect to the Real Property or any other Purchased Assets; (c) Neither Seller has entered into or agreed to any consent decree or order relating to the Purchased Assets, or is subject to any outstanding judgment, decree, or judicial order relating to compliance with any Environmental Law or to investigation or cleanup of Hazardous Substances under any Environmental Law relating to the Purchased. (d) To such Seller's Knowledge, no Releases of Hazardous Substances have occurred at, from, in, on, or under any Site, and no Hazardous Substances are present in, on, about or migrating from any such Site that could give rise to an Environmental Claim related to the Purchased Assets for which Remediation reasonably could be required, except in any such case to the extent that any such Releases would not, individually or in the aggregate, create a Material Adverse Effect. The representations and warranties made in this Section 4.7 are Sellers' exclusive representations and warranties relating to environmental matters. 4.8 Labor Matters. Such Seller has previously delivered to Buyer a true and correct copy of the Collective Bargaining Agreement, which is the only collective bargaining agreement to which it is a party or is subject and which relates to the business and operations of the Purchased Assets. With respect to the business or operations of such Purchased Assets, except to the extent set forth in Schedule 4.8 and except for such matters as will not, individually or in the aggregate, create a Material Adverse Effect, such Seller (a) is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours; (b) has not received written notice of any unfair labor practice complaint against it pending before the National Labor Relations Board; (c) no arbitration proceeding arising out of or under any collective bargaining agreement is pending against each Seller; 34 and (d) neither Seller has experienced any work stoppage within the three-year period prior to the date hereof and to Sellers' Knowledge none is currently threatened. 4.9 Benefit Plans: ERISA. (a)Schedule 4.9(a) lists all deferred compensation, profit-sharing, retirement and pension plans, including multiemployer plans, and all material bonus, fringe benefit and other employee benefit plans maintained or with respect to which contributions are made by such Seller, Genco, GPUN or GPUS in respect of the current employees of Seller, Genco, GPUN or GPUS connected with the Purchased Assets ("Benefit Plans"). True and complete copies of all such Benefit Plans have been made available to Buyer. (b) Except as set forth in Schedule 4.9(b), such Seller and the ERISA Affiliates have fulfilled their respective obligations under the minimum funding requirements of Section 302 of ERISA, and Section 412 of the Code, with respect to each Benefit Plan which is an "employee pension benefit plan" as defined in Section 3(2) of ERISA and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and the Code and has been administered in all material respects in accordance with its terms as set forth in the documents governing such Benefit Plan. Except as set forth in Schedule 4.9(b), neither Seller nor any ERISA Affiliate has incurred any liability under Section 4062(b) of ERISA to the Pension Benefit Guaranty Corporation in connection with any Benefit Plan which is subject to Title IV of ERISA or any withdrawal liability with respect to any Benefit Plan, within the meaning of Section 4021 of ERISA, nor is there any reportable event (as defined in Section 4043 of ERISA) with respect to any Benefit Plan. Except as set forth in Schedule 4.9(b), the Internal Revenue Service has issued a letter for each Benefit Plan which is intended to be qualified under Section 401(a) of the Code, which letter determines that such plan is qualified and exempt from United States Federal Income Tax under Section 401(a) and 501(a) of the Code, and such Seller is not aware of any occurrence since the date of any such determination letter which would affect adversely such qualification or tax exemption. (c) Neither such Seller nor any ERISA Affiliate has engaged in any transaction described in Section 4069(a) or Section 4212(c) of ERISA. No Benefit Plan is a multiemployer plan. (d) Sellers and Sellers' Affiliates have materially complied in good faith with the notice and continuation requirements of Section 4980B of the Code, and Part 6 of Subtitle B of Title I of ERISA with respect to any Benefit Plan. Sellers and each ERISA Affiliate have complied in all material respects with the requirements of Part 7 of Title I of ERISA. 35 4.10 Real Property. Schedule 4.10 contains a description of the Real Property included in the Purchased Assets. Copies of any current surveys, abstracts or title opinions in such Seller's possession and any policies of title insurance in force and in the possession of such Seller with respect to the Real Property Seller have heretofore been made available to Buyer (without making any representation or warranty as to the accuracy or completeness thereof). No real property other than the Real Property is necessary for Buyer to own, maintain and operate the Purchased Assets as they are currently used. 4.11 Condemnation. Except as set forth in Schedule 4.11, Seller has not received any written notices of and otherwise has no Knowledge of any pending or threatened proceedings or governmental actions to condemn or take by power of eminent domain all or any part of the Purchased Assets. 4.12 Contracts and Leases. (a) Schedule 4.12(a) lists each written contract, license, agreement, or personal property lease which is material to the business or operations of the Purchased Assets, other than any contract, license, agreement or personal property lease which is listed or described on another Schedule, or which is expected to expire or terminate prior to the Closing Date, or which provides for annual payments by Seller after the date hereof of less than $250,000 or payments by such Seller after the date hereof of less than $1,000,000 in the aggregate. (b) Except as disclosed in Schedule 4.12(b), each Sellers' Agreement (i) constitutes a legal, valid and binding obligation of such Seller and, to such Seller's Knowledge, constitutes a valid and binding obligation of the other parties thereto, and (ii) may be transferred to Buyer pursuant to this Agreement without the consent of the other parties thereto and will continue in full force and effect thereafter, unless in any such case the impact of such lack of legality, validity or binding nature, or inability to transfer, would not, individually or in the aggregate, create a Material Adverse Effect. (c) Except as set forth in Schedule 4.12(c), there is not, under Sellers' Agreements, any default or event which, with notice or lapse of time or both, would constitute a default on the part of such Seller or to such Seller's Knowledge, any of the other parties thereto, except such events of default and other events which would not, individually or in the aggregate, create a Material Adverse Effect. 4.13 Legal Proceedings, etc. Except as set forth in Schedule 4.13, there are no actions or proceedings pending (or to such Seller's Knowledge overtly threatened) against such Seller 36 before any court, arbitrator or Governmental Authority, which could, individually or in the aggregate, reasonably be expected to create a Material Adverse Effect. Except as set forth in Schedule 4.13, neither such Seller is subject to any outstanding judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator or Governmental Authority which would, individually or in the aggregate, create a Material Adverse Effect. 4.14 Permits. (a) Such Seller has all permits, licenses, franchises and other governmental authorizations, consents and approvals, (other than Environmental Permits, which are addressed in Section 4.7 hereof) (collectively, "Permits") necessary to permit such Seller to own and operate the Purchased Assets except where the failure to have such Permits would not, individually or in the aggregate, create a Material Adverse Effect. Except as disclosed on Schedule 4.14(a), neither Seller has received any notification that it is in violation of any such Permits, except notifications of violations which would not, individually or in the aggregate, create a Material Adverse Effect. Each such Seller is in compliance with all such Permits except where non-compliance would not, individually or in the aggregate, create a Material Adverse Effect. (b) Schedule 4.14(b) sets forth all material Permits and Environmental Permits, other than Transferable Permits (which are set forth on Schedule 1.1(105)) related to the Purchased Assets. 4.15 Taxes. Such Seller has filed all returns required to be filed by it with respect to any Tax relating to the Purchased Assets, and Seller has paid all Taxes that have become due as indicated thereon, except where such Tax is being contested in good faith by appropriate proceedings, or where the failure to so file or pay would not reasonably be expected to create a Material Adverse Effect. Such Seller has complied in all material respects with all applicable laws, rules and regulations relating to withholding Taxes relating to Transferred Employees. All Tax Returns relating to the Purchased Assets are true, correct and complete in all material respects. Except as set forth in Schedule 4.15, no notice of deficiency or assessment has been received from any taxing authority with respect to liabilities for Taxes of such Seller in respect of the Purchased Assets, which have not been fully paid or finally settled, and any such deficiency shown in Schedule 4.15 is being contested in good faith through appropriate proceedings. Except as set forth in Schedule 4.15, there are no outstanding agreements or waivers extending the applicable statutory periods of limitation for Taxes associated with the Purchased Assets that will be binding upon Buyer after the Closing. None of the Purchased Assets is property 37 that is required to be treated as being owned by any other person pursuant to the so-called safe harbor lease provisions of former Section 168(f) of the Code, and none of the Purchased Assets is "tax-exempt use" property within the meaning of Section 168(h) of the Code. Schedule 4.15 sets forth the taxing jurisdictions in which such Seller owns assets or conducts business that require a notification to a taxing authority of the transactions contemplated by this Agreement, if the failure to make such notification, or obtain Tax clearance certificates in connection therewith, would either require Buyer to withhold any portion of the Purchase Price or subject Buyer to any liability for any Taxes of such Seller. 4.16 Intellectual Property. Schedule 2.1(l) sets forth all Intellectual Property used in and, individually or in the aggregate with other Intellectual Property, material to the operation or business of the Purchased Assets, each of which such Seller or its Affiliates either has all right, title and interest in or valid and binding rights under contract to use. Except as disclosed in Schedule 4.16, (i) such Seller is not, nor has it received any notice that it is, in default (or with the giving of notice or lapse of time or both, would be in default), under any contract to use such Intellectual Property, and (ii) to such Seller's Knowledge, such Intellectual Property is not being infringed by any other Person. Neither Seller has received notice that it is infringing any Intellectual Property of any other Person in connection with the operation or business of the Purchased Assets, and such Seller, to its Knowledge, is not infringing any Intellectual Property of any other Person the effect of which, individually or in the aggregate, would have a Material Adverse Effect. 4.17 Capital Expenditures. Except as set forth in Schedule 6.1, there are no capital expenditures associated with the Purchased Assets that are planned by Sellers through December 31, 1999. 4.18 Compliance With Laws. Each Seller is in compliance with all applicable laws, rules and regulations with respect to the ownership or operation of the Purchased Assets except where the failure to be in compliance would not, individually or in the aggregate, create a Material Adverse Effect. 4.19 PUHCA. Such Seller is a wholly owned subsidiary of GPU, Inc., which is a holding company registered under the Public Utility Holding Company Act of 1935. 4.20 DISCLAIMERS REGARDING PURCHASED ASSETS. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED 38 ASSETS ARE SOLD "AS IS, WHERE IS", AND EACH SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO LIABILITIES, OPERATIONS OF THE PLANTS, THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF THE PURCHASED ASSETS AND EACH SELLER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING BUT NOT LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER EACH SELLER POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, EACH SELLER FURTHER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, EACH SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE CONDITION OF THE PURCHASED ASSETS OR THE SUITABILITY OF THE PURCHASED ASSETS FOR OPERATION AS A POWER PLANT AND NO SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION PROVIDED BY OR COMMUNICATIONS MADE BY EACH SELLER OR THEIR REPRESENTATIVES, OR BY ANY BROKER OR INVESTMENT BANKER, WILL CAUSE OR CREATE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS. The Sellers make no warranties and representations of any kind, whether direct or implied, that any of the hardware, software, and firmware products (including embedded microcontrollers in non-computer equipment) which may be included in the Purchased Assets to be transferred under this Agreement (the "Computer Systems") is Year 2000 Compliant. For purposes hereof, "Year 2000 Compliant" shall mean that the Computer Systems will correctly differentiate between years, in different centuries, that end in the same two digits, and will accurately process date/time data (including, but not limited to, calculating, comparing, and sequencing) from, into, and between the twentieth and twenty-first centuries, including leap year calculations. 39 ARTICLE IVA REPRESENTATIONS AND WARRANTIES OF GPU GPU represents and warrants to Buyer as follows: 4A.1. Incorporation; Qualification. (a) Each of GPU and Genco is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation and has all requisite corporate power and authority to own, lease, and operate its material properties and assets and to carry on its business as is now being conducted. Each of GPU and Genco is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which its business as now being conducted shall require it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect. GPU has heretofore delivered to Buyer true, complete and correct copies of its and Genco's Certificate of Incorporation and Bylaws as currently in effect. (b) The Genco Stock, which consists of 2500 shares of common stock, $20 par value, constitutes all of the issued and outstanding shares of capital stock of Genco and is owned beneficially and of record by GPU, free and clear of all Encumbrances. The Genco Stock is issued and outstanding, has been duly authorized and validly issued, and is fully paid and non-assessable. There are no other authorized shares of capital stock of Genco other than the 2500 shares of common stock comprising the Genco Stock. None of the shares comprising the Genco Stock has been issued in violation of, or is subject to, any preemptive or subscription rights, rights of first refusal or offer, options, put or call rights, consent rights, restrictive covenants or agreement with any third party other than Buyer ("Restrictive Third Party Rights"). There are no outstanding securities convertible into or exchangeable for the capital stock of Genco. Neither GPU nor Genco has any obligation, contingent or otherwise to issue, sell, repurchase, redeem or otherwise acquire any of the Genco Stock or other capital stock of Genco or any equity or debt securities of Genco. 4A.2. Authority Relative to this Agreement. GPU has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by it hereby. The execution and delivery of this Agreement by GPU and the consummation of the transactions contemplated by GPU hereby have been duly and validly authorized by all necessary corporate action required on the part of GPU and this Agreement has been duly and validly executed and delivered by GPU. Subject to the receipt of Sellers' Required Regulatory Approvals, this Agreement constitutes the legal, valid and binding 40 agreement of GPU, enforceable against GPU in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 4A.3. Consents and Approvals; No Violation. (a) Except as set forth in Schedule 4A.3(a), and subject to obtaining Sellers' Required Regulatory Approvals, neither the execution and delivery of this Agreement by GPU nor the consummation by GPU of the transactions contemplated hereby (including, without limitation, the transfer of Genco Stock to Buyer and any documents executed or actions required to accomplish the purposes of Section 2.6 hereof) will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws of GPU or Genco, (ii) result in a default (or give rise to any right of termination, option, consent, first offer, first refusal, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which GPU is a party or by which it may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which, would not, individually or in the aggregate, create a Material Adverse Effect; or (iii) constitute violations of any law, regulation, order, judgment or decree applicable to GPU, which violations, individually or in the aggregate, would create a Material Adverse Effect. (b) Subject to the receipt of Sellers' Required Regulatory Approvals, no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery of this Agreement by GPU, or the consummation by GPU of the transactions contemplated hereby, other than (i) such consents, approvals, filings or notices which, if not obtained or made, will not prevent GPU from performing its material obligations hereunder and (ii) such consents, approvals, filings or notices which become applicable to GPU as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged. 4A.4. Genco Tax Matters. With respect to the sale of the Genco Stock, except as set forth on Schedule 4A.4: 41 (i) Genco has (x) duly and timely filed (or there has been filed on its behalf) with the appropriate taxing authorities all Tax Returns required to be filed by it, and all such Tax Returns are materially correct and (y) timely paid or there has been paid on its behalf all Taxes due or claimed to be due from it by any taxing authority; (ii) Genco has, within the time and manner prescribed by law, withheld and paid over to the proper governmental authorities all amounts required to be withheld and paid over under all applicable laws; (iii) There are no Encumbrances for Taxes upon the assets or properties of Genco, except for statutory encumbrances for current Taxes not yet due; (iv) Genco has not requested any extension of time within which to file any Tax Return in respect of any taxable year which has not since been filed and no outstanding waivers or comparable consents regarding the application of the statue of limitations with respect to any Taxes or Tax Returns has been given by or on behalf of Genco; (v) No federal, state, local or foreign audits or other administrative proceedings or court proceedings ("Audits") exist or have been initiated with regard to any Taxes or Tax Returns of Genco and Genco has not received any written notice that such an audit is pending or threatened with respect to any Taxes due from or with respect to Genco or any Tax Return field by or with respect to Genco. (vi) Genco has not requested or received a ruling from any taxing authority or signed a closing or other agreement with any taxing authority which could materially adversely affect Genco; (vii) Except for the GPU Intercompany Tax Allocation Agreement, Genco is not a party to, is not bound by, and has no obligation under, any Tax sharing agreement, Tax indemnification agreement or similar contract or arrangement; (viii) No power of attorney has been granted with respect to Genco as to any matter relating to Taxes; (ix) Genco has not filed a consent pursuant to Section 341(f) of the Code (or any predecessor provision) or agreed to have Section 42 341(f)(2) of the Code apply to any disposition of a subsection (f) asset, as such term is defined in Section 341(f)(4) of the Code, owned by Genco; (x) No property owned by Genco (A) is property required to be treated as being owned by another Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986, (B) constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of the Code or (C) is tax-exempt bond financed property within the meaning of Section 168(g) of the Code; (xi) Since December 31, 1996, Genco has not incurred any liability for Taxes other than in the ordinary course of business; (xii) Genco has no liability for Taxes of any person pursuant to Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law) other than for the consolidated return group of which GPU is the parent; (xiii) Genco has not participated in, or cooperated with, an international boycott within the meaning of Section 999 of the Code; and (xiv) Genco is not a party to any contract, agreement or other arrangement which could result in the payment by it of amounts that could be nondeductible by reason of Section 280G or 162(m) of the Code. 4A.5. Subsidiaries. Genco does not own any subsidiaries nor any debt, preferred, common or other equity securities of any kind nor any equity interests in any other business, legal entity or arrangement. 4A.6. Capitalization. GPU has good and valid title to the Genco Stock, free and clear of all Encumbrances and upon consummation of the transactions contemplated hereby, Buyer will acquire good and valid title to the Genco Stock free and clear of all Encumbrances and Restrictive Third Party Rights. The authorized, issued and outstanding capital stock of Genco is set forth in Schedule 4A.6. There are no options, warrants, rights or other agreements in existence which entitle any Person to acquire any Genco capital stock or respecting the voting of any Shares thereof. 43 4A.7. Operating Agreements. Each Operating Agreement constitutes a legal, valid and binding obligation of Genco and, to GPU's Knowledge, constitutes a valid and binding obligation of the other parties thereto. Except as set forth in Schedule 4A.7, there is not, under the Operating Agreement any default or event which, with notice or lapse of time or both would constitute a default on the part of Genco or to GPU's Knowledge, any of the other parties thereto, except such events of default and other events which would not, individually or in the aggregate, create a Material Adverse Effect. As used herein, "Operating Agreements" means the Keystone Operating Agreement, dated as of December 1, 1965, and the Conemaugh Operating Agreement, dated as of December 1, 1967, each as amended, among the respective owners of such Plants, copies of which have been furnished to Buyer. 4A.8. Financial Statements. Attached hereto as Schedule 4A.8 are the audited balance sheet and income statement of Genco as, at and for the year ended December 31, 1997, and the unaudited balance sheet and income statement of Genco as, at and for the period ended June 30, 1998 (the "Financial Statements"). The Financial Statements (including the notes thereto) have been prepared in accordance with generally accepted accounting principles ("GAAP") and present fairly the financial condition of Genco as of the dates set forth therein (subject in the case of the unaudited financial statements, to year end audit adjustments). The books and records of Genco are complete in all material respects and have been maintained in accordance with GAAP or other applicable regulatory requirements. Genco has no material liability or asset which is not disclosed in the Financial Statements and which is required to be disclosed in a balance sheet prepared in accordance with GAAP. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Sellers and GPU as follows: 5.1 Organization. Buyer is a Delaware corporation, duly organized, validly existing and in good standing under the laws of the state of its organization and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as is now being conducted. Buyer is, or by the Closing will be, qualified to do business in the Commonwealth of Pennsylvania. Buyer has heretofore delivered to Sellers complete and correct copies of its Certificate of Incorporation and Bylaws (or other similar governing documents) as currently in effect. 44 5.2 Authority Relative to this Agreement. Buyer has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by it hereby. The execution and delivery of this Agreement by Buyer and the consummation of the transactions contemplated hereby by Buyer have been duly and validly authorized by all necessary corporate action required on the part of Buyer. This Agreement has been duly and validly executed and delivered by Buyer. Subject to the receipt of Buyer Required Regulatory Approvals, this Agreement constitutes a legal, valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 5.3 Consents and Approvals; No Violation. (a) Except as set forth in Schedule 5.3(a), and subject to obtaining Buyer Required Regulatory Approvals, neither the execution and delivery of this Agreement by Buyer nor the consummation by Buyer of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws (or other similar governing documents) of Buyer, or (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Buyer or any of its Subsidiaries is a party or by which any of their respective assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, have a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Buyer ("Buyer Material Adverse Effect") or (iii) violate any law, regulation, order, judgment or decree applicable to Buyer, which violations, individually or in the aggregate, would create a Buyer Material Adverse Effect. (b) Except as set forth in Schedule 5.3(b) (the filings and approvals referred to in such Schedule are collectively referred to as the "Buyer Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for Buyer's execution and delivery of this Agreement, or the consummation by Buyer of the transactions contemplated hereby, other than such consents, approvals, filings or notices, 45 which, if not obtained or made, will not prevent Buyer from performing its obligations under this Agreement. 5.4 Availability of Funds. Buyer has sufficient funds and lines of credit available to it or has received binding written commitments from creditworthy financial institutions, copies of which have been provided to Seller, to provide sufficient funds on the Closing Date to pay the Purchase Price and to permit Buyer to timely perform all of its obligations under this Agreement. 5.5 Legal Proceedings. There are no actions or proceedings pending against Buyer before any court or arbitrator or Governmental Authority, which, individually or in the aggregate, could reasonably be expected to create a Buyer Material Adverse Effect. Buyer is not subject to any outstanding judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator or Governmental Authority which would, individually or in the aggregate, create a Buyer Material Adverse Effect. 5.6 No Knowledge of Sellers' Breach. Buyer has no Knowledge of any breach by Sellers of any representation or warranty of Sellers, or of any other condition or circumstance that would excuse Buyer from its timely performance of its obligations hereunder. Buyer shall notify Sellers promptly if any such information comes to its attention prior to the Closing. 5.7 Qualified Buyer. Buyer is qualified to obtain any Permits and Environmental Permits necessary for Buyer to own and operate the Purchased Assets as of the Closing. Without limiting the foregoing, Buyer is not aware of any reason or circumstance that would prevent Buyer from procuring Buyer Required Regulatory Approvals associated with Exempt Wholesale Generator (as defined in the Public Utility Holding Company Act of 1935) status and market-based rate authorization specified in items 3 and 2 of Schedule 5.3(b). 5.8 Inspections. Without limitation of Sellers' representations, warranties and covenants contained in this Agreement or the Ancillary Agreements, Buyer acknowledges and agrees that it has, prior to its execution of this Agreement, (i) reviewed the Environmental Reports, (ii) had full opportunity to conduct to its satisfaction Inspections of the Purchased Assets, including the Sites, and (iii) fully completed and approved the results of all Inspections of the Purchased Assets. Subject to the restrictions set forth in Section 6.2(a), Buyer acknowledges that it is satisfied through such review and Inspections that no further investigation and study on or of the Sites is necessary for the purposes of acquiring the Purchased Assets for Buyer's 46 intended use. Buyer acknowledges and agrees that it hereby assumes the risk that adverse past, present, and future physical characteristics and Environmental Conditions may not have been revealed by its Inspections and the investigations of the Purchased Assets contained in the Environmental Reports. In making its decision to execute this Agreement, and to purchase the Purchased Assets, Buyer has relied on and will rely upon, among other things, the results of its Inspections and the Environmental Reports. 5.9 WARN Act. Buyer does not intend to engage in a Plant Closing or Mass Layoff as such terms are defined in the WARN Act within sixty days of the Closing Date. 5.10 Securities Laws. Buyer acknowledges that the offer and sale of the Genco Stock has not been registered under the Securities Act of 1933 or any state securities laws, and affirms that it is not acquiring such shares with a view toward distribution in violation of such act or any state securities laws. ARTICLE VI COVENANTS OF THE PARTIES 6.1 Conduct of Business Relating to the Purchased Assets. (a) Except as described in Schedule 6.1 or as expressly contemplated by this Agreement or to the extent Buyer otherwise consents in writing, during the period from the date of this Agreement to the Closing Date, each Seller (i) will operate the Purchased Assets in the ordinary course of business consistent with the past practices of such Seller or its Affiliates or with Good Utility Practices, (ii) shall use all Commercially Reasonable Efforts to preserve intact such Purchased Assets, and endeavor to preserve the goodwill and relationships with customers, suppliers and others having business dealings with it, (iii) shall maintain the insurance coverage described in Section 4.4, (iv) shall comply with all applicable laws relating to the Purchased Assets, including without limitation, all Environmental Laws, except where the failure to so comply would not result in a Material Adverse Effect, and (v) shall continue with such Seller's program, or (at Buyer's expense) as Buyer may direct, to install such equipment or software with respect to Year 2000 Compliance in accordance with such Seller's plans referred to in Section 2.1(k). Without limiting the generality of the foregoing, and, except as (x) contemplated in this Agreement, (y) 47 described in Schedule 6.1, or (z) required under applicable law or by any Governmental Authority, prior to the Closing Date, without the prior written consent of Buyer, such Seller shall not with respect to the Purchased Assets: (i) Make any material change in the levels of Inventories customarily maintained by such Seller or its Affiliates with respect to such Purchased Assets, other than changes which are consistent with Good Utility Practices; (ii) Sell, lease (as lessor), encumber, pledge, transfer or otherwise dispose of, any material Purchased Assets individually or in the aggregate (except for Purchased Assets used, consumed or replaced in the ordinary course of business consistent with past practices of such Seller or its Affiliates or with Good Utility Practices) other than to encumber Purchased Assets with Permitted Encumbrances; (iii) Modify, amend or voluntarily terminate prior to the expiration date any of Sellers' Agreements or Real Property Leases or any of the Permits or Environmental Permits associated with such Purchased Assets in any material respect, other than (a) in the ordinary course of business, to the extent consistent with the past practices of such Seller or its Affiliates or with Good Utility Practices, (b) with cause, to the extent consistent with past practices of such Seller or its Affiliates or with Good Utility Practices, or (c) as may be required in connection with transferring such Seller's rights or obligations thereunder to Buyer pursuant to this Agreement; (iv) Except as otherwise provided herein, enter into any commitment for the purchase, sale, or transportation of fuel having a term greater than six months and not terminable on or before the Closing Date either (i) automatically, or (ii) by option of such Seller (or, after the Closing, by Buyer) in its sole discretion, if the aggregate payment under such commitment for fuel and all other outstanding commitments for fuel not previously approved by Buyer would exceed $1,000,000 for all Aggregate Purchased Assets; (v) Sell, lease or otherwise dispose of Emission Allowances, or Emission Reduction Credits identified in Schedule 2.1(h), except to the extent necessary to operate such Purchased Assets in accordance with this Section 6.1; 48 (vi) Except as otherwise provided herein, enter into any contract, agreement, commitment or arrangement relating to such Purchased Assets that individually exceeds $250,000 or in the aggregate exceeds $1,000,000 unless it is terminable by such Seller (or, after the Closing, by Buyer) without penalty or premium upon no more than sixty (60) days notice; (vii) Except as otherwise required by the terms of the Collective Bargaining Agreement, (a) hire at, or transfer to such Purchased Assets, any new employees prior to the Closing, other than to fill vacancies in existing positions in the reasonable discretion of such Seller or Genco, (b) increase salaries or wages of employees employed in connection with the Purchased Assets prior to the Closing other than in the ordinary course of business and in accordance with Seller's past practices, (c) take any action prior to the Closing to effect a change in a Collective Bargaining Agreement, or (d) take any action prior to the Closing to increase the aggregate benefits payable to the employees employed in connection with the Purchased Assets other than increases for Non-Union Employees in the ordinary course of business and in accordance with Sellers' past practices or (e) enter into any employment contracts with employees at the Purchased Assets or any collective bargaining agreements with labor organizations representing such employees; (viii) Make any Capital Expenditures except as permitted by Section 3.3(a)(iii) or for such Seller's account; and (ix) Except as otherwise provided herein, enter into any written or oral contract, agreement, commitment or arrangement with respect to any of the proscribed transactions set forth in the foregoing paragraphs (i) through (viii). 6.2 Access to Information. (a) Between the date of this Agreement and the Closing Date, each of Seller and Genco will, at reasonable times and upon reasonable notice: (i) give Buyer and its Representatives reasonable access to its managerial personnel and to all books, records, plans, equipment, offices and other facilities and properties constituting the Purchased Assets; (ii) furnish Buyer with such financial and operating data and other information with respect to such Purchased Assets as Buyer may from time to time reasonably request, and permit Buyer to make such reasonable 49 Inspections thereof as Buyer may request; (iii) furnish Buyer at its request a copy of each material report, schedule or other document filed by such Seller or Genco or any of its Affiliates with respect to such Purchased Assets with the SEC, FERC, NJBPU, PaPUC, PaDEP or any other Governmental Authority; and (iv) furnish Buyer with all such other information as shall be reasonably necessary to enable Buyer to verify the accuracy of the representations and warranties of such Seller contained in this Agreement; provided, however, that (A) any such inspections and investigations shall be conducted in such a manner as not to interfere unreasonably with the operation of the Purchased Assets, (B) such Seller or Genco shall not be required to take any action which would constitute a waiver of the attorney-client privilege, and (C) such Seller or Genco need not supply Buyer with any information which such Seller or Genco is under a legal or contractual obligation not to supply. Notwithstanding anything in this Section 6.2 to the contrary, Sellers and Genco will only furnish or provide such access to Transferring Employee Records and will not furnish or provide access to other employee personnel records or medical information unless required by law or specifically authorized by the affected employee, nor shall Buyer have the right to administer to any of Sellers' or Genco's employees any skills, aptitudes, psychological profile, or other employment related test. Buyer shall not have the right to perform or conduct any environmental sampling or testing at, in, on, or underneath the Purchased Assets. (b) Each Party shall, and shall use its best efforts to cause its Representatives to, (i) keep all Proprietary Information of the other Party confidential and not to disclose or reveal any such Proprietary Information to any person other than such Party's Representatives and (ii) not use such Proprietary Information other than in connection with the consummation of the transactions contemplated hereby. After the Closing Date, any Proprietary Information to the extent related to the Purchased Assets shall no longer be subject to the restrictions set forth herein. The obligations of the Parties under this Section 6.2(b) shall be in full force and effect for three (3) years from the date hereof and will survive the termination of this Agreement, the discharge of all other obligations owed by the Parties to each other and the closing of the transactions contemplated by this Agreement. (c) For a period of seven (7) years after the Closing Date (or such longer period as may be required by applicable law or Section 6.8(g)), each Party and its Representatives shall have reasonable access to all of the books and records of the Purchased Assets, including all Transferring Employee Records in the possession of the other Party to the extent that such access 50 may reasonably be required by such Party in connection with the Assumed Liabilities or the Excluded Liabilities, or other matters relating to or affected by the operation of the Purchased Assets. Such access shall be afforded by the Party in possession of any such books and records upon receipt of reasonable advance written notice and during normal business hours. The Party exercising this right of access shall be solely responsible for any costs or expenses incurred by it or the other Party with respect to such access pursuant to this Section 6.2(c). If the Party in possession of such books and records shall desire to dispose of any books and records upon or prior to the expiration of such seven-year period (or any such longer period), such Party shall, prior to such disposition, give the other Party a reasonable opportunity at such other Party's reasonable expense, to segregate and remove such books and records as such other Party may select. (d) Notwithstanding the terms of Section 6.2(b) above, the Parties agree that prior to the Closing Buyer may reveal or disclose Proprietary Information to any other Persons in connection with Buyer's financing of its purchase of the Purchased Assets or any equity participation in Buyer's purchase of the Purchased Assets (provided that such Persons agree in writing to maintain the confidentiality of the Proprietary Information in accordance with this Agreement). (e) Upon the other Party's prior written approval (which will not be unreasonably withheld or delayed), either Party may provide Proprietary Information of the other Party to the NJBPU, the PaPUC, the SEC, the FERC or any other Governmental Authority with jurisdiction or any stock exchange, as may be necessary to obtain Sellers' Required Regulatory Approvals, or Buyer Required Regulatory Approvals, respectively, or to comply generally with any relevant law or regulation. The disclosing Party will seek confidential treatment for the Proprietary Information provided to any Governmental Authority and the disclosing Party will notify the other Party as far in advance as is practicable of its intention to release to any Governmental Authority any Proprietary Information. (f) Except as specifically provided herein or in the Confidentiality Agreement, nothing in this Section shall impair or modify any of the rights or obligations of Buyer or its Affiliates under the Confidentiality Agreement, all of which remain in effect until termination of such agreement in accordance with its terms. (g) Except as may be permitted in the Confidentiality Agreement, Buyer agrees that, prior to the Closing Date, it will 51 not contact any vendors, suppliers, employees, or other contracting parties of Sellers, Genco or their Affiliates with respect to any aspect of the Purchased Assets or the transactions contemplated hereby, without the prior written consent of Sellers, which consent shall not be unreasonably withheld. 6.3 Public Statements. Subject to the requirements imposed by any applicable law or any Governmental Authority or stock exchange, prior to the Closing Date, no press release or other public announcement or public statement or comment in response to any inquiry relating to the transactions contemplated by this Agreement shall be issued or made by any Party without the prior approval of the other Parties (which approval shall not be unreasonably withheld). The Parties agree to cooperate in preparing such announcements. 6.4 Expenses. Except to the extent specifically provided herein, whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the Party incurring such costs and expenses. Notwithstanding anything to the contrary herein, Buyer will be responsible for (a) all costs and expenses associated with the obtaining of any title insurance policy and all endorsements thereto that Buyer elects to obtain and (b) all filing fees under the HSR Act. 6.5 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the Parties hereto shall use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the purchase and sale of the Purchased Assets pursuant to this Agreement and the assumption of the Assumed Liabilities, including without limitation using its best efforts to ensure satisfaction of the conditions precedent to each Party's obligations hereunder, including obtaining all necessary consents, approvals, and authorizations of third parties and Governmental Authorities required to be obtained in order to consummate the transactions hereunder, and to effectuate a transfer of the Transferable Permits to Buyer. Buyer agrees to perform all conditions required of Buyer in connection with Sellers' Required Regulatory Approvals, other than those conditions which would create a Buyer Material Adverse Effect. Neither of the Parties hereto shall, without prior written consent of the other Party, take or fail to take any action, which might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. 52 (b) Buyer agrees that prior to the Closing Date, neither Buyer nor any of its Affiliates will enter into any other contract to acquire, nor acquire, electric generation facilities located in the control area recognized by the North American Reliability Council as the PJM Control Area if the proposed acquisition of such additional electric generation facilities might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. Buyer shall give Sellers reasonable advance notice (and in any event not less than 30 days) before Buyer enters into contracts to acquire or acquires any electric generation facility located in said PJM Control Area. (c) In the event that any Purchased Asset shall not have been conveyed to Buyer at the Closing, each Seller shall, subject to Section 6.5(d) and (e), use Commercially Reasonable Efforts to convey such asset to Buyer as promptly as is practicable after the Closing. (d) To the extent that Sellers' rights under any Sellers' Agreement or Real Property Lease may not be assigned without the consent of another Person which consent has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign the same, if an attempted assignment would constitute a breach thereof or be unlawful. Sellers and Buyer agree that if any consent to an assignment of any material Sellers' Agreement or Real Property Lease shall not be obtained or if any attempted assignment would be ineffective or would impair Buyer's rights and obligations under the material Sellers' Agreement or Real Property Lease in question, so that Buyer would not in effect acquire the benefit of all such rights and obligations, the applicable Seller, at Buyer's option and to the maximum extent permitted by law and such material Sellers' Agreement or Real Property Lease, shall, after the Closing Date, appoint Buyer to be such Seller's agent with respect to such material Seller's Agreement or Real Property Lease, or, to the maximum extent permitted by law and such material Sellers' Agreement or Real Property Lease, enter into such reasonable arrangements with Buyer or take such other actions as are necessary to provide Buyer with the same or substantially similar rights and obligations of such material Sellers' Agreement or Real Property Lease as Buyer may reasonably request. Sellers and Buyer shall cooperate and shall each use Commercially Reasonable Efforts prior to and after the Closing Date to obtain an assignment of such material Sellers' Agreement or Real Property Lease to Buyer. (e) To the extent that Sellers' rights under any warranty or guaranty described in Section 2.1(i) may not be assigned 53 without the consent of another Person, which consent has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign same, if an attempted assignment would constitute a breach thereof, or be unlawful. Sellers and Buyer agree that if any consent to an assignment of any such warranty or guaranty shall not be obtained, or if any attempted assignment would be ineffective or would impair Buyer's rights and obligations under the warranty or guaranty in question, so that Buyer would not in effect acquire the benefit of all such rights and obligations, the applicable Seller, at Buyer's expense, shall use Commercially Reasonable Efforts, to the extent permitted by law and such warranty or guaranty, to enforce such warranty or guaranty for the benefit of Buyer so as to provide Buyer to the maximum extent possible with the benefits and obligations of such warranty or guaranty. (f) Between the date hereof and the Closing, Buyer shall have the right to commence the regulatory approval processes associated with the construction and operation of new, modified or repowered electric generating units and associated equipment at the Real Property. Sellers shall provide reasonable assistance to Buyer, under Buyer's reasonable direction, in obtaining all Permits required (i) to own and operate the Purchased Assets as contemplated by the Agreement and the Ancillary Agreements and (ii) to construct and operate such new or modified facilities, provided, however, that Buyer shall reimburse Sellers for all reasonable costs incurred by Sellers in its assistance of Buyer hereunder. (g) Sellers agree to use Commercial Reasonable Efforts to have the co-owners of the Keystone and Conemaugh Stations enter into an interconnection agreement with Seller (substantially in the form of the agreements being executed by Buyer and JCP&L, Met-Ed and Penelec, respectively, relating to other generating stations). Pending any such agreement, following the Closing, Sellers agree to continue to provide interconnection service to each Station on the same terms and conditions as they are currently so providing. 6.6 Consents and Approvals. (a) As promptly as possible after the date of this Agreement, Sellers and Buyer, as applicable, shall each file or cause to be filed with the Federal Trade Commission and the United States Department of Justice any notifications required to be filed under the HSR Act and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. The Parties shall use their respective best efforts to respond promptly to any requests for additional 54 information made by either of such agencies, and to cause the waiting periods under the HSR Act to terminate or expire at the earliest possible date after the date of filing. Buyer will pay all filing fees under the HSR Act but each Party will bear its own costs of the preparation of any filing. (b) As promptly as possible after the date of this Agreement, Buyer shall file with the FERC an application requesting Exempt Wholesale Generator status for Buyer, which filing may be made individually by Buyer or jointly with the Sellers in conjunction with other filings to be made with the FERC under this Agreement, as reasonably determined by the Parties. Prior to Buyer's submission of that application with the FERC, Buyer shall submit such application to the Sellers for review and comment and Buyer shall incorporate into the application any revisions reasonably requested by Sellers. Buyer shall be solely responsible for the cost of preparing and filing this application, any petition(s) for rehearing, or any re-application. If Buyer's initial application for Exempt Wholesale Generator status is rejected by the FERC, Buyer agrees to petition the FERC for rehearing and/or to re-submit an application with the FERC, as reasonably required by the Sellers, provided that in either case the action directed by the Sellers does not create a Buyer Material Adverse Effect. (c) As promptly as possible after the date of this Agreement, Buyer shall file with the FERC an application requesting authorization under Section 205 of the Federal Power Act to sell electric generating capacity and energy, but not other services, including, without limitation, ancillary services, at wholesale at market-based rates, which filing may be made individually by Buyer or jointly with Sellers in conjunction with other filings to be made with the FERC under this Agreement, as reasonably determined by the Parties. Prior to the filing of that application with the FERC, Buyer shall submit such application to the Sellers for review and comment and Buyer shall incorporate into the application any revisions reasonably requested by the Sellers. Buyer shall be solely responsible for the cost of preparing and filing this application, any petition(s) for rehearing, or any reapplication. If Buyer's initial application for market-based rate authorization results in a FERC request for additional information or is rejected by the FERC, Buyer shall provide that information promptly, to petition the FERC for rehearing and/or to re-submit an application with the FERC, as reasonably required by the Sellers, provided that the Sellers shall have a reasonable opportunity to make changes to such a petition or re-submission application and, 55 provided further, that the action directed by Seller does not create a Buyer Material Adverse Effect. (d) As promptly as possible, and in any case within sixty (60) days, after the date of this Agreement, Sellers and Buyer, as applicable, shall file with the NJBPU, the PaPUC, the FERC and any other Governmental Authority, and make any other filings required to be made with respect to the transactions contemplated hereby. The Parties shall respond promptly to any requests for additional information made by such agencies, and use their respective best efforts to cause regulatory approval to be obtained at the earliest possible date after the date of filing. Each Party will bear its own costs of the preparation of any such filing. (e) Without limitation of Section 10.11, Sellers and Buyer shall cooperate with each other and promptly prepare and file notifications with, and request Tax clearances from, state and local taxing authorities in jurisdictions in which a portion of the Purchase Price may be required to be withheld or in which Buyer would otherwise be liable for any Tax liabilities of Sellers pursuant to such state and local Tax law. (f) Buyer shall have the primary responsibility for securing the transfer, reissuance or procurement of the Permits and Environmental Permits (other than Transferable Permits) effective as of the Closing Date. Sellers shall cooperate with Buyer's efforts in this regard and assist in any transfer or reissuance of a Permit or Environmental Permit held by Sellers or the procurement of any other Permit or Environmental Permit when so requested by Buyer. 6.7 Fees and Commissions. Each Seller, on the one hand, and Buyer, on the other hand, represent and warrant to the other that, except for Goldman, Sachs & Co., which are acting for and at the expense of such Seller, no broker, finder or other Person is entitled to any brokerage fees, commissions or finder's fees in connection with the transaction contemplated hereby by reason of any action taken by the Party making such representation. Each Seller, on the one hand, and Buyer, on the other hand, will pay to the other or otherwise discharge, and will indemnify and hold the other harmless from and against, any and all claims or liabilities for all brokerage fees, commissions and finder's fees (other than the fees, commissions and finder's fees payable to the parties listed above) incurred by reason of any action taken by the indemnifying party. 6.8 Tax Matters. 56 (a) All transfer and sales taxes incurred in connection with this Agreement and the transactions contemplated hereby (including, without limitation, (a) Pennsylvania and New Jersey sales tax; and (b) the Pennsylvania and New Jersey realty transfer taxes on conveyances of interests in real property (including such taxes assessed by Pennsylvania municipalities as well as by the Commonwealth of Pennsylvania itself)) shall be borne by Buyer. Except for the Pennsylvania Realty Transfer Tax Statement of Value, which shall be filed by Buyer, Sellers shall file, to the extent required by, or permissible under, applicable law, all necessary Tax Returns and other documentation with respect to all such transfer and sales taxes, and, if required by applicable law, Buyer shall join in the execution of any such Tax Returns and other documentation. Prior to the Closing Date, to the extent applicable, Buyer shall provide to Sellers appropriate certificates of Tax exemption from each applicable taxing authority. (b) With respect to Taxes to be prorated in accordance with Section 3.5 of this Agreement, Buyer shall prepare and timely file all Tax Returns required to be filed after the Closing Date with respect to the Purchased Assets, if any, and shall duly and timely pay all such Taxes shown to be due on such Tax Returns. Buyer's preparation of any such Tax Returns shall be subject to Sellers' approval, which approval shall not be unreasonably withheld. Buyer shall make such Tax Returns available for Sellers' review and approval no later than fifteen (15) Business Days prior to the due date for filing each such Tax Return. (c) Within fifteen (15) Business Days after receipt of such Tax Return referred to in Section 6.8(b), each Seller shall pay to Buyer such Sellers' share of the amount shown on such Tax Return, less payments on account of such Taxes previously made by each Seller. To the extent that such Sellers' previous payments exceed such Sellers' share, the Buyer shall pay such excess to such Seller. With respect to real estate taxes, evidence of payment shall be delivered by each Seller to Buyer at the Closing. As soon as practicable after the Closing, Sellers and Buyer shall cooperate in the filing of an amended return and/or other documents in order to obtain the available refund with respect to any Closing Year PURTA Tax. Buyer shall be entitled to such refund to the extent, but only to the extent, that it does not exceed any payments made by Buyer on account of such PURTA liability. (d) Buyer and Sellers shall provide the other with such assistance as may reasonably be requested by the other Party in connection with the preparation of any Tax Return, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to liability for Taxes, and 57 each shall retain and provide the requesting party with any records or information which may be relevant to such return, audit, examination or proceedings. Any information obtained pursuant to this Section 6.8(d) or pursuant to any other Section hereof providing for the sharing of information or review of any Tax Return or other instrument relating to Taxes shall be kept confidential by the parties hereto. Schedule 6.8 sets forth procedures to be followed with respect to the tax appeals and audits referred to therein. (e) Genco Tax matters. (1) Section 338(h)(10) Election. (i) With respect to the sale of the Genco Stock, GPU and Buyer shall jointly make the election provided for by section 338(h)(10) of the Code and Section 1.338(h)(10)-1 of the Treasury Regulations promulgated under the code and any comparable election under state or local tax law (the "Election"). As soon as practicable after the Closing Date, with respect to such Election, GPU and Buyer shall mutually prepare a Form 8023-A, with all attachments, and GPU shall sign such Form 8023-A. Buyer and GPU shall also cooperate with each other to take all actions necessary and appropriate (including filing such additional forms, returns, elections, schedules and other documents as may be required) to effect and preserve such Election in accordance with the provisions of Section 1.338(h)(10)-1 of the Treasury Regulations (or any comparable provisions of state and local tax law) or any successor provisions. (ii) With respect to the Election, the parties shall endeavor to agree upon the amount of the Modified Aggregate Deemed Sales Price as defined in Section 1.338(h)(10)-1 of the Treasury Regulations (the "Modified ADSP") and upon an allocation of such Modified ADSP among the assets of Genco pursuant to Treasury Regulation Section 1.338(h)(10)-1. Buyer and GPU shall use their good faith Commercially Reasonable Efforts to agree upon such allocation within one hundred twenty (120) days of the date of this Agreement. In the event that the parties cannot agree on a mutually satisfactory allocation within said time period, the Independent Accounting Firm shall, at GPU's and Buyer's joint expense, determine the appropriate allocation. The finding of such Independent Accounting Firm shall be binding on the parties. The parties shall take no action inconsistent with, or fail to take any action necessary for the validity of the Election, and shall adopt and utilize the asset values determined from such reasonable allocation for the purpose of all Tax Returns filed by them, and shall not voluntarily take any action inconsistent therewith upon examination of any Tax Return, in any refund claim, in any litigation or otherwise with respect to such 58 Tax Returns. Buyer and GPU shall notify and provide the other with reasonable assistance in the event of an examination, audit or other proceeding regarding the agreed upon allocation of the Modified ADSP. (2) Return Filing, Payments, Refunds and Credits. Notwithstanding anything to the contrary in Section 3.5 of this Agreement, (i) For purposes of this Agreement, the amount of Taxes of Genco attributable to the pre-Closing portion of any taxable period beginning before and ending after the Closing Date (the "Straddle Period") shall be allocated between the pre-Closing and post-Closing portions based, in the case of real and personal property taxes, on a per diem basis, and in the case of all other Taxes (including, without limitation, Income Taxes), on the actual activities, income or loss of Genco during such pre-Closing and post-Closing portions of the Straddle Period assuming a hypothetical closing of the books as of the end of the Closing Date; provided, further, that the taxes of Genco that are attributable to the pre-Closing portion of any taxable period shall include any Taxes resulting from the gain on any deemed sale of assets by Genco pursuant to Section 338 of the Code or any comparable provision under the laws of any other jurisdiction with respect to the transactions contemplated by this Agreement. (ii) Buyer and GPU shall cause Genco to join, for all pre-Closing periods and the Straddle Period for which Genco is required or eligible to do so, in all consolidated, combined or unitary federal, state, or Local Income Tax or franchise Tax Returns of GPU (or any Tax Affiliate for all pre-Closing periods ("GPU's Tax Returns") and shall, in each jurisdiction where this is required or permissible under applicable law, cause the taxable year of Genco to terminate as of the Closing Date. GPU shall cause to be prepared and timely filed all such GPU's Tax Returns and shall pay or cause to be paid all Taxes shown to be due on such GPU's Tax Returns; provided, however, that in the case of a GPU's Tax Return for the Straddle Period, Buyer shall or shall cause Genco to pay to GPU the portion of such Taxes shown to be due thereon attributable to Genco for the post-Closing Date portion of the Straddle Period determined in accordance with Section 6.8(e)(2)(i) and the GPU Intercompany Tax Allocation Agreement in effect on the date of the signing of this Agreement (the "GPU Intercompany Tax Allocation Agreement"). (iii) Buyer shall or shall cause Genco to prepare and timely file all Income Tax Returns of Genco for all pre-Closing periods and the Straddle Period, other than those referred to in Section 6.8(e)(2)(ii), which Income Tax Returns have not been filed as of the Closing Date, and shall cause to be timely paid all Taxes 59 shown to be due on such Tax Returns. No later than ten days prior to the due date for the filing of each Income Tax Return referred to in this section 6.8 (e)(2)(iii), GPU shall pay to Genco the amount of Taxes shown as due thereon less any estimated Taxes paid by Genco during the pre-Closing period; provided, however, that in the case of an Income Tax Return for a Straddle Period, GPU shall only be required to pay Genco the portion of such Taxes that is attributable to the pre-Closing Date portion of such Straddle Period, determined in accordance with Section 6.8(e)(2)(i) and the GPU Intercompany Tax Allocation Agreement less any estimated Taxes paid by Genco during the pre-Closing period. GPU shall fully cooperate with Buyer and Genco in accordance with past practice in the preparation of the Income Tax Return as referred to in this Section 6.8(e)(2)(iii). (iv) Buyer shall or shall cause Genco to prepare and timely file all Tax Returns for all pre-Closing periods and the Straddle Period, other than those Tax Returns referred to in Section 6.8(e)(2)(ii) and (iii), which Tax Returns have not been filed as of the Closing Date, and shall cause to be timely paid all Taxes shown to be due thereon. No later than ten days prior to the due date for the filing of each Tax Return referred to in this Section 6.8(e)(2)(iv), GPU shall pay to Genco the amount shown as due thereon attributable to the pre-Closing Date portion of the Straddle Period less any estimated Taxes paid by Genco during the pre-Closing period. (v) The Tax Returns referred to in Section 6.8(e)(2)(ii), (iii) and (iv) shall be prepared in a manner consistent with past practice, unless a contrary treatment is required by an intervening change in the applicable law. GPU shall cause to be made available to Buyer a copy of any Tax Return that is required to be filed by GPU or Genco under 6.8(e)(2)(ii) and Buyer shall cause to be made available to Seller a copy of any Tax Return that is required to be filed by Buyer or Genco under Section 6.8(e)(2)(iii) or (iv), in each case together with all relevant work papers and other information. Each such Tax Return shall be made available for review and approval no later than 20 Business Days prior to the due date for the filing of such Tax Return (taking into account proper extensions), such approval not be unreasonably withheld. An exact copy of any such Tax Return filed by Buyer shall be provided to GPU and any such Tax Return filed by GPU shall be provided to Buyer, in each case, no later than ten days after such Tax Return is filed. To the extent that the Tax Returns that are the subject of this clause (v) are combined or consolidated tax returns, each reference to Tax Return shall be to a pro forma separate return of Genco. 60 (vi) Any refunds or credits of the Taxes of Genco plus any interest received with respect thereto from the applicable taxing authorities for any pre-Closing period (including without limitation, refunds or credits arising from amended returns filed after the Closing Date) shall be for the account of GPU, except to the extent that such refunds or credits are attributable to the mandatory carryback of any deductions or credits for any Tax Period ending after a Closing Date and, if received by Buyer or Genco, shall be paid to GPU within ten days after Buyer or Genco receives such refund or after the relevant Tax Return is filed within which the credit is applied against Buyer's or Genco's liability for Taxes for a period which begins after the Closing Date, net of any Taxes Buyer or Genco is required to pay on account of receiving such refund or credit (including a reasonable estimate of resulting future Tax costs.) GPU, without the consent of Buyer, shall not apply for any refund that will create a material adverse effect on any post-Closing period Tax Return and shall not apply for any refund for any Straddle Period Tax Return or any Tax Return for Genco that is not a consolidated, combined, or unitary Tax Return. Any refunds or credits of Taxes of Genco for any Straddle Period shall be apportioned between GPU and Buyer in the same manner as the liability for such Taxes is apportioned pursuant to Section 6.8(e)(2)(i). (3) Tax Indemnification. (i) Without duplication, GPU shall indemnify, defend and hold Buyer and Genco harmless from and against any and all Taxes (including interest and penalties) which may be suffered or incurred by Buyer or Genco in respect of or relating to, directly or indirectly (x) Taxes of or attributable to Genco for all pre-Closing periods, (y) Taxes of or attributable to Genco with respect to the pre-Closing portion of the Straddle period, and (z) Taxes payable by Genco with respect to any pre-Closing period or Straddle Period by reason of Genco being severally liable for the Tax of any Tax Affiliate pursuant to Treasury Regulation 1.1502-6 or any analogous state or local Tax law. (ii) Without duplication, Buyer shall indemnify, defend and hold GPU and each of its Affiliates harmless from and against any and all Taxes (including interest and penalties) which may be suffered or incurred by them in respect of or relating to, directly or indirectly (x) Taxes of or attributable to Genco with respect to all post-Closing periods, and (y) Taxes of or attributable to Genco with respect to the post-Closing portion of any Straddle Period. (iii) An indemnity payment due under this Section 6.8(e)(4) shall be made within thirty (30) days after (i) the party in 61 control of the issue under Section 6.8(e)(3) determines not to contest the issue, the receipt of a formal notice or assessment from a taxing authority or the occurrence of any other event giving rise to the payment subject to an indemnity, or (ii) if the party in control of the issue under Section 6.8(e)(4) determines to contest the issue, the earlier of the signing of a closing agreement or settlement agreement or any other similar agreement with the relevant tax authorities, the receipt of a deficiency notice with respect to which the period for filing a petition with the relevant court has expired, or a decision of any court of competent jurisdiction which is not subject to appeal or as to which the time for appeal has expired. (4) Tax Contest. (i) GPU and Buyer shall notify the other party in writing within 30 days of receipt of written notice of any pending or threatened tax examination, audit or other administrative or judicial proceeding (a "Tax Contest") that could reasonably be expected to result in an indemnification obligation under this Section 6.8(e) of such other party pursuant to this Section 6.8(e). If the recipient of such notice of a Tax Contest fails to provide such notice to the other party, it shall not be entitled to indemnification for any Taxes arising in connection with such Tax Contest, but only to the extent, if any, that such failure or delay shall have adversely affected the indemnifying party's ability to defend against, settle, or satisfy any action, suit or proceeding against it, or any damage, loss, claim, or demand for which the indemnified party is entitled to indemnification hereunder. (ii) If a Tax Contest relates to any period ending on or prior to the Closing Date or to any Taxes for which GPU is liable in full hereunder, GPU shall at its expense control the defense and settlement of such Tax Contest. If such Tax contest relates to any period beginning after the Closing Date or to any Taxes for which Buyer is liable in full hereunder, Buyer shall at its own expense control the defense and settlement of such Tax Contest. The party not in control of the defense shall have the right to observe the conduct of any Tax Contest at its expense, including through its own counsel and other professional experts. Buyer and GPU shall jointly represent Genco in any Tax Contest relating to a Straddle Period, and fees and expenses related to such representation shall be paid equally by Buyer and GPU. (iii) Notwithstanding anything to the contrary in section 6.8(e)(4)(ii), to the extent that an issue raised in any Tax Contest controlled by one party or jointly controlled could materially affect the liability for Taxes of the other party, the controlling party shall not, and neither party in the case of joint control shall, enter into a final settlement without the 62 consent of the other party, which consent shall not be reasonably withheld. Where a party withholds its consent to any final settlement, that party may continue or initiate further proceedings, at its own expense, and the liability of the party that wished to settle (as between the consenting and the non-consenting party) shall not exceed the liability that would have resulted from the proposed final settlement including interest, additions to Tax, and penalties that have accrued at that time), and the non-consenting party shall indemnify the consenting party for such Taxes. Notwithstanding any provision of this Agreement to the contrary, this Section 6.8 shall survive for the duration of any applicable limitation periods. (5) Tax Sharing Agreements. Any Tax sharing agreement to which Genco is a party shall be deemed terminated with respect to Genco on, and effective as of, the Closing Date, and no Person shall have any rights or obligations under such Tax sharing agreement with respect to Genco after such termination; provided, however, that the GPU Intercompany Tax allocation Agreement shall remain in effect with respect to Genco in order to determine the portion of GPU and Sellers' Tax liabilities attributable to Genco, and to be paid to GPU under Section 6.8(e)(2)(ii) for the post-Closing Date portion of the Straddle Period. (f) Disputes. In the event that a dispute arises between Sellers or GPU and Buyer as to the amount of Taxes, or indemnification, whether or not attributable to Genco, or the amount of any allocation of Purchase Price under Section 3.4 or 6.8(e)(1)(ii) hereof, the parties shall attempt in good faith to resolve such dispute, and any agreed upon amount shall be paid to the appropriate party. If such dispute is not resolved 30 days thereafter, the parties shall submit the dispute to the Independent Accounting firm for resolution, which resolution shall be final, conclusive and binding on the parties. Notwithstanding anything in this Agreement to the contrary, the fees and expenses of the Independent Accounting Firm in resolving the dispute shall be borne equally by Seller or GPU, as applicable, and Buyer. Any payment required to be made as a result of the resolution of the dispute by the Independent Accounting firm shall be made within ten days after such resolution, together with any interest determined by the Independent Accounting Firm to be appropriate. (g) Cooperation. Buyer and GPU shall (and Buyer and GPU shall cause Genco to) cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the 63 filing of Tax Returns pursuant to this Agreement and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other Party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees (to the extent such employees were responsible for the preparation, maintenance or interpretation of information and documents relevant to Tax matters or to the extent required as witnesses in any Tax proceedings), available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Parties agree (i) to retain, and (in the case of Buyer) to cause Genco to retain, all books and records with respect to Tax matters pertinent to Genco relating to any taxable period beginning before the Closing Date until six months after the expiration of the statute of limitations (and, to the extent notified by Buyer or Sellers, any extensions thereof) of the respective taxable periods, and to abide by all record retention obligations imposed by law or pursuant to agreements entered into with any taxing authority, and (ii) to give the other Party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Party so requests, Buyer or Sellers, as the case may be, shall allow the other Party to take possession of such books and records. Buyer, Genco and GPU further agree, upon request, to use their best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). At GPU's request, Buyer will cause Genco to make and/or join with GPU in making after Closing any election of GPU's consolidated group for which each member's consent is required, if the making of such election does not have a material adverse impact on Buyer or Genco for any post-acquisition Tax period. 6.9 Advice of Changes. Prior to the Closing, each Party will promptly advise the other in writing with respect to any matter arising after execution of this Agreement of which that Party obtains Knowledge and which, if existing or occurring at the date of this Agreement, would have been required to be set forth in this Agreement, including any of the Schedules hereto. Sellers may at any time notify Buyer of any development causing a breach of any of its or GPU's representations and warranties in Article IV or IVA. Unless Buyer has the right to terminate this Agreement pursuant to Section 9.1(f) below by reason of the developments and exercises that right within the period of 64 fifteen (15) days after such right accrues, the written notice pursuant to this Section 6.9 will be deemed to have amended this Agreement, including the appropriate Schedule, to have qualified the representations and warranties contained in Article IV or IVA above, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the development. 6.10 Employees. (a) At least 90 days prior to the Closing Date (but in no case sooner than ninety (90) days after the date hereof), Buyer shall provide Sellers with notice of its Union Employee staffing level requirements (which Buyer may determine in its sole discretion), listed by classification and operation, and shall be required to make reasonable efforts to offer employment to that number of Union Employees necessary to satisfy such staffing level requirements. As used herein, "Union Employees" means such employees of Sellers who are covered by the Collective Bargaining Agreement as defined in Section 6.10(d) below, and who are listed in, or whose employment responsibilities are listed in, Schedule 6.10(a)(i) as "Plant Employees" or "Dedicated Support Staff" as associated with the Plants purchased by Buyer, and those Union Employees who are listed in, or whose employment responsibilities are listed in, Schedule 6.10(a)(ii) as "Mobile Maintenance" or "Corporate Support". Any offers of employment shall be made at least 60 days prior to the Closing Date. In each classification, Union Employees shall be so offered employment in order of their seniority. (b) Buyer is also entitled to determine its Non-Union Employee staffing level requirements in its sole discretion, and make reasonable efforts to make offers of employment with Buyer or any of its Affiliates, effective on the Closing Date, to Non-Union Employees consistent with such staffing levels. As used herein, " Non-Union Employees" means such salaried employees of Sellers, Genco, GPUN or GPUS who are listed in, or whose employment responsibilities are listed in, Schedule 6.10(b) as "Plant Employees" or "Dedicated Support Staff", and those Non-Union Employees listed in, or whose employment responsibilities are listed in, Schedule 6.10(a)(ii) as "Mobile Maintenance" or "Corporate Support". Any offers of employment shall be made at least sixty (60) days prior to the Closing Date. Each person who becomes employed by Buyer or any of its Affiliates pursuant to Section 6.10(a) or (b) (whether pursuant to a Qualifying Offer or otherwise) shall be referred to herein as a "Transferred Union Employee" or "Transferred Non-Union Employee", respectively. At least forty-five (45) days prior to the Closing Date, Buyer shall provide Seller with notice of those Non-Union Employees to whom 65 it made a Qualifying Offer. As used herein, the term "Qualifying Offer" means an offer of employment at an annual level of compensation that is at least 85% of the employee's current total annual cash compensation (consisting of base salary and target incentive bonus) at the time the offer is made. Schedule 6.10(b) sets forth, for each of the Non-Union Employees listed therein, his or her current base salaries and target incentive bonuses. (c) All offers of employment made pursuant to Sections 6.10(a) or (b) shall be made in accordance with all applicable laws and regulations, and in addition, for Union Employees, in accordance with seniority and all other applicable provisions of the Collective Bargaining Agreement. (d) Schedule 6.10(d) sets forth the collective bargaining agreement, and amendments thereto, to which each Seller is a party with the Union in connection with the Purchased Assets ("Collective Bargaining Agreement"). Transferred Union Employees shall retain their seniority and receive full credit for service with Sellers in connection with entitlement to vacation and all other benefits and rights under the Collective Bargaining Agreement and under each compensation, retirement or other employee benefit plan or program Buyer is required to maintain for Transferred Union Employees pursuant to the Collective Bargaining Agreement. With respect to Transferred Union Employees, effective as of the Closing Date, Buyer shall assume the Collective Bargaining Agreement for the duration of its term as it relates to Transferred Union Employees to be employed at the Plants in positions covered by the Collective Bargaining Agreement and shall thereafter comply with all applicable obligations under the Collective Bargaining Agreement. Consistent with its obligations under the Collective Bargaining Agreement and applicable laws, Buyer shall be required to establish and maintain a pension plan and other employee benefit programs for the Transferred Union Employees for the duration of the term of the Collective Bargaining Agreement which are substantially equivalent to Seller's plans and programs in effect for the Transferred Union Employees immediately prior to the Closing Date (the "Sellers' Plans"), and which provide at least the same level of benefits or coverage as do Sellers' Plans for the duration of the Collective Bargaining Agreement. Buyer further agrees to recognize the Union as the collective bargaining agent for the applicable Transferred Union Employees. (e) Transferred Non-Union Employees shall be eligible to commence participation in welfare benefit plans of Buyer or its Affiliates as may be made available by Buyer (the "Replacement Welfare Plans"). Buyer shall (i) waive all limitations as to pre-existing condition exclusions and waiting periods with 66 respect to the Transferred Non-Union Employees under the Replacement Welfare Plans, other than, but only to the extent of, limitations or waiting periods that were in effect with respect to such employees under the welfare plans maintained by Sellers, Genco, GPUN or GPUS or their Affiliates and that have not been satisfied as of the Closing Date, and (ii) provide each Transferred Non-Union Employee with credit for any copayments and deductibles paid prior to the Closing Date in satisfying any deductible or out-of-pocket requirements under the Replacement Welfare Plans (on a pro-rata basis in the event of a difference in plan years). (f) Transferred Non-Union Employees shall be given credit for all service with Sellers, Genco, GPUN, GPUS and their Affiliates under all deferred compensation, profit-sharing, 401(k), retirement pension, incentive compensation, bonus, fringe benefit and other employee benefit plans, programs and arrangements of Buyer ("Buyer Benefit Plans") in which they may become participants. The service credit so given shall be for purposes of eligibility and vesting, but shall not be for purposes of level of benefits and benefit accrual except to the extent that the Buyer Benefit Plans otherwise provide. (g) To the extent allowable by law, Buyer shall take any and all necessary action to cause the trustee of any defined contribution plan of Buyer or its Affiliates in which any Transferred Employee becomes a participant to accept a direct "rollover" of all or a portion of said employee's "eligible rollover distribution" within the meaning of Section 402 of the Code from the GPU Companies Employee Savings Plan for Non-Bargaining Employees or from the Employee Savings Plan for Bargaining Unit Employees maintained by JCP&L, Met-Ed or Penelec (the "Sellers' Savings Plans") if requested to do so by the Transferred Employee. Buyer agrees that the property so rolled over and the assets so transferred may include promissory notes evidencing loans from Sellers' Savings Plans to Transferred Employees that are outstanding as of the Closing Date. However, except as otherwise provided in Section 6.10(d), any defined contribution plan of Buyer or its Affiliates accepting such a rollover or transfer shall not be required to make any further loans to any Transferred Employee after the Closing Date. (h) Buyer shall pay or provide to Transferred Employees the benefits described in subparagraphs (i), (ii) and (iii) of this Section 6.10(h), and shall reimburse Sellers for the cost of the benefits that Sellers' or Sellers' Affiliates will provide to Union Employees and Non-Union Employees in accordance with subparagraph (iv) of this Section 6.10(h). 67 (i) Buyer shall make a transition incentive payment in the amount of $2,500 to each Transferred Union Employee. Payment shall be made as soon as practicable after, but in any event no later than 60 days following, the Closing Date. (ii) In the case of each Transferred Non-Union Employee who is initially assigned by Buyer to a principal place of work that is at least 50 miles farther from the employee's principal residence than was his principal place of work immediately prior to the Closing Date and who relocates his or her principal residence to the vicinity of his or her new principal place of work within 12 months following the Closing Date, Buyer shall reimburse the employee for all "moving expenses" within the meaning of Section 217(b) of the Code incurred by the employee and other members of his or her household in connection with such relocation, up to a maximum aggregate amount of $5,000. Claims for reimbursement for such expenses shall be filed in accordance with such procedures, and shall be accompanied by such substantiation of the expenses for which reimbursement is sought, as Buyer may reasonably request. All claims for reimbursement shall be processed, and qualifying expenses shall be reimbursed, as soon as practicable after, but in any event no later than 60 days following, the date on which the employee's claim for reimbursement is submitted to Buyer. (iii) Buyer shall provide the severance benefits described in Section 1 of Schedule 6.10(h) to each Transferred Employee who is "Involuntarily Terminated" (as defined below) (a) within 12 months after the Closing Date or (b), in the case of any Transferred Non-Union Employee who had attained age 50 and had completed at least 10 Years of Service (as defined in Section 1(c) of Schedule 6.10(h)) prior to the Closing Date, on or any time prior to June 30, 2004. For purposes of this Section 6.10(h) and Schedule 6.10(h), a Transferred Employee shall be treated as "Involuntarily Terminated" if his or her employment with Buyer and all of its Affiliates is terminated by Buyer or any of its Affiliates for any reason other than for cause or disability. Buyer shall require any Transferred Employee who is Involuntarily Terminated, as a condition to receiving the severance benefits described in Section 1(b), (c), (d), (e) and (f) of Schedule 6.10(h), to execute a release of claims against Sellers, Genco, GPUN or GPUS, as applicable, and all of their Affiliates, and Buyer, in such form as Buyer and Sellers shall agree upon. 68 (iv) At the Closing or as soon thereafter as practicable, but in any event no later than 60 days following the Closing Date, Buyer shall pay to Sellers, in addition to all other amounts to be paid by Buyer to Sellers hereunder, an amount equal to Buyer's Allocable Share (as defined below) of the aggregate estimated cost that the Sellers or any of Sellers' Affiliates will or may incur in providing the severance, pension, health care and group term life insurance benefits described in Section 2 of Schedule 6.10(h) to the Union Employees and Non-Union Employees therein described (collectively the "Termination Benefits"). The estimated cost of such benefits shall be calculated by the actuarial firm regularly engaged to provide actuarial services to the GPU Companies with respect to their pension, health care and life insurance plans, and shall be determined using the same assumptions as to mortality, turnover, interest rate and other actuarial assumption as used by such firm in determining the cost of benefits under the GPU Companies' pension, health and group term life insurance plans for purposes of their most recently issued financial statements prior to the Closing Date. For purposes of the foregoing, Buyer's "Allocable Share" shall be calculated as set forth in Schedule 6.10(h)(iv). (i) Buyer shall not be responsible for any payments required under any voluntary early retirement plan, program or arrangement offered by Sellers, Genco, GPUN or GPUS in connection with the transfer of the Purchased Assets. Within thirty (30) days following the last day that any Union Employee or Non-Union Employee may elect to participate in any such plan offered by Sellers, Genco, GPUN or GPUS, Sellers shall provide Buyer with a list of all such employees who have so elected. (j) Sellers shall be responsible, with respect to the Purchased Assets, for performing and discharging all requirements under the WARN Act and under applicable state and local laws and regulations for the notification of its employees of any "employment loss" within the meaning of the WARN Act which occurs prior to the Closing Date. (k) Buyer shall not be responsible for extending COBRA continuation coverage to any employees and former employees of Sellers, Genco, GPUN or GPUS, or to any qualified beneficiaries of such employees and former employees, who become or became entitled to COBRA continuation coverage before the Closing, including those for whom the Closing occurs during their COBRA election period. (l) Sellers or Sellers' Affiliates shall pay to all 69 Transferred Employees, all compensation, bonus, vacation and holiday compensation, pension, profit sharing and other deferred compensation benefits, workers' compensation, or other employment benefits to which they are entitled under the terms of the applicable compensation or benefit programs at such times as are provided therein. (m) Individuals who are otherwise "Union Employees" as defined in Section 6.10(a) or "Non-Union Employees" as defined in Section 6.10(b) but who on any date are not actively at work due to a leave of absence covered by the Family and Medical Leave Act ("FMLA"), or due to any other authorized leave of absence, shall nevertheless be treated as "Union Employees" or as "Non-Union Employees", as the case may be, on such date if they are able (i) to return to work within the protected period under the FMLA or such other leave (which in any event shall not extend more than twelve (12) weeks after the Closing Date), whichever is applicable, and (ii) to perform the essential functions of their jobs, with or without a reasonable accommodation. (n) Effective as of the day immediately preceding the Closing Date, GPU shall (i) cause Genco to terminate or to transfer to one or more Affiliates of GPU, the employment of any individual in the employ of Genco on such preceding day who will not be a Transferred Employee immediately following the Closing, and (ii) cause all Benefit Plans maintained by Genco, and all liabilities and obligations of Genco with respect to such plans, to be transferred to, and assumed by, one or more Affiliates of GPU other than Genco. 6.11 Risk of Loss. (a) From the date hereof through the Closing Date, all risk of loss or damage to the property included in the Purchased Assets shall be borne by Sellers, other than loss or damage caused by the acts or negligence of Buyer or any Buyer Representative, which loss or damage shall be the responsibility of Buyer. (b) If, before the Closing Date, all or any portion of the Purchased Assets is (i) taken by eminent domain or is the subject of a pending or (to the Knowledge of Sellers) contemplated taking which has not been consummated, or (ii) damaged or destroyed by fire or other casualty, such Seller shall notify Buyer promptly in writing of such fact, and (x) in the case of a condemnation, such Seller shall assign or pay, as the case may be, any proceeds thereof to Buyer at the Closing and (y) in the case of a casualty, such Seller shall either restore the damage or assign the insurance proceeds therefor (and pay the amount of any deductible and/or self-insured amount in respect of such 70 casualty) to Buyer at the Closing. Notwithstanding the above, if such casualty or loss results in a Material Adverse Effect, Buyer and Sellers shall negotiate to settle the loss resulting from such taking (and such negotiation shall include, without limitation, the negotiation of a fair and equitable adjustment to the Purchase Price). If no such settlement is reached within sixty (60) days after Sellers have notified Buyer of such casualty or loss, then Buyer or Sellers may terminate this Agreement pursuant to Section 9.1(h). In the event of damage or destruction which Sellers elect to restore, Sellers will have the right to postpone the Closing for up to four (4) months. Buyer will have the right to inspect and observe, or have its representatives inspect or observe, all repairs necessitated by any such damage or destruction. 6.12 Additional Covenants of Buyer. Notwithstanding any other provision hereof, Buyer covenants and agrees that, after the Closing Date, Buyer will not make any modifications to the Purchased Assets or take any action which in and of itself, results in a loss of the exclusion of interest on the Pollution Control Revenue Bonds issued on behalf of Sellers in connection with the Purchased Assets from gross income for federal income purposes under Section 103 of the Code. Actions with respect to the Purchased Assets shall not constitute a breach by the Buyer of this Section 6.12 in the following circumstances: (i) Buyer ceases to use or decommissions any of the Purchased Assets or subsequently repowers such Purchased Assets that are no longer used or decommissioned (but does not hold such Purchased Assets for sale); (ii) Buyer acts with respect to the Purchased Assets in order to comply with requirements under applicable federal, state or local environmental or other laws or regulations; or (iii) Buyer acts in a manner the Sellers (i.e. a reasonable private provider of electricity of similar stature as Seller) would have acted during the term of the Pollution Control Revenue Bonds (including, but not limited to, applying new technology). In the event Buyer acts or anticipates acting in a manner that will cause a loss of the exclusion of interest on the Pollution Control Revenue Bonds from gross income for federal income tax purposes, at the request of Buyer, Sellers shall take any remedial actions permitted under the federal income tax law that would prevent a loss of such inclusion of interest from gross income on the Pollution Control Revenue Bonds. Buyer further covenants and agrees that, in the event that Buyer transfers any of the Purchased Assets, Buyer shall obtain from its transferee a covenant and agreement that is analogous to Buyer's covenant and agreement pursuant to the immediately preceding sentence, as well as a covenant and agreement that is analogous to that of this sentence. In addition, Buyer shall not, without 60 days advanced written notice to Seller (to the extent practicable under the 71 circumstances), take any action which would result in (x) a change in the use of the assets financed with the Pollution Revenue Control Bonds from the use in which such assets were originally intended, or (y) a sale of such assets separate from the generating assets to which they relate, provided that no notice is required of the events set forth in clauses (i) (ii) or (iii) above. This covenant shall survive Closing and shall continue in effect so long as the pollution control bonds remain outstanding. 6.13 Name Change. At or prior to the Closing, GPU shall cause Genco to amend its certificate of incorporation to change its corporate name to delete "GPU" therefrom and to adopt such name as Buyer may advise GPU in writing. ARTICLE VII CONDITIONS 7.1 Conditions to Obligations of Buyer. The obligation of Buyer to effect the purchase of the Purchased Assets and the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver by Buyer) of the following conditions: (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated. (b) No preliminary or permanent injunction or other order or decree by any federal or state court or Governmental Authority which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority which prohibits the consummation of the sale of the Purchased Assets; (c) Buyer shall have received all of Buyer's Required Regulatory Approvals, and such approvals shall contain no conditions or terms which would result in a Material Adverse Effect; (d) Sellers and GPU shall have performed and complied in all material respects with the covenants and agreements contained in this Agreement which are required to be performed and complied 72 with by Sellers and GPU on or prior to the Closing Date; (e) The representations and warranties of Sellers and GPU set forth in this Agreement shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date; (f) Buyer shall have received certificates from an authorized officer of Sellers and GPU, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Section 7.1(d) and (e) have been satisfied by such Seller and GPU; (g) Buyer shall have received an opinion from Sellers' and GPU's counsel reasonably acceptable to Buyer, dated the Closing Date and reasonably satisfactory in form and substance to Buyer and its counsel, substantially to the effect that: (i) Each of Sellers and GPU is a corporation duly incorporated, validly existing and in good standing under the laws of its state of incorporation and has the corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as is now conducted, and to execute and deliver the Agreement and each Ancillary Agreement and to consummate the transactions contemplated by it thereby; and the execution and delivery of the Agreement by each Seller and GPU and the consummation of the sale of the Purchased Assets and the other transactions contemplated thereby have been duly and validly authorized by all necessary corporate action required on the part of such Seller; (ii) The Agreement and each Ancillary Agreement have been duly and validly executed and delivered by each Seller and GPU, as applicable and constitutes a legal, valid and binding agreement of each Seller and GPU, as applicable, enforceable in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity); (iii) The execution, delivery and performance of the Agreement and each Ancillary Agreement by each Seller and GPU, as applicable does not (A) conflict with the Certificate of Incorporation or Bylaws of such Seller or GPU or (B) to the knowledge of such counsel, constitute a violation of or default under those agreements or 73 instruments set forth on a Schedule attached to the opinion and which have been identified to such counsel as all the agreements and instruments which are material to the business or financial condition of each Seller and GPU; (iv) The Bill of Sale, the deeds, the Assignment and Assumption Agreement and other transfer instruments described in Section 3.6 have been duly executed and delivered and are in proper form to transfer to Buyer such title as was held by such Seller and GPU, in the case of the Genco Stock to the Purchased Assets; (v) No consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery of this Agreement by the Sellers and GPU, or the consummation by Sellers and GPU of the transactions contemplated hereby, other than (i) such consents, approvals, filings or notices set forth in Schedule 4.3(b) or which, if not obtained or made, will not prevent the Sellers and GPU from performing their material obligations hereunder and (ii) such consents, approvals, filings or notices which become applicable to Sellers or GPU or the Purchased Assets as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged. (vi) The Genco Stock is owned of record by GPU, and to such counsel's knowledge, beneficially by GPU free and clear of all Encumbrances. The Genco Stock has been duly authorized and validly issued, and is fully paid and non-assessable. There are no other authorized shares of capital stock of Genco other than the 2500 shares of common stock comprising the Genco Stock. None of the shares comprising the Genco Stock has been issued in violation of, or is subject to, any statutory or, to such counsel's knowledge, other Restrictive Third Party Rights. To such counsel's knowledge, (i) there are no outstanding securities convertible into or exchangeable for the capital stock of Genco or any restrictive covenants applicable to the Genco Stock, and (ii) neither GPU nor Genco has any obligation, contingent or otherwise, to issue, sell, repurchase, redeem or otherwise acquire any of the Genco Stock or other capital stock of Genco or any equity or debt securities of Genco. Upon the consummation of the transactions contemplated in the Agreement, Buyer will have good and valid title to the Genco Stock, to such counsel's knowledge, free and clear of all Encumbrances and Restrictive Third Party Rights. 74 In rendering the foregoing opinion, Sellers' and GPU's counsel may rely on opinions of counsel as to local laws reasonably acceptable to Buyer. (h) Sellers and GPU shall have delivered, or caused to be delivered, to Buyer at the Closing, Sellers' and GPU's closing deliveries described in Section 3.6. (i) Since the date of this Agreement, no Material Adverse Effect shall have occurred and be continuing. (j) Buyer shall have received (at Buyer's cost) from a title insurance company and surveyor reasonably acceptable to Buyer an ALTA owner's title policy and ALTA survey, together with all endorsements reasonably requested by Buyer as are available, insuring title to all of the Real Property included in the Aggregate Purchased Assets, subject only to Permitted Encumbrances. Sellers shall provide Buyer with a copy of a preliminary title report and survey for the Real Property as soon as available. (k) The closings under the Purchase and Sale Agreements between JCP&L and Buyer, Penelec and Buyer and Met-Ed and Buyer (collectively, the "Related Purchase Agreements"), shall have occurred or shall occur concurrently with the Closing and all conditions to the obligations of Buyer under the Related Purchase Agreements shall have been satisfied or waived by Buyer. (l) Buyer shall have received all Permits and Environmental Permits, to the extent necessary, to own and operate the Plants in accordance with past emissions and operating practices, except for those Permits and Environmental Permits, the absence of which would not in the aggregate have a Material Adverse Effect. (m) Seller's Required Regulatory Approvals shall contain no conditions or terms which would result in a Material Adverse Effect. (n) Neither the Real Property nor any portion thereof shall be part of a tax lot which includes any real property and/or buildings, facilities or other improvements other than that which comprises the Real Property. (o) No Site, or any portion thereof shall be subject to a zoning classification or classifications, rule or regulation, or a variance or special exception, which, individually or in the aggregate, does not permit such Site or any portion thereof to be used as the same (i) is currently used for generation purposes or (ii) was historically used for generation purposes while under 75 Seller's current ownership or the ownership of any Affiliate thereof, unless the failure of such Site of any portion thereof to be zoned to permit such use, shall not result in a Material Adverse Effect. 7.2 Conditions to Obligations of Sellers. The obligation of Sellers and GPU to effect the sale of the Purchased Assets and the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver by Sellers) of the following conditions: (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated; (b) No preliminary or permanent injunction or other order or decree by any federal or state court which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority in the United States which prohibits the consummation of the sale of the Purchased Assets; (c) Sellers and GPU shall have received all of Sellers' Required Regulatory Approvals applicable to them, containing no conditions or terms which would materially diminish the benefit of this Agreement to Sellers or result in a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Sellers ("Sellers' Material Adverse Effect"); (d) All consents and approvals for the consummation of the sale of the Purchased Assets contemplated hereby required under the terms of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which any Seller is party or by which any Seller, or any of the Purchased Assets, may be bound, shall have been obtained, other than those which if not obtained, would not, individually and in the aggregate, create a Material Adverse Effect; (e) Buyer shall have performed and complied with in all material respects the covenants and agreements contained in this Agreement which are required to be performed and complied with by Buyer on or prior to the Closing Date; (f) The representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material 76 respects as of the Closing Date as though made at and as of the Closing Date; (g) Sellers shall have received a certificate from an authorized officer of Buyer, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Sections 7.2(e) and (f) have been satisfied by Buyer; (h) Effective upon Closing, Buyer shall have assumed, as set forth in Section 6.10, all of the applicable obligations under the Collective Bargaining Agreement as they relate to Transferred Union Employees; (i) Sellers and GPU shall have received an opinion from Buyer's counsel reasonably acceptable to Sellers, dated the Closing Date and satisfactory in form and substance to Sellers and its counsel, substantially to the effect that: (i) Buyer is a Delaware corporation duly organized, validly existing and in good standing under the laws of the state of its organization and is qualified to do business in the State of New Jersey and Commonwealth of Pennsylvania and has the full corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as is now conducted, and to execute and deliver the Agreement and the Ancillary Agreements by Buyer and to consummate the transactions contemplated thereby; and the execution and delivery of the Agreement and the Ancillary Agreements by Buyer and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action required on the part of Buyer; (ii) The Agreement and the Ancillary Agreements have been duly and validly executed and delivered by Buyer, and constitute legal, valid and binding agreements of Buyer, enforceable against Buyer, in accordance with their terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting or relating to enforcement of creditor's rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity); (iii) The execution, delivery and performance of the Agreement and the Ancillary Agreements by Buyer do not (A) conflict with the Certificate of Incorporation or Bylaws (or other organizational documents), as currently in effect, of Buyer or (B) to the knowledge of such counsel, constitute 77 a violation of or default under those agreements or instruments set forth on a Schedule attached to the opinion and which have been identified to such counsel as all the agreements and instruments which are material to the business or financial condition of Buyer; (iv) The Assignment and Assumption Agreement and other transfer instruments described in Section 3.7 are in proper form for Buyer to assume the Assumed Liabilities; and (v) No consent or approval of, filing with, or notice to, any Governmental Authority is necessary for Buyer's execution and delivery of the Agreement and the Ancillary Agreements, or the consummation by Buyer of the transactions contemplated hereby and thereby, other than such consents, approvals, filings or notices, which, if not obtained or made, will not prevent Buyer from performing its respective obligations under the Agreement, the Ancillary Agreements and Guaranty. (j) Buyer shall have delivered, or caused to be delivered, to Sellers at the Closing, Buyer's closing deliveries described in Section 3.7. 7.3 Zoning Condition Adjustments. (a) In the event that any Site or any portion thereof, shall be subject to a zoning classification or classifications, rule or regulation, or variance or special exception, which does not permit or otherwise restrict the Site or any portion thereof, to be used as the same (i) is currently used for generation purposes or (ii) was historically used for generation purposes while under Seller's current ownership or the ownership of any Affiliate thereof for generation purposes, and if such failure shall result in a material adverse effect on the use of such Site for generating purposes as currently used (or as so historically used), then, in such event, Buyer may, prior to the Closing on written notice to the Seller, exclude from the Purchased Assets such Site and the Purchased Assets related to such Site. Buyer and Seller shall thereupon negotiate a fair and equitable adjustment to the Purchase Price or, failing such agreement within 30 days, the adjustment shall be determined by appraisal in accordance with Section 7.3(b), the cost of which shall be shared equally be Buyer and Seller. (b) The Parties shall select an Appraiser (as defined below) within 30 days of the expiration of the 30 day period referred to in Section 7.3(a). In the event the Parties cannot within such period agree on a single Appraiser, the Parties shall each within 15 days select a separate Appraiser, and such 78 Appraisers shall within 15 days, later designate a third Appraiser to act hereunder. The Appraiser shall be instructed to provide a written report of the appropriate reduction of the Purchase Price to be allocated to the excluded Site (and associated Purchased Assets). Each of the Parties may submit such materials and information to the Appraiser as it deems appropriate and shall use its Commercially Reasonable Efforts to cause the Appraiser to render its decision within 60 days after the matter has been submitted to it. The determination of the Appraiser shall be final and binding on the Parties. As used herein, "Appraiser" means an individual who has a minimum of ten (10) years of relevant experience in valuing electric generation facilities and has an MAI designation of the Appraisal Institute. (c) Buyer agrees to use Commercially Reasonable Efforts at its expense and in consultation with Seller to mitigate any adverse zoning restrictions which could cause a failure of the Closing condition in Section 7.1(o), or require a Purchase Price adjustment under this Section 7.3, including by seeking a re-zoning or zoning variance of the applicable Site. ARTICLE VIII INDEMNIFICATION 8.1 Indemnification. (a) Buyer shall indemnify, defend and hold harmless Sellers, their officers, directors, employees, shareholders, Affiliates and agents (each, a "Sellers' Indemnitee") from and against any and all claims, demands, suits, losses, liabilities, damages, obligations, payments, costs and expenses (including, without limitation, the costs and expenses of any and all actions, suits, proceedings, assessments, judgments, settlements and compromises relating thereto and reasonable attorneys' fees and reasonable disbursements in connection therewith) (each, an "Indemnifiable Loss"), asserted against or suffered by any Sellers' Indemnitee relating to, resulting from or arising out of (i) any breach by Buyer of any covenant or agreement of Buyer contained in this Agreement or the representations and warranties contained in Sections 5.1, 5.2 and 5.3, (ii) the Assumed Liabilities, (iii) any loss or damages resulting from or arising out of any Inspection, or (iv) any Third Party Claims against Sellers' Indemnitee arising out of or in connection with Buyer's ownership or operation of the Plants and other Purchased Assets on or after the Closing Date (other than Third Party Claims which arise out of acts by Buyer permitted by Section 6.12 hereof). 79 (b) Each Seller shall indemnify defend and hold harmless Buyer, its officers, directors, employees, shareholders, Affiliates and agents (each, a "Buyer Indemnitee") from and against any and all Indemnifiable Losses asserted against or suffered by any Buyer Indemnitee relating to, resulting from or arising out of (i) any breach by such Seller of any covenant or agreement of such Seller contained in this Agreement or the representations and warranties contained in Sections 4.1, 4.2 and 4.3, (ii) the Excluded Liabilities other than Section 2.4(o) or 2.4(c) (relating to the Operating Agreements), (iii) noncompliance by Sellers with any bulk sales or transfer laws as provided in Section 10.11, or (iv) any Third Party Claims against a Buyer Indemnitee arising out of or in connection with Sellers' ownership or operation of the Excluded Assets on or after the Closing Date. GPU shall indemnify, defend and hold harmless each Buyer Indemnitee from and against any and all Indemnifiable Losses, asserted against or suffered by any Buyer Indemnitee relating to, resulting from or arising out of any breach by GPU of any covenant or agreement of GPU contained in this Agreement, the Excluded Liabilities set forth in Section 2.4(o) and 2.4(c) (relating to the Operating Agreements) or the representations and warranties contained in Sections 4A.1, 4A.2 and 4A.3. (c) Each Party, for itself and on behalf of its Representatives and Affiliates, does hereby release, hold harmless and forever discharge the other party, its Representatives and Affiliates, from any and all Indemnifiable Losses of any kind or character, whether known or unknown, hidden or concealed, resulting from or arising out of any Environmental Condition or violation of Environmental Law relating to the Purchased Assets provided that Sellers' release of Buyer shall not extend to any of Buyer's Assumed Liabilities set forth in Section 2.3, and provided further that Buyer's release of Sellers shall not extend to any of Sellers' Excluded Liabilities set forth in Section 2.4. Subject to the foregoing proviso, each party hereby waives any and all rights and benefits with respect to such Indemnifiable Losses that it now has, or in the future may have conferred upon it by virtue of any statute or common law principle which provides that a general release does not extend to claims which a party does not know or suspect to exist in its favor at the time of executing the release, if knowledge of such claims would have materially affected such party's settlement with the obligor. In this connection, each party hereby acknowledges that it is aware that factual matters, now unknown to it, may have given or may hereafter give rise to Indemnifiable Losses that are presently unknown, unanticipated and unsuspected, and it further agrees that this release has been negotiated and agreed upon in light of that awareness and it nevertheless hereby 80 intends to release the other party and its Representatives and Affiliates from the Indemnifiable Losses described in the first sentence of this paragraph. (d) Notwithstanding anything to the contrary contained herein: (i) Any Person entitled to receive indemnification under this Agreement (an "Indemnitee") shall use Commercially Reasonable Efforts to mitigate all losses, damages and the like relating to a claim under these indemnification provisions, including availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity. The Indemnitee's Commercially Reasonable Efforts shall include the reasonable expenditure of money to mitigate or otherwise reduce or eliminate any loss or expenses for which indemnification would otherwise be due, and the Indemnitor shall reimburse the Indemnitee for the Indemnitee's reasonable expenditures in undertaking the mitigation. (ii) Any Indemnifiable Loss shall be net of (A) the dollar amount of any insurance or other proceeds actually receivable by the Indemnitee or any of its Affiliates with respect to the Indemnifiable Loss, but shall not take into account any income tax benefits to the Indemnitee or any Income Taxes attributable to the receipt of any indemnification payments hereunder. Any party seeking indemnity hereunder shall use Commercially Reasonable Efforts to seek coverage (including both costs of defense and indemnity) under applicable insurance policies with respect to any such Indemnifiable Loss. (e) The expiration or termination of any covenant or agreement shall not affect the Parties' obligations under this Section 8.1 if the Indemnitee provided the Person required to provide indemnification under this Agreement (the "Indemnifying Party") with proper notice of the claim or event for which indemnification is sought prior to such expiration, termination or extinguishment. (f) Except to the extent otherwise provided in Article IX, the rights and remedies of Sellers, GPU and Buyer under this Article VIII are exclusive and in lieu of any and all other rights and remedies which Sellers, GPU and Buyer may have under this Agreement or otherwise for monetary relief, with respect to (i) any breach of or failure to perform any covenant, agreement, or representation or warranty set forth in this Agreement, after the occurrence of the Closing, or (ii) the Assumed Liabilities or 81 the Excluded Liabilities, as the case may be. The indemnification obligations of the Parties set forth in this Article VIII apply only to matters arising out of this Agreement, excluding the Ancillary Agreements. Any Indemnifiable Loss arising under or pursuant to an Ancillary Agreement shall be governed by the indemnification obligations, if any, contained in the Ancillary Agreement under which the Indemnifiable Loss arises. (g) Notwithstanding anything to the contrary herein, no party (including an Indemnitee) shall be entitled to recover from any other party (including an Indemnifying Party) for any liabilities, damages, obligations, payments losses, costs, or expenses under this Agreement any amount in excess of the actual compensatory damages, court costs and reasonable attorney's and other advisor fees suffered by such party. Buyer, Sellers and GPU waive any right to recover punitive, incidental, special, exemplary and consequential damages arising in connection with or with respect to this Agreement. The provisions of this Section 8.1(g) shall not apply to indemnification for a Third Party Claim. 8.2 Defense of Claims. (a) If any Indemnitee receives notice of the assertion of any claim or of the commencement of any claim, action, or proceeding made or brought by any Person who is not a party to this Agreement or any Affiliate of a Party to this Agreement (a "Third Party Claim") with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying Party reasonably prompt written notice thereof, but in any event such notice shall not be given later than ten (10) calendar days after the Indemnitee's receipt of notice of such Third Party Claim. Such notice shall describe the nature of the Third Party Claim in reasonable detail and shall indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be sustained by the Indemnitee. The Indemnifying Party will have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third Party Claim at such Indemnifying Party's expense and by such Indemnifying Party's own counsel, provided that the counsel for the Indemnifying Party who shall conduct the defense of such Third Party Claim shall be reasonably satisfactory to the Indemnitee. The Indemnitee shall cooperate in good faith in such defense at such Indemnitee's own expense. If an Indemnifying Party elects not to assume the defense of any Third Party Claim, the Indemnitee may compromise or settle such Third Party Claim over the objection of the Indemnifying Party, which settlement or compromise shall conclusively establish the Indemnifying Party's liability pursuant to this Agreement. 82 (b) (i) If, within ten (10) calendar days after an Indemnitee provides written notice to the Indemnifying Party of any Third Party Claims, the Indemnitee receives written notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third Party Claim as provided in Section 8.2(a), the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided, however, that if the Indemnifying Party shall fail to take reasonable steps necessary to defend diligently such Third Party Claim within twenty (20) calendar days after receiving notice from the Indemnitee that the Indemnitee believes the Indemnifying Party has failed to take such steps, the Indemnitee may assume its own defense and the Indemnifying Party shall be liable for all reasonable expenses thereof. (ii) Without the prior written consent of the Indemnitee, the Indemnifying Party shall not enter into any settlement of any Third Party Claim which would lead to liability or create any financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to the Indemnitee to that effect. If the Indemnitee fails to consent to such firm offer within ten (10) calendar days after its receipt of such notice, the Indemnifying Party shall be relieved of its obligations to defend such Third Party Claim and the Indemnitee may contest or defend such Third Party Claim. In such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will be the amount of such settlement offer plus reasonable costs and expenses paid or incurred by Indemnitee up to the date of said notice. (c) Any claim by an Indemnitee on account of an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct Claim") shall be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable, but in any event such notice shall not be given later than ten (10) calendar days after the Indemnitee becomes aware of such Direct Claim, and the Indemnifying Party shall have a period of thirty (30) calendar days within which to respond to such Direct Claim. If the Indemnifying Party does not respond within such thirty (30) calendar day period, the Indemnifying Party shall be deemed to have accepted such claim. If the Indemnifying Party rejects such 83 claim, the Indemnitee will be free to seek enforcement of its right to indemnification under this Agreement. (d) If the amount of any Indemnifiable Loss, at any time subsequent to the making of an indemnity payment in respect thereof, is reduced by recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by, from or against any other entity, the amount of such reduction, less any costs, expenses or premiums incurred in connection therewith (together with interest thereon from the date of payment thereof at the publicly announced prime rate then in effect of Chase Manhattan Bank) shall promptly be repaid by the Indemnitee to the Indemnifying Party. (e) A failure to give timely notice as provided in this Section 8.2 shall not affect the rights or obligations of any Party hereunder except if, and only to the extent that, as a result of such failure, the Party which was entitled to receive such notice was actually prejudiced as a result of such failure. ARTICLE IX TERMINATION 9.1 Termination. (a) This Agreement may be terminated at any time prior to the Closing Date by mutual written consent of Sellers and Buyer. (b) This Agreement may be terminated by Sellers or Buyer if (i) any Federal or state court of competent jurisdiction 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 nonappeallable or (ii) any statute, rule, order or regulation shall have been enacted or issued by any Governmental Authority which, directly or indirectly, prohibits the consummation of the Closing; or (iii) the Closing contemplated hereby shall have not occurred on or before the day which is 12 months from the date of this Agreement (the "Termination Date"); provided that the right to terminate this Agreement under this Section 9.1(b) (iii) shall not be available to any Party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; and provided, further, that if on the day which is 12 months from the date of this Agreement the conditions to the Closing set forth in Section 7.1(b) or (c) or 7.2(b), (c) or (d) 84 shall not have been fulfilled but all other conditions to the Closing shall be fulfilled or shall be capable of being fulfilled, then the Termination Date shall be the day which is 18 months from the date of this Agreement. (c) Except as otherwise provided in this Agreement, this Agreement may be terminated by Buyer if any of Buyer Required Regulatory Approvals, the receipt of which is a condition to the obligation of Buyer to consummate the Closing as set forth in Section 7.1(c), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted but contains terms or conditions which do not satisfy the closing condition in Section 7.1(c). (d) This Agreement may be terminated by Sellers, if any of Sellers' Required Regulatory Approvals, the receipt of which is a condition to the obligation of Sellers or GPU to consummate the Closing as set forth in Section 7.2(c), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted but contains terms or conditions which do not satisfy the closing condition in Section 7.2(c). (e) This Agreement may be terminated by Buyer if there has been a violation or breach by Sellers or GPU of any covenant, representation or warranty contained in this Agreement which has resulted in a Material Adverse Effect and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Sellers or GPU, as the case may be, of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Buyer. (f) This Agreement may be terminated by Sellers, if there has been a material violation or breach by Buyer of any covenant, representation or warranty contained in this Agreement and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Buyer of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Sellers. (g) This Agreement may be terminated by Sellers if there shall have occurred any change that is materially adverse to the business, operations or conditions (financial or otherwise) of Buyer. 85 (h) This Agreement may be terminated by either of Sellers or Buyer in accordance with the provisions of Section 6.11(b). 9.2 Procedure and Effect of No-Default Termination. In the event of termination of this Agreement by either or both of the Parties pursuant to Section 9, written notice thereof shall forthwith be given by the terminating Party to the other Party, whereupon, if this Agreement is terminated pursuant to any of Sections 9.1(a) through (d) and 9.1(g) and (h), the liabilities of the Parties hereunder will terminate, except as otherwise expressly provided in this Agreement, and thereafter neither Party shall have any recourse against the other by reason of this Agreement. ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified or supplemented only by written agreement of Sellers, Buyer and GPU. 10.2 Waiver of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the Parties to comply with any obligation, covenant, agreement or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver of such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent failure to comply therewith. 10.3 No Survival. Each and every representation, warranty and covenant contained in this Agreement (other than the covenants contained in Sections 3.3(c), 3.4, 3.5(b), 3.5(c), 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.12, 6.13, and in Articles VIII and X, which provisions shall survive the delivery of the deed(s) and the Closing in accordance with their terms and the representations and warranties set forth in Sections 4.1, 4.2, 4.3, 5.1, 5.2 and 5.3, 4A.1, 4A.2, 4A.3, 4A.5, 4A.6 which representations and warranties and any claims arising under Section 6.1 shall survive the Closing for eighteen (18) months from the Closing Date) shall expire with, and be terminated and extinguished by the consummation of the sale of the Purchased Assets and shall merge into the deed(s) pursuant hereto and the transfer of the Assumed Liabilities pursuant to this Agreement and such representations, warranties and covenants shall not 86 survive the Closing Date; and none of Sellers, Buyer , GPU or any officer, director, trustee or Affiliate of any of them shall be under any liability whatsoever with respect to any such representation, warranty or covenant. 10.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission, or mailed by overnight courier or registered or certified mail (return receipt requested), postage prepaid, to the recipient Party at its address (or at such other address or facsimile number for a Party as shall be specified by like notice; provided however, that notices of a change of address shall be effective only upon receipt thereof): (a) If to Sellers or GPU, to: c/o GPU Service, Inc. 300 Madison Avenue Morristown, New Jersey 07962 Attention: Mr. David C. Brauer Vice President with a copy to: Berlack, Israels & Liberman LLP 120 West 45th Street New York, New York 10036 Attention: Douglas E. Davidson, Esq. (b) if to Buyer, to: Sithe Energies, Inc. 450 Lexington Avenue New York, New York 10017 Attention: Mr. David Tohir and Hyun Park, Esq. with a copy to: Latham & Watkins Suite 1300 1001 Pennsylvania Avenue, N.W. Washington, D.C. 20004 Attention: W. Harrison Wellford, Esq. 87 10.5 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any Party hereto, including by operation of law, without the prior written consent of each other Party, nor is this Agreement intended to confer upon any other Person except the Parties hereto any rights, interests, obligations or remedies hereunder. No provision of this Agreement shall create any third party beneficiary rights in any employee or former employee of Sellers (including any beneficiary or dependent thereof) in respect of continued employment or resumed employment, and no provision of this Agreement shall create any rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. Notwithstanding the foregoing, without the prior written consent of Sellers, (i) Buyer may assign all of its rights and obligations hereunder to any majority owned Subsidiary (direct or indirect) and upon Sellers' receipt of notice from Buyer of any such assignment, such assignee will be deemed to have assumed, ratified, agreed to be bound by and perform all such obligations, and all references herein to "Buyer" shall thereafter be deemed to be references to such assignee, in each case without the necessity for further act or evidence by the Parties hereto or such assignee, and (ii) Buyer or its permitted assignee may assign, transfer, pledge or otherwise dispose of (absolutely or as security) its rights and interests hereunder to a trustee, lending institutions or other party for the purposes of leasing, financing or refinancing the Purchased Assets, including such an assignment, transfer or other disposition upon or pursuant to the exercise of remedies with respect to such leasing, financing or refinancing, or by way of assignments, transfers, pledges, or other dispositions in lieu thereof (and any such assignee may fully exercise its rights hereunder or under any other agreement and pursuant to such assignment without any further prior consent of any party hereto); provided, however, that no such assignment in clause (i) or (ii) shall relieve or discharge the assignor from any of its obligations hereunder. The Sellers agree, at Buyer's expense, to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights and interests hereunder so long as Sellers' rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. 10.6 Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York (without giving effect to conflict of law principles) as to all 88 matters, including but not limited to matters of validity, construction, effect, performance and remedies. THE PARTIES HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE AND FEDERAL COURTS IN AND FOR NEW YORK COUNTY, NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 10.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.8 Interpretation. The articles, section and schedule headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. 10.9 Schedules and Exhibits. Except as otherwise provided in this Agreement, all Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. 10.10 Entire Agreement. This Agreement, the Confidentiality Agreement, and the Ancillary Agreements including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein, embody the entire agreement and understanding of the Parties hereto in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein or therein. It is expressly acknowledged and agreed that there are no restrictions, promises, representations, warranties, covenants or undertakings contained in any material made available to Buyer pursuant to the terms of the Confidentiality Agreement (including the Offering Memorandum dated April 1998, previously delivered to Buyer by Sellers and Goldman, Sachs & Co.). This Agreement supersedes all prior agreements and understandings between the Parties other than the Confidentiality Agreement with respect to such transactions. 89 10.11 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything in this Agreement to the contrary, Sellers may, in its sole discretion, not comply with the provision of the bulk sales laws of any jurisdiction in connection with the transactions contemplated by this Agreement. Buyer hereby waives compliance by Sellers with the provisions of the bulk sales laws of all applicable jurisdictions. 10.12 U.S. Dollars. Unless otherwise stated, all dollar amounts set forth herein are United States (U.S.) dollars. 10.13 Zoning Classification. Without limitation of Sections 7.1(o) and 7.3 Buyer acknowledges that the Real Properties are zoned as set forth in Schedule 10.13. 10.14 Sewage Facilities. Except as set forth in Schedule 10.14, Buyer acknowledges that there is no community (municipal) sewage system available to serve the Real Property. Accordingly, any additional sewage disposal planned by Buyer will require an individual (on-site) sewage system and all necessary permits as required by the Pennsylvania Sewage Facilities Act (the "Facilities Act"). Buyer recognizes that certain of the existing individual sewage systems on the Real Property may have been installed pursuant to exemptions from the requirements of the Facilities Act or prior to the enactment of the Facilities Act and that soils and site testing may not have been performed in connection therewith. The owner of the property or properties served by such a system, at the time of any malfunction, may be held liable for any contamination, pollution, public health hazard or nuisance which occurs as the result of such malfunction. 10.15 GPU. Buyer acknowledges and agrees that the liability of GPU and each Seller hereunder is several as to each of their respective obligations and not joint. 90 IN WITNESS WHEREOF, Sellers and Buyer have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. JERSEY CENTRAL POWER & LIGHT COMPANY By: _____________________ Name: Title: SITHE ENERGIES, INC. METROPOLITAN EDISON COMPANY By:_____________________________ By:______________________ Name: Name: Title: Title: GPU, INC. By:_______________________ Name: Title: 91 LIST OF EXHIBITS AND SCHEDULES EXHIBITS Exhibit A Form of Assignment and Assumption Agreement Exhibit B Form of Bill of Sale Exhibit C Form of FIRPTA Affidavit Exhibit D Form of Deeds Exhibit E Form of Transition Power Purchase Agreement SCHEDULES 1.1(67) Owner's Agreements 1.1(72) Permitted Encumbrances 1.1(105) Transferable Permits (both environmental and non- environmental) 2.1 Schedule of Purchased Assets 2.1(c) Schedule of Tangible Personal Property to be Conveyed to Buyer 2.1(h) Schedule of Emission Reduction Credits 2.1(l) Intellectual Property 2.2(a) Description of Transmission and other Assets not included in Conveyance 3.3(a)(i) Schedule of Inventory 4.3(a) Third Party Consents 4.3(b) Sellers' Required Regulatory Approvals 4.4 Insurance Exceptions 4.5 Exceptions to Title 4.6 Real Property Leases 4.7 Schedule of Environmental Matters 4.8 Schedule of Noncompliance with Employment Laws 4.9(a) Schedule of Benefit Plans 4.9(b) Benefit Plan Exceptions 4.l0 Description of Real Property 4.11 Notices of Condemnation 4.12(a) List of Contracts 4.12(b) List of Non-assignable Contracts 4.12(c) List of Defaults under the Contracts 4.13 List of Litigation 4.14(a) List of Permit Violations 4.14(b) List of material Permits (other than Transferable Permits) 4.15 Tax Matters 4.16 Intellectual Property Exceptions 4A.3(a) Genco Consents 4A.4 Genco Tax Matters 4A.6 Genco Capital Stock 4A.7 Operating Agreement Matters 4A.8 Genco Financial Statements 5.3(a) Third Party Consents 5.3(b) Buyer's Required Regulatory Approvals 6.1 Schedule of Permitted Activities prior to Closing 6.8 Tax Appeals 6.10(a)(i) Plant and Support Staff (Union) 6.10(a)(ii) Mobile Maintenance/Corporate Support 6.10(b) Schedule of Non-Union Employees 6.10(d) Collective Bargaining Agreements 6.10(h) Schedule of Severance Benefits 6.10(h)(iv) Allocable Share Percentages 6.12 Pollution Control Revenue Bonds 10.13 Zoning 10.14 Sewage Matters EX-10 19 EXHIBIT 10-NN EXHIBIT 10-NN PRIVILEGED AND CONFIDENTIAL [Met-Ed P&S] EXECUTION COPY PURCHASE AND SALE AGREEMENT BY AND AMONG METROPOLITAN EDISON COMPANY, as SELLER, and SITHE ENERGIES, INC., as BUYER Dated as of October 29, 1998 TABLE OF CONTENTS Page Article I 1 1.1 Definitions 1 1.2 Certain Interpretive Matters 14 Article II 14 2.1 Transfer 14 2.2 Excluded Assets 16 2.3 Assumed Liabilities 17 2.4 Excluded Liabilities 19 2.5 Control of Litigation 22 2.6 York Haven Assets and Liabilities 22 Article III 22 3.1 Closing 22 3.2 Payment of Purchasing Price 23 3.3 Adjustment to Purchase Price 23 3.4 Allocation of Purchase Price 25 3.5 Proprations 25 3.6 Deliveries by Seller 26 3.7 Deliveries by Buyer 28 3.8 Ancillary Agreements 29 3.9 Easement Agreements 29 Article IV 29 4.1 Incorporation: Qualification 29 4.2 Authority Relative to this Agreement 30 4.3 Consents and Approvals; No Violation 30 4.4 Insurance 31 4.5 Title and Related Matters 31 4.6 Real Property Leases 31 4.7 Environmental Matters 32 4.8 Labor Matters 32 4.9 Benefit Plans ERISA 33 4.10 Real Property 34 4.11 Condemnation 34 4.12 Contracts and Leases 34 4.13 Legal Proceedings, etc. 35 4.14 Permits 35 4.15 Taxes 35 4.16 Intellectual Property 36 4.17 Capital Expenditures 36 4.18 Compliance With Laws 36 4.19 PUHCA 37 4.19A Subsidiaries 37 4.19B Capitalization 37 4.19C York Haven Tax Matters 37 4.19D Financial Statements 39 4.20 Disclaimers Regarding Purchased Assets 39 i ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER 40 5.1 Organization 40 5.2 Authority Relative to this Agreement 40 5.3 Consents and Approvals; No Violation 41 5.4 Availability of Funds 41 5.5 Legal Proceedings 41 5.6 No Knowledge of Seller's Breach 42 5.7 Qualified Buyer 42 5.8 Inspections 42 5.9 WARN Act 42 5.10 Securities Laws 42 ARTICLE VI 43 6.1 Conduct of Business Relating to the Purchased Assets 43 6.2 Access to Information 45 6.3 Public Statements 48 6.4 Expenses 48 6.5 Further Assurances 48 6.6 Consents and Approvals 50 6.7 Fees and Commissions 52 6.8 Tax Matters 52 6.9 Advice of Changes 60 6.10 Employees 60 6.11 Risk of Loss 65 6.12 Additional Covenants of Buyer 66 6.13 Additional York Haven Covenants 67 ARTICLE VII 67 7.1 Conditions to Obligations of Buyer 67 7.2 Conditions to Obligations of Seller 71 7.3 Zoning Condition Adjustments 73 ARTICLE VIII 74 8.1 Indemnification 74 8.2 Defense of Claims 77 ARTICLE IX 79 9.1 Termination 79 9.2 Procedure and Effect of No-Default Termination 80 ARTICLE X 80 10.1 Amendment and Modification 80 10.2 Waiver of Compliance; Consents 80 10.3 No Survival 81 10.4 Notices 81 10.5 Assignment 82 10.6 Governing Law 83 10.7 Counterparts 83 10.8 Interpretation 83 10.9 Schedules and Exhibits 83 10.10 Entire Agreement 83 10.11 Bulk Sales Laws 84 10.12 U.S. Dollars 84 10.13 Zoning Classification 84 10.14 Sewage Facilities 84 ii PURCHASE AND SALE AGREEMENT PURCHASE AND SALE AGREEMENT, dated as of October 29, 1998, by and between Metropolitan Edison Company, a Pennsylvania corporation ("Met-Ed" or "Seller"), and Sithe Energies, Inc., a Delaware corporation ("Buyer"). Seller and Buyer are referred to individually as a "Party," and collectively as the "Parties." W I T N E S S E T H WHEREAS, Buyer desires to purchase, and Seller desires to sell, its interests in the Purchased Assets (as defined herein) upon the terms and conditions hereinafter set forth in this Agreement; and WHEREAS, simultaneous herewith Buyer is entering into substantially similar Purchase and Sale Agreements with Seller's affiliates providing for Buyer's purchase of the remainder of the Aggregate Purchased Assets (as hereinafter defined). NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms have the meanings specified in this Section 1.1. (1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. (2) "Agreement" means this Purchase and Sale Agreement together with the Schedules and Exhibits hereto, as the same may be from time to time amended. (3) "Aggregate Purchased Assets" means, collectively, the Purchased Assets (as defined herein) and the Purchased Assets (as defined in each Related Purchase Agreement). (4) "Ancillary Agreements" means the Interconnection Agreements, the Easement Agreements, the Merrill Creek Sublease and the Transition Power Purchase Agreement, as the same may be from time to time amended. (5) "Assignment and Assumption Agreement" means the Assignment and Assumption Agreement between Seller and Buyer substantially in the form of Exhibit A hereto, by which Seller shall, subject to the terms and conditions hereof, assign Seller's Agreements, the Real Property Leases, certain intangible assets and other Purchased Assets to Buyer and whereby Buyer shall assume the Assumed Liabilities. (6) "Assumed Liabilities" has the meaning set forth in Section 2.3. (7) "Benefit Plans" has the meaning set forth in Section 4.9. (8) "Bill of Sale" means the Bill of Sale, substantially in the form of Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible Personal Property included in the Purchased Assets transferred to Buyer at the Closing. (9) "Business Day" shall mean any day other than Saturday, Sunday and any day on which banking institutions in the State of New Jersey or the Commonwealth of Pennsylvania are authorized by law or other governmental action to close. (10) "Buyer Benefit Plans" has the meaning set forth in Section 6.10(f). (11) "Buyer Indemnitee" has the meaning set forth in Section 8.1(b). (12) "Buyer Material Adverse Effect" has the meaning set forth in Section 5.3(a). (13) "Buyer Required Regulatory Approvals" has the meaning set forth in Section 5.3(b). (14) "Capital Expenditures" has the meaning set forth in Section 3.3(a). (15) "CERCLA" means the Federal Comprehensive Environmental Response, Compensation, and Liability Act, as amended. 16) "Closing" has the meaning set forth in Section 3.1. (17) "Closing Adjustment" has the meaning set forth in Section 3.3(b). (18) "Closing Date" has the meaning set forth in Section 3.1. (19) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. (20) "Code" means the Internal Revenue Code of 1986, as amended. 2 (21) "Collective Bargaining Agreement" has the meaning set forth in Section 6.10(d). (22) "Commercially Reasonable Efforts" means efforts which are reasonably within the contemplation of the Parties at the time of executing this Agreement and which do not require the performing Party to expend any funds other than expenditures which are customary and reasonable in transactions of the kind and nature contemplated by this Agreement in order for the performing Party to satisfy its obligations hereunder. (23) "Computer Systems" has the meaning set forth in Section 4.20. (24) "Confidentiality Agreement" means the Confidentiality Agreement, dated March 2, 1998, by and between Seller and Buyer. (25) "Direct Claim" has the meaning set forth in Section 8.2(c). (26) "Easements" means, with respect to the Purchased Assets, the easements and access rights to be granted pursuant to the Easement Agreements, including, without limitation, easements authorizing access, use, maintenance, construction, repair, replacement and other activities, as further described in the Easement Agreements. (27) "Easement Agreements" means the Easement and License Agreements between Buyer and Seller, in the form of Exhibit C hereto, whereby Buyer will provide Seller with certain Easements with respect to the Real Property transferred to Buyer and whereby Seller will provide Buyer with certain Easements with respect to certain property owned by Seller. (28) "Emission Allowance" means all present and future authorizations to emit specified units of pollutants or Hazardous Substances, which units are established by the Governmental Authority with jurisdiction over the Plants under (i) an air pollution control and emission reduction program designed to mitigate global warming, interstate or intra-state transport of air pollutants; (ii) a program designed to mitigate impairment of surface waters, watersheds, or groundwater; or (iii) any pollution reduction program with a similar purpose. Emission Allowances include allowances, as described above, regardless as to whether the Governmental Authority establishing such Emission Allowances designates such allowances by a name other than "allowances." (29) "Emission Reduction Credits" means credits, in units that are established by the Governmental Authority with jurisdiction over the Plants that have obtained the credits, resulting from reductions in the emissions of air pollutants from 3 an emitting source or facility (including, without limitation, and to the extent allowable under applicable law, reductions from shut-downs or control of emissions beyond that required by applicable law) that: (i) have been identified by the PaDEP as complying with applicable Pennsylvania law governing the establishment of such credits (including, without limitation, that such emissions reductions are enforceable, permanent, quantifiable and surplus) and listed in the Emissions Reduction Credit Registry maintained by the PaDEP or with respect to which such identification and listing are pending; or (ii) have been certified by any other applicable Governmental Authority as complying with the law and regulations governing the establishment of such credits (including, without limitation, certification that such emissions reductions are enforceable, permanent, quantifiable and surplus). The term includes Emission Reduction Credits that have been approved by the PaDEP and are awaiting USEPA approval. The term also includes certified air emissions reductions, as described above, regardless as to whether the Governmental Authority certifying such reductions designates such certified air emissions reductions by a name other than "emission reduction credits." (30) "Encumbrances" means any mortgages, pledges, liens, security interests, conditional and installment sale agreements, activity and use limitations, conservation easements, deed restrictions, encumbrances and charges of any kind. (31) "Environmental Claim" means any and all pending and/or threatened administrative or judicial actions, suits, orders, claims, liens, notices, notices of violations, investigations, complaints, requests for information, proceedings, or other written communication, whether criminal or civil, pursuant to or relating to any applicable Environmental Law by any person (including, but not limited to, any Governmental Authority, private person and citizens' group) based upon, alleging, asserting, or claiming any actual or potential (a) violation of, or liability under any Environmental Law, (b) violation of any Environmental Permit, or (c) liability for investigatory costs, cleanup costs, removal costs, remedial costs, response costs, natural resource damages, property damage, personal injury, fines, or penalties arising out of, based on, resulting from, or related to the presence, Release, or threatened Release into the environment of any Hazardous Substances at any location related to the Purchased Assets, including, but not limited to, any off-Site location to which Hazardous Substances, or materials containing Hazardous Substances, were sent for handling, storage, treatment, or disposal. (32) "Environmental Condition" means the presence or Release to the environment, whether at the Sites or at an off-Site location, of Hazardous Substances, including any migration 4 of those Hazardous Substances through air, soil or groundwater to or from the Sites or any off-Site location regardless of when such presence or Release occurred or is discovered. (33) "Environmental Laws" means all applicable Federal, state and local, provincial and foreign, civil and criminal laws, regulations, rules, ordinances, codes, decrees, judgments, directives, or judicial or administrative orders relating to pollution or protection of the environment, natural resources or human health and safety, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Substances (including, without limitation, Releases to ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport, disposal or handling of Hazardous Substances. "Environmental Laws" include, without limitation, CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Sections 1251 et seq.), the Clean Air Act (42 U.S.C. Sections 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Sections 2601 et seq.), the Oil Pollution Act (33 U.S.C. Sections 2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Sections 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C. Sections 651 et seq.),the Pennsylvania Hazardous Sites Cleanup Act (35 P.S. Sections 6020.101 et seq.), the Pennsylvania Solid Waste Management Act (35 P.S. Section 6018.101 et seq.), the Pennsylvania Clean Stream Law (35 P.S. Section 691.1 et seq.), and all applicable other state laws analogous to any of the above. (34) "Environmental Permits" has the meaning set forth in Section 4.7(a). (35) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (36) "ERISA Affiliate" has the meaning set forth in Section 2.4(k). (37) "ERISA Affiliate Plans" has the meaning set forth in Section 2.4(k). (38) "Estimated Adjustment" has the meaning set forth in Section 3.3(b). (39) "Estimated Closing Statement" has the meaning set forth in Section 3.3(b). (40) "Excluded Assets" has the meaning set forth in Section 2.2. (41) "Excluded Liabilities" has the meaning set forth in Section 2.4. 5 (42) "Facilities Act" has the meaning set forth in Section 10.14. (43) "FERC" means the Federal Energy Regulatory Commission or any successor agency thereto. (44) "FIRPTA Affidavit" means the Foreign Investment in Real Property Tax Act Certification and Affidavit, substantially in the form of Exhibit D hereto. (45) "Fish Ladder Contract" means Contract No. 0718564, dated as of June 4, 1998 between Genco (as agent on behalf of Met-Ed) and Kleinschmidt Associates and Cianbro Corporation, acting as a joint venture. (46) "Good Utility Practices" mean any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or previously engaged in by Seller in its operation of the Purchased Assets, or any of the practices, methods or acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Good Utility Practices are not intended to be limited to the optimum practices, methods or acts to the exclusion of all others, but rather to be acceptable practices, methods or acts generally accepted in the industry or previously engaged in by Seller in its operation of the Purchased Assets. (47) "Governmental Authority" means any federal, state, local or other governmental, regulatory or administrative agency, commission, department, board, or other governmental subdivision, court, tribunal, arbitrating body or other governmental authority. (48) "GPU" means GPU, Inc., a Pennsylvania corporation and parent company of Seller. (49) "GPUN" means GPU Nuclear, Inc., a New Jersey corporation and a wholly-owned subsidiary of GPU. (50) "GPUS" means GPU Service, Inc., a Pennsylvania corporation and a wholly-owned subsidiary of GPU. (51) "GPU Intercompany Tax Allocation Agreement" has the meaning set forth in Section 6.8(e)(2)(ii). (52) "Hazardous Substances" means (a) any petrochemical or petroleum products, coal ash, oil, radioactive materials, radon gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid which may contain levels of 6 polychlorinated biphenyls; (b) 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; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any applicable Environmental Law. (53) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. (54) "IBEW 777" means Local 777 of the International Brotherhood of Electrical Workers. (55) "Income Tax" means any federal, state, local or foreign Tax (a) based upon, measured by or calculated with respect to net income, profits or receipts (including, without limitation, capital gains Taxes and minimum Taxes) or (b) based upon, measured by or calculated with respect to multiple bases (including, without limitation, corporate franchise taxes) if one or more of the bases on which such Tax may be based, measured by or calculated with respect to, is described in clause (a), in each case together with any interest, penalties, or additions to such Tax. (56) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a). (57) "Indemnifying Party" has the meaning set forth in Section 8.1(e). (58) "Indemnitee" has the meaning set forth in Section 8.1(d). (59) "Independent Accounting Firm" means such independent accounting firm of national reputation as is mutually appointed by Seller and Buyer. (60) "Inspection" means all tests, reviews, examinations, inspections, investigations, verifications, samplings and similar activities conducted by Buyer or its agents or Representatives with respect to the Purchased Assets prior to the Closing. (61) "Intellectual Property" means all patents and patent rights, trademarks and trademark rights, copyrights and copyright rights owned by Seller and necessary for the operation and maintenance of the Purchased Assets, and all pending applications for registrations of patents, trademarks, and copyrights, as set forth as part of Schedule 2.1(l). 7 (62) "Interconnection Agreements" means the Interconnection Agreements, between Seller and Buyer, and Seller and York Haven, respectively, a form of which is attached as Exhibit E hereto, under which Seller will provide Buyer and York Haven with interconnection service to Seller's transmission facilities and whereby Buyer and York Haven, respectively, will provide Seller with continuing access to certain of the Purchased Assets after the Closing Date. (63) "Inventories" means coal, fuel oil or alternative fuel inventories, limestone, materials, spare parts, consumable supplies and chemical and gas inventories relating to the operation of a Plant located at, or in transit to, such Plant. (64) "JCP&L" means Jersey Central Power & Light Company, a New Jersey corporation. (65) "Knowledge" means the actual knowledge of the corporate officers or managerial representatives of the specified Person charged with responsibility for the particular function as of the date of the this Agreement, or, with respect to any certificate delivered pursuant to this Agreement, the date of delivery of the certificate. (66) "Material Adverse Effect" means any change in, or effect on the Purchased Assets that is materially adverse to the operations or condition (financial or otherwise) of (i) the Aggregate Purchased Assets, taken as a whole, or (ii) a Specified Plant (as defined below) other than: (a) any change affecting the international, national, regional or local electric industry as a whole and not Seller specifically and exclusively; (b) any change or effect resulting from changes in the international, national, regional or local wholesale or retail markets for electric power; (c) any change or effect resulting from changes in the international, national, regional or local markets for any fuel used in connection with the Aggregate Purchased Assets including such Specified Plant; (d) any change or effect resulting from, changes in the North American, national, regional or local electric transmission systems or operations thereof; (e) any materially adverse change in or effect on the Aggregate Purchased Assets including such Specified Plant which is cured (including by the payment of money) before the Termination Date; (f) any order of any court or Governmental Authority or legislature applicable to providers of generation, transmission or distribution of electricity generally that imposes restrictions, regulations or other requirements thereon; and (g) any change or effect resulting from action or inaction by a Governmental Authority with respect to an independent system operator or retail access in Pennsylvania or New Jersey. As used herein, each of the following shall be a "Specified Plant": (1) the Shawville Station and associated Purchased Assets to be conveyed to Buyer pursuant to the Related Purchase Agreement with Penelec; (2) the Portland Station and associated Purchased Assets to be 8 conveyed to Buyer pursuant to this Agreement; and (3) collectively, all Purchased Assets to be conveyed to Buyer under the Related Purchase Agreement to which GPU, JCP&L and Met-Ed are parties. (67) "Merrill Creek Sublease Agreement" means the sublease agreement, substantially in the form of Exhibit H hereto, pursuant to which Seller will sublease to Buyer certain entitlements from the Merrill Creek Reservoir Project, as specified in Exhibit H. (68) "Non-Union Employees" has the meaning as set forth in Sections 6.10(b) and (m). (69) "PaPUC" means the Pennsylvania Public Utility Commission and any successor agency thereto. (70) "PaDEP" means the Pennsylvania Department of Environmental Protection and any successor agency thereto. (71) "Penelec" means Pennsylvania Electric Company, a Pennsylvania corporation. (72) "Permits" has the meaning set forth in Section 4.14. (73) "Permitted Encumbrances" means: (i) the Easements; (ii) those Encumbrances set forth in Schedule 1.1(73); (iii) statutory liens for Taxes or other governmental charges or assessments not yet due or delinquent or the validity of which is being contested in good faith by appropriate proceedings provided that the aggregate amount for all Aggregate Purchased Assets being so contested does not exceed $500,000; (iv) mechanics', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business relating to obligations as to which there is no default on the part of Seller or York Haven or the validity of which are being contested in good faith, and which do not, individually or in the aggregate, with respect to all Aggregate Purchased Assets exceed $500,000; (v) zoning, entitlement, conservation restriction and other land use and environmental regulations by Governmental Authorities; and (vi) such other liens, imperfections in or failure of title, charges, easements, restrictions and Encumbrances which do not materially, individually or in the aggregate, detract from the value of the Aggregate Purchased Assets as currently used or materially interfere with the present use of the Aggregate Purchased Assets and neither secure indebtedness, nor individually or in the aggregate have a value exceeding $30 million for all Aggregate Purchased Assets. (74) "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, or governmental entity or any department or agency thereof. 9 (75) "Plants" means the generating stations and related assets as more fully identified on Schedule 2.1 attached hereto. (76) "Pollution Control Revenue Bonds" means the bonds listed on Schedule 6.12. (77) "Portland Unit 5" means the Siemens V84.3 dual fuel combustion turbine generator undergoing acceptance testing by Siemens Power Corporation, and all associated or appurtenant fixtures and equipment located at the Portland Site. (78) "Post-Closing Adjustment" has the meaning set forth in Section 3.3(c). (79) "Post-Closing Statement" has the meaning set forth in Section 3.3(c). (80) "Proprietary Information" of a Party means all information about the Party or its Affiliates, including their respective properties or operations, furnished to the other Party or its Representatives by the Party or its Representatives, after the date hereof, regardless of the manner or medium in which it is furnished. Proprietary Information does not include information that: (a) is or becomes generally available to the public, other than as a result of a disclosure by the other Party or its Representatives; (b) was available to the other Party on a nonconfidential basis prior to its disclosure by the Party or its Representatives; (c) becomes available to the other Party on a nonconfidential basis from a person, other than the Party or its Representatives, who is not otherwise bound by a confidentiality agreement with the Party or its Representatives, or is not otherwise under any obligation to the Party or any of its Representatives not to transmit the information to the other Party or its Representatives; (d) is independently developed by the other Party; or (e) was disclosed pursuant to the Confidentiality Agreement and remains subject to the terms and conditions of the Confidentiality Agreement. (81) "Purchased Assets" has the meaning set forth in Section 2.1. (82) "Purchase Price" has the meaning set forth in Section 3.2. (83) "PURTA" has the meaning set forth in Section 3.5(c). (84) "PURTA Surcharge" has the meaning set forth in Section 3.5(c). (85) "Qualifying Offer" has the meaning set forth in Section 6.10(b). 10 (86) "Real Property" has the meaning set forth in Section 2.1(a). (87) "Real Property Leases" has the meaning set forth in Section 4.6. (88) "Related Purchase Agreements" has the meaning set forth in Section 7.1(l). (89) "Release" means release, spill, leak, discharge, dispose of, pump, pour, emit, empty, inject, leach, dump or allow to escape into or through the environment. (90) "Remediation" means action of any kind to address a Release or the presence of Hazardous Substances at a Site or an off-Site location including, without limitation, any or all of the following activities to the extent they relate to or arise from the presence of a Hazardous Substance at a Site or an off-Site location: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (b) obtaining any permits, consents, approvals or authorizations of any Governmental Authority necessary to conduct any such activity; (c) preparing and implementing any plans or studies for any such activity; (d) obtaining a written notice from a Governmental Authority with jurisdiction over a Site or an off-Site location under Environmental Laws that no material additional work is required by such Governmental Authority; (e) the use, implementation, application, installation, operation or maintenance of removal actions on a Site or an off-Site location, remedial technologies applied to the surface or subsurface soils, excavation and off-Site treatment or disposal of soils, systems for long term treatment of surface water or ground water, engineering controls or institutional controls; and (f) any other activities reasonably determined by a Party to be necessary or appropriate or required under Environmental Laws to address the presence or Release of Hazardous Substances at a Site or an off-Site location. (91) "Replacement Welfare Plans" has the meaning set forth in Section 6.10(e) (92) "Representatives" of a Party means the Party's Affiliates and their directors, officers, employees, agents, partners, advisors (including, without limitation, accountants, counsel, environmental consultants, financial advisors and other authorized representatives) and parents and other controlling persons. (93) "SEC" means the Securities and Exchange Commission and any successor agency thereto. 11 (94) "Seller's Agreements" means those contracts, agreements, licenses and leases relating to the ownership, operation and maintenance of the Plants and being assigned to Buyer as part of the Purchased Assets or to which York Haven is a party, including without limitation the Collective Bargaining Agreement and the Agreements listed on Schedule 4.12(a). (95) "Seller's Indemnitee" has the meaning set forth in Section 8.1 (a). (96) "Seller's Material Adverse Effect" has the meaning set forth in Section 7.2(c). (97) "Seller's Required Regulatory Approvals" has the meaning set forth in Section 4.3(b). (98) "Siemens' Agreement" has the meaning set forth in Section 2.4(q). (99) "Site" means, with respect to any Plant, the Real Property (including improvements) forming a part of, or used or usable in connection with the operation of, such Plant, including any disposal sites included in the Real Property. Any reference to the Sites shall include, by definition, the surface and subsurface elements, including the soils and groundwater present at the Sites, and any reference to items "at the Sites" shall include all items "at, on, in, upon, over, across, under and within" the Site. (100) "Subsidiary" when used in reference to any Person means any entity of which outstanding securities having ordinary voting power to elect a majority of the Board of Directors or other Persons performing similar functions of such entity are owned directly or indirectly by such Person. (101) "Tangible Personal Property" has the meaning set forth in Section 2.1(c). (102) "Tax Affiliate" means any entity that is a member of an affiliated group of corporations (within the meaning of Section 1504(a) of the Code) filing a consolidated U.S. federal Income Tax Return, or a group of corporations filing a consolidated or combined Tax Return for state, local or foreign purposes (each a "Consolidated Group"), if York Haven could be held liable for the Taxes of such entity or Consolidated Group. (103) "Tax Contest" has the meaning set forth in Section 6.8(e)(4)(i). 12 (104) "Taxes" means all taxes, charges, fees, levies, penalties or other assessments imposed by any federal, state or local or foreign taxing authority, including, but not limited to, income, excise, property, sales, transfer, franchise, payroll, withholding, social security, gross receipts, license, stamp, occupation, employment or other taxes, including any interest, penalties or additions attributable thereto. (105) "Tax Return" means any return, report, information return, declaration, claim for refund or other document (including any schedule or related or supporting information) required to be supplied to any taxing authority with respect to Taxes including amendments thereto. (106) "Termination Date" has the meaning set forth in Section 9.1(b). (107) "Third Party Claim" has the meaning set forth in Section 8.2(a). (108) "Transferable Permits" means those Permits and Environmental Permits which may be lawfully transferred to or assumed by Buyer without a filing with, notice to, consent or approval of any Governmental Authority, and are set forth in Schedule 1.1 (108). (109) "Transferred Employees" means Transferred Non-Union Employees and Transferred Union Employees. (110) "Transferred Non-Union Employees" has the meaning set forth in Section 6.10(b). (111) "Transferred Union Employees" has the meaning set forth in Section 6.10(b). (112) "Transferring Employee Records" means all records related to personnel of Seller, York Haven, Genco, GPUN or GPUS who will become employees of Buyer only to the extent such records pertain to: (i) skill and development training and biographies, (ii) seniority histories, (iii) salary and benefit information, including benefit census and valuation data, (iv) Occupational, Safety and Health Administration reports, and (v) active medical restriction forms. (113) "Transition Power Purchase Agreement" means the agreement between Seller and Buyer, a copy of which is attached as Exhibit G hereto, executed on the date hereof, relating to the sale of installed capacity to Seller for a specified period of time following the Closing Date. (114) Transmission Assets" has the meaning set forth in Section 2.2(a). 13 (115) "Union" means IBEW 777. (116) "Union Employees" has the meaning set forth in Sections 6.10(a) and (m). (117) "USEPA" means the United States Environmental Protection Agency and any successor agency thereto. (118) "Year 2000 Compliant" has the meaning set forth in Section 4.20. "Year 2000 Compliance" has a meaning correlative to the foregoing. (119) "York Haven" means York Haven Power Company, a Pennsylvania corporation and wholly-owned subsidiary of Met-Ed. (120) "York Haven Plant" means the York Haven Hydroelectric Station identified as such in Schedule 2.1. (121) "York Haven Stock" means all of the issued and outstanding shares of common stock, without value, of York Haven. (122) "WARN Act" means the Federal Worker Adjustment Retraining and Notification Act of 1988, as amended. 1.2 Certain Interpretive Matters. In this Agreement, unless the context otherwise requires, the singular shall include the plural, the masculine shall include the feminine and neuter, and vice versa. The term "includes" or "including" shall mean "including without limitation." References to a Section, Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule of this Agreement, and reference to a given agreement or instrument shall be a reference to that agreement or instrument as modified, amended, supplemented and restated through the date as of which such reference is made ARTICLE II PURCHASE AND SALE 2.1 Transfer of Assets. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, at the Closing Seller will sell, assign, convey, transfer and deliver to Buyer, and Buyer will purchase, assume and acquire from Seller, free and clear of all Encumbrances (except for Permitted Encumbrances), and subject to Sections 2.2 and 7.3 and the other terms and conditions of this Agreement, all of Seller's right, title and interest in and to all assets constituting, or used in and necessary for generation purposes to the operation of, the Plants identified in Schedule 2.1 including without limitation those assets described below (but excluding 14 the Excluded Assets), each as in existence on the Closing Date (collectively, "Purchased Assets"): (a) Those certain parcels of real property (including all buildings, facilities and other improvements thereon and all appurtenances thereto) described in Schedule 4.10 (the "Real Property"), except as otherwise constituting part of the Excluded Assets; (b) All Inventories; (c) All machinery, mobile or otherwise, equipment (including communications equipment), vehicles, tools, furniture and furnishings and other personal property located on or used principally in connection with the Real Property on the Closing Date, including, without limitation, the items of personal property included in Schedule 2.1(c), together with all the personal property of Seller used principally in the operation of the Plants and listed in Schedule 2.1(c), other than property used or primarily usable as part of the Transmission Assets or otherwise constituting part of the Excluded Assets (collectively, "Tangible Personal Property"); (d) Subject to the provisions of Section 6.5(d), all Seller's Agreements; (e) Subject to the provisions of Section 6.5(d), all Real Property Leases; (f) All Transferable Permits; (g) All books, operating records, operating, safety and maintenance manuals, engineering design plans, documents, blueprints and as built plans, specifications, procedures and similar items of Seller relating specifically to the aforementioned assets and necessary for the operation of the Plants (subject to the right of Seller to retain copies of same for its use) other than such items which are proprietary to third parties and accounting records; (h) Subject to Section 6.1, all Emission Reduction Credits associated with the Plants and identified in Schedule 2.1(h), and all Emission Allowances that have accrued prior to, or that accrue on or after, the date of this Agreement but prior to the Closing Date; (i) All unexpired, transferable warranties and guarantees from third parties with respect to any item of Real Property or personal property constituting part of the Purchased Assets, as of the Closing Date, and an amount equal to all liquidated damages paid to and retained by Seller in respect of performance guarantees under the Siemens' Agreement; 15 (j) The names of the Plants. It is expressly understood that Seller is not assigning or transferring to Buyer any right to use the names "Jersey Central Power & Light Company", "JCP&L", "Metropolitan Edison Company", "Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU Generation", "GPU Nuclear", "GPU Service" and "GPU Genco", or any related or similar trade names, trademarks, service marks, corporate names and logos or any part, derivative or combination thereof; (k) All drafts, memoranda, reports, information, technology, and specifications relating to Seller's plans for Year 2000 Compliance with respect to the Purchased Assets; (l) The Intellectual Property described on Schedule 2.1(l); (m) The substation equipment set forth in Schedule A to the Interconnection Agreement and designated therein as being transferred to Buyer, and (n) The York Haven Stock and all stock books, stock ledgers, minute books, corporate seal, all corporate records and other books and records of the type described in Section 2.1. relating to York Haven. 2.2 Excluded Assets. Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement will constitute or be construed as conferring on Buyer, and Buyer is not acquiring, any right, title or interest in or to the following specific assets which are associated with the Purchased Assets, but which are hereby specifically excluded from the sale and the definition of Purchased Assets herein (the "Excluded Assets"): (a) Except as expressly identified in Schedule 2.1(c), the electrical transmission or distribution facilities (as opposed to generation facilities) of Seller or any of its Affiliates located at the Sites or forming part of the Plants (whether or not regarded as a "transmission" or "generation" asset for regulatory or accounting purposes), including all switchyard facilities, substation facilities and support equipment, as well as all permits, contracts and warranties, to the extent they relate to such transmission and distribution assets (collectively, the "Transmission Assets"), and those certain assets, facilities and agreements all as identified on Schedule 2.2(a) attached hereto; (b) Certain revenue meters and remote testing units, drainage pipes and systems, as identified in the Easement Agreement; 16 (c) Certificates of deposit, shares of stock (except as provided in Section 2.1(n) with respect to the York Haven Stock), securities, bonds, debentures, evidences of indebtedness, and interests in joint ventures, partnerships, limited liability companies and other entities; (d) All cash, cash equivalents, bank deposits, accounts and notes receivable (trade or otherwise), and any income, sales, payroll or other tax receivables; (e) The rights of Seller and its Affiliates to the names "Jersey "Central Power & Light Company", "JCP&L", "Metropolitan Edison Company", "Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU Generation", "GPU Nuclear", "GPU Service" and "GPU Genco" or any related or similar trade names, trademarks, service marks, corporate names or logos, or any part, derivative or combination thereof; (f) All tariffs, agreements and arrangements to which Seller is a party for the purchase or sale of electric capacity and/or energy or for the purchase of transmission or ancillary services; (g) The rights of Seller or York Haven in and to any causes of action against third parties (including indemnification and contribution), other than to the extent relating to any Assumed Liability, relating to any Real Property or personal property, Permits, Environmental Permits, Taxes, Real Property Leases or Seller's Agreements, if any, including any claims for refunds, prepayments, offsets, recoupment, insurance proceeds, condemnation awards, judgments and the like, whether received as payment or credit against future liabilities, relating specifically to the Plants or the Sites and relating to any period prior to the Closing Date; (h) All personnel records of Seller or York Haven or its Affiliates relating to the Transferred Employees other than Transferring Employee Records or other records, the disclosure of which is required by law, or legal or regulatory process or subpoena; and (i) Any and all of Seller's and York Haven's rights in any contract representing an intercompany transaction between Seller or York Haven and an Affiliate of Seller or York Haven, whether or not such transaction relates to the provision of goods and services, payment arrangements, intercompany charges or balances, or the like, except for any contracts listed on Schedule 4.12(a). 2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to Seller the Assignment and Assumption Agreement pursuant to which Buyer shall assume and agree to discharge when due, without recourse to Seller, all of the following liabilities 17 and obligations of Seller, direct or indirect, known or unknown, absolute or contingent, which relate to the Purchased Assets, other than Excluded Liabilities, in accordance with the respective terms and subject to the respective conditions thereof (collectively, "Assumed Liabilities"): (a) All liabilities and obligations of Seller arising on or after the Closing Date under Seller's Agreements, the Real Property Leases, and the Transferable Permits in accordance with the terms thereof, including, without limitation, (i) the contracts, licenses, agreements and personal property leases entered into by Seller with respect to the Purchased Assets, which are disclosed on Schedule 4.12(a) or not required by Section 4.12(a) to be so disclosed, and (ii) the contracts, licenses, agreements and personal property leases entered into by Seller with respect to the Purchased Assets after the date hereof consistent with the terms of this Agreement, except in each case to the extent such liabilities and obligations, but for a breach or default by Seller, would have been paid, performed or otherwise discharged on or prior to the Closing Date or to the extent the same arise out of any such breach or default or out of any event which after the giving of notice would constitute a default by Seller; (b) All liabilities and obligations associated with the Purchased Assets in respect of Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof; (c) All liabilities and obligations with respect to the Transferred Employees arising on or after the Closing Date (i) for which Buyer is responsible pursuant to Section 6.10 and (ii) relating to the grievances and arbitration proceedings arising out of or under the Collective Bargaining Agreement prior to, on or after the Closing Date; (d) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with (i) any violation or alleged violation of Environmental Laws, whether prior to, on or after the Closing Date, with respect to the ownership or operation of any of the Purchased Assets; (ii) loss of life, injury to persons or property or damage to natural resources (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Purchased Assets prior to, on or after the Closing Date, including, but not limited to, Hazardous Substances contained in building materials at or adjacent to the Purchased Assets or in 18 the soil, surface water, sediments, groundwater, landfill cells, or in other environmental media at or near the Purchased Assets; and (iii) the Remediation (whether or not such Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances that are present or have been Released prior to, on or after the Closing Date at, on, in, under, adjacent to or migrating from, the Purchased Assets or in the soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to the Purchased Assets; provided, that nothing set forth in this subsection 2.3(d) shall require Buyer to assume any liabilities or obligations that are expressly excluded in Section 2.4 including, without limitation, liability for toxic torts as set forth in Section 2.4(i). (e) All liabilities and obligations of Seller or York Haven with respect to the Purchased Assets under the agreements or consent orders set forth on Schedule 4.7 arising on or after the Closing; and (f) With respect to the Purchased Assets, any Tax that may be imposed by any federal, state or local government on the ownership, sale, operation or use of the Purchased Assets on or after the Closing Date, except for any Income Taxes attributable to income received by Seller. 2.4 Excluded Liabilities. Buyer shall not assume or be obligated to pay, perform or otherwise discharge the following liabilities or obligations (the "Excluded Liabilities"): (a) Any liabilities or obligations of Seller or York Haven that are not expressly set forth as liabilities or obligations being assumed by Buyer in Section 2.3 and any liabilities or obligations in respect of any Excluded Assets or other assets of Seller which are not Purchased Assets; (b) Any liabilities or obligations in respect of Taxes attributable to the ownership, operation or use of Purchased Assets for taxable periods, or portions thereof, ending before the Closing Date, except for Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof and any liability in respect of PURTA not otherwise expressly assumed by Buyer under Section 3.5 hereof; (c) Any liabilities or obligations of Seller or York Haven accruing under any of Seller's Agreements prior to the Closing Date; (d) Any and all asserted or unasserted liabilities or obligations to third parties (including employees) for personal injury or tort, or similar causes of action arising solely out of the ownership or operation of the Purchased Assets prior to the Closing Date, other than any liabilities or obligations which have been assumed by Buyer in Section 2.3(d); 19 (e) Any fines, penalties or costs imposed by a Governmental Authority resulting from (i) an investigation, proceeding, request for information or inspection before or by a Governmental Authority pending prior to the Closing Date but only regarding acts which occurred prior to the Closing Date, or (ii) illegal acts, willful misconduct or gross negligence of Seller or York Haven prior to the Closing Date, other than, any such fines, penalties or costs which have been assumed by Buyer in Section 2.3(d); (f) Any payment obligations of Seller or York Haven for goods delivered or services rendered prior to the Closing Date, including, but not limited to, rental payments pursuant to the Real Property Leases; (g) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with loss of life, injury to persons or property or damage to natural resources (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) to the extent caused (or allegedly caused) by the off-Site disposal, storage, transportation, discharge, Release, or recycling of Hazardous Substances, or the arrangement for such activities, of Hazardous Substances, prior to the Closing Date, in connection with the ownership or operation of the Purchased Assets, provided that for purposes of this Section "off-Site" does not include any location to which Hazardous Substances disposed of or Released at the Purchased Assets have migrated; (h) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with the investigation and/or Remediation (whether or not such investigation or Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances that are disposed, stored, transported, discharged, Released, recycled, or the arrangement of such activities, prior to the Closing Date, in connection with the ownership or operation of the Purchased Assets, at any off-Site location, provided that for purposes of this Section "off-Site" does not include any location to which Hazardous Substances disposed of or Released at the Purchased Assets have migrated; (i) Third party liability for toxic torts arising as a result of or in connection with loss of life or injury to persons (whether or not such loss or injury arose or was made manifest on or after the Closing Date) caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Purchased Assets prior to the Closing Date; 20 (j) Civil or criminal fines or penalties wherever assessed or incurred for violations of Environmental Laws arising from the operation of the Purchased Assets prior to the Closing Date; (k) Subject to Section 6.10, any liabilities or obligations relating to any Benefit Plan maintained by Seller or any trade or business (whether or not incorporated) which is or ever has been under common control, or which is or ever has been treated as a single employer, with Seller under Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which Seller and any ERISA Affiliate contributed thereunder (the "ERISA Affiliate Plans"), including but not limited to any liability with respect to any such plan (i) for benefits payable under such plan; (ii) to the Pension Benefit Guaranty Corporation under Title IV of ERISA; (iii) relating to any such plan that is a multi-employer plan within the meaning of Section 3(37) of ERISA; (iv) for non-compliance with the notice and benefit continuation requirements of COBRA; (v) for noncompliance with ERISA or any other applicable laws; or (vi) arising out of or in connection with any suit, proceeding or claim which is brought against Buyer, any Benefit Plan, ERISA Affiliate Plan, or any fiduciary or former fiduciary of any such Benefit Plan or ERISA Affiliate Plan; (l) Subject to Section 6.10, any liabilities or obligations relating to the employment or termination of employment, by Seller, or any Affiliate of Seller, of any individual, that is attributable to any actions or inactions (including discrimination, wrongful discharge, unfair labor practices or constructive termination) by Seller prior to the Closing Date other than such actions or inactions taken at the written direction of Buyer; (m) Subject to Section 6.10, any obligations for wages, overtime, employment taxes, severance pay, transition payments in respect of compensation or similar benefits accruing or arising prior to the Closing under any term or provision of any contract, plan, instrument or agreement relating to any of the Purchased Assets; (n) Any liability of Seller arising out of a breach by Seller or any of its Affiliates of any of their respective obligations under this Agreement or the Ancillary Agreements; and (o) Any liability or obligation of York Haven relating to the period prior to the Closing except for liabilities or obligations assumed by Buyer under Section 2.3; (p) Any and all obligations under Article III of the Fish Ladder Contract to pay for performance of the work set forth in Article I to construct the Coffer dams, attraction flow weir and fish ladder facility, it being understood that all other 21 obligations under such contract following completion of construction are being assumed by Buyer under Section 2.3(a); provided, however, that notwithstanding anything herein to the contrary, Buyer shall bear no financial responsibility for payment of cost overruns or any other costs incurred in connection with performance under Article I of the Fish Ladder Contract (other than relating to additional work, if any, which Buyer requests to be performed); (q) All obligations, whether financial or otherwise, arising under the Agreement, dated as of June 29, 1993, as amended, between Met-Ed and Siemens Power Corporation ("Siemens' Agreement"), relating to the construction and installation of Portland Unit No. 5 (other than relating to additional work, if any, which Buyer requests to be performed); and (r) Any liability relating to the Pollution Control Revenue Bonds except as provided in Section 6.12. 2.5. Control of Litigation. The Parties agree and acknowledge that Seller shall be entitled exclusively to control, defend and settle any litigation, administrative or regulatory proceeding, and any investigation or Remediation activities (including without limitation any environmental mitigation or Remediation activities), arising out of or related to any Excluded Liabilities, and Buyer agrees to cooperate fully in connection therewith; provided, however, that without Buyer's written consent, which shall not be unreasonably withheld or delayed, Seller shall not settle any such litigation, administrative or regulatory proceeding which would result in a material adverse effect on the related Purchased Assets. 2.6 York Haven Assets and Liabilities. Effective immediately prior to the Closing, Met-Ed shall cause all Excluded Assets of York Haven to be transferred by York Haven to Met-Ed or one or more of Met-Ed's Affiliates, and to cause all liabilities of York Haven (other than Assumed Liabilities) to be assumed by Met-Ed or one or more of Met-Ed's Affiliates. ARTICLE III THE CLOSING 3.1 Closing. Upon the terms and subject to the satisfaction of the conditions contained in Article VII of this Agreement, the sale, assignment, conveyance, transfer and delivery of the Purchased Assets to Buyer, the payment of the Purchase Price to Seller, and the consummation of the other respective obligations of the Parties contemplated by this Agreement shall take place at a closing (the "Closing"), to be 22 held at the offices of Berlack, Israels & Liberman LLP, 120 West 45th Street, New York, New York at 10:00 a.m. local time, or another mutually acceptable time and location, on the date that is fifteen (15) Business Days following the date on which the last of the conditions precedent to Closing set forth in Article VII of this Agreement have been either satisfied or waived by the Party for whose benefit such conditions precedent exist or such other date as the Parties may mutually agree. The date of Closing is hereinafter called the "Closing Date." The Closing shall be effective for all purposes as of 12:01 a.m. on the Closing Date. 3.2 Payment of Purchase Price. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, in consideration of the aforesaid sale, assignment, conveyance, transfer and delivery of the Purchased Assets, Buyer will pay or cause to be paid to Seller at the Closing an aggregate amount of three hundred eighty-five million seven hundred fifty-nine thousand seven hundred and thirty-two United States Dollars (U.S. $385,759,732.00) (the "Purchase Price") plus or minus any adjustments pursuant to the provisions of this Agreement, by wire transfer of immediately available funds denominated in U.S. dollars or by such other means as are agreed upon by Seller and Buyer. 3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at the Closing, the Purchase Price shall be adjusted, without duplication, to account for the items set forth in this Section 3.3(a): (i) The Purchase Price shall be increased or decreased, as applicable, to reflect the difference between the book value of all Inventories as of the Closing Date and the value of all Inventories as of June 30, 1998 as reflected on Schedule 3.3(a)(i). (ii) The Purchase Price shall be adjusted to account for the items prorated as of the Closing Date pursuant to Section 3.5. (iii) The Purchase Price shall be increased by the amount expended, or for which liabilities are incurred, by Seller between the date hereof and the Closing Date for capital additions to or replacements of property, plant and equipment included in the Purchased Assets and other expenditures or repairs on property, plant and equipment included in the Purchased Assets that would be capitalized by Seller in accordance with normal accounting policies of Seller and its Affiliates (together, "Capital Expenditures"), which are not described on Schedule 6.1 and which either (A) are mandated after the date of this Agreement by any Governmental Authority (subject 23 to Buyer's right reasonably to direct Seller to contest such mandatesby appropriate proceedings at Buyer's expense and provided there is no adverse impact on the Purchased Assets); or (B) do not fall within category (A) above but do not exceed in the aggregate $2 million for all Aggregate Purchased Assets; or (C) are approved in writing by Buyer. (b) At least ten (10) Business Days prior to the Closing Date, Seller shall prepare and deliver to Buyer an estimated closing statement (the "Estimated Closing Statement") that shall set forth Seller's best estimate of the adjustments to the Purchase Price required by Section 3.3(a) (the "Estimated Adjustment"). Within five (5) Business Days following the delivery of the Estimated Closing Statement by Seller to Buyer, Buyer may object in good faith to the Estimated Adjustment in writing. If Buyer objects to the Estimated Adjustment, the Parties shall attempt to resolve their differences by negotiation. If the Parties are unable to do so within three (3) Business Days prior to the Closing Date (or if Buyer does not object to the Estimated Adjustment), the Purchase Price shall be adjusted (the "Closing Adjustment") for the Closing by the amount of the Estimated Adjustment not in dispute. The disputed portion shall be paid as a "Post-Closing Adjustment" to the extent required by Section 3.3(c). (c) Within sixty (60) days following the Closing Date, Seller shall prepare and deliver to Buyer a final closing statement (the "Post-Closing Statement") that shall set forth all adjustments to the Purchase Price required by Section 3.3(a) (the "Post-Closing Adjustment"). The Post-Closing Statement shall be prepared using the same accounting principles, policies and methods as Seller has historically used in connection with the calculation of the items reflected on such Post-Closing Statement. Within thirty (30) days following the delivery of the Post-Closing Statement by Seller to Buyer, Buyer may object to the Post-Closing Adjustment in writing. Seller agrees to cooperate with Buyer to provide Buyer and Buyer's Representatives information used to prepare the Post-Closing Statement and information relating thereto. If Buyer objects to the Post-Closing Adjustment, the Parties shall attempt to resolve such dispute by negotiation. If the Parties are unable to resolve such dispute within thirty (30) days of any objection by Buyer, the Parties shall appoint the Independent Accounting Firm, which shall, at Seller's and Buyer's joint expense, review the Post-Closing Adjustment and determine the appropriate adjustment to the Purchase Price, if any, within thirty (30) days of such appointment. The Parties agree to cooperate with the Independent Accounting Firm and provide it with such information as it reasonably requests to enable it to make such determination. The finding of such Independent Accounting Firm shall be binding on the Parties hereto. Upon determination of the appropriate 24 adjustment by agreement of the Parties or by binding determination of the Independent Accounting Firm, if the Post-Closing Adjustment is more or less than the Closing Adjustment, the Party owing the difference shall deliver such difference to the other Party no later than two (2) Business Days after such determination, in immediately available funds or in any other manner as reasonably requested by the payee. 3.4 Allocation of Purchase Price. Buyer and Seller shall endeavor to agree upon an allocation among the Purchased Assets and the York Haven Stock of the sum of the Purchase Price and the Assumed Liabilities in a manner consistent with the provisions of Section 1060 of the Code and the Treasury Regulations thereunder within sixty (60) days of the date of this Agreement. Each of Buyer and Seller agrees to file Internal Revenue Service Form 8594, and all federal, state, local and foreign Tax Returns, in accordance with any such agreed to allocation. Each of Buyer and Seller shall report the transactions contemplated by this Agreement for federal Tax and all other Tax purposes in a manner consistent with any such agreed to allocation determined pursuant to this Section 3.4. Each of Buyer and Seller agrees to provide the other promptly with any information required to complete Form 8594. Buyer and Seller shall notify and provide the other with reasonable assistance in the event of an examination, audit or other proceeding regarding any allocation of the Purchase Price agreed to pursuant to this Section 3.4. 3.5. Prorations. (a) Buyer and Seller agree that all of the items normally prorated, including those listed below (but not including Income Taxes), relating to the business and operation of the Purchased Assets shall be prorated as of the Closing Date, with Seller liable to the extent such items relate to any time period prior to the Closing Date, and Buyer liable to the extent such items relate to periods commencing with the Closing Date (measured in the same units used to compute the item in question, otherwise measured by calendar days): (i) Personal property, real estate and occupancy Taxes, assessments and other charges, if any, on or with respect to the business and operation of the Purchased Assets; (ii) Rent, Taxes and all other items (including prepaid services or goods not included in Inventory) payable by or to Seller or York Haven under any of Seller's Agreements; (iii) Any permit, license, registration, compliance assurance fees or other fees with respect to any Transferable Permit; (iv) Sewer rents and charges for water, telephone, electricity and other utilities; and 25 (v) Rent and Taxes and other items payable by Seller under the Real Property Leases assigned to Buyer or to which York Haven is a party. (b) In connection with the prorations referred to in (a) above, in the event that actual figures are not available at the Closing Date, the proration shall be based upon the actual Taxes or other amounts accrued through the Closing Date or paid for the most recent year (or other appropriate period) for which actual Taxes or other amounts paid are available. Such prorated Taxes or other amounts shall be re-prorated and paid to the appropriate Party within sixty (60) days of the date that the previously unavailable actual figures become available. The prorations shall be based on the number of days in a year or other appropriate period (i) before the Closing Date and (ii) including and after the Closing Date. Seller and Buyer agree to furnish each other with such documents and other records as may be reasonably requested in order to confirm all adjustment and proration calculations made pursuant to this Section 3.5. Notwithstanding anything to the contrary herein, no proration shall be made under this Section 3.5 with respect to Taxes payable under the Pennsylvania Public Utility Realty Tax Act ("PURTA") that are attributable to the year in which the Closing occurs (the "Closing Year PURTA Tax"). Buyer shall be fully responsible and indemnify Seller for, and shall be entitled to receive all refunds relating to payments Buyer makes with respect to, the Closing Year PURTA Tax; provided, however, that any additional tax that is imposed in the year in which the Closing occurs pursuant to Section 1104-A(b) of PURTA or any successor provision thereof (a "PURTA Surcharge") but which relates to the previous year shall not be treated as the Closing Year PURTA Tax and Seller shall be responsible for such PURTA Surcharge. 3.6 Deliveries by Seller. At the Closing, Seller will deliver, or cause to be delivered, the following to Buyer: (a)The Bill of Sale, duly executed by Seller; (b)Copies of any and all governmental and other third party consents, waivers or approvals required with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement; (c)The opinions of counsel and officer's certificates contemplated by Section 7.1; (d)One or more special warranty deeds conveying the Real Property to Buyer, in substantially the form of Exhibit F hereto, duly executed and acknowledged by Seller and in recordable form; 26 (e) The Assignment and Assumption Agreement and any Ancillary Agreements which are not executed on the date hereof, duly executed by Seller; (f) A FIRPTA Affidavit, duly executed by Seller; (g) Copies, certified by the Secretary or Assistant Secretary of Seller, of corporate resolutions authorizing the execution and delivery of this Agreement and all of the agreements and instruments to be executed and delivered by Seller in connection herewith, and the consummation of the transactions contemplated hereby; (h) A certificate of the Secretary or Assistant Secretary of Seller identifying the name and title and bearing the signatures of the officers of Seller authorized to execute and deliver this Agreement and the other agreements and instruments contemplated hereby; (i) Certificates of Subsistence with respect to Seller and York Haven, issued by the Secretary of the State of Seller's and York Haven's state of incorporation; (j) To the extent available, originals of all Seller's Agreements, Real Property Leases, Permits, Environmental Permits, and Transferable Permits and, if not available, true and correct copies thereof, together with the items referred to in Section 2.1(g); (k) All such other instruments of assignment, transfer or conveyance as shall, in the reasonable opinion of Buyer and its counsel, be necessary or desirable to transfer to Buyer the Purchased Assets, in accordance with this Agreement and where necessary or desirable in recordable form; (l) Notices, signed by Seller, to all other parties to the material Seller's Agreements where notice to such parties is required under the terms of such Seller's Agreements or pursuant to Section 6.5(d) hereof; (m) Reliance letters from Woodward & Clyde with respect to the Environmental Reports prepared by Woodward & Clyde concerning the Purchased Assets and made available for review by Buyer. (n) Such other agreements, documents, instruments and writings as are required to be delivered by Seller at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. 27 In addition, Met-Ed will deliver, or cause to be delivered, to Buyer (i) a stock certificate or certificates representing the York Haven Stock accompanied by a stock power duly endorsed to Buyer and (ii) resignations of all directors and officers of York Haven. The instruments of conveyance listed above in Sections 3.6(a), (d), (e) and (k) will not include any assets owned by York Haven (unless required to assure continuing valid title by York Haven). 3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or cause to be delivered, the following to Seller: (a) The Purchase Price, as adjusted pursuant to Section 3.3, by wire transfer of immediately available funds in accordance with Seller's instructions or by such other means as may be agreed to by Seller and Buyer; (b) The opinions of counsel and officer's certificates contemplated by Section 7.2; (c) The Assignment and Assumption Agreement and any Ancillary Agreements which are not executed on the date hereof, duly executed by Buyer; (d) Copies, certified by the Secretary or Assistant Secretary of Buyer, of resolutions authorizing the execution and delivery of this Agreement, the Guaranty and all of the agreements and instruments to be executed and delivered by Buyer in connection herewith, and the consummation of the transactions contemplated hereby; (e) A certificate of the Secretary or Assistant Secretary of Buyer, identifying the name and title and bearing the signatures of the officers of Buyer authorized to execute and deliver this Agreement, the Guaranty and the other agreements contemplated hereby; (f) All such other instruments of assumption as shall, in the reasonable opinion of Seller and its counsel, be necessary for Buyer to assume the Assumed Liabilities in accordance with this Agreement; (g) Copies of any and all governmental and other third party consents, waivers or approvals obtained by Buyer with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement and where necessary or desirable in recordable forms; (h) Certificates of Insurance relating to the insurance policies required pursuant to Article 10 of the Interconnection Agreement; and 28 (i) Such other agreements, documents, instruments and writings as are required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. 3.8 Ancillary Agreements. The Parties acknowledge that the Ancillary Agreements, other than the Merrill Creek Sublease Agreement, the Easement Agreements and the Interconnection Agreement between Seller and York Haven, have been executed on the date hereof. 3.9 Easement Agreements. At the Closing, Buyer and Seller shall execute for each Site an Easement Agreement in the form attached hereto as Exhibit C, completed as required to cause the entity owning such Site to grant such Easements and licenses as are contemplated by such form of agreement and Exhibits B (Distribution Facilities), Exhibits C (Transmission Facilities), Exhibits F (Distribution Substation), and Exhibits G (Main Substation) thereto, forms of which are attached thereto. Such forms of Exhibits B, C, F and G to the agreements are subject to revision as the Parties may agree. The Parties shall engage in reasonable and good faith negotiations regarding such revisions so as to minimize the impact of the Seller's Easements, Easement areas and licenses on the Sites and Buyer's use thereof, consistent with the enjoyment by Seller of such Easements and license rights as Seller reasonably requires to continue its use, operation and maintenance of the Excluded Assets. The Parties shall also engage in reasonable, good faith negotiations to agree upon the rules and regulations under which Buyer will grant to Seller access to the Sites, and under which Seller will grant to Buyer access to Seller's Easements and Easement areas. Such rules and regulations shall be memorialized as Exhibit J to each agreement. ARTICLE IV REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER Seller represents and warrants to Buyer as follows: 4.1 Incorporation; Qualification. Each of Seller and York Haven is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation and has all requisite corporate power and authority to own, lease, and operate its material properties and assets and to carry on its business as is now being conducted. Each of Seller and York Haven is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which its business as now being conducted shall require it to be so qualified, except where the failure to be so 29 qualified would not have a Material Adverse Effect. Seller has heretofore delivered to Buyer true, complete and correct copies of its and York Haven's Certificate of Incorporation and Bylaws as currently in effect. 4.2 Authority Relative to this Agreement. Seller has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by it hereby. The execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated by Seller hereby have been duly and validly authorized by all necessary corporate action required on the part of Seller and this Agreement has been duly and validly executed and delivered by Seller. Subject to the receipt of Seller's Required Regulatory Approvals, this Agreement constitutes the legal, valid and binding agreement of Seller, enforceable against Seller in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 4.3 Consents and Approvals; No Violation. (a) Except as set forth in Schedule 4.3(a), and subject to obtaining Seller's Required Regulatory Approvals, neither the execution and delivery of this Agreement by Seller nor the consummation by Seller or York Haven of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws of Seller or York Haven, (ii) result in a default (or give rise to any right of termination, consent, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Seller or York Haven is a party or by which it, or any of the Purchased Assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which, would not, individually or in the aggregate, create a Material Adverse Effect; or (iii) constitute violations of any law, regulation, order, judgment or decree applicable to Seller or York Haven, which violations, individually or in the aggregate, would create a Material Adverse Effect, or create any Encumbrance other than a Permitted Encumbrance. (b) Except as set forth in Schedule 4.3(b), (the filings and approvals referred to in Schedule 4.3(b) are collectively referred to as the "Seller's Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority, by or for Seller or York Haven, is necessary for the execution and delivery of this Agreement by Seller, or the consummation by Seller of the transactions contemplated hereby, other than (i) such consents, approvals, 30 filings or notices which, if not obtained or made, will not prevent Seller from performing its material obligations hereunder and (ii) such consents, approvals, filings or notices which become applicable to Seller or the Purchased Assets as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged. 4.4 Insurance. Except as set forth in Schedule 4.4, all material policies of fire, liability, workers' compensation and other forms of insurance owned or held by, or on behalf of, Seller and York Haven with respect to the business, operations or employees at the Plants or the Purchased Assets are in full force and effect, all premiums with respect thereto covering all periods up to and including the date hereof have been paid (other than retroactive premiums which may be payable with respect to comprehensive general liability and workers' compensation insurance policies), and no notice of cancellation or termination has been received with respect to any such policy which was not replaced on substantially similar terms prior to the date of such cancellation. Except as described in Schedule 4.4, within the 36 months preceding the date of this Agreement, neither Seller nor York Haven has been refused any insurance with respect to the Purchased Assets nor has coverage been limited by any insurance carrier to which Seller or York Haven has applied for any such insurance or with which Seller or York Haven has carried insurance during the last 12 months. 4.5. Title and Related Matters. Except as set forth in Schedule 4.5 and subject to Permitted Encumbrances, (i) Seller is the owner of record title to the Real Property (or the interest in the Real Property as set forth in Schedule 2.1) and has good and valid title to the other Purchased Assets which it purports to own, free and clear of all material Encumbrances of which the Seller has knowledge and (ii) Seller shall convey to Buyer such title with respect to the Real Property or interest therein as a reputable title company doing business in the Commonwealth of Pennsylvania would insure. Met-Ed has good and valid title to the York Haven Stock, free and clear of all Encumbrances. 4.7 Real Property Leases. Schedule 4.6 lists, as of the date of this Agreement, all material real property leases under which Seller or York Haven is a lessee or lessor and which relate to the Purchased Assets ("Real Property Leases"). Except as set forth in Schedule 4.6, all such leases are valid, binding and enforceable against Seller or York Haven in accordance with their terms; there are no existing material defaults by Seller or York Haven or, to Seller's or York Haven's Knowledge, any other party thereunder; and no event has occurred which (whether with or without notice, lapse of time or both) would constitute a material default by Seller or York Haven or, to Seller's or York 31 Haven's Knowledge, any other party thereunder. Seller has delivered to Buyer true, correct and complete copies of each of the material Real Property Leases. 4.7 Environmental Matters. Except as disclosed in Schedule 4.7 or in the "Phase I" and "Phase II" environmental site assessments prepared by Seller's outside environmental consultants ("Environmental Reports") and made available for inspection by Buyer: (a) Each of Seller and York Haven holds, and is in substantial compliance with, all permits, certificates, certifications, licenses and governmental authorizations under Environmental Laws ("Environmental Permits") that are required for Seller or York Haven to conduct the business and operations of the Purchased Assets, and each of Seller and York Haven is otherwise in compliance with applicable Environmental Laws with respect to the business and operations of such Purchased Assets except for such failures to hold or comply with required Environmental Permits, or such failures to be in compliance with applicable Environmental Laws, as would not, individually or in the aggregate, create a Material Adverse Effect; (b) Neither Seller nor York Haven has received any written request for information, or been notified that it is a potentially responsible party, under CERCLA or any similar state law with respect to the Real Property or any other Purchased Assets; (c) Neither Seller nor York Haven has entered into or agreed to any consent decree or order relating to the Purchased Assets, or is subject to any outstanding judgment, decree, or judicial order relating to compliance with any Environmental Law or to investigation or cleanup of Hazardous Substances under any Environmental Law relating to the Purchased Assets. (d) To Seller's and York Haven's Knowledge, no Releases of Hazardous Substances have occurred at, from, in, on, or under any Site, and no Hazardous Substances are present in, on, about or migrating from any such Site that could give rise to an Environmental Claim related to the Purchased Assets for which Remediation reasonably could be required, except in any such case to the extent that any such Releases would not, individually or in the aggregate, create a Material Adverse Effect. The representations and warranties made in this Section 4.7 are Seller's exclusive representations and warranties relating to environmental matters. 4.8 Labor Matters. Seller has previously delivered to Buyer a true and correct copy of the Collective Bargaining Agreement, which is the only collective bargaining agreement to which it or York Haven is a party or is subject and which relates 32 to the business and operations of the Purchased Assets. With respect to the business or operations of such Purchased Assets, except to the extent set forth in Schedule 4.8 and except for such matters as will not, individually or in the aggregate, create a Material Adverse Effect, each of Seller and York Haven (a) is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours; (b) has not received written notice of any unfair labor practice complaint against it pending before the National Labor Relations Board; (c) no arbitration proceeding arising out of or under any collective bargaining agreement is pending against Seller or York Haven; and (d) neither Seller nor York Haven has experienced any work stoppage within the three-year period prior to the date hereof and to Seller's and York Haven's Knowledge none is currently threatened. 4.9. Benefit Plans: ERISA. (a)Schedule 4.9(a) lists all deferred compensation, profit-sharing, retirement and pension plans, including multiemployer plans, and all material bonus, fringe benefit and other employee benefit plans maintained or with respect to which contributions are made by Seller, York Haven, Genco, GPUN or GPUS in respect of the current employees of Seller, York Haven, Genco, GPUN or GPUS connected with the Purchased Assets ("Benefit Plans"). True and complete copies of all Benefit Plans have been made available to Buyer. (b) Except as set forth in Schedule 4.9(b), Seller and the ERISA Affiliates have fulfilled their respective obligations under the minimum funding requirements of Section 302 of ERISA, and Section 412 of the Code, with respect to each Benefit Plan which is an "employee pension benefit plan" as defined in Section 3(2) of ERISA and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and the Code and has been administered in all material respects in accordance with its terms as set forth in the documents governing such Benefit Plan. Except as set forth in Schedule 4.9(b), neither Seller nor any ERISA Affiliate has incurred any liability under Section 4062(b) of ERISA to the Pension Benefit Guaranty Corporation in connection with any Benefit Plan which is subject to Title IV of ERISA or any withdrawal liability with respect to any Benefit Plan, within the meaning of Section 4021 of ERISA, nor is there any reportable event (as defined in Section 4043 of ERISA) with respect to any Benefit Plan. Except as set forth in Schedule 4.9(b), the Internal Revenue Service has issued a letter for each Benefit Plan which is intended to be qualified under Section 401(a) of the Code, which letter determines that such plan is qualified and exempt from United States Federal Income Tax under Section 401(a) and 501(a) of the Code, and Seller is not aware of any occurrence since the date of any such determination letter which would affect adversely such qualification or tax exemption. 33 (c) Neither Seller nor any ERISA Affiliate has engaged in any transaction described in Section 4069(a) or Section 4212(c) of ERISA. No Benefit Plan is a multiemployer plan. (d) Seller and Sellers' Affiliates have materially complied in good faith with the notice and continuation requirements of Section 4980B of the Code, and Part 6 of Subtitle B of Title I of ERISA with respect to any Benefit Plan. Seller and each ERISA Affiliate have complied in all material respects with the requirements of Part 7 of Title I of ERISA. 4.10 Real Property. Schedule 4.10 contains a description of the Real Property included in the Purchased Assets. Copies of any current surveys, abstracts or title opinions in Seller's or York Haven's possession and any policies of title insurance in force and in the possession of Seller or York Haven with respect to the Real Property have heretofore been made available to Buyer (without making any representation or warranty as to the accuracy or completeness thereof). Except as set forth in Schedule 4.10A, no real property other than the Real Property is necessary for Buyer to own, maintain and operate the Purchased Assets as they are currently used. 4.11 Condemnation. Except as set forth in Schedule 4.11, neither Seller nor York Haven has received any written notices of and otherwise has no Knowledge of any pending or threatened proceedings or governmental actions to condemn or take by power of eminent domain all or any part of the Purchased Assets. 4.12 Contracts and Leases. (a) Schedule 4.12(a) lists each written contract, license, agreement, or personal property lease which is material to the business or operations of the Purchased Assets, other than any contract, license, agreement or personal property lease which is listed or described on another Schedule, or which is expected to expire or terminate prior to the Closing Date, or which provides for annual payments by Seller or York Haven after the date hereof of less than $250,000 or payments by Seller or York Haven after the date hereof of less than $1,000,000 in the aggregate. (b)Except as disclosed in Schedule 4.12(b), each Seller's Agreement (i) constitutes a legal, valid and binding obligation of Seller or York Haven and, to Seller's or York Haven's Knowledge, constitutes a valid and binding obligation of the other parties thereto, and (ii) may be transferred to Buyer pursuant to this Agreement without the consent of the other parties thereto and will continue in full force and effect thereafter, unless in any such case the impact of such lack of legality, validity or binding nature, or inability to transfer, would not, individually or in the aggregate, create a Material Adverse Effect. 34 (c) Except as set forth in Schedule 4.12(c), there is not, under Seller's Agreements, any default or event which, with notice or lapse of time or both, would constitute a default on the part of Seller or York Haven or to Seller's or York Haven's Knowledge, any of the other parties thereto, except such events of default and other events which would not, individually or in the aggregate, create a Material Adverse Effect. 4.13 Legal Proceedings, etc. Except as set forth in Schedule 4.13, there are no actions or proceedings pending (or to Seller's knowledge overtly threatened) against Seller or York Haven before any court, arbitrator or Governmental Authority, which could, individually or in the aggregate, reasonably be expected to create a Material Adverse Effect. Except as set forth in Schedule 4.13, neither Seller nor York Haven is subject to any outstanding judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator or Governmental Authority which would, individually or in the aggregate, create a Material Adverse Effect. 4.14 Permits. (a) Each of Seller and York Haven has all permits, licenses, franchises and other governmental authorizations, consents and approvals, (other than Environmental Permits, which are addressed in Section 4.7 hereof) (collectively, "Permits") necessary to permit Seller or York Haven to own and operate the Purchased Assets except where the failure to have such Permits would not, individually or in the aggregate, create a Material Adverse Effect. Except as disclosed on Schedule 4.14(a), neither Seller nor York Haven has received any notification that it is in violation of any such Permits, except notifications of violations which would not, individually or in the aggregate, create a Material Adverse Effect. Each of Seller and York Haven is in compliance with all such Permits except where non-compliance would not, individually or in the aggregate, create a Material Adverse Effect. (b) Schedule 4.14(b) sets forth all material Permits and Environmental Permits, other than Transferable Permits (which are set forth on Schedule 1.1(108)) related to the Purchased Assets. 4.15 Taxes. Seller has filed all returns required to be filed by it with respect to any Tax relating to the Purchased Assets, and Seller has paid all Taxes that have become due as indicated thereon, except where such Tax is being contested in good faith by appropriate proceedings, or where the failure to so file or pay would not reasonably be expected to create a Material Adverse Effect. Seller has complied in all material respects with all applicable laws, rules and regulations relating to withholding Taxes relating to Transferred Employees. All Tax Returns relating to the Purchased Assets are true, correct and complete in all material respects. Except as set forth in Schedule 4.15, no notice of deficiency or assessment has been 35 received from any taxing authority with respect to liabilities for Taxes of Seller in respect of the Purchased Assets, which have not been fully paid or finally settled, and any such deficiency shown in Schedule 4.15 is being contested in good faith through appropriate proceedings. Except as set forth in Schedule 4.15, there are no outstanding agreements or waivers extending the applicable statutory periods of limitation for Taxes associated with the Purchased Assets that will be binding upon Buyer after the Closing. None of the Purchased Assets is property that is required to be treated as being owned by any other person pursuant to the so-called safe harbor lease provisions of former Section 168(f) of the Code, and none of the Purchased Assets is "tax-exempt use" property within the meaning of Section 168(h) of the Code. Schedule 4.15 sets forth the taxing jurisdictions in which Seller owns assets or conducts business that require a notification to a taxing authority of the transactions contemplated by this Agreement, if the failure to make such notification, or obtain Tax clearance certificates in connection therewith, would either require Buyer to withhold any portion of the Purchase Price or subject Buyer to any liability for any Taxes of Seller. 4.16 Intellectual Property. Schedule 2.1(l) sets forth all Intellectual Property used in and, individually or in the aggregate with other Intellectual Property, material to the operation or business of the Purchased Assets, each of which Seller or its Affiliates either has all right, title and interest in or valid and binding rights under contract to use. Except as disclosed in Schedule 4.16, (i) Seller is not, nor has it received any notice that it is, in default (or with the giving of notice or lapse of time or both, would be in default), under any contract to use such Intellectual Property, and (ii) to Seller's Knowledge, such Intellectual Property is not being infringed by any other Person. Neither Seller nor York Haven has received notice that it is infringing any Intellectual Property of any other Person in connection with the operation or business of the Purchased Assets, and Seller and York Haven, to its Knowledge, is not infringing any Intellectual Property of any other Person the effect of which, individually or in the aggregate, would have a Material Adverse Effect. 4.17 Capital Expenditures. Except as set forth in Schedule 6.1, there are no capital expenditures associated with the Purchased Assets that are planned by Seller through December 31, 1999. 4.18 Compliance With Laws. Each of Seller and York Haven is in compliance with all applicable laws, rules and regulations with respect to the ownership or operation of the Purchased Assets except where the failure to be in compliance would not, individually or in the aggregate, create a Material Adverse Effect. 36 4.19 PUHCA. Seller is a wholly owned subsidiary of GPU, Inc., which is a holding company registered under the Public Utility Holding Company Act of 1935. 4.19A Subsidiaries. York Haven does not own any subsidiaries nor any debt, preferred, common or other equity securities of any kind nor any equity or other interests in any other business, legal entity or arrangement. 4.19B Capitalization. The York Haven Stock, which consists of 500 shares of common stock, without par value, constitutes all of the issued and outstanding shares of capital stock of York Haven and is owned beneficially and of record by Seller, free and clear of all Encumbrances. The York Haven Stock has been duly authorized and validly issued, and is fully paid and non-assessable. There are no other authorized shares of capital stock of York Haven other than the 500 shares of common stock comprising the York Haven Stock. None of the shares comprising the York Haven Stock has been issued in violation of, or is subject to, any preemptive or subscription rights, rights of first refusal or offer, options, put or call rights, consent rights, restrictive covenants or agreements with any third party other than Buyer ("Restrictive Third Party Rights"). There are no outstanding securities convertible into or exchangeable for the capital stock of York Haven. Neither Seller nor York Haven has any obligation, contingent or otherwise, to issue, sell, repurchase, redeem or otherwise acquire any of the York Haven Stock or other capital stock of York Haven or any equity or debt securities of York Haven. 4.19C York Haven Tax Matters. With respect to the sale of the York Haven Stock, except as set forth on Schedule 4.19C: (i) York Haven has (x) duly and timely filed (or there has been filed on its behalf) with the appropriate taxing authorities all Tax Returns required to be filed by it, and all such Tax Returns are materially correct and (y) timely paid or there has been paid on its behalf all Taxes due or claimed to be due from it by any taxing authority; (ii) York Haven has, within the time and manner prescribed by law, withheld and paid over to the proper governmental authorities all amounts required to be withheld and paid over under all applicable laws; (iii) There are no Encumbrances for Taxes upon the assets or properties of York Haven, except for statutory encumbrances for current Taxes not yet due; (iv) York Haven has not requested any extension of time within which to file any Tax Return in respect of any taxable year which has not since been filed and no 37 outstanding waivers or comparable consents regarding the application of the statue of limitations with respect to any Taxes or Tax Returns has been given by or on behalf of York Haven; (v) No federal, state, local or foreign audits or other administrative proceedings or court proceedings ("Audits") exist or have been initiated with regard to any Taxes or Tax Returns of York Haven and York Haven has not received any written notice that such an audit is pending or threatened with respect to any Taxes due from or with respect to York Haven or any Tax Return field by or with respect to York Haven; (vi) York Haven has not requested or received a ruling from any taxing authority or signed a closing or other agreement with any taxing authority which could materially adversely affect York Haven; (vii) Except for the GPU Intercompany Tax Allocation Agreement, York Haven is not a party to, is not bound by, and has no obligation under, any Tax sharing agreement, Tax indemnification agreement or similar contract or arrangement; (viii) No power of attorney has been granted with respect to York Haven as to any matter relating to Taxes; (ix) York Haven has not filed a consent pursuant to Section 341(f) of the Code (or any predecessor provision) or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset, as such term is defined in Section 341(f)(4) of the Code, owned by York Haven; (x) No property owned by York Haven (A) is property required to be treated as being owned by another Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986, (B) constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of the Code or (C) is tax-exempt bond financed property within the meaning of Section 168(g) of the Code; (xi) Since December 31, 1996, York Haven has not incurred any liability for Taxes other than in the ordinary course of business; (xii) York Haven has no liability for Taxes of any person pursuant to Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law) other than for the consolidated return group of which GPU is the parent; 38 (xiii) York Haven has not participated in, or cooperated with, an international boycott within the meaning of Section 999 of the Code; and (xiii) York Haven is not a party to any contract, agreement or other arrangement which could result in the payment by it of amounts that could be nondeductible by reason of Section 280G or 162(m) of the Code. 4.19D Financial Statements. Attached hereto as Schedule 4.19D are the audited balance sheet, income statement and statement of cash flows of York Haven as at and for the year ended December 31, 1997, and the unaudited balance sheet, income statement and statement of cash flows of York Haven as at and for the six months ended June 30, 1998 (the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") and present fairly the financial condition of York Haven as of the dates set forth therein and results of operations for the periods set forth therein (subject in the case of the unaudited financial statements, to year end audit adjustments). The books and records of York Haven are complete in all material respects and have been maintained in accordance with GAAP or other applicable regulatory requirements. York Haven has no material liability or asset which is not disclosed in the Financial Statements and which is required to be disclosed in a balance sheet prepared in accordance with GAAP. 4.20 DISCLAIMERS REGARDING PURCHASED ASSETS EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED ASSETS ARE SOLD "AS IS, WHERE IS", AND SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO LIABILITIES, OPERATIONS OF THE PLANTS, THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF THE PURCHASED ASSETS AND SELLER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING BUT NOT LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER SELLER POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER FURTHER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE CONDITION OF THE PURCHASED ASSETS OR THE SUITABILITY OF THE 39 PURCHASED ASSETS FOR OPERATION AS A POWER PLANT AND NO SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION PROVIDED BY OR COMMUNICATIONS MADE BY SELLER OR ITS REPRESENTATIVES, OR BY ANY BROKER OR INVESTMENT BANKER, WILL CAUSE OR CREATE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS. Seller makes no warranties and representations of any kind, whether direct or implied, that any of the hardware, software, and firmware products (including embedded microcontrollers in non-computer equipment) which may be included in the Purchased Assets to be transferred under this Agreement (the "Computer Systems") is Year 2000 Compliant. For purposes hereof, "Year 2000 Compliant" shall mean that the Computer Systems will correctly differentiate between years, in different centuries, that end in the same two digits, and will accurately process date/time data (including, but not limited to, calculating, comparing, and sequencing) from, into, and between the twentieth and twenty-first centuries, including leap year calculations. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: 5.1. Organization. Buyer is a Delaware corporation, duly organized, validly existing and in good standing under the laws of the state of its organization and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as is now being conducted. Buyer is, or by the Closing will be, qualified to do business in the Commonwealth of Pennsylvania. Buyer has heretofore delivered to Seller complete and correct copies of its Certificate of Incorporation and Bylaws (or other similar governing documents) as currently in effect. 5.2 Authority Relative to this Agreement. Buyer has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by it hereby. The execution and delivery of this Agreement by Buyer and the consummation of the transactions contemplated hereby by Buyer have been duly and validly authorized by all necessary corporate action required on the part of Buyer. This Agreement has been duly and validly executed and delivered by Buyer. Subject to the receipt of Buyer Required Regulatory Approvals, this Agreement constitutes a legal, valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to 40 enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 5.3. Consents and Approvals; No Violation. (a) Except as set forth in Schedule 5.3(a), and subject to obtaining Buyer Required Regulatory Approvals, neither the execution and delivery of this Agreement by Buyer nor the consummation by Buyer of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws (or other similar governing documents) of Buyer, or (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Buyer or any of its Subsidiaries is a party or by which any of their respective assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, have a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Buyer ("Buyer Material Adverse Effect") or (iii) violate any law, regulation, order, judgment or decree applicable to Buyer, which violations, individually or in the aggregate, would create a Buyer Material Adverse Effect. (b) Except as set forth in Schedule 5.3(b) (the filings and approvals referred to in such Schedule are collectively referred to as the "Buyer Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for Buyer's execution and delivery of this Agreement, or the consummation by Buyer of the transactions contemplated hereby, other than such consents, approvals, filings or notices, which, if not obtained or made, will not prevent Buyer from performing its obligations under this Agreement. 5.4 Availability of Funds. Buyer has sufficient funds and lines of credit available to it or has received binding written commitments from creditworthy financial institutions, copies of which have been provided to Seller, to provide sufficient funds on the Closing Date to pay the Purchase Price and to permit Buyer to timely perform all of its obligations under this Agreement. 5.5 Legal Proceedings. There are no actions or proceedings pending against Buyer before any court or arbitrator or Governmental Authority, which, individually or in the aggregate, could reasonably be expected to create a Buyer Material Adverse Effect. Buyer is not subject to any outstanding judgments, rules, orders, writs, injunctions or decrees of any court, 41 arbitrator or Governmental Authority which would, individually or in the aggregate, create a Buyer Material Adverse Effect. 5.6 No Knowledge of Seller's Breach. Buyer has no Knowledge of any breach by Seller of any representation or warranty of Seller, or of any other condition or circumstance that would excuse Buyer from its timely performance of its obligations hereunder. Buyer shall notify Seller promptly if any such information comes to its attention prior to the Closing. 5.7. Qualified Buyer. Buyer is qualified to obtain any Permits and Environmental Permits necessary for Buyer to own and operate the Purchased Assets as of the Closing. Without limiting the foregoing, Buyer is not aware of any reason or circumstance that would prevent Buyer from procuring Buyer Required Regulatory Approvals associated with Exempt Wholesale Generator (as defined in the Public Utility Holding Company Act of 1935) status and market-based rate authorization specified in items 3 and 2 of Schedule 5.3(b). 5.8 Inspections. Without limitation of Seller's representations, warranties and covenants contained in this Agreement or the Ancillary Agreements, Buyer acknowledges and agrees that it has, prior to its execution of this Agreement, (i) reviewed the Environmental Reports, (ii) had full opportunity to conduct to its satisfaction Inspections of the Purchased Assets, including the Sites, and (iii) fully completed and approved the results of all Inspections of the Purchased Assets. Subject to the restrictions set forth in Section 6.2(a), Buyer acknowledges that it is satisfied through such review and Inspections that no further investigation and study on or of the Sites is necessary for the purposes of acquiring the Purchased Assets for Buyer's intended use. Buyer acknowledges and agrees that it hereby assumes the risk that adverse past, present, and future physical characteristics and Environmental Conditions may not have been revealed by its Inspections and the investigations of the Purchased Assets contained in the Environmental Reports. In making its decision to execute this Agreement, and to purchase the Purchased Assets, Buyer has relied on and will rely upon, among other things, the results of its Inspections and the Environmental Reports. 5.9 WARN Act. Buyer does not intend to engage in a Plant Closing or Mass Layoff as such terms are defined in the WARN Act within sixty days of the Closing Date. 5.10 Securities Laws. Buyer acknowledges that the offer and sale of the York Haven Stock have not been registered under the Securities Act of 1933 or any state securities laws, and affirms that it is not acquiring such shares with a view toward distribution in violation of such act or any state securities laws. 42 ARTICLE VI COVENANTS OF THE PARTIES 6.1 Conduct of Business Relating to the Purchased Assets. (a) Except as described in Schedule 6.1 or as expressly contemplated by this Agreement or to the extent Buyer otherwise consents in writing, during the period from the date of this Agreement to the Closing Date, Seller (i) will operate (or cause York Haven to operate) the Purchased Assets in the ordinary course of business consistent with the past practices of Seller, York Haven or its Affiliates or with Good Utility Practices, (ii) shall use all Commercially Reasonable Efforts to preserve intact such Purchased Assets, and endeavor to preserve the goodwill and relationships with customers, suppliers and others having business dealings with it, (iii) shall maintain the insurance coverage described in Section 4.4, (iv) shall comply with all applicable laws relating to the Purchased Assets, including without limitation, all Environmental Laws, except where the failure to so comply would not result in a Material Adverse Effect, and (v) shall continue with Seller's program, or (at Buyer's expense) as Buyer may direct, to install such equipment or software with respect to Year 2000 Compliance in accordance with Seller's plans referred to in Section 2.1(k). Without limiting the generality of the foregoing, and, except as (x) contemplated in this Agreement, (y) described in Schedule 6.1, or (z) required under applicable law or by any Governmental Authority, prior to the Closing Date, without the prior written consent of Buyer, Seller shall not with respect to the Purchased Assets: (i) Make any material change in the levels of Inventories customarily maintained by Seller or York Haven or its Affiliates with respect to the Purchased Assets, other than changes which are consistent with Good Utility Practices; (ii) Sell, lease (as lessor), encumber, pledge, transfer or otherwise dispose of, any material Purchased Assets individually or in the aggregate (except for Purchased Assets used, consumed or replaced in the ordinary course of business consistent with past practices of Seller or York Haven or its Affiliates or with Good Utility Practices) other than to encumber Purchased Assets with Permitted Encumbrances; (iii) Modify, amend or voluntarily terminate prior to the expiration date any of Seller's Agreements or Real Property Leases or any of the Permits or Environmental Permits associated with such Purchased Assets in any material respect, other than (a) in the ordinary course of business, to the extent consistent with the past practices 43 of Seller, York Haven or its Affiliates or with Good Utility Practices, (b) with cause, to the extent consistent with past practices of Seller, York Haven or its Affiliates or with Good Utility Practices, or (c) as may be required in connection with transferring Seller's rights or obligations thereunder to Buyer pursuant to this Agreement; (iv) Except as otherwise provided herein, enter into any commitment for the purchase, sale, or transportation of fuel having a term greater than six months and not terminable on or before the Closing Date either (i) automatically, or (ii) by option of Seller or York Haven (or, after the Closing, by Buyer) in its sole discretion, if the aggregate payment under such commitment for fuel and all other outstanding commitments for fuel not previously approved by Buyer would exceed $1,000,000 for all Aggregate Purchased Assets; (v) Sell, lease or otherwise dispose of Emission Allowances, or Emission Reduction Credits identified in Schedule 2.1(h), except to the extent necessary to operate the Purchased Assets in accordance with this Section 6.1; (vi) Except as otherwise provided herein, enter into any contract, agreement, commitment or arrangement relating to the Purchased Assets that individually exceeds $250,000 or in the aggregate exceeds $1,000,000 unless it is terminable by Seller or York Haven (or, after the Closing, by Buyer) without penalty or premium upon no more than sixty (60) days notice; (vii) Except as otherwise required by the terms of the Collective Bargaining Agreement, (a) hire at, or transfer to the Purchased Assets, any new employees prior to the Closing, other than to fill vacancies in existing positions in the reasonable discretion of Seller or York Haven, (b) increase salaries or wages of employees employed in connection with the Purchased Assets prior to the Closing other than in the ordinary course of business and in accordance with Seller's past practices, (c) take any action prior to the Closing to effect a change in a Collective Bargaining Agreement, or (d) take any action prior to the Closing to increase the aggregate benefits payable to the employees employed in connection with the Purchased Assets other than increases for Non-Union Employees in the ordinary course of business and in accordance with Seller's past practices or (e) enter into any employment contracts with employees at the Purchased Assets or any collective bargaining agreements with labor organizations representing such employees; 44 (viii) Make any Capital Expenditures except as permitted by Section 3.3(a)(iii) or for Seller's account; and (ix) Except as otherwise provided herein, enter into any written or oral contract, agreement, commitment or arrangement with respect to any of the proscribed transactions set forth in the foregoing paragraphs (i) through (viii). 6.2. Access to Information. (a) Between the date of this Agreement and the Closing Date, Seller will, at reasonable times and upon reasonable notice: (i) give Buyer and its Representatives reasonable access to its and York Haven's managerial personnel and to all books, records, plans, equipment, offices and other facilities and properties constituting the Purchased Assets; (ii) furnish Buyer with such financial and operating data and other information with respect to the Purchased Assets as Buyer may from time to time reasonably request, and permit Buyer to make such reasonable Inspections thereof as Buyer may request; (iii) furnish Buyer at its request a copy of each material report, schedule or other document filed by Seller, York Haven or any of its Affiliates with respect to the Purchased Assets with the SEC, FERC, PaPUC, PaDEP, or any other Governmental Authority; and (iv) furnish Buyer with all such other information as shall be reasonably necessary to enable Buyer to verify the accuracy of the representations and warranties of Seller contained in this Agreement; provided, however, that (A) any such inspections and investigations shall be conducted in such a manner as not to interfere unreasonably with the operation of the Purchased Assets, (B) Seller shall not be required to take any action which would constitute a waiver of the attorney-client privilege, and (C) Seller need not supply Buyer with any information which Seller is under a legal or contractual obligation not to supply. Notwithstanding anything in this Section 6.2 to the contrary, Seller will only furnish or provide such access to Transferring Employee Records and will not furnish or provide access to other employee personnel records or medical information unless required by law or specifically authorized by the affected employee, nor shall Buyer have the right to administer to any of Seller's employees any skills, aptitudes, psychological profile, or other employment related test. Seller agrees to provide Buyer with copies of all documents and reports, including without limitation testing reports, provided to or received from Siemens Power Corporation under the Siemens' Agreement with respect to the testing and commissioning of Portland Unit 5. Buyer shall not have the right to perform or conduct any environmental sampling or testing at, in, on, or underneath the Purchased Assets. 45 (b) Each Party shall, and shall use its best efforts to cause its Representatives to, (i) keep all Proprietary Information of the other Party confidential and not to disclose or reveal any such Proprietary Information to any person other than such Party's Representatives and (ii) not use such Proprietary Information other than in connection with the consummation of the transactions contemplated hereby. After the Closing Date, any Proprietary Information to the extent related to the Purchased Assets shall no longer be subject to the restrictions set forth herein. The obligations of the Parties under this Section 6.2(b) shall be in full force and effect for three (3) years from the date hereof and will survive the termination of this Agreement, the discharge of all other obligations owed by the Parties to each other and the closing of the transactions contemplated by this Agreement. (c) For a period of seven (7) years after the Closing Date (or such longer period as may be required by applicable law or Section 6.8(g)), each Party and its Representatives shall have reasonable access to all of the books and records of the Purchased Assets, including all Transferring Employee Records in the possession of the other Party to the extent that such access may reasonably be required by such Party in connection with the Assumed Liabilities or the Excluded Liabilities, or other matters relating to or affected by the operation of the Purchased Assets. Such access shall be afforded by the Party in possession of any such books and records upon receipt of reasonable advance written notice and during normal business hours. The Party exercising this right of access shall be solely responsible for any costs or expenses incurred by it or the other Party with respect to such access pursuant to this Section 6.2(c). If the Party in possession of such books and records shall desire to dispose of any books and records upon or prior to the expiration of such seven-year period (or any such longer period), such Party shall, prior to such disposition, give the other Party a reasonable opportunity at such other Party's reasonable expense, to segregate and remove such books and records as such other Party may select. (d) Notwithstanding the terms of Section 6.2(b) above, the Parties agree that prior to the Closing Buyer may reveal or disclose Proprietary Information to any other Persons in connection with Buyer's financing of its purchase of the Purchased Assets or any equity participation in Buyer's purchase of the Purchased Assets (provided that such Persons agree in writing to maintain the confidentiality of the Proprietary Information in accordance with this Agreement). (e) Upon the other Party's prior written approval (which will not be unreasonably withheld or delayed), either Party may provide Proprietary Information of the other Party to the PaPUC, the SEC, the FERC or any other Governmental Authority with jurisdiction or any stock exchange, as may be necessary to 46 obtain Seller's Required Regulatory Approvals, or Buyer Required Regulatory Approvals, respectively, or to comply generally with any relevant law or regulation. The disclosing Party will seek confidential treatment for the Proprietary Information provided to any Governmental Authority and the disclosing Party will notify the other Party as far in advance as is practicable of its intention to release to any Governmental Authority any Proprietary Information. (f) Except as specifically provided herein or in the Confidentiality Agreement, nothing in this Section shall impair or modify any of the rights or obligations of Buyer or its Affiliates under the Confidentiality Agreement, all of which remain in effect until termination of such agreement in accordance with its terms. (g) Except as may be permitted in the Confidentiality Agreement, Buyer agrees that, prior to the Closing Date, it will not contact any vendors, suppliers, employees, or other contracting parties of Seller, York Haven or its Affiliates with respect to any aspect of the Purchased Assets or the transactions contemplated hereby, without the prior written consent of Seller, which consent shall not be unreasonably withheld. (h) (i) Buyer shall be entitled to inspect, in accordance with this Section 6.2(h), all of the Purchased Assets located adjacent to any Point of Interconnection (as defined in the Interconnection Agreement), as shown in Schedule A to the Interconnection Agreement, to verify and/or determine the accuracy of the data, drawings, and records described in such Schedule. The Parties shall cooperate to schedule Buyer's inspection at the Plants so that any interference with the operation of the Plants is minimized, to the extent reasonably feasible, and so that Buyer may complete its inspections of the Plants within thirty (30) working days of commencement of inspections and within two (2) months after the execution of this Agreement. (ii) Seller shall provide, or shall cause to be provided, to Buyer, access to the Plants at the times scheduled for the inspections referred to in clause (i) above. Seller shall provide qualified engineering, operations, and maintenance personnel to escort Buyer's personnel and to assist Buyer's personnel in conducting the inspections. Seller and Buyer shall each bear their own costs of participating in the inspections. At a mutually convenient time not more than one (1) month after Buyer has completed its inspections, the Parties shall meet to discuss whether, as a result of the inspections, it is appropriate to modify Schedule A to the Interconnection Agreement to portray more accurately the Points of Interconnection. Any modification to any portion of Schedule A of the Interconnection Agreement to which the Parties agree shall 47 thereafter be deemed part of Schedule A of the Interconnection Agreement for all purposes under the Interconnection Agreement. 6.3 Public Statements. Subject to the requirements imposed by any applicable law or any Governmental Authority or stock exchange, prior to the Closing Date, no press release or other public announcement or public statement or comment in response to any inquiry relating to the transactions contemplated by this Agreement shall be issued or made by any Party without the prior approval of the other Parties (which approval shall not be unreasonably withheld). The Parties agree to cooperate in preparing such announcements. 6.4 Expenses. Except to the extent specifically provided herein, whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the Party incurring such costs and expenses. Notwithstanding anything to the contrary herein, Buyer will be responsible for (a) all costs and expenses associated with the obtaining of any title insurance policy and all endorsements thereto that Buyer elects to obtain and (b) all filing fees under the HSR Act. 6.5 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the Parties hereto shall use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the purchase and sale of the Purchased Assets pursuant to this Agreement and the assumption of the Assumed Liabilities, including without limitation using its best efforts to ensure satisfaction of the conditions precedent to each Party's obligations hereunder, including obtaining all necessary consents, approvals, and authorizations of third parties and Governmental Authorities required to be obtained in order to consummate the transactions hereunder, and to effectuate a transfer of the Transferable Permits to Buyer. Buyer agrees to perform all conditions required of Buyer in connection with Seller's Required Regulatory Approvals, other than those conditions which would create a Buyer Material Adverse Effect. Neither of the Parties hereto shall, without prior written consent of the other Party, take or fail to take any action, which might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. (b) Buyer agrees that prior to the Closing Date, neither Buyer nor any of its Affiliates will enter into any other contract to acquire, nor acquire, electric generation facilities 48 located in the control area recognized by the North American Reliability Council as the PJM Control Area if the proposed acquisition of such additional electric generation facilities might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. Buyer shall give Seller reasonable advance notice (and in any event not less than 30 days) before Buyer enters into contracts to acquire or acquires any electric generation facility located in said PJM Control Area. (c) In the event that any Purchased Asset shall not have been conveyed to Buyer at the Closing, Seller shall, subject to Section 6.5(d) and (e), use Commercially Reasonable Efforts to convey such asset to Buyer as promptly as is practicable after the Closing. In the event that any Easement shall not have been granted by Buyer to Seller at the Closing, Buyer shall use Commercially Reasonable Efforts to grant such Easement to Seller as promptly as is practicable after the Closing. (d) To the extent that Seller's rights under any Seller's Agreement or Real Property Lease may not be assigned without the consent of another Person which consent has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign the same, if an attempted assignment would constitute a breach thereof or be unlawful. Seller and Buyer agree that if any consent to an assignment of any material Seller's Agreement or Real Property Lease shall not be obtained or if any attempted assignment would be ineffective or would impair Buyer's rights and obligations under the material Seller's Agreement or Real Property Lease in question, so that Buyer would not in effect acquire the benefit of all such rights and obligations, Seller, at Buyer's option and to the maximum extent permitted by law and such material Seller's Agreement or Real Property Lease, shall, after the Closing Date, appoint Buyer to be Seller's agent with respect to such material Seller's Agreement or Real Property Lease, or, to the maximum extent permitted by law and such material Seller's Agreement or Real Property Lease, enter into such reasonable arrangements with Buyer or take such other actions as are necessary to provide Buyer with the same or substantially similar rights and obligations of such material Seller's Agreement or Real Property Lease as Buyer may reasonably request. Seller and Buyer shall cooperate and shall each use Commercially Reasonable Efforts prior to and after the Closing Date to obtain an assignment of such material Seller's Agreement or Real Property Lease to Buyer. (e) To the extent that Seller's rights under any warranty or guaranty described in Section 2.1(i) may not be assigned without the consent of another Person, which consent has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign same, if an attempted 49 assignment would constitute a breach thereof, or be unlawful. Seller and Buyer agree that if any consent to an assignment of any such warranty or guaranty shall not be obtained, or if any attempted assignment would be ineffective or would impair Buyer's rights and obligations under the warranty or guaranty in question, so that Buyer would not in effect acquire the benefit of all such rights and obligations, Seller, at Buyer's expense, shall use Commercially Reasonable Efforts, to the extent permitted by law and such warranty or guaranty, to enforce such warranty or guaranty for the benefit of Buyer so as to provide Buyer to the maximum extent possible with the benefits and obligations of such warranty or guaranty. (f) Between the date hereof and the Closing, Buyer shall have the right to commence the regulatory approval processes associated with the construction and operation of new, modified or repowered electric generating units and associated equipment at the Real Property. Seller shall provide reasonable assistance to Buyer, under Buyer's reasonable direction, in obtaining all Permits required (i) to own and operate the Purchased Assets as contemplated by the Agreement and the Ancillary Agreements and (ii) to construct and operate such new or modified facilities, provided, however, that Buyer shall reimburse Seller for all reasonable costs incurred by Seller in its assistance of Buyer hereunder. 6.6 Consents and Approvals. (a) As promptly as possible after the date of this Agreement, Seller and Buyer, as applicable, shall each file or cause to be filed with the Federal Trade Commission and the United States Department of Justice any notifications required to be filed under the HSR Act and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. The Parties shall use their respective best efforts to respond promptly to any requests for additional information made by either of such agencies, and to cause the waiting periods under the HSR Act to terminate or expire at the earliest possible date after the date of filing. Buyer will pay all filing fees under the HSR Act but each Party will bear its own costs of the preparation of any filing. (b) As promptly as possible after the date of this Agreement, Buyer shall file with the FERC an application requesting Exempt Wholesale Generator status for Buyer, which filing may be made individually by Buyer or jointly with Seller in conjunction with other filings to be made with the FERC under this Agreement, as reasonably determined by the Parties. Prior to Buyer's submission of that application with the FERC, Buyer shall submit such application to Seller for review and comment and Buyer shall incorporate into the application any revisions reasonably requested by Seller. Buyer shall be solely responsible for the cost of preparing and filing this 50 application, any petition(s) for rehearing, or any re-application. If Buyer's initial application for Exempt Wholesale Generator status is rejected by the FERC, Buyer agrees to petition the FERC for rehearing and/or to re-submit an application with the FERC, as reasonably required by Seller, provided that in either case the action directed by Seller does not create a Buyer Material Adverse Effect. (c) As promptly as possible after the date of this Agreement, Buyer shall file with the FERC an application requesting authorization under Section 205 of the Federal Power Act to sell electric generating capacity and energy, but not other services, including, without limitation, ancillary services, at wholesale at market-based rates, which filing may be made individually by Buyer or jointly with Seller in conjunction with other filings to be made with the FERC under this Agreement, as reasonably determined by the Parties. Prior to the filing of that application with the FERC, Buyer shall submit such application to Seller for review and comment and Buyer shall incorporate into the application any revisions reasonably requested by Seller. Buyer shall be solely responsible for the cost of preparing and filing this application, any petition(s) for rehearing, or any reapplication. If Buyer's initial application for market-based rate authorization results in a FERC request for additional information or is rejected by the FERC, Buyer shall provide that information promptly, to petition the FERC for rehearing and/or to re-submit an application with the FERC, as reasonably required by Seller, provided that Seller shall have a reasonable opportunity to make changes to such a petition or re-submission application and, provided further, that the action directed by Seller does not create a Buyer Material Adverse Effect. (d) As promptly as possible, and in any case within sixty (60) days, after the date of this Agreement, Seller and Buyer, as applicable, shall file with the PaPUC, the FERC and any other Governmental Authority, and make any other filings required to be made with respect to the transactions contemplated hereby. The Parties shall respond promptly to any requests for additional information made by such agencies, and use their respective best efforts to cause regulatory approval to be obtained at the earliest possible date after the date of filing. Each Party will bear its own costs of the preparation of any such filing. (e) Without limitation of Section 10.11, Seller and Buyer shall cooperate with each other and promptly prepare and file notifications with, and request Tax clearances from, state and local taxing authorities in jurisdictions in which a portion of the Purchase Price may be required to be withheld or in which Buyer would otherwise be liable for any Tax liabilities of Seller pursuant to such state and local Tax law. 51 (f) Buyer shall have the primary responsibility for securing the transfer, reissuance or procurement of the Permits and Environmental Permits (other than Transferable Permits) effective as of the Closing Date. Seller shall cooperate with Buyer's efforts in this regard and assist in any transfer or reissuance of a Permit or Environmental Permit held by Seller or the procurement of any other Permit or Environmental Permit when so requested by Buyer. 6.7. Fees and Commissions. Seller, on the one hand, and Buyer, on the other hand, represent and warrant to the other that, except for Goldman, Sachs & Co., which are acting for and at the expense of Seller, no broker, finder or other Person is entitled to any brokerage fees, commissions or finder's fees in connection with the transaction contemplated hereby by reason of any action taken by the Party making such representation. Seller, on the one hand, and Buyer, on the other hand, will pay to the other or otherwise discharge, and will indemnify and hold the other harmless from and against, any and all claims or liabilities for all brokerage fees, commissions and finder's fees (other than the fees, commissions and finder's fees payable to the parties listed above) incurred by reason of any action taken by the indemnifying party. 6.8. Tax Matters. (a) All transfer and sales taxes incurred in connection with this Agreement and the transactions contemplated hereby (including, without limitation, (a) Pennsylvania sales tax; and (b) the Pennsylvania realty transfer taxes on conveyances of interests in real property (including such taxes assessed by Pennsylvania municipalities as well as by the Commonwealth of Pennsylvania itself)) shall be borne by Buyer. Except for the Pennsylvania Realty Transfer Tax Statement of Value, which shall be filed by Buyer, Seller shall file, to the extent required by, or permissible under, applicable law, all necessary Tax Returns and other documentation with respect to all such transfer and sales taxes, and, if required by applicable law, Buyer shall join in the execution of any such Tax Returns and other documentation. Prior to the Closing Date, to the extent applicable, Buyer shall provide to Seller appropriate certificates of Tax exemption from each applicable taxing authority. (b) With respect to Taxes to be prorated in accordance with Section 3.5 of this Agreement, Buyer shall prepare and timely file all Tax Returns required to be filed after the Closing Date with respect to the Purchased Assets, if any, and shall duly and timely pay all such Taxes shown to be due on such Tax Returns. Buyer's preparation of any such Tax Returns shall be subject to Seller's approval, which approval shall not be unreasonably withheld. Buyer shall make such Tax Returns 52 available for Seller's review and approval no later than fifteen (15) Business Days prior to the due date for filing each such Tax Return. (c) Within fifteen (15) Business Days after receipt of a Tax Return referred to in Section 6.8(b), Seller shall pay to Buyer Seller's share of the amount shown on such Tax Return, less payments on account of such Taxes previously made by Seller. To the extent that Seller's previous payments exceed Seller's share, the Buyer shall pay such excess to Seller. With respect to real estate taxes, evidence of payment shall be delivered by Seller to Buyer at the Closing. As soon as practicable after the Closing, Seller and Buyer shall cooperate in the filing of an amended return and/or other documents in order to obtain the available refund with respect to any Closing Year PURTA Tax. Buyer shall be entitled to such refund to the extent, but only to the extent, that it does not exceed any payments made by Buyer on account of such PURTA liability. (d) Buyer and Seller shall provide the other with such assistance as may reasonably be requested by the other Party in connection with the preparation of any Tax Return, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to liability for Taxes, and each shall retain and provide the requesting party with any records or information which may be relevant to such return, audit, examination or proceedings. Any information obtained pursuant to this Section 6.8(d) or pursuant to any other Section hereof providing for the sharing of information or review of any Tax Return or other instrument relating to Taxes shall be kept confidential by the parties hereto. Schedule 6.8 sets forth procedures to be followed with respect to the tax appeals and audits referred to therein. (e) York Haven Tax matters. (1) Section 338(h)(10) Election. (i) With respect to the sale of the York Haven Stock, GPU (it being understood that Met-Ed shall cause GPU to comply with its obligations in this Section 6.8(e)) and Buyer shall jointly make the election provided for by section 338(h)(10) of the Code and Section 1.338(h)(10)-1 of the Treasury Regulations promulgated under the code and any comparable election under state or local tax law (the "Election"). As soon as practicable after the Closing Date, with respect to such Election, GPU and Buyer shall mutually prepare a Form 8023-A, with all attachments, and GPU shall sign such Form 8023-A. Buyer and GPU shall also cooperate with each other to take all actions necessary and appropriate (including filing such additional forms, returns, elections, schedules and other documents as may be required) to effect and preserve such Election in accordance with the provisions of Section 53 1.338(h)(10)-1 of the Treasury Regulations (or any comparable provisions of state and local tax law) or any successor provisions. (ii) With respect to the Election, the parties shall endeavor to agree upon the amount of the Modified Aggregate Deemed Sales Price as defined in Section 1.338(h)(10)-1 of the Treasury Regulations (the "Modified ADSP") and upon an allocation of such Modified ADSP among the assets of York Haven pursuant to Treasury Regulation Section 1.338(h)(10)-1. Buyer and Seller shall use their good faith Commercially Reasonable Efforts to agree upon such allocation within one hundred twenty (120) days of the date of this Agreement. In the event that the parties cannot agree on a mutually satisfactory allocation within said time period, the Independent Accounting Firm shall, at Seller's and Buyer's joint expense, determine the appropriate allocation. The finding of such Independent Accounting Firm shall be binding on the parties. The parties shall take no action inconsistent with, or fail to take any action necessary for the validity of the Election, and shall adopt and utilize the asset values determined from such reasonable allocation for the purpose of all Tax Returns filed by them, and shall not voluntarily take any action inconsistent therewith upon examination of any Tax Return, in any refund claim, in any litigation or otherwise with respect to such Tax Returns. Buyer and Seller shall notify and provide the other with reasonable assistance in the event of an examination, audit or other proceeding regarding the agreed upon allocation of the Modified ADSP. (2) Return Filing, Payments, Refunds and Credits. Notwithstanding anything to the contrary in Section 3.5 of this Agreement, (i) For purposes of this Agreement, the amount of Taxes of York Haven attributable to the pre-Closing portion of any taxable period beginning before and ending after the Closing Date (the "Straddle Period") shall be allocated between the pre-Closing and post-Closing portions based, in the case of real and personal property taxes, on a per diem basis, and in the case of all other Taxes (including, without limitation, Income Taxes), on the actual activities, income or loss of York Haven during such pre-Closing and post-Closing portions of the Straddle Period assuming a hypothetical closing of the books as of the end of the Closing Date; provided, further, that the taxes of York Haven that are attributable to the pre-Closing portion of any taxable period shall include any Taxes resulting from the gain on any deemed sale of assets by York Haven pursuant to Section 338 of the Code or any comparable provision under the laws of any other jurisdiction with respect to the transactions contemplated by this Agreement. 54 (ii) Buyer and Seller shall cause York Haven to join, for all pre-Closing periods and the Straddle Period for which York Haven is required or eligible to do so, in all consolidated, combined or unitary federal, state, or Local Income Tax or franchise Tax Returns of GPU (or any Tax Affiliate for all pre-Closing periods ("GPU's Tax Returns") and shall, in each jurisdiction where this is required or permissible under applicable law, cause the taxable year of York Haven to terminate as of the Closing Date. Seller shall cause to be prepared and timely filed all such GPU's Tax Returns and shall pay or cause to be paid all Taxes shown to be due on such GPU's Tax Returns; provided, however, that in the case of a GPU's Tax Return for the Straddle Period, Buyer shall or shall cause York Haven to pay to Seller the portion of such Taxes shown to be due thereon attributable to York Haven for the post-Closing Date portion of the Straddle Period determined in accordance with Section 6.8(e)(2)(i) and the GPU Intercompany Tax Allocation Agreement in effect on the date of the signing of this Agreement (the "GPU Intercompany Tax Allocation Agreement"). (iii) Buyer shall or shall cause York Haven to prepare and timely file all Income Tax Returns of York Haven for all pre-Closing periods and the Straddle Period, other than those referred to in Section 6.8(e)(2)(ii), which Income Tax Returns have not been filed as of the Closing Date, and shall cause to be timely paid all Taxes shown to be due on such Tax Returns. No later than ten days prior to the due date for the filing of each Income Tax Return referred to in this Section 6.8 (e)(2)(iii), GPU shall pay to York Haven the amount of Taxes shown as due thereon less any estimated Taxes paid by York Haven during the pre-Closing period; provided, however, that in the case of an Income Tax Return for a Straddle Period, Seller shall only be required to pay York Haven the portion of such Taxes that is attributable to the pre-Closing Date portion of such Straddle Period, determined in accordance with Section 6.8(e)(2)(i) and the GPU Intercompany Tax Allocation Agreement less any estimated Taxes paid by York Haven during the pre-Closing period. Seller shall fully cooperate with Buyer and York Haven in accordance with past practice in the preparation of the Income Tax Return as referred to in this Section 6.8(e)(2)(iii). (iv) Buyer shall or shall cause York Haven to prepare and timely file all Tax Returns for all pre-Closing periods and the Straddle Period, other than those Tax Returns referred to in Section 6.8(e)(2)(ii) and (iii), which Tax Returns have not been filed as of the Closing Date, and shall cause to be timely paid all Taxes shown to be due thereon. No later than ten days prior to the due date for the filing of each Tax Return referred to in this Section 6.8(e)(2)(iv), Seller shall pay to York Haven the amount shown as due thereon attributable to the pre-Closing Date portion of the Straddle Period less any estimated Taxes paid by York Haven during the pre-Closing period. 55 (v) The Tax Returns referred to in Section 6.8(e)(2)(ii), (iii) and (iv) shall be prepared in a manner consistent with past practice, unless a contrary treatment is required by an intervening change in the applicable law. Seller shall cause to be made available to Buyer a copy of any Tax Return that is required to be filed by GPU or York Haven under 6.8(e)(2)(ii) and Buyer shall cause to be made available to Seller a copy of any Tax Return that is required to be filed by Buyer or York Haven under Section 6.8(e)(2)(iii) or (iv), in each case together with all relevant work papers and other information. Each such Tax Return shall be made available for review and approval no later than 20 Business Days prior to the due date for the filing of such Tax Return (taking into account proper extensions), such approval not be unreasonably withheld. An exact copy of any such Tax Return filed by Buyer shall be provided to Seller and any such Tax Return filed by GPU shall be provided to Buyer, in each case, no later than ten days after such Tax Return is filed. To the extent that the Tax Returns that are the subject of this clause (v) are combined or consolidated tax returns, each reference to Tax Return shall be to a pro forma separate return of York Haven. (vi) Any refunds or credits of the Taxes of York Haven plus any interest received with respect thereto from the applicable taxing authorities for any pre-Closing period (including without limitation, refunds or credits arising from amended returns filed after the Closing Date) shall be for the account of Seller, except to the extent that such refunds or credits are attributable to the mandatory carryback of any deductions or credits for any Tax Period ending after a Closing Date and, if received by Buyer or York Haven, shall be paid to Seller within ten days after Buyer or York Haven receives such refund or after the relevant Tax Return is filed within which the credit is applied against Buyer's or York Haven's liability for Taxes for a period which begins after the Closing Date, net of any Taxes Buyer or York Haven is required to pay on account of receiving such refund or credit (including a reasonable estimate of resulting future Tax costs.) Seller, without the consent of Buyer, shall not apply for any refund that will create a material adverse effect on any post-Closing period Tax Return and shall not apply for any refund for any Straddle Period Tax Return or any Tax Return for York Haven that is not a consolidated, combined, or unitary Tax Return. Any refunds or credits of Taxes of York Haven for any Straddle Period shall be apportioned between Seller and Buyer in the same manner as the liability for such Taxes is apportioned pursuant to Section 6.8(e)(2)(i). (3) Tax Indemnification. (i) Without duplication, Seller shall indemnify, defend and hold Buyer and York Haven harmless from and against any and all Taxes (including interest and penalties) which may be suffered or incurred by Buyer or York Haven in respect of or relating to, directly or indirectly (x) 56 Taxes of or attributable to York Haven for all pre-Closing periods, (y) Taxes of or attributable to York Haven with respect to the pre-Closing portion of the Straddle period, and (z) Taxes payable by York Haven with respect to any pre-Closing period or Straddle Period by reason of York Haven being severally liable for the Tax of any Tax Affiliate pursuant to Treasury Regulation 1.1502-6 or any analogous state or local Tax law. (ii) Without duplication, Buyer shall indemnify, defend and hold Seller and each of its Affiliates harmless from and against any and all Taxes (including interest and penalties) which may be suffered or incurred by them in respect of or relating to, directly or indirectly (x) Taxes of or attributable to York Haven with respect to all post-Closing periods, and (y) Taxes of or attributable to York Haven with respect to the post-Closing portion of any Straddle Period. (iii) An indemnity payment due under this Section 6.8(e)(3) shall be made within thirty (30) days after (i) the party in control of the issue under Section 6.8(e)(4) determines not to contest the issue, the receipt of a formal notice or assessment from a taxing authority or the occurrence of any other event giving rise to the payment subject to an indemnity, or (ii) if the Party in control of the issue under Section 6.8(e)(4) determines to contest the issue, the earlier of the signing of a closing agreement or settlement agreement or any other similar agreement with the relevant tax authorities, the receipt of a deficiency notice with respect to which the period for filing a petition with the relevant court has expired, or a decision of any court of competent jurisdiction which is not subject to appeal or as to which the time for appeal has expired. (4) Tax Contest. (i) Seller and Buyer shall notify the other party in writing within 30 days of receipt of written notice of any pending or threatened tax examination, audit or other administrative or judicial proceeding (a "Tax Contest") that could reasonably be expected to result in an indemnification obligation under this Section 6.8(e) of such other party pursuant to this Section 6.8(e). If the recipient of such notice of a Tax Contest fails to provide such notice to the other party, it shall not be entitled to indemnification for any Taxes arising in connection with such Tax Contest, but only to the extent, if any, that such failure or delay shall have adversely affected the indemnifying party's ability to defend against, settle, or satisfy any action, suit or proceeding against it, or any damage, loss, claim, or demand for which the indemnified party is entitled to indemnification hereunder. (ii) If a Tax Contest relates to any period ending on or prior to the Closing Date or to any Taxes for which Seller is liable in full hereunder, Seller shall at its expense control the defense and settlement of such Tax Contest. If such Tax contest 57 relates to any period beginning after the Closing Date or to any Taxes for which Buyer is liable in full hereunder, Buyer shall at its own expense control the defense and settlement of such Tax Contest. The party not in control of the defense shall have the right to observe the conduct of any Tax Contest at its expense, including through its own counsel and other professional experts. Buyer and Seller shall jointly represent York Haven in any Tax Contest relating to a Straddle Period, and fees and expenses related to such representation shall be paid equally by Buyer and Seller. (iii) Notwithstanding anything to the contrary in section 6.8(e)(4)(ii), to the extent that an issue raised in any Tax Contest controlled by one party or jointly controlled could materially affect the liability for Taxes of the other party, the controlling party shall not, and neither party in the case of joint control shall, enter into a final settlement without the consent of the other party, which consent shall not be reasonably withheld. Where a party withholds its consent to any final settlement, that party may continue or initiate further proceedings, at its own expense, and the liability of the party that wished to settle (as between the consenting and the non-consenting party) shall not exceed the liability that would have resulted from the proposed final settlement including interest, additions to Tax, and penalties that have accrued at that time), and the non-consenting party shall indemnify the consenting party for such Taxes. Notwithstanding any provision of this Agreement to the contrary, this Section 6.8 shall survive for the duration of any applicable limitation periods. (5) Tax Sharing Agreements. Any Tax sharing agreement to which York Haven is a party shall be deemed terminated with respect to York Haven on, and effective as of, the Closing Date, and no Person shall have any rights or obligations under such Tax sharing agreement with respect to York Haven after such termination; provided, however, that the GPU Intercompany Tax allocation Agreement shall remain in effect with respect to York Haven in order to determine the portion of Seller's Tax liabilities attributable to York Haven, and to be paid to Seller under Section 6.8(e)(2)(ii) for the post-Closing Date portion of the Straddle Period. (f) Disputes. In the event that a dispute arises between Seller or GPU and Buyer as to the amount of Taxes, or indemnification, whether or not attributable to York Haven, or the amount of any allocation of Purchase Price under Section 3.4 or 6.8(e)(1)(ii) hereof, the parties shall attempt in good faith to resolve such dispute, and any agreed upon amount shall be paid to the appropriate party. If such dispute is not resolved 30 days thereafter, the parties shall submit the dispute to the 58 Independent Accounting firm for resolution, which resolution shall be final, conclusive and binding on the parties. Notwithstanding anything in this Agreement to the contrary, the fees and expenses of the Independent Accounting Firm in resolving the dispute shall be borne equally by Seller or GPU, as applicable, and Buyer. Any payment required to be made as a result of the resolution of the dispute by the Independent Accounting firm shall be made within ten days after such resolution, together with any interest determined by the Independent Accounting Firm to be appropriate. (g) Cooperation. York Haven and Seller shall (and Buyer and Seller shall cause York Haven to) cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns pursuant to this Agreement and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other Party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees (to the extent such employees were responsible for the preparation, maintenance or interpretation of information and documents relevant to Tax matters or to the extent required as witnesses in any Tax proceedings), available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Parties agree (i) to retain, and (in the case of Buyer) to cause York Haven to retain, all books and records with respect to Tax matters pertinent to York Haven relating to any taxable period beginning before the Closing Date until six months after the expiration of the statute of limitations (and, to the extent notified by Buyer or Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention obligations imposed by law or pursuant to agreements entered into with any taxing authority, and (ii) to give the other Party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Party so requests, Buyer or Seller, as the case may be, shall allow the other Party to take possession of such books and records. Buyer, York Haven and Seller further agree, upon request, to use their best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). At Seller's request, Buyer will cause York Haven to make and/or join with GPU in making after Closing any election of GPU's consolidated group for which each member's consent is required, if the making of such election does not have a material adverse impact on Buyer (or York Haven) for any post-acquisition Tax period. 59 6.9 Advice of Changes. Prior to the Closing, each Party will promptly advise the other in writing with respect to any matter arising after execution of this Agreement of which that Party obtains Knowledge and which, if existing or occurring at the date of this Agreement, would have been required to be set forth in this Agreement, including any of the Schedules hereto. Seller may at any time notify Buyer of any development causing a breach of any of its representations and warranties in Article IV. Unless Buyer has the right to terminate this Agreement pursuant to Section 9.1(f) below by reason of the developments and exercises that right within the period of fifteen (15) days after such right accrues, the written notice pursuant to this Section 6.9 will be deemed to have amended this Agreement, including the appropriate Schedule, to have qualified the representations and warranties contained in Article IV above, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the development. 6.10 Employees. (a) At least 90 days prior to the Closing Date (but in no case sooner than ninety (90) days after the date hereof), Buyer shall provide Seller with notice of its Union Employee staffing level requirements (which Buyer may determine in its sole discretion), listed by classification and operation, and shall be required to make reasonable efforts to offer employment to that number of Union Employees necessary to satisfy such staffing level requirements. As used herein, "Union Employees" means such employees of Seller who are covered by the Collective Bargaining Agreement as defined in Section 6.10(d) below, and who are listed in, or whose employment responsibilities are listed in, Schedule 6.10(a)(i) as "Plant Employees" or "Dedicated Support Staff" as associated with the Plants purchased by Buyer, and those Union Employees who are listed in, or whose employment responsibilities are listed in, Schedule 6.10(a)(ii) as "Mobile Maintenance" or "Corporate Support". Any offers of employment shall be made at least 60 days prior to the Closing Date. In each classification, Union Employees shall be so offered employment in order of their seniority. (b) Buyer is also entitled to determine its Non-Union Employee staffing level requirements in its sole discretion, and shall make reasonable efforts to make offers of employment with Buyer or any of its Affiliates, effective on the Closing Date, to Non-Union Employees consistent with such staffing levels. As used herein, "Non-Union Employees" means such salaried employees of Seller, Genco, GPUN or GPUS who are listed in, or whose employment responsibilities are listed in, Schedule 6.10(b) as "Plant Employees" or "Dedicated Support Staff", and those Non-Union Employees listed in, or whose employment responsibilities are listed in, Schedule 6.10(a)(ii) as "Mobile Maintenance" or "Corporate Support". Any offers of employment shall be made at least sixty (60) days prior to the Closing Date. Each person who becomes employed by Buyer or any of its Affiliates pursuant to Section 6.10(a) or (b) (whether pursuant to a Qualifying Offer or 60 otherwise) shall be referred to herein as a "Transferred Union Employee" or "Transferred Non-Union Employee", respectively. At least forty-five (45) days prior to the Closing Date, Buyer shall provide Seller with notice of those Non-Union Employees to whom it made a Qualifying Offer. As used herein, the term "Qualifying Offer" means an offer of employment at an annual level of compensation that is at least 85% of the employee's current total annual cash compensation (consisting of base salary and target incentive bonus) at the time the offer is made. Schedule 6.10(b) sets forth, for each of the Non-Union Employees listed therein, his or her current base salaries and target incentive bonuses. (c) All offers of employment made pursuant to Sections 6.10(a) or (b) shall be made in accordance with all applicable laws and regulations, and in addition, for Union Employees, in accordance with seniority and all other applicable provisions of the Collective Bargaining Agreement. (d) Schedule 6.10(d) sets forth the collective bargaining agreement, and amendments thereto, to which Seller is a party with the Union in connection with the Purchased Assets ("Collective Bargaining Agreement"). Transferred Union Employees shall retain their seniority and receive full credit for service with Seller in connection with entitlement to vacation and all other benefits and rights under the Collective Bargaining Agreement and under each compensation, retirement or other employee benefit plan or program Buyer is required to maintain for Transferred Union Employees pursuant to the Collective Bargaining Agreement. With respect to Transferred Union Employees, effective as of the Closing Date, Buyer shall assume the Collective Bargaining Agreement for the duration of its term as it relates to Transferred Union Employees to be employed at the Plants in positions covered by the Collective Bargaining Agreement and shall thereafter comply with all applicable obligations under the Collective Bargaining Agreement. Consistent with its obligations under the Collective Bargaining Agreement and applicable laws, Buyer shall be required to establish and maintain a pension plan and other employee benefit programs for the Transferred Union Employees for the duration of the term of the Collective Bargaining Agreement which are substantially equivalent to Seller's plans and programs in effect for the Transferred Union Employees immediately prior to the Closing Date (the "Seller's Plans"), and which provide at least the same level of benefits or coverage as do Seller's Plans for the duration of the Collective Bargaining Agreement. Buyer further agrees to recognize the Union as the collective bargaining agent for the applicable Transferred Union Employees. (e) Transferred Non-Union Employees shall be eligible to commence participation in welfare benefit plans of Buyer or its Affiliates as may be made available by Buyer (the "Replacement Welfare Plans"). Buyer shall (i) waive all limitations as to pre-existing condition exclusions and waiting 61 periods with respect to the Transferred Non-Union Employees under the Replacement Welfare Plans, other than, but only to the extent of, limitations or waiting periods that were in effect with respect to such employees under the welfare plans maintained by Seller, Genco, GPUN or GPUS or their Affiliates and that have not been satisfied as of the Closing Date, and (ii) provide each Transferred Non-Union Employee with credit for any co-payments and deductibles paid prior to the Closing Date in satisfying any deductible or out-of-pocket requirements under the Replacement Welfare Plans (on a pro-rata basis in the event of a difference in plan years). (f) Transferred Non-Union Employees shall be given credit for all service with Seller, Genco, GPUN, GPUS and their Affiliates under all deferred compensation, profit-sharing, 401(k), retirement pension, incentive compensation, bonus, fringe benefit and other employee benefit plans, programs and arrangements of Buyer ("Buyer Benefit Plans") in which they may become participants. The service credit so given shall be for purposes of eligibility and vesting, but shall not be for purposes of level of benefits and benefit accrual except to the extent that the Buyer Benefit Plans otherwise provide. (g) To the extent allowable by law, Buyer shall take any and all necessary action to cause the trustee of any defined contribution plan of Buyer or its Affiliates in which any Transferred Employee becomes a participant to accept a direct "rollover" of all or a portion of said employee's "eligible rollover distribution" within the meaning of Section 402 of the Code from the GPU Companies Employee Savings Plan for Non-Bargaining Employees or from the Employee Savings Plan for Bargaining Unit Employees maintained by JCP&L, Met-Ed or Penelec (the "Seller's Savings Plans") if requested to do so by the Transferred Employee. Buyer agrees that the property so rolled over and the assets so transferred may include promissory notes evidencing loans from Seller's Savings Plans to Transferred Employees that are outstanding as of the Closing Date. However, except as otherwise provided in Section 6.10(d), any defined contribution plan of Buyer or its Affiliates accepting such a rollover or transfer shall not be required to make any further loans to any Transferred Employee after the Closing Date. (h) Buyer shall pay or provide to Transferred Employees the benefits described in subparagraphs (i), (ii) and (iii) of this Section 6.10(h), and shall reimburse Seller for the cost of the benefits Seller or Seller's Affiliates will provide to Union Employees and Non-Union Employees in accordance with subparagraph (iv) of this Section 6.10(h). 62 (i) Buyer shall make a transition incentive payment in the amount of $2,500 to each Transferred Union Employee. Payment shall be made as soon as practicable after, but in any event no later than 60 days following, the Closing Date. (ii) In the case of each Transferred Non-Union Employee who is initially assigned by Buyer to a principal place of work that is at least 50 miles farther from the employee's principal residence than was his principal place of work immediately prior to the Closing Date and who relocates his or her principal residence to the vicinity of his or her new principal place of work within 12 months following the Closing Date, Buyer shall reimburse the employee for all "moving expenses" within the meaning of Section 217(b) of the Code incurred by the employee and other members of his or her household in connection with such relocation, up to a maximum aggregate amount of $5,000. Claims for reimbursement for such expenses shall be filed in accordance with such procedures, and shall be accompanied by such substantiation of the expenses for which reimbursement is sought, as Buyer may reasonably request. All claims for reimbursement shall be processed, and qualifying expenses shall be reimbursed, as soon as practicable after, but in any event no later than 60 days following, the date on which the employee's claim for reimbursement is submitted to Buyer. (iii) Buyer shall provide the severance benefits described in Section 1 of Schedule 6.10(h) to each Transferred Employee who is "Involuntarily Terminated" (as defined below) (a) within 12 months after the Closing Date or (b), in the case of any Transferred Non-Union Employee who had attained age 50 and had completed at least 10 Years of Service (as defined in Section 1(c) of Schedule 6.10(h)) prior to the Closing Date, on or any time prior to June 30, 2004. For purposes of this Section 6.10(h) and Schedule 6.10(h), a Transferred Employee shall be treated as "Involuntarily Terminated" if his or her employment with Buyer and all of its Affiliates is terminated by Buyer or any of its Affiliates for any reason other than for cause or disability. Buyer shall require any Transferred Employee who is Involuntarily Terminated, as a condition to receiving the severance benefits described in Section 1(b), (c), (d), (e) and (f) of Schedule 6.10(h), to execute a release of claims against Seller, Genco, GPUN or GPUS, as applicable, and all of their Affiliates, and Buyer, in such form as Buyer and Seller shall agree upon. 63 (iv) At the Closing or as soon thereafter as practicable, but in any event no later than 60 days following the Closing Date, Buyer shall pay to Seller, in addition to all other amounts to be paid by Buyer to Seller hereunder, an amount equal to Buyer's Allocable Share (as defined below) of the aggregate estimated cost that Seller or any of Seller's Affiliates will or may incur in providing the severance, pension, health care and group term life insurance benefits described in Section 2 of Schedule 6.10(h) to the Union Employees and Non-Union Employees therein described (collectively the "Termination Benefits"). The estimated cost of such benefits shall be calculated by the actuarial firm regularly engaged to provide actuarial services to the GPU Companies with respect to their pension, health care and life insurance plans, and shall be determined using the same assumptions as to mortality, turnover, interest rate and other actuarial assumption as used by such firm in determining the cost of benefits under the GPU Companies' pension, health and group term life insurance plans for purposes of their most recently issued financial statements prior to the Closing Date. For purposes of the foregoing, Buyer's "Allocable Share" shall be calculated as set forth in Schedule 6.10(h)(iv). (i) Buyer shall not be responsible for any payments required under any voluntary early retirement plan, program or arrangement offered by Seller, Genco, GPUN or GPUS in connection with the transfer of the Purchased Assets. Within thirty (30) days following the last day that any Union Employee or Non-Union Employee may elect to participate in any such plan offered by Seller, Genco, GPUN or GPUS, Seller shall provide Buyer with a list of all such employees who have so elected. (j) Seller shall be responsible, with respect to the Purchased Assets, for performing and discharging all requirements under the WARN Act and under applicable state and local laws and regulations for the notification of its employees of any "employment loss" within the meaning of the WARN Act which occurs prior to the Closing Date. (k) Buyer shall not be responsible for extending COBRA continuation coverage to any employees and former employees of Seller, Genco, GPUN or GPUS, or to any qualified beneficiaries of such employees and former employees, who become or became entitled to COBRA continuation coverage before the Closing, including those for whom the Closing occurs during their COBRA election period. (l) Seller or Seller's Affiliates shall pay to all Transferred Employees all compensation, bonus, vacation and holiday compensation, pension, profit sharing and other deferred compensation benefits, workers' compensation, or other employment 64 benefits to which they are entitled under the terms of the applicable compensation or benefit programs at such times as are provided therein. (m) Individuals who are otherwise "Union Employees" as defined in Section 6.10(a) or "Non-Union Employees" as defined in Section 6.10(b) but who on any date are not actively at work due to a leave of absence covered by the Family and Medical Leave Act ("FMLA"), or due to any other authorized leave of absence, shall nevertheless be treated as "Union Employees" or as "Non-Union Employees", as the case may be, on such date if they are able (i) to return to work within the protected period under the FMLA or such other leave (which in any event shall not extend more than twelve (12) weeks after the Closing Date), whichever is applicable, and (ii) to perform the essential functions of their jobs, with or without a reasonable accommodation. (n) Effective as of the day immediately preceding the Closing Date, Seller shall (i) cause York Haven to terminate or to transfer to one or more Affiliates of GPU, the employment of any individual in the employ of York Haven on such preceding day who will not be a Transferred Employee immediately following the Closing, and (ii) cause all Benefit Plans (if any) maintained by York Haven, and all liabilities and obligations of York Haven with respect to such plans, to be transferred to, and assumed by, one or more Affiliates of GPU other than York Haven. 6.11. Risk of Loss. (a) From the date hereof through the Closing Date, all risk of loss or damage to the property included in the Purchased Assets shall be borne by Seller, other than loss or damage caused by the acts or negligence of Buyer or any Buyer Representative, which loss or damage shall be the responsibility of Buyer. (b) If, before the Closing Date, all or any portion of the Purchased Assets is (i) taken by eminent domain or is the subject of a pending or (to the Knowledge of Seller) contemplated taking which has not been consummated, or (ii) damaged or destroyed by fire or other casualty, Seller shall notify Buyer promptly in writing of such fact, and (x) in the case of a condemnation, Seller shall assign or pay, as the case may be, any proceeds thereof to Buyer at the Closing and (y) in the case of a casualty, Seller shall either restore the damage or assign the insurance proceeds therefor (and pay the amount of any deductible and/or self-insured amount in respect of such casualty) to Buyer at the Closing. Notwithstanding the above, if such casualty or loss results in a Material Adverse Effect, Buyer and Seller shall negotiate to settle the loss resulting from such taking (and such negotiation shall include, without limitation, the negotiation of a fair and equitable adjustment to the Purchase Price). If no such settlement is reached within sixty (60) days after Seller has notified Buyer of such casualty or loss, then Buyer or Seller 65 may terminate this Agreement pursuant to Section 9.1(h). In the event of damage or destruction which Seller elects to restore, Seller will have the right to postpone the Closing for up to four (4) months. Buyer will have the right to inspect and observe, or have its representatives inspect or observe, all repairs necessitated by any such damage or destruction. 6.12 Additional Covenants of Buyer. Notwithstanding any other provision hereof, Buyer covenants and agrees that, after the Closing Date, Buyer will not make any modifications to the Purchased Assets or take any action which, in and of itself, results in a loss of the exclusion of interest on the Pollution Control Revenue Bonds issued on behalf of Seller in connection with the Purchased Assets from gross income for federal income purposes under Section 103 of the Code. Actions with respect to the Purchased Assets shall not constitute a breach by the Buyer of this Section 6.12 in the following circumstances: (i) Buyer ceases to use or decommissions any of the Purchased Assets or subsequently repowers such Purchased Assets that are no longer used or decommissioned (but does not hold such Purchased Assets for sale); (ii) Buyer acts with respect to the Purchased Assets in order to comply with requirements under applicable federal, state or local environmental or other laws or regulations; or (iii) Buyer acts in a manner the Seller (i.e. a reasonable private provider of electricity of similar stature as Seller) would have acted during the term of the Pollution Control Revenue Bonds (including, but not limited to, applying new technology). In the event Buyer acts or anticipates acting in a manner that will cause a loss of the exclusion of interest on the Pollution Control Revenue Bonds from gross income for federal income tax purposes, at the request of Buyer, Seller shall take any remedial actions permitted under the federal income tax law that would prevent a loss of such inclusion of interest from gross income on the Pollution Control Revenue Bonds. Buyer further covenants and agrees that, in the event that Buyer transfers any of the Purchased Assets, Buyer shall obtain from its transferee a covenant and agreement that is analogous to Buyer's covenant and agreement pursuant to the immediately preceding sentence, as well as a covenant and agreement that is analogous to that of this sentence. In addition, Buyer shall not, without 60 days advanced written notice to Seller (to the extent practicable under the circumstances), take any action which would result in (x) a change in the use of the assets financed with the Pollution Revenue Control Bonds from the use in which such assets were originally intended, or (y) a sale of such assets separate from the generating assets to which they relate, provided that no notice is required of the events set forth in clauses (i), (ii), or (iii) above. This covenant shall survive Closing and shall continue in effect so long as the pollution control bonds remain outstanding. 66 6.13. Additional York Haven Covenants. Buyer acknowledges and agrees that the property described in Schedule 4.5 relating to the York Haven Station is excluded from the Purchased Assets (the "Excluded York Haven Property"). Prior to the Closing, Seller shall have the right in its sole discretion to cause York Haven to transfer the Excluded York Haven Property to Seller or the purchaser of the Three Mile Island Unit 1 nuclear generating station, provided, however, that prior to the Closing, York Haven shall retain or cause to be retained, granted or otherwise created for the benefit of York Haven after the Closing all Easements or other rights required for Buyer to exercise its rights to the Fish Ladder as described in Schedule 4.10A. If the Excluded York Haven Property is not so transferred prior to the Closing, at any time after the Closing Buyer shall, within twenty (20) Business Days of Seller's written request, and subject to receipt of any required FERC approval, cause York Haven to transfer the Excluded York Haven Property free and clear of all Encumbrances other than those existing on the Excluded York Haven Property immediately prior to the Closing, to Seller or such purchaser by execution of a deed in substantially the form annexed to Schedule 4.5 and such other instruments as Seller may reasonably require, provided, however, prior to such transfer, York Haven shall retain or cause to be retained, granted or otherwise created for the benefit of York Haven after such transfer all Easements or other rights required for Buyer to exercise its rights to the Fish Ladder as described in Schedule 4.10A. ARTICLE VII CONDITIONS 7.1 Conditions to Obligations of Buyer. The obligation of Buyer to effect the purchase of the Purchased Assets and the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver by Buyer) of the following conditions: (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated. (b) No preliminary or permanent injunction or other order or decree by any federal or state court or Governmental Authority which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority which prohibits the consummation of the sale of the Purchased Assets; 67 (c) Buyer shall have received all of Buyer's Required Regulatory Approvals, and such approvals shall contain no conditions or terms which would result in a Material Adverse Effect; (d) Seller shall have performed and complied in all material respects with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Seller on or prior to the Closing Date; (e) The representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date; (f) Buyer shall have received certificates from an authorized officer of Seller, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Section 7.1(d) and (e) have been satisfied by Seller; (g) Buyer shall have received an opinion from Seller's counsel reasonably acceptable to Buyer, dated the Closing Date and reasonably satisfactory in form and substance to Buyer and its counsel, substantially to the effect that: (i) Each of Seller and York Haven is a corporation duly incorporated, validly existing and in good standing under the laws of its state of incorporation and has the corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as is now conducted, and to execute and deliver the Agreement and each Ancillary Agreement and to consummate the transactions contemplated thereby; and the execution and delivery of the Agreement by Seller and the consummation of the sale of the Purchased Assets and the other transactions contemplated thereby have been duly and validly authorized by all necessary corporate action required on the part of Seller; (ii) The Agreement and each Ancillary Agreement have been duly and validly executed and delivered by Seller and constitute legal, valid and binding agreements of Seller enforceable in accordance with their terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity); 68 (iii) The execution, delivery and performance of the Agreement and each Ancillary Agreement by Seller do not (A) conflict with the Certificate of Incorporation or Bylaws of Seller or (B) to the knowledge of such counsel, constitute a violation of or default under those agreements or instruments set forth on a Schedule attached to the opinion and which have been identified to such counsel as all the agreements and instruments which are material to the business or financial condition of Seller; (iv) The Bill of Sale, the deeds, the Assignment and Assumption Agreement and other transfer instruments described in Section 3.6 have been duly executed and delivered and are in proper form to transfer to Buyer such title as was held by Seller to the Purchased Assets; (v) No consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery of this Agreement by Seller, or the consummation by Seller of the transactions contemplated hereby, other than (i) such consents, approvals, filings or notices set forth in Schedule 4.3(b) or which, if not obtained or made, will not prevent Seller from performing its material obligations hereunder and (ii) such consents, approvals, filings or notices which become applicable to Seller or the Purchased Assets as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged; and (vi) The York Haven Stock is owned of record, and to such counsel's knowledge, beneficially by Seller free and clear of all Encumbrances. The York Haven Stock has been duly authorized and validly issued, and is fully paid and non-assessable. There are no other authorized shares of capital stock of York Haven other than the 500 shares of common stock comprising the York Haven Stock. None of the shares comprising the York Haven Stock has been issued in violation of, or is subject to, any statutory or, to such counsel's knowledge, other Restrictive Third Party Rights. To such counsel's knowledge, (i) there are no outstanding securities convertible into or exchangeable for the capital stock of York Haven or any restrictive covenants applicable to the York Haven Stock, and (ii) neither Seller nor York Haven has any obligation, contingent or otherwise, to issue, sell, repurchase, redeem or otherwise acquire any of the York Haven Stock or other capital stock of York Haven or any equity or debt securities of York Haven. Upon the consummation of the transactions contemplated in the Agreement, Buyer will have good and valid title to the York Haven Stock, to such counsel's knowledge, free and clear of all Encumbrances and Restrictive Third Party Rights. 69 In rendering the foregoing opinion, Seller's counsel may rely on opinions of counsel as to local laws reasonably acceptable to Buyer. (h) Seller shall have delivered, or caused to be delivered, to Buyer at the Closing, Seller's closing deliveries described in Section 3.6. (i) Since the date of this Agreement, no Material Adverse Effect shall have occurred and be continuing. (j) Buyer shall have received (at Buyer's cost) from a title insurance company and surveyor reasonably acceptable to Buyer an ALTA owner's title policy and ALTA survey, together with all endorsements reasonably requested by Buyer as are available, insuring title to all of the Real Property included in the Aggregate Purchased Assets, subject only to Permitted Encumbrances. Seller shall provide Buyer with a copy of a preliminary title report and survey for the Real Property as soon as available. (k) Final Equipment Turnover and Final Acceptance of Portland Unit 5 shall have occurred under the Siemens' Agreement, each as defined in said agreement. Buyer shall have received any and all rights under said agreement, including all claims against Siemens and all liquidated damages (received prior to or on the Closing and retained by Seller). Portland Unit 5 shall have been commissioned and placed into commercial operation at no cost whatsoever to Buyer. (l) The closings under the Purchase and Sale Agreements between JCP&L and Buyer, Penelec and Buyer, and JCP&L, Met-Ed, GPU and Buyer (collectively, the "Related Purchase Agreements"), shall have occurred or shall occur concurrently with the Closing and all conditions to the obligations of Buyer under the Related Purchase Agreements shall have been satisfied or waived by Buyer. (m) Buyer shall have received all Permits and Environmental Permits, to the extent necessary, to own and operate the Plants in accordance with past emissions and operating practices, except for those Permits and Environmental Permits, the absence of which would not in the aggregate have a Material Adverse Effect. (n) Seller's Required Regulatory Approvals shall contain no conditions or terms which would result in a Material Adverse Effect. (o) Neither the Real Property nor any portion thereof shall be part of a tax lot which includes any real property and/or buildings, facilities or other improvements other than that which comprises the Real Property. 70 (p) No Site, or any portion thereof (other than the Development Properties listed on Schedule 2.1), shall be subject to a zoning classification or classifications, rule or regulation, or a variance or special exception, which, individually or in the aggregate, does not permit such Site or any portion thereof, to be used as the same (i) is currently used for generation purposes or (ii) was historically used for generation purposes while under Seller's current ownership or the ownership of any Affiliate thereof, unless the failure of such Site or any portion thereof to be zoned to permit such use shall not result in a Material Adverse Effect. 7.2. Conditions to Obligations of Seller. The obligation of Seller to effect the sale of the Purchased Assets and the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver by Seller) of the following conditions: (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated; (b) No preliminary or permanent injunction or other order or decree by any federal or state court which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority in the United States which prohibits the consummation of the sale of the Purchased Assets; (c) Seller shall have received all of Seller's Required Regulatory Approvals applicable to them, containing no conditions or terms which would materially diminish the benefit of this Agreement to Seller or result in a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Seller ("Seller Material Adverse Effect"); (d) All consents and approvals for the consummation of the sale of the Purchased Assets contemplated hereby required under the terms of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Seller is party or by which Seller, or any of the Purchased Assets, may be bound, shall have been obtained, other than those which if not obtained, would not, individually and in the aggregate, create a Material Adverse Effect; 71 (e) Buyer shall have performed and complied with in all material respects the covenants and agreements contained in this Agreement which are required to be performed and complied with by Buyer on or prior to the Closing Date; (f) The representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date; (g) Seller shall have received a certificate from an authorized officer of Buyer, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Sections 7.2(e) and (f) have been satisfied by Buyer; (h) Effective upon Closing, Buyer shall have assumed, as set forth in Section 6.10, all of the applicable obligations under the Collective Bargaining Agreement as they relate to Transferred Union Employees; (i) Seller shall have received an opinion from Buyer's counsel reasonably acceptable to Seller, dated the Closing Date and satisfactory in form and substance to Seller and its counsel, substantially to the effect that: (i) Buyer is a Delaware corporation duly organized, validly existing and in good standing under the laws of the state of its organization and is qualified to do business in the Commonwealth of Pennsylvania and has the full corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as is now conducted, and to execute and deliver the Agreement and the Ancillary Agreements by Buyer and to consummate the transactions contemplated thereby; and the execution and delivery of the Agreement and the Ancillary Agreements by Buyer and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action required on the part of Buyer; (ii) The Agreement and the Ancillary Agreements have been duly and validly executed and delivered by Buyer, and constitute legal, valid and binding agreements of Buyer, enforceable against Buyer, in accordance with their terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting or relating to enforcement of creditor's rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity); 72 (iii) The execution, delivery and performance of the Agreement and the Ancillary Agreements by Buyer do not (A) conflict with the Certificate of Incorporation or Bylaws (or other organizational documents), as currently in effect, of Buyer or (B) to the knowledge of such counsel, constitute a violation of or default under those agreements or instruments set forth on a Schedule attached to the opinion and which have been identified to such counsel as all the agreements and instruments which are material to the business or financial condition of Buyer; (iv) The Assignment and Assumption Agreement and other transfer instruments described in Section 3.7 are in proper form for Buyer to assume the Assumed Liabilities; and (v) No consent or approval of, filing with, or notice to, any Governmental Authority is necessary for Buyer's execution and delivery of the Agreement and the Ancillary Agreements, or the consummation by Buyer of the transactions contemplated hereby and thereby, other than such consents, approvals, filings or notices, which, if not obtained or made, will not prevent Buyer from performing its respective obligations under the Agreement, the Ancillary Agreements and Guaranty. (j) Buyer shall have delivered, or caused to be delivered, to Seller at the Closing, Buyer's closing deliveries described in Section 3.7. 7.3 Zoning Condition Adjustments. (a) In the event that any Site or any portion thereof (other than the Development Properties listed in Schedule 2.1) shall be subject to a zoning classification or classifications, rule or regulation, or variance or special exception, which does not permit or otherwise restrict the Site or any portion thereof, to be used as the same (i) is currently used for generation purposes or (ii) was historically used for generation purposes while under Seller's current ownership or the ownership of any Affiliate thereof for generation purposes, and if such failure shall result in a material adverse effect on the use of such Site for generating purposes as currently used (or as so historically used), then, in such case, Buyer may, prior to the Closing on written notice to the Seller, exclude from the Purchased Assets such Site and the Purchased Assets related to such Site. Buyer and Seller shall thereupon negotiate a fair and equitable adjustment to the Purchase Price or, failing such agreement within 30 days, the adjustment shall be determined by appraisal in accordance with Section 7.3(b), the cost of which shall be shared equally be Buyer and Seller. 73 (b) The Parties shall select an Appraiser (as defined below) within 30 days of the expiration of the 30 day period referred to in Section 7.3(a). In the event the Parties cannot within such period agree on a single Appraiser, the Parties shall each within 15 days select a separate Appraiser, and such Appraisers shall within 15 days, later designate a third Appraiser to act hereunder. The Appraiser shall be instructed to provide a written report of the appropriate reduction of the Purchase Price to be allocated to the excluded Site (and associated Purchased Assets). Each of the Parties may submit such materials and information to the Appraiser as it deems appropriate and shall use its Commercially Reasonable Efforts to cause the Appraiser to render its decision within 60 days after the matter has been submitted to it. The determination of the Appraiser shall be final and binding on the Parties. As used herein, "Appraiser" means an individual who has a minimum of ten (10) years of relevant experience in valuing electric generation facilities and has an MAI designation of the Appraisal Institute. (c) Buyer agrees to use Commercially Reasonable Efforts at its expense and in consultation with Seller to mitigate any adverse zoning restrictions which could cause a failure of the Closing condition in Section 7.1(p), or require a Purchase Price adjustment under this Section 7.3, including by seeking a re-zoning or zoning variance of the applicable Site. ARTICLE VIII INDEMNIFICATION 8.1. Indemnification. (a) Buyer shall indemnify, defend and hold harmless Seller, its officers, directors, employees, shareholders, Affiliates and agents (each, a "Seller's Indemnitee") from and against any and all claims, demands, suits, losses, liabilities, damages, obligations, payments, costs and expenses (including, without limitation, the costs and expenses of any and all actions, suits, proceedings, assessments, judgments, settlements and compromises relating thereto and reasonable attorneys' fees and reasonable disbursements in connection therewith) (each, an "Indemnifiable Loss"), asserted against or suffered by any Seller's Indemnitee relating to, resulting from or arising out of (i) any breach by Buyer of any covenant or agreement of Buyer contained in this Agreement or the representations and warranties contained in Sections 5.1, 5.2 and 5.3, (ii) the Assumed Liabilities, (iii) any loss or damages resulting from or arising out of any Inspection, or (iv) any Third Party Claims against Seller's Indemnitee arising out of or in connection with Buyer's ownership or operation of the Plants and other Purchased Assets on or after the Closing Date (other than Third Party Claims which arise out of acts by Buyer permitted by Section 6.12 hereof). 74 (b) Seller shall indemnify, defend and hold harmless Buyer, its officers, directors, employees, shareholders, Affiliates and agents (each, a "Buyer Indemnitee") from and against any and all Indemnifiable Losses asserted against or suffered by any Buyer Indemnitee relating to, resulting from or arising out of (i) any breach by Seller of any covenant or agreement of Seller contained in this Agreement or the representations and warranties contained in Sections 4.1, 4.2 and 4.3, (ii) the Excluded Liabilities, (iii) noncompliance by Seller with any bulk sales or transfer laws as provided in Section 10.11, or (iv) any Third Party Claims against a Buyer Indemnitee arising out of or in connection with Seller's ownership or operation of the Excluded Assets on or after the Closing Date. (c) Each party, for itself and on behalf of its Representatives and Affiliates, does hereby release, hold harmless and forever discharge the other party, its Representatives and Affiliates, from any and all Indemnifiable Losses of any kind or character, whether known or unknown, hidden or concealed, resulting from or arising out of any Environmental Condition or violation of Environmental Law relating to the Purchased Assets, provided that Seller's release of Buyer shall not extend to any of Buyer's Assumed Liabilities set forth in Section 2.3, and provided further that Buyer's release of Seller shall not extend to any of Seller's Excluded Liabilities set forth in Section 2.4. Subject to the foregoing proviso, each party hereby waives any and all rights and benefits with respect to such Indemnifiable Losses that it now has, or in the future may have conferred upon it by virtue of any statute or common law principle which provides that a general release does not extend to claims which a party does not know or suspect to exist in its favor at the time of executing the release, if knowledge of such claims would have materially affected such party's settlement with the obligor. In this connection, each party hereby acknowledges that it is aware that factual matters, now unknown to it, may have given or may hereafter give rise to Indemnifiable Losses that are presently unknown, unanticipated and unsuspected, and it further agrees that this release has been negotiated and agreed upon in light of that awareness and it nevertheless hereby intends to release the other party and its Representatives and Affiliates from the Indemnifiable Losses described in the first sentence of this paragraph. (d) Notwithstanding anything to the contrary contained herein: (i) Any Person entitled to receive indemnifica-tion under this Agreement (an "Indemnitee") shall use Commercially Reasonable Efforts to mitigate all losses, damages and the like relating to a claim under these indemnification provisions, including availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity. 75 The Indemnitee's Commercially Reasonable Efforts shall include the reasonable expenditure of money to mitigate or otherwise reduce or eliminate any loss or expenses for which indemnification would otherwise be due, and the Indemnitor shall reimburse the Indemnitee for the Indemnitee's reasonable expenditures in undertaking the mitigation. (ii) Any Indemnifiable Loss shall be net of the dollar amount of any insurance or other proceeds actually receivable by the Indemnitee or any of its Affiliates with respect to the Indemnifiable Loss, but shall not take into account any income tax benefits to the Indemnitee or any Income Taxes attributable to the receipt of any indemnification payments hereunder. Any party seeking indemnity hereunder shall use Commercially Reasonable Efforts to seek coverage (including both costs of defense and indemnity) under applicable insurance policies with respect to any such Indemnifiable Loss. (e) The expiration or termination of any covenant or agreement shall not affect the Parties' obligations under this Section 8.1 if the Indemnitee provided the Person required to provide indemnification under this Agreement (the "Indemnifying Party") with proper notice of the claim or event for which indemnification is sought prior to such expiration, termination or extinguishment. (f) Except to the extent otherwise provided in Article IX, the rights and remedies of Seller and Buyer under this Article VIII are exclusive and in lieu of any and all other rights and remedies which Seller and Buyer may have under this Agreement or otherwise for monetary relief, with respect to (i) any breach of or failure to perform any covenant, agreement, or representation or warranty set forth in this Agreement, after the occurrence of the Closing, or (ii) the Assumed Liabilities or the Excluded Liabilities, as the case may be. The indemnification obligations of the Parties set forth in this Article VIII apply only to matters arising out of this Agreement, excluding the Ancillary Agreements. Any Indemnifiable Loss arising under or pursuant to an Ancillary Agreement shall be governed by the indemnification obligations, if any, contained in the Ancillary Agreement under which the Indemnifiable Loss arises. (g) Notwithstanding anything to the contrary herein, no party (including an Indemnitee) shall be entitled to recover from any other party (including an Indemnifying Party) for any liabilities, damages, obligations, payments losses, costs, or expenses under this Agreement any amount in excess of the actual compensatory damages, court costs and reasonable attorney's and other advisor fees suffered by such party. Buyer and Seller waive any right to recover punitive, incidental, special, 76 exemplary and consequential damages arising in connection with or with respect to this Agreement. The provisions of this Section 8.1(g) shall not apply to indemnification for a Third Party Claim. 8.2. Defense of Claims. (a) If any Indemnitee receives notice of the assertion of any claim or of the commencement of any claim, action, or proceeding made or brought by any Person who is not a party to this Agreement or any Affiliate of a Party to this Agreement (a "Third Party Claim") with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying Party reasonably prompt written notice thereof, but in any event such notice shall not be given later than ten (10) calendar days after the Indemnitee's receipt of notice of such Third Party Claim. Such notice shall describe the nature of the Third Party Claim in reasonable detail and shall indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be sustained by the Indemnitee. The Indemnifying Party will have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third Party Claim at such Indemnifying Party's expense and by such Indemnifying Party's own counsel, provided that the counsel for the Indemnifying Party who shall conduct the defense of such Third Party Claim shall be reasonably satisfactory to the Indemnitee. The Indemnitee shall cooperate in good faith in such defense at such Indemnitee's own expense. If an Indemnifying Party elects not to assume the defense of any Third Party Claim, the Indemnitee may compromise or settle such Third Party Claim over the objection of the Indemnifying Party, which settlement or compromise shall conclusively establish the Indemnifying Party's liability pursuant to this Agreement. (b) (i) If, within ten (10) calendar days after an Indemnitee provides written notice to the Indemnifying Party of any Third Party Claims, the Indemnitee receives written notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third Party Claim as provided in Section 8.2(a), the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided, however, that if the Indemnifying Party shall fail to take reasonable steps necessary to defend diligently such Third Party Claim within twenty (20) calendar days after receiving notice from the Indemnitee that the Indemnitee believes the Indemnifying Party has failed to take such steps, the Indemnitee may assume its own defense and the Indemnifying Party shall be liable for all reasonable expenses thereof. (ii) Without the prior written consent of the Indemnitee, the Indemnifying Party shall not enter into any settlement of any Third Party Claim which would lead to liability or create any financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to 77 indemnification hereunder. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to the Indemnitee to that effect. If the Indemnitee fails to consent to such firm offer within ten (10) calendar days after its receipt of such notice, the Indemnifying Party shall be relieved of its obligations to defend such Third Party Claim and the Indemnitee may contest or defend such Third Party Claim. In such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will be the amount of such settlement offer plus reasonable costs and expenses paid or incurred by Indemnitee up to the date of said notice. (c) Any claim by an Indemnitee on account of an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct Claim") shall be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable, but in any event such notice shall not be given later than ten (10) calendar days after the Indemnitee becomes aware of such Direct Claim, and the Indemnifying Party shall have a period of thirty (30) calendar days within which to respond to such Direct Claim. If the Indemnifying Party does not respond within such thirty (30) calendar day period, the Indemnifying Party shall be deemed to have accepted such claim. If the Indemnifying Party rejects such claim, the Indemnitee will be free to seek enforcement of its right to indemnification under this Agreement. (d) If the amount of any Indemnifiable Loss, at any time subsequent to the making of an indemnity payment in respect thereof, is reduced by recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by, from or against any other entity, the amount of such reduction, less any costs, expenses or premiums incurred in connection therewith (together with interest thereon from the date of payment thereof at the publicly announced prime rate then in effect of Chase Manhattan Bank) shall promptly be repaid by the Indemnitee to the Indemnifying Party. (e) A failure to give timely notice as provided in this Section 8.2 shall not affect the rights or obligations of any Party hereunder except if, and only to the extent that, as a result of such failure, the Party which was entitled to receive such notice was actually prejudiced as a result of such failure. 78 ARTICLE IX TERMINATION 9.1 Termination.(a) This Agreement may be terminated at any time prior to the Closing Date by mutual written consent of Seller and Buyer. (b) This Agreement may be terminated by Seller or Buyer if (i) any Federal or state court of competent jurisdiction 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 nonappeallable or (ii) any statute, rule, order or regulation shall have been enacted or issued by any Governmental Authority which, directly or indirectly, prohibits the consummation of the Closing; or (iii) the Closing contemplated hereby shall have not occurred on or before the day which is 12 months from the date of this Agreement (the "Termination Date"); provided that the right to terminate this Agreement under this Section 9.1(b) (iii) shall not be available to any Party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; and provided, further, that if on the day which is 12 months from the date of this Agreement the conditions to the Closing set forth in Section 7.1(b) or (c) or 7.2(b), (c) or (d) shall not have been fulfilled but all other conditions to the Closing shall be fulfilled or shall be capable of being fulfilled, then the Termination Date shall be the day which is 18 months from the date of this Agreement. (c) Except as otherwise provided in this Agreement, this Agreement may be terminated by Buyer if any of Buyer Required Regulatory Approvals, the receipt of which is a condition to the obligation of Buyer to consummate the Closing as set forth in Section 7.1(c), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted but contains terms or conditions which do not satisfy the closing condition in Section 7.1(c). (d) This Agreement may be terminated by Seller, if any of Seller's Required Regulatory Approvals, the receipt of which is a condition to the obligation of Seller to consummate the Closing as set forth in Section 7.2(c), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted but contains terms or conditions which do not satisfy the closing condition in Section 7.2(c). 79 (e) This Agreement may be terminated by Buyer if there has been a violation or breach by Seller of any covenant, representation or warranty contained in this Agreement which has resulted in a Material Adverse Effect and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Seller of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Buyer. (f) This Agreement may be terminated by Seller, if there has been a material violation or breach by Buyer of any covenant, representation or warranty contained in this Agreement and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Buyer of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Seller. (g) This Agreement may be terminated by Seller if there shall have occurred any change that is materially adverse to the business, operations or conditions (financial or otherwise) of Buyer. (h) This Agreement may be terminated by either of Seller or Buyer in accordance with the provisions of Section 6.11(b). 9.2 Procedure and Effect of No-Default Termination. In the event of termination of this Agreement by either or both of the Parties pursuant to Section 9, written notice thereof shall forthwith be given by the terminating Party to the other Party, whereupon, if this Agreement is terminated pursuant to any of Sections 9.1(a) through (d) and 9.1(g) and (h), the liabilities of the Parties hereunder will terminate, except as otherwise expressly provided in this Agreement, and thereafter neither Party shall have any recourse against the other by reason of this Agreement. ARTICLE X MISCELLANEOUS PROVISIONS 10.1. Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified or supplemented only by written agreement of Seller and Buyer. 10.2. Waiver of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the Parties to comply with any obligation, covenant, agreement or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver of such obligation, covenant, 80 agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent failure to comply therewith. 10.3 No Survival. Each and every representation, warranty and covenant contained in this Agreement (other than the covenants contained in Sections 3.3(c), 3.4, 3.5(b), 3.5(c), 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.12, 6.13 and in Articles VIII and X, which provisions shall survive the delivery of the deed(s) and the Closing in accordance with their terms and the representations and warranties set forth in Sections 4.1, 4.2, 4.3, 4.19A, 4.19B, 5.1, 5.2 and 5.3, which representations and warranties and any claims arising under Section 6.1 shall survive the Closing for eighteen (18) months from the Closing Date) shall expire with, and be terminated and extinguished by the consummation of the sale of the Purchased Assets and shall merge into the deed(s) pursuant hereto and the transfer of the Assumed Liabilities pursuant to this Agreement and such representations, warranties and covenants shall not survive the Closing Date; and none of Seller, Buyer or any officer, director, trustee or Affiliate of any of them shall be under any liability whatsoever with respect to any such representation, warranty or covenant. 10.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission, or mailed by overnight courier or registered or certified mail (return receipt requested), postage prepaid, to the recipient Party at its address (or at such other address or facsimile number for a Party as shall be specified by like notice; provided however, that notices of a change of address shall be effective only upon receipt thereof): (a) If to Seller, to: c/o GPU Service, Inc. 300 Madison Avenue Morristown, New Jersey 07962 Attention: Mr. David C. Brauer Vice President with a copy to: Berlack, Israels & Liberman LLP 120 West 45th Street New York, New York 10036 Attention: Douglas E. Davidson, Esq. 81 (b) if to Buyer, to: Sithe Energies, Inc. 450 Lexington Avenue New York, New York 10017 Attention: Mr. David Tohir and Hyun Park, Esq. with a copy to: Latham & Watkins Suite 1300 1001 Pennsylvania Avenue, N.W. Washington, D.C. 20004 Attention: W. Harrison Wellford, Esq. 10.5 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any Party hereto, including by operation of law, without the prior written consent of each other Party, nor is this Agreement intended to confer upon any other Person except the Parties hereto any rights, interests, obligations or remedies hereunder. No provision of this Agreement shall create any third party beneficiary rights in any employee or former employee of Seller (including any beneficiary or dependent thereof) in respect of continued employment or resumed employment, and no provision of this Agreement shall create any rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. Notwithstanding the foregoing, without the prior written consent of Seller, (i) Buyer may assign all of its rights and obligations hereunder to any majority owned Subsidiary (direct or indirect) and upon Seller's receipt of notice from Buyer of any such assignment, such assignee will be deemed to have assumed, ratified, agreed to be bound by and perform all such obligations, and all references herein to "Buyer" shall thereafter be deemed to be references to such assignee, in each case without the necessity for further act or evidence by the Parties hereto or such assignee, and (ii) Buyer or its permitted assignee may assign, transfer, pledge or otherwise dispose of (absolutely or as security) its rights and interests hereunder to a trustee, lending institutions or other party for the purposes of leasing, financing or refinancing the Purchased Assets, including such an assignment, transfer or other disposition upon or pursuant to the exercise of remedies with respect to such leasing, financing or refinancing, or by way of assignments, transfers, pledges, or other dispositions in lieu thereof (and any such assignee may fully exercise its rights 82 hereunder or under any other agreement and pursuant to such assignment without any further prior consent of any party hereto); provided, however, that no such assignment in clause (i) or (ii) shall relieve or discharge the assignor from any of its obligations hereunder. Seller agrees, at Buyer's expense, to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights and interests hereunder so long as Seller's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. 10.6 Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York (without giving effect to conflict of law principles) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. THE PARTIES HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE AND FEDERAL COURTS IN AND FOR NEW YORK COUNTY, NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 10.7. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.8 Interpretation. The articles, section and schedule headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. 10.9 Schedules and Exhibits. Except as otherwise provided in this Agreement, all Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. 10.10 Entire Agreement. This Agreement, the Confidentiality Agreement, and the Ancillary Agreements including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein, embody the entire agreement and understanding of the Parties hereto in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings, other 83 than those expressly set forth or referred to herein or therein. It is expressly acknowledged and agreed that there are no restrictions, promises, representations, warranties, covenants or undertakings contained in any material made available to Buyer pursuant to the terms of the Confidentiality Agreement (including the Offering Memorandum dated April 1998, previously delivered to Buyer by Seller and Goldman, Sachs & Co.). This Agreement supersedes all prior agreements and understandings between the Parties other than the Confidentiality Agreement with respect to such transactions. 10.11 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything in this Agreement to the contrary, Seller may, in its sole discretion, not comply with the provision of the bulk sales laws of any jurisdiction in connection with the transactions contemplated by this Agreement. Buyer hereby waives compliance by Seller with the provisions of the bulk sales laws of all applicable jurisdictions. 10.12 U.S. Dollars. Unless otherwise stated, all dollar amounts set forth herein are United States (U.S.) dollars. 10.13 Zoning Classification. Without limitation of Sections 7.1(p) and 7.3, Buyer acknowledges that the Real Properties are zoned as set forth in Schedule 10.13. 10.14 Sewage Facilities. Except as set forth in Schedule 10.14, Buyer acknowledges that there is no community (municipal) sewage system available to serve the Real Property. Accordingly, any additional sewage disposal planned by Buyer will require an individual (on-site) sewage system and all necessary permits as required by the Pennsylvania Sewage Facilities Act (the "Facilities Act"). Buyer recognizes that certain of the existing individual sewage systems on the Real Property may have been installed pursuant to exemptions from the requirements of the Facilities Act or prior to the enactment of the Facilities Act and that soils and site testing may not have been performed in connection therewith. The owner of the property or properties served by such a system, at the time of any malfunction, may be held liable for any contamination, pollution, public health hazard or nuisance which occurs as the result of such malfunction. 84 IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. SITHE ENERGIES, INC. METROPOLITAN EDISON COMPANY By: By: ------------------------- -------------------------- Name: Name: Title: Title: 85 [Met-Ed] LIST OF EXHIBITS AND SCHEDULES EXHIBITS Exhibit A Form of Assignment and Assumption Agreement Exhibit B Form of Bill of Sale Exhibit C Form of Easement Agreement Exhibit D Form of FIRPTA Affidavit Exhibit E Form of Interconnection Agreement Exhibit F Form of Deeds Exhibit G Form of Transition Power Purchase Agreement Exhibit H Form of Merrill Creek Sublease SCHEDULES 1.1(73) Permitted Encumbrances 1.1(108) Transferable Permits (both environmental and non-environmental) 2.1 Schedule of Purchased Assets 2.1(c) Schedule of Tangible Personal Property to be Conveyed to Buyer 2.1(h) Schedule of Emission Reduction Credits 2.1(l) Intellectual Property 2.2(a) Description of Transmission and other Assets not included in Conveyance 3.3(a)(i) Schedule of Inventory 4.3(a) Third Party Consents 4.3(b) Seller's Required Regulatory Approvals 4.4 Insurance Exceptions 4.5 Exceptions to Title 4.6 Real Property Leases 4.7 Schedule of Environmental Matters 4.8 Schedule of Noncompliance with Employment Laws 4.9(a) Schedule of Benefit Plans 4.9(b) Benefit Plan Exceptions 4.l0 Description of Real Property 4.10A Real Property Matters 4.11 Notices of Condemnation 4.12(a) List of Contracts 4.12(b) List of Non-assignable Contracts 4.12(c) List of Defaults under the Contracts 4.13 List of Litigation 4.14(a) List of Permit Violations 4.14(b) List of material Permits (other than Transferable Permits) 4.15 Tax Matters 4.16 Intellectual Property Exceptions 4.19C York Haven Tax Matters 4.19D Financial Statements 5.3(a) Third Party Consents 5.3(b) Buyer's Required Regulatory Approvals 6.1 Schedule of Permitted Activities prior to Closing 6.8 Tax Appeals 6.10(a)(i) Plant and Support Staff (Union) 6.10(a)(ii) Mobile Maintenance/Corporate Support 6.10(b) Schedule of Non-Union Employees 6.10(d) Collective Bargaining Agreement 6.10(h) Schedule of Severance Benefits 6.10(h)(iv) Allocable Share Percentages 6.12 Pollution Control Revenue Bonds 6.13 York Haven Covenants 10.13 Zoning 10.14 Sewage Matters EX-10 20 EXHIBIT 10-OO Exhibit 10-OO PRIVILEGED AND CONFIDENTIAL [Penelec P&S] Execution Copy PURCHASE AND SALE AGREEMENT BY AND AMONG PENNSYLVANIA ELECTRIC COMPANY, as SELLER, and SITHE ENERGIES, INC., as BUYER Dated as of October 29, 1998 TABLE OF CONTENTS Page No. ARTICLE I 1 1.1 Definitions 1 1.2 Certain Interpretive Matters 14 ARTICLE II 14 2.1 Transfer of Assets 14 2.2 Excluded Assets 16 2.3 Assumed Liabilities 17 2.4 Excluded Liabilities 19 2.5 Control of Litigation 21 ARTICLE III 22 3.1 Closing 22 3.2 Payment of Purchase Price 22 3.3 Adjustment to Purchase Price 22 3.4 Allocation of Purchase Price 24 3.5 Prorations 25 3.6 Deliveries by Seller 26 3.7 Deliveries by Buyer 27 3.8 Ancillary Agreements 28 3.9 Easement Agreements 28 ARTICLE IV 29 4.1 Incorporation; Qualification 29 4.2 Authority Relative to this Agreement 29 4.3 Consents and Approvals; No Violation 29 4.4 Insurance 30 4.5 Title and Related Matters 30 4.6 Real Property Leases 31 4.7 Environmental Matters 31 4.8 Labor Matters 32 4.9 Benefit Plans: ERISA 32 4.10 Real Property 33 4.11 Condemnation 33 4.12 Contracts and Leases 33 4.13 Legal Proceedings, etc. 34 4.14 Permits 34 4.15 Taxes 35 4.16 Intellectual Property 35 4.17 Capital Expenditures 36 4.18 Compliance With Laws 36 4.19 PUHCA 36 4.20 Disclaimers Regarding Purchased Assets 36 ARTICLE V - REPRESENTATIONS AND WARRANTIES OF BUYER 37 5.1 Organization 37 5.2 Authority Relative to this Agreement 37 5.3 Consents and Approvals; No Violation 38 5.4 Availability of Funds 38 5.5 Legal Proceedings 38 5.6 No Knowledge of Seller's Breach 39 5.7 Qualified Buyer 39 5.8 Inspections 39 5.9 WARN Act 39 ARTICLE VI 40 6.1 Conduct of Business Relating to the Purchased Assets 40 6.2 Access to Information 42 6.3 Public Statements 45 6.4 Expenses 45 6.5 Further Assurances 45 6.6 Consents and Approvals 47 6.7 Fees and Commissions 49 6.8 Tax Matters 49 6.9 Advice of Changes 51 6.10 Employees 52 6.11 Risk of Loss 57 6.12 Additional Covenants of Buyer 58 ARTICLE VII 58 7.1 Conditions to Obligations of Buyer 59 7.2 Conditions to Obligations of Seller 62 7.3 Zoning Condition Adjustments 64 ARTICLE VIII 65 8.1 Indemnification 65 8.2 Defense of Claims 68 ARTICLE IX 70 9.1 Termination 70 9.2 Procedure and Effect of No-Default Termination 71 ARTICLE X 71 10.1 Amendment and Modification 71 10.2 Waiver of Compliance; Consents 72 10.3 No Survival 72 10.4 Notices 72 10.5 Assignment 73 10.6 Governing Law 74 10.7 Counterparts 74 10.8 Interpretation 74 10.9 Schedules and Exhibits 74 10.10 Entire Agreement 75 10.11 Bulk Sales Laws 75 10.12 U.S. Dollars 75 10.13 Zoning Classification 75 10.14 Sewage Facilities 75 PURCHASE AND SALE AGREEMENT PURCHASE AND SALE AGREEMENT, dated as of October 29, 1998, by and between Pennsylvania Electric Company, a Pennsylvania corporation ("Penelec" or "Seller") and Sithe Energies, Inc., a Delaware corporation ("Buyer"). Seller and Buyer are referred to individually as a "Party," and collectively as the "Parties." W I T N E S S E T H WHEREAS, Buyer desires to purchase, and Seller desires to sell, its interests in the Purchased Assets (as defined herein) upon the terms and conditions hereinafter set forth in this Agreement; and WHEREAS, simultaneous herewith Buyer is entering into substantially similar Purchase and Sale Agreements with Seller's affiliates providing for Buyer's purchase of the remainder of the Aggregate Purchased Assets (as hereinafter defined). NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms have the meanings specified in this Section 1.1. (1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. (2) "Agreement" means this Purchase and Sale Agreement together with the Schedules and Exhibits hereto, as the same may be from time to time amended. (3) "Aggregate Purchased Assets" means, collectively, the Purchased Assets (as defined herein) and the Purchased Assets (as defined in each Related Purchase Agreement). (4) "Ancillary Agreements" means the Interconnection Agreement, the Easement Agreements and the Transition Power Purchase Agreement, as the same may be from time to time amended. (5) "Assignment and Assumption Agreement" means the Assignment and Assumption Agreement between Seller and Buyer substantially in the form of Exhibit A hereto, by which Seller shall, subject to the terms and conditions hereof, assign Seller's Agreements, the Real Property Leases, certain intangible assets and other Purchased Assets to Buyer and whereby Buyer shall assume the Assumed Liabilities. (6) "Assumed Liabilities" has the meaning set forth in Section 2.3. (7) "Benefit Plans" has the meaning set forth in Section 4.9. (8) "Bill of Sale" means the Bill of Sale, substantially in the form of Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible Personal Property included in the Purchased Assets transferred to Buyer at the Closing. (9) "Business Day" shall mean any day other than Saturday, Sunday and any day on which banking institutions in the State of New Jersey or the Commonwealth of Pennsylvania are authorized by law or other governmental action to close. (10) "Buyer Benefit Plans" has the meaning set forth in Section 6.10(f). (11) "Buyer Indemnitee" has the meaning set forth in Section 8.1(b). (12) "Buyer Material Adverse Effect" has the meaning set forth in Section 5.3(a). (13) "Buyer Required Regulatory Approvals" has the meaning set forth in Section 5.3(b). (14) "Capital Expenditures" has the meaning set forth in Section 3.3(a). (15) "CERCLA" means the Federal Comprehensive Environmental Response, Compensation, and Liability Act, as amended. (16) "Closing" has the meaning set forth in Section 3.1. (17) "Closing Adjustment" has the meaning set forth in Section 3.3(b). (18) "Closing Date" has the meaning set forth in Section 3.1. 2 (19) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. (20) "Code" means the Internal Revenue Code of 1986, as amended. (21) "Collective Bargaining Agreement" has the meaning set forth in Section 6.10(d). (22) "Commercially Reasonable Efforts" means efforts which are reasonably within the contemplation of the Parties at the time of executing this Agreement and which do not require the performing Party to expend any funds other than expenditures which are customary and reasonable in transactions of the kind and nature contemplated by this Agreement in order for the performing Party to satisfy its obligations hereunder. (23) "Computer Systems" has the meaning set forth in Section 4.20. (24) "Confidentiality Agreement" means the Confidentiality Agreement, dated March 2, 1998, by and between Seller and Buyer. (25) "Direct Claim" has the meaning set forth in Section 8.2(c). (26) "Easements" means, with respect to the Purchased Assets, the easements and access rights to be granted pursuant to the Easement Agreements, including, without limitation, easements authorizing access, use, maintenance, construction, repair, replacement and other activities, as further described in the Easement Agreements. (27) "Easement Agreements" means the Easement and License Agreements between Buyer and Seller, in the form of Exhibit C hereto, whereby Buyer will provide Seller with certain Easements with respect to the Real Property transferred to Buyer and whereby Seller will provide Buyer with certain Easements with respect to certain property owned by Seller. (28) "Emission Allowance" means all present and future authorizations to emit specified units of pollutants or Hazardous Substances, which units are established by the Governmental Authority with jurisdiction over the Plants under (i) an air pollution control and emission reduction program designed to mitigate global warming, interstate or intra-state transport of air pollutants; (ii) a program designed to mitigate impairment of surface waters, watersheds, or groundwater; or (iii) any pollution reduction program with a similar purpose. Emission Allowances include allowances, as described above, regardless as 3 to whether the Governmental Authority establishing such Emission Allowances designates such allowances by a name other than "allowances." (29) "Emission Reduction Credits" means credits, in units that are established by the Governmental Authority with jurisdiction over the Plants that have obtained the credits, resulting from reductions in the emissions of air pollutants from an emitting source or facility (including, without limitation, and to the extent allowable under applicable law, reductions from shut-downs or control of emissions beyond that required by applicable law) that: (i) have been identified by the PaDEP as complying with applicable Pennsylvania law governing the establishment of such credits (including, without limitation, that such emissions reductions are enforceable, permanent, quantifiable and surplus) and listed in the Emissions Reduction Credit Registry maintained by the PaDEP or with respect to which such identification and listing are pending; or (ii) have been certified by any other applicable Governmental Authority as complying with the law and regulations governing the establishment of such credits (including, without limitation, certification that such emissions reductions are enforceable, permanent, quantifiable and surplus). The term includes Emission Reduction Credits that have been approved by the PaDEP and are awaiting USEPA approval. The term also includes certified air emissions reductions, as described above, regardless as to whether the Governmental Authority certifying such reductions designates such certified air emissions reductions by a name other than "emission reduction credits." (30) "Encumbrances" means any mortgages, pledges, liens, security interests, conditional and installment sale agreements, activity and use limitations, conservation easements, deed restrictions, encumbrances and charges of any kind. (31) "Environmental Claim" means any and all pending and/or threatened administrative or judicial actions, suits, orders, claims, liens, notices, notices of violations, investigations, complaints, requests for information, proceedings, or other written communication, whether criminal or civil, pursuant to or relating to any applicable Environmental Law by any person (including, but not limited to, any Governmental Authority, private person and citizens' group) based upon, alleging, asserting, or claiming any actual or potential (a) violation of, or liability under any Environmental Law, (b) violation of any Environmental Permit, or (c) liability for investigatory costs, cleanup costs, removal costs, remedial costs, response costs, natural resource damages, property damage, personal injury, fines, or penalties arising out of, based on, resulting from, or related to the presence, Release, or threatened Release into the environment of any Hazardous 4 Substances at any location related to the Purchased Assets, including, but not limited to, any off-Site location to which Hazardous Substances, or materials containing Hazardous Substances, were sent for handling, storage, treatment, or disposal. (32) "Environmental Condition" means the presence or Release to the environment, whether at the Sites or at an off-Site location, of Hazardous Substances, including any migration of those Hazardous Substances through air, soil or groundwater to or from the Sites or any off-Site location regardless of when such presence or Release occurred or is discovered. (33) "Environmental Laws" means all applicable Federal, state and local, provincial and foreign, civil and criminal laws, regulations, rules, ordinances, codes, decrees, judgments, directives, or judicial or administrative orders relating to pollution or protection of the environment, natural resources or human health and safety, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Substances (including, without limitation, Releases to ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport, disposal or handling of Hazardous Substances. "Environmental Laws" include, without limitation, CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Oil Pollution Act (33 U.S.C. Section 2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.),the Pennsylvania Hazardous Sites Cleanup Act (35 P.S. Section 6020.101 et seq.), the Pennsylvania Solid Waste Management Act (35 P.S. Section 6018.101 et seq.), the Pennsylvania Clean Stream Law (35 P.S. Section 691.1 et seq.), and all applicable other state laws analogous to any of the above. (34) "Environmental Permits" has the meaning set forth in Section 4.7(a). (35) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (36) "ERISA Affiliate" has the meaning set forth in Section 2.4(k). 5 (37) "ERISA Affiliate Plans" has the meaning set forth in Section 2.4(k). (38) "Estimated Adjustment" has the meaning set forth in Section 3.3(b). (39) "Estimated Closing Statement" has the meaning set forth in Section 3.3(b). (40) "Excluded Assets" has the meaning set forth in Section 2.2. (41) "Excluded Liabilities" has the meaning set forth in Section 2.4. (42) "Facilities Act" has the meaning set forth in Section 10.14. (43) "FERC" means the Federal Energy Regulatory Commission or any successor agency thereto. (44) "FIRPTA Affidavit" means the Foreign Investment in Real Property Tax Act Certification and Affidavit, substantially in the form of Exhibit D hereto. (45) "Good Utility Practices" mean any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or previously engaged in by Seller (in its operation of the Purchased Assets), or any of the practices, methods or acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Good Utility Practices are not intended to be limited to the optimum practices, methods or acts to the exclusion of all others, but rather to be acceptable practices, methods or acts generally accepted in the industry or previously engaged in by Seller (in its operation of the Purchased Assets). (46) "Governmental Authority" means any federal, state, local or other governmental, regulatory or administrative agency, commission, department, board, or other governmental subdivision, court, tribunal, arbitrating body or other governmental authority. (47) "GPU" means GPU, Inc., a Pennsylvania corporation and parent company of Seller. (48) "GPUN" means GPU Nuclear, Inc., a New Jersey corporation and a wholly-owned subsidiary of GPU. 6 (49) "GPUS" means GPU Service, Inc., a Pennsylvania corporation and a wholly-owned subsidiary of GPU. (50) "Hazardous Substances" means (a) any petrochemical or petroleum products, coal ash, oil, radioactive materials, radon gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid which may contain levels of polychlorinated biphenyls; (b) 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; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any applicable Environmental Law. (51) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. (52) "IBEW 459" means Local 459 of the International Brotherhood of Electrical Workers. (53) "Income Tax" means any federal, state, local or foreign Tax (a) based upon, measured by or calculated with respect to net income, profits or receipts (including, without limitation, capital gains Taxes and minimum Taxes) or (b) based upon, measured by or calculated with respect to multiple bases (including, without limitation, corporate franchise taxes) if one or more of the bases on which such Tax may be based, measured by or calculated with respect to, is described in clause (a), in each case together with any interest, penalties, or additions to such Tax. (54) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a). (55) "Indemnifying Party" has the meaning set forth in Section 8.1(e). (56) "Indemnitee" has the meaning set forth in Section 8.1(d). (57) "Independent Accounting Firm" means such independent accounting firm of national reputation as is mutually appointed by Seller and Buyer. 7 (58) "Inspection" means all tests, reviews, examinations, inspections, investigations, verifications, samplings and similar activities conducted by Buyer or its agents or Representatives with respect to the Purchased Assets prior to the Closing. (59) "Intellectual Property" means all patents and patent rights, trademarks and trademark rights, copyrights and copyright rights owned by Seller and necessary for the operation and maintenance of the Purchased Assets, and all pending applications for registrations of patents, trademarks, and copyrights, as set forth as part of Schedule 2.1(l). (60) "Interconnection Agreements" means the Interconnection Agreements, between Seller and Buyer, a form of which is attached as Exhibit E hereto, under which Seller will provide Buyer with interconnection service to Seller's transmission facilities and whereby Buyer will provide Seller with continuing access to certain of the Purchased Assets after the Closing Date. (61) "Inventories" means coal, fuel oil or alternative fuel inventories, limestone, materials, spare parts, consumable supplies and chemical and gas inventories relating to the operation of a Plant located at, or in transit to, such Plant. (62) "JCP&L" means Jersey Central Power & Light Company, a New Jersey corporation. (63) "Knowledge" means the actual knowledge of the corporate officers or managerial representatives of the specified Person charged with responsibility for the particular function as of the date of the this Agreement, or, with respect to any certificate delivered pursuant to this Agreement, the date of delivery of the certificate. (64) "Material Adverse Effect" means any change in, or effect on the Purchased Assets that is materially adverse to the operations or condition (financial or otherwise) of (i) the Aggregate Purchased Assets, taken as a whole, or (ii) a Specified Plant (as defined below) other than: (a) any change affecting the international, national, regional or local electric industry as a whole and not Seller specifically and exclusively; (b) any change or effect resulting from changes in the international, national, regional or local wholesale or retail markets for electric power; (c) any change or effect resulting from changes in the international, national, regional or local markets for any fuel used in connection with the Aggregate Purchased Assets including such Specified Plant; (d) any change or effect resulting from, changes in the North American, national, regional or local electric transmission systems or operations thereof; (e) any materially adverse change in or effect on the Aggregate Purchased 8 Assets including such Specified Plant which is cured (including by the payment of money) before the Termination Date; (f) any order of any court or Governmental Authority or legislature applicable to providers of generation, transmission or distribution of electricity generally that imposes restrictions, regulations or other requirements thereon; and (g) any change or effect resulting from action or inaction by a Governmental Authority with respect to an independent system operator or retail access in Pennsylvania or New Jersey. As used herein, each of the following shall be a "Specified Plant": (1) the Shawville Station and associated Purchased Assets to be conveyed to Buyer pursuant to this Agreement; (2) the Portland Station and associated Purchased Assets to be conveyed to Buyer pursuant to the Related Purchase Agreement with Met-Ed; and (3) collectively, all Purchased Assets to be conveyed to Buyer under the Related Purchase Agreement to which GPU, JCP&L and Met-Ed are parties. (65) [Reserved] (66) "Met-Ed" means Metropolitan Edison Company, a Pennsylvania corporation. (67) "MPSC" means Maryland Public Service Commission. (68) "Non-Union Employees" has the meaning as set forth in Sections 6.10(b) and ------------------- (m). (69) "PaPUC" means the Pennsylvania Public Utility Commission and any successor agency thereto. (70) "PaDEP" means the Pennsylvania Department of Environmental Protection and any successor agency thereto. (71) "Permits" has the meaning set forth in Section 4.14. (72) "Permitted Encumbrances" means: (i) the Easements; (ii) those Encumbrances set forth in Schedule 1.1(72); (iii) statutory liens for Taxes or other governmental charges or assessments not yet due or delinquent or the validity of which is being contested in good faith by appropriate proceedings provided that the aggregate amount for all Aggregate Purchased Assets being so contested does not exceed $500,000; (iv) mechanics', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business relating to obligations as to which there is no default on the part of Seller or the validity of which are being contested in good faith, and which do not, individually or in the aggregate, with respect to all Aggregate Purchased Assets exceed $500,000; (v) zoning, entitlement, conservation restriction and other land use and environmental regulations by Governmental Authorities; and (vi) such other liens, imperfections in or failure of title, charges, 9 easements, restrictions and Encumbrances which do not materially, individually or in the aggregate, detract from the value of the Aggregate Purchased Assets as currently used or materially interfere with the present use of the Aggregate Purchased Assets and neither secure indebtedness, nor individually or in the aggregate have a value exceeding $30 million for all Aggregate Purchased Assets. (73) "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, or governmental entity or any department or agency thereof. (74) "Plants" means the generating stations and related assets as more fully identified on Schedule 2.1 attached hereto. (75) "Pollution Control Revenue Bonds" means the bonds listed on Schedule 6.12. (76) "Post-Closing Adjustment" has the meaning set forth in Section 3.3(c). (77) "Post-Closing Statement" has the meaning set forth in Section 3.3(c). (78) "Proprietary Information" of a Party means all information about the Party or its Affiliates, including their respective properties or operations, furnished to the other Party or its Representatives by the Party or its Representatives, after the date hereof, regardless of the manner or medium in which it is furnished. Proprietary Information does not include information that: (a) is or becomes generally available to the public, other than as a result of a disclosure by the other Party or its Representatives; (b) was available to the other Party on a nonconfidential basis prior to its disclosure by the Party or its Representatives; (c) becomes available to the other Party on a nonconfidential basis from a person, other than the Party or its Representatives, who is not otherwise bound by a confidentiality agreement with the Party or its Representatives, or is not otherwise under any obligation to the Party or any of its Representatives not to transmit the information to the other Party or its Representatives; (d) is independently developed by the other Party; or (e) was disclosed pursuant to the Confidentiality Agreement and remains subject to the terms and conditions of the Confidentiality Agreement. (79) "Purchased Assets" has the meaning set forth in Section 2.1. 10 (80) "Purchase Price" has the meaning set forth in Section 3.2. (81) "PURTA" has the meaning set forth in Section 3.5(c). (82) "PURTA Surcharge" has the meaning set forth in Section 3.5(c). (83) "Qualifying Offer" has the meaning set forth in Section 6.10(b). (84) "Real Property" has the meaning set forth in Section 2.1(a). (85) "Real Property Leases" has the meaning set forth in Section 4.6. (86) "Related Purchase Agreements" has the meaning set forth in Section 7.1(k). (87) "Release" means release, spill, leak, discharge, dispose of, pump, pour, emit, empty, inject, leach, dump or allow to escape into or through the environment. (88) "Remediation" means action of any kind to address a Release or the presence of Hazardous Substances at a Site or an off-Site location including, without limitation, any or all of the following activities to the extent they relate to or arise from the presence of a Hazardous Substance at a Site or an off-Site location: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (b) obtaining any permits, consents, approvals or authorizations of any Governmental Authority necessary to conduct any such activity; (c) preparing and implementing any plans or studies for any such activity; (d) obtaining a written notice from a Governmental Authority with jurisdiction over a Site or an off-Site location under Environmental Laws that no material additional work is required by such Governmental Authority; (e) the use, implementation, application, installation, operation or maintenance of removal actions on a Site or an off-Site location, remedial technologies applied to the surface or subsurface soils, excavation and off-Site treatment or disposal of soils, systems for long term treatment of surface water or ground water, engineering controls or institutional controls; and (f) any other activities reasonably determined by a Party to be necessary or appropriate or required under Environmental Laws to address the presence or Release of Hazardous Substances at a Site or an off-Site location. 11 (89) "Replacement Welfare Plans" has the meaning set forth in Section 6.10(e) ------------------------- (90) "Representatives" of a Party means the Party's Affiliates and their directors, officers, employees, agents, partners, advisors (including, without limitation, accountants, counsel, environmental consultants, financial advisors and other authorized representatives) and parents and other controlling persons. (91) "SEC" means the Securities and Exchange Commission and any successor agency thereto. (92) "Seller's Agreements" means those contracts, agreements, licenses and leases relating to the ownership, operation and maintenance of the Plants and being assigned to Buyer as part of the Purchased Assets, including without limitation the Collective Bargaining Agreement. (93) "Seller's Indemnitee" has the meaning set forth in Section 8.1 (a). ------------------- (94) "Seller's Material Adverse Effect" has the meaning set forth in Section 7.2(c). (95) "Seller's Required Regulatory Approvals" has the meaning set forth in Section 4.3(b). (96) "Site" means, with respect to any Plant, the Real Property (including improvements) forming a part of, or used or usable in connection with the operation of, such Plant, including any disposal sites included in the Real Property. Any reference to the Sites shall include, by definition, the surface and subsurface elements, including the soils and groundwater present at the Sites, and any reference to items "at the Sites" shall include all items "at, on, in, upon, over, across, under and within" the Site and agreements set forth in Schedule 4.1(a). (97) "Subsidiary" when used in reference to any Person means any entity of which outstanding securities having ordinary voting power to elect a majority of the Board of Directors or other Persons performing similar functions of such entity are owned directly or indirectly by such Person. (98) "Tangible Personal Property" has the meaning set forth in Section 2.1(c). (99) "Taxes" means all taxes, charges, fees, levies, penalties or other assessments imposed by any federal, state or local or foreign taxing authority, including, but not limited to, income, excise, property, sales, transfer, franchise, payroll, 12 withholding, social security, gross receipts, license, stamp, occupation, employment or other taxes, including any interest, penalties or additions attributable thereto. (100) "Tax Return" means any return, report, information return, declaration, claim for refund or other document (including any schedule or related or supporting information) required to be supplied to any taxing authority with respect to Taxes including amendments thereto. (101) "Termination Date" has the meaning set forth in Section 9.1(b). (102) "Third Party Claim" has the meaning set forth in Section 8.2(a). (103) "Transferable Permits" means those Permits and Environmental Permits which may be lawfully transferred to or assumed by Buyer without a filing with, notice to, consent or approval of any Governmental Authority, and are set forth in Schedule 1.1 (103). (104) "Transferred Employees" means Transferred Non-Union Employees and Transferred Union Employees. (105) "Transferred Non-Union Employees" has the meaning set forth in Section 6.10(b). (106) "Transferred Union Employees" has the meaning set forth in Section 6.10(b). (107) "Transferring Employee Records" means all records related to personnel of Seller, Genco, GPUN or GPUS who will become employees of Buyer only to the extent such records pertain to: (i) skill and development training and biographies, (ii) seniority histories, (iii) salary and benefit information, including benefit census and valuation data, (iv) Occupational, Safety and Health Administration reports, and (v) active medical restriction forms. (108) "Transition Power Purchase Agreement" means the agreement between Seller and Buyer, a copy of which are attached as Exhibit G hereto, executed on the date hereof, relating to the sale of installed capacity to Seller for a specified period of time following the Closing Date. (109) "Transmission Assets" has the meaning set forth in Section 2.2(a). (110) "Union" means IBEW 459. 13 (111) "Union Employees" has the meaning set forth in Sections 6.10(a) and (m). --------------- (112) "USEPA" means the United States Environmental Protection Agency and any successor agency thereto. (113) "Year 2000 Compliant" has the meaning set forth in Section 4.20. "Year 2000 Compliance" has a meaning correlative to the foregoing. (114) "WARN Act" means the Federal Worker Adjustment Retraining and Notification Act of 1988, as amended. 1.2 Certain Interpretive Matters. In this Agreement, unless the context otherwise requires, the singular shall include the plural, the masculine shall include the feminine and neuter, and vice versa. The term "includes" or "including" shall mean "including without limitation." References to a Section, Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule of this Agreement, and reference to a given agreement or instrument shall be a reference to that agreement or instrument as modified, amended, supplemented and restated through the date as of which such reference is made. ARTICLE II PURCHASE AND SALE 2.1 Transfer of Assets. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, at the Closing Seller will sell, assign, convey, transfer and deliver to Buyer, and Buyer will purchase, assume and acquire from Seller, free and clear of all Encumbrances (except for Permitted Encumbrances), and subject to Sections 2.2 and 7.3 and the other terms and conditions of this Agreement, all of Seller's right, title and interest in and to all assets constituting, or used in and necessary for generation purposes to the operation of, the Plants identified in Schedule 2.1 including without limitation those assets described below (but excluding the Excluded Assets), each as in existence on the Closing Date (collectively, "Purchased Assets"): (a) Those certain parcels of real property (including all buildings, facilities and other improvements thereon and all appurtenances thereto) described in Schedule 4.10 (the "Real Property"), except as otherwise constituting part of the Excluded Assets; (b) All Inventories; 14 (c) All machinery, mobile or otherwise, equipment (including communications equipment), vehicles, tools, furniture and furnishings and other personal property located on or used principally in connection with the Real Property on the Closing Date, including, without limitation, the items of personal property included in Schedule 2.1(c), together with all the personal property of Seller used principally in the operation of the Plants and listed in Schedule 2.1(c), other than property used or primarily usable as part of the Transmission Assets or otherwise constituting part of the Excluded Assets (collectively, "Tangible Personal Property"); (d) Subject to the provisions of Section 6.5(d), all Seller's Agreements; (e) Subject to the provisions of Section 6.5(d), all Real Property Leases; (f) All Transferable Permits; (g) All books, operating records, operating, safety and maintenance manuals, engineering design plans, documents, blueprints and as built plans, specifications, procedures and similar items of Seller relating specifically to the aforementioned assets and necessary for the operation of the Plants (subject to the right of Seller to retain copies of same for its use) other than such items which are proprietary to third parties and accounting records; (h) Subject to Section 6.1, all Emission Reduction Credits associated with the Plants and identified in Schedule 2.1(h), and all Emission Allowances that have accrued prior to, or that accrue on or after, the date of this Agreement but prior to the Closing Date; (i) All unexpired, transferable warranties and guarantees from third parties with respect to any item of Real Property or personal property constituting part of the Purchased Assets, as of the Closing Date; (j) The names of the Plants. It is expressly understood that Seller is not assigning or transferring to Buyer any right to use the names "Jersey Central Power & Light Company", "JCP&L", "Metropolitan Edison Company", "Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU Generation", "GPU Nuclear", "GPU Service" and "GPU Genco", or any related or similar trade names, trademarks, service marks, corporate names and logos or any part, derivative or combination thereof; 15 (k) All drafts, memoranda, reports, information, technology, and specifications relating to Seller's plans for Year 2000 Compliance with respect to the Purchased Assets; (l) The Intellectual Property described on Schedule 2.1(l); and (m) The substation equipment set forth in Schedule A to the Interconnection Agreement and designated therein as being transferred to Buyer. 2.2 Excluded Assets. Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement will constitute or be construed as conferring on Buyer, and Buyer is not acquiring, any right, title or interest in or to the following specific assets which are associated with the Purchased Assets, but which are hereby specifically excluded from the sale and the definition of Purchased Assets herein (the "Excluded Assets"): (a) Except as expressly identified in Schedule 2.1(c), the electrical transmission or distribution facilities (as opposed to generation facilities) of Seller or any of its Affiliates located at the Sites or forming part of the Plants (whether or not regarded as a "transmission" or "generation" asset for regulatory or accounting purposes), including all switchyard facilities, substation facilities and support equipment, as well as all permits, contracts and warranties, to the extent they relate to such transmission and distribution assets (collectively, the "Transmission Assets"), and those certain assets, facilities and agreements all as identified on Schedule 2.2(a) attached hereto; (b) Certain revenue meters and remote testing units, drainage pipes and systems, as identified in the Easement Agreement; (c) Certificates of deposit, shares of stock, securities, bonds, debentures, evidences of indebtedness, and interests in joint ventures, partnerships, limited liability companies and other entities; (d) All cash, cash equivalents, bank deposits, accounts and notes receivable (trade or otherwise), and any income, sales, payroll or other tax receivables; (e) The rights of Seller and its Affiliates to the names "Jersey "Central Power & Light Company", "JCP&L", "Metropolitan Edison Company", "Met-Ed", "Pennsylvania Electric Company", "Penelec", "GPU", "GPU Energy", "GPU Generation", "GPU 16 Nuclear", "GPU Service" and "GPU Genco" or any related or similar trade names, trademarks, service marks, corporate names or logos, or any part, derivative or combination thereof; (f) All tariffs, agreements and arrangements to which Seller is a party for the purchase or sale of electric capacity and/or energy or for the purchase of transmission or ancillary services; (g) The rights of Seller in and to any causes of action against third parties (including indemnification and contribution), other than to the extent relating to any Assumed Liability, relating to any Real Property or personal property, Permits, Environmental Permits, Taxes, Real Property Leases or Seller's Agreements, if any, including any claims for refunds, prepayments, offsets, recoupment, insurance proceeds, condemnation awards, judgments and the like, whether received as payment or credit against future liabilities, relating specifically to the Plants or the Sites and relating to any period prior to the Closing Date; (h) All personnel records of Seller or its Affiliates relating to the Transferred Employees other than Transferring Employee Records or other records, the disclosure of which is required by law, or legal or regulatory process or subpoena; and (i) Any and all of Seller's rights in any contract representing an intercompany transaction between Seller and an Affiliate of Seller, whether or not such transaction relates to the provision of goods and services, payment arrangements, intercompany charges or balances, or the like, except for any contracts listed on Schedule 4.12(a). 2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to Seller the Assignment and Assumption Agreement pursuant to which Buyer shall assume and agree to discharge when due, without recourse to Seller, all of the following liabilities and obligations of Seller, direct or indirect, known or unknown, absolute or contingent, which relate to the Purchased Assets, other than Excluded Liabilities, in accordance with the respective terms and subject to the respective conditions thereof (collectively, "Assumed Liabilities"): (a) All liabilities and obligations of Seller arising on or after the Closing Date under Seller's Agreements, the Real Property Leases, and the Transferable Permits in accordance with the terms thereof, including, without limitation, (i) the contracts, licenses, agreements and personal property leases entered into by Seller with respect to the Purchased Assets, which are disclosed on Schedule 4.12(a) or not required by Section 4.12(a) to be so disclosed, and (ii) the contracts, 17 licenses, agreements and personal property leases entered into by Seller with respect to the Purchased Assets after the date hereof consistent with the terms of this Agreement, except in each case to the extent such liabilities and obligations, but for a breach or default by Seller, would have been paid, performed or otherwise discharged on or prior to the Closing Date or to the extent the same arise out of any such breach or default or out of any event which after the giving of notice would constitute a default by Seller; (b) All liabilities and obligations associated with the Purchased Assets in respect of Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof; (c) All liabilities and obligations with respect to the Transferred Employees arising on or after the Closing Date (i) for which Buyer is responsible pursuant to Section 6.10 and (ii) relating to the grievances and arbitration proceedings arising out of or under the Collective Bargaining Agreement prior to, on or after the Closing Date; (d) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with (i) any violation or alleged violation of Environmental Laws, whether prior to, on or after the Closing Date, with respect to the ownership or operation of any of the Purchased Assets; (ii) loss of life, injury to persons or property or damage to natural resources (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Purchased Assets prior to, on or after the Closing Date, including, but not limited to, Hazardous Substances contained in building materials at or adjacent to the Purchased Assets or in the soil, surface water, sediments, groundwater, landfill cells, or in other environmental media at or near the Purchased Assets; and (iii) the Remediation (whether or not such Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances that are present or have been Released prior to, on or after the Closing Date at, on, in, under, adjacent to or migrating from, the Purchased Assets or in the soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to the Purchased Assets; provided, that nothing set forth in this subsection 2.3(d) shall require Buyer to assume any liabilities or obligations that are expressly excluded in Section 2.4 including, without limitation, liability for toxic torts as set forth in Section 2.4(i). 18 (e) All liabilities and obligations of Seller with respect to the Purchased Assets under the agreements or consent orders set forth on Schedule 4.7 arising on or after the Closing; and (f) With respect to the Purchased Assets, any Tax that may be imposed by any federal, state or local government on the ownership, sale, operation or use of the Purchased Assets on or after the Closing Date, except for any Income Taxes attributable to income received by Seller. 2.4 Excluded Liabilities. Buyer shall not assume or be obligated to pay, perform or otherwise discharge the following liabilities or obligations (the "Excluded Liabilities"): (a) Any liabilities or obligations of Seller that are not expressly set forth as liabilities or obligations being assumed by Buyer in Section 2.3 and any liabilities or obligations in respect of any Excluded Assets or other assets of Seller which are not Purchased Assets; (b) Any liabilities or obligations in respect of Taxes attributable to the ownership, operation or use of Purchased Assets for taxable periods, or portions thereof, ending before the Closing Date, except for Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof and any liability in respect of PURTA not otherwise expressly assumed by Buyer under Section 3.5 hereof; (c) Any liabilities or obligations of Seller accruing under any of Seller's Agreements prior to the Closing Date; (d) Any and all asserted or unasserted liabilities or obligations to third parties (including employees) for personal injury or tort, or similar causes of action arising solely out of the ownership or operation of the Purchased Assets prior to the Closing Date, other than any liabilities or obligations which have been assumed by Buyer in Section 2.3(d); (e) Any fines, penalties or costs imposed by a Governmental Authority resulting from (i) an investigation, proceeding, request for information or inspection before or by a Governmental Authority pending prior to the Closing Date but only regarding acts which occurred prior to the Closing Date, or (ii) illegal acts, willful misconduct or gross negligence of Seller prior to the Closing Date, other than, any such fines, penalties or costs which have been assumed by Buyer in Section 2.3(d); (f) Any payment obligations of Seller for goods delivered or services rendered prior to the Closing Date, 19 including, but not limited to, rental payments pursuant to the Real Property Leases; (g) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with loss of life, injury to persons or property or damage to natural resources (whether or not such loss, injury or damage arose or was made manifest before the Closing Date or arises or becomes manifest on or after the Closing Date) to the extent caused (or allegedly caused) by the off-Site disposal, storage, transportation, discharge, Release, or recycling of Hazardous Substances, or the arrangement for such activities, of Hazardous Substances, prior to the Closing Date, in connection with the ownership or operation of the Purchased Assets, provided that for purposes of this Section "off-Site" does not include any location to which Hazardous Substances disposed of or Released at the Purchased Assets have migrated; (h) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability or obligation or responsibility is known or unknown, contingent or accrued, arising as a result of or in connection with the investigation and/or Remediation (whether or not such investigation or Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances that are disposed, stored, transported, discharged, Released, recycled, or the arrangement of such activities, prior to the Closing Date, (i) in connection with the ownership or operation of the Purchased Assets, at any off-Site location, provided that for purposes of this Section "off-Site" does not include any location to which Hazardous Substances disposed of or Released at the Purchased Assets have migrated, (ii) in connection with the coal refuse site at the Seward Plant more particularly described in Schedule 2.4(h) but only up to a maximum amount of $6 million in the aggregate, and (iii) in connection with the remediation associated with the leaking underground pipeline at the Broad Street office facility more particularly described in Schedule 2.4(h). (i) Third party liability for toxic torts arising as a result of or in connection with loss of life or injury to persons (whether or not such loss or injury arose or was made manifest on or after the Closing Date) caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Purchased Assets prior to the Closing Date; 20 (j) Civil or criminal fines or penalties wherever assessed or incurred for violations of Environmental Laws arising from the operation of the Purchased Assets prior to the Closing Date; (k) Subject to Section 6.10, any liabilities or obligations relating to any Benefit Plan maintained by Seller or any trade or business (whether or not incorporated) which is or ever has been under common control, or which is or ever has been treated as a single employer, with Seller under Section 414(b), (c), (m) or (o) of the Code ("ERISA Affiliate") or to which Seller and any ERISA Affiliate contributed thereunder (the "ERISA Affiliate Plans"), including but not limited to any liability with respect to any such plan (i) for benefits payable under such plan; (ii) to the Pension Benefit Guaranty Corporation under Title IV of ERISA; (iii) relating to any such plan that is a multi-employer plan within the meaning of Section 3(37) of ERISA; (iv) for non-compliance with the notice and benefit continuation requirements of COBRA; (v) for noncompliance with ERISA or any other applicable laws; or (vi) arising out of or in connection with any suit, proceeding or claim which is brought against Buyer, any Benefit Plan, ERISA Affiliate Plan, or any fiduciary or former fiduciary of any such Benefit Plan or ERISA Affiliate Plan; (l) Subject to Section 6.10, any liabilities or obligations relating to the employment or termination of employment, by Seller, or any Affiliate of Seller, of any individual, that is attributable to any actions or inactions (including discrimination, wrongful discharge, unfair labor practices or constructive termination) by Seller prior to the Closing Date other than such actions or inactions taken at the written direction of Buyer; (m) Subject to Section 6.10, any obligations for wages, overtime, employment taxes, severance pay, transition payments in respect of compensation or similar benefits accruing or arising prior to the Closing under any term or provision of any contract, plan, instrument or agreement relating to any of the Purchased Assets; (n) Any liability of Seller arising out of a breach by Seller or any of its Affiliates of any of their respective obligations under this Agreement or the Ancillary Agreements; and (o) Any liability relating to the Pollution Control Revenue Bonds except as provided in Section 6.12. 2.5 Control of Litigation. The Parties agree and acknowledge that Seller shall be entitled exclusively to control, defend and settle any litigation, administrative or regulatory 21 proceeding, and any investigation or Remediation activities (including without limitation any environmental mitigation or Remediation activities), arising out of or related to any Excluded Liabilities, and Buyer agrees to cooperate fully in connection therewith; provided, however, that without Buyer's written consent, which shall not be unreasonably withheld or delayed, Seller shall not settle any such litigation, administrative or regulatory proceeding which would result in a material adverse effect on the related Purchased Assets. ARTICLE III THE CLOSING 3.1 Closing. Upon the terms and subject to the satisfaction of the conditions contained in Article VII of this Agreement, the sale, assignment, conveyance, transfer and delivery of the Purchased Assets to Buyer, the payment of the Purchase Price to Seller, and the consummation of the other respective obligations of the Parties contemplated by this Agreement shall take place at a closing (the "Closing"), to be held at the offices of Berlack, Israels & Liberman LLP, 120 West 45th Street, New York, New York at 10:00 a.m. local time, or another mutually acceptable time and location, on the date that is fifteen (15) Business Days following the date on which the last of the conditions precedent to Closing set forth in Article VII of this Agreement have been either satisfied or waived by the Party for whose benefit such conditions precedent exist or such other date as the Parties may mutually agree. The date of Closing is hereinafter called the "Closing Date." The Closing shall be effective for all purposes as of 12:01 a.m. on the Closing Date. 3.2 Payment of Purchase Price. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, in consideration of the aforesaid sale, assignment, conveyance, transfer and delivery of the Purchased Assets, Buyer will pay or cause to be paid to Seller at the Closing an aggregate amount of five hundred sixty million six hundred forty one thousand United States Dollars (U.S. $560,641,000.00) (the "Purchase Price") plus or minus any adjustments pursuant to the provisions of this Agreement, by wire transfer of immediately available funds denominated in U.S. dollars or by such other means as are agreed upon by Seller and Buyer. 3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at the Closing, the Purchase Price shall be adjusted, without duplication, to account for the items set forth in this Section 3.3(a): 22 (i) The Purchase Price shall be increased or decreased, as applicable, to reflect the difference between the book value of all Inventories as of the Closing Date and the value of all Inventories as of June 30, 1998 as reflected on Schedule 3.3(a)(i). (ii) The Purchase Price shall be adjusted to account for the items prorated as of the Closing Date pursuant to Section 3.5. (iii) The Purchase Price shall be increased by the amount expended, or for which liabilities are incurred, by Seller between the date hereof and the Closing Date for capital additions to or replacements of property, plant and equipment included in the Purchased Assets and other expenditures or repairs on property, plant and equipment included in the Purchased Assets that would be capitalized by Seller in accordance with normal accounting policies of Seller and its Affiliates (together, "Capital Expenditures"), which are not described on Schedule 6.1 and which either (A) are mandated after the date of this Agreement by any Governmental Authority (subject to Buyer's right reasonably to direct Seller to contest such mandates by appropriate proceedings at Buyer's expense and provided there is no adverse impact on the Purchased Assets); or (B) do not fall within category (A) above but do not exceed in the aggregate $2 million for all Aggregate Purchased Assets; or (C) are approved in writing by Buyer. (b) At least ten (10) Business Days prior to the Closing Date, Seller shall prepare and deliver to Buyer an estimated closing statement (the "Estimated Closing Statement") that shall set forth Seller's best estimate of the adjustments to the Purchase Price required by Section 3.3(a) (the "Estimated Adjustment"). Within five (5) Business Days following the delivery of the Estimated Closing Statement by Seller to Buyer, Buyer may object in good faith to the Estimated Adjustment in writing. If Buyer objects to the Estimated Adjustment, the Parties shall attempt to resolve their differences by negotiation. If the Parties are unable to do so within three (3) Business Days prior to the Closing Date (or if Buyer does not object to the Estimated Adjustment), the Purchase Price shall be adjusted (the "Closing Adjustment") for the Closing by the amount of the Estimated Adjustment not in dispute. The disputed portion shall be paid as a Post-Closing Adjustment to the extent required by Section 3.3(c). (c) Within sixty (60) days following the Closing Date, Seller shall prepare and deliver to Buyer a final closing statement (the "Post-Closing Statement") that shall set forth all 23 adjustments to the Purchase Price required by Section 3.3(a) (the "Post-Closing Adjustment"). The Post-Closing Statement shall be prepared using the same accounting principles, policies and methods as Seller has historically used in connection with the calculation of the items reflected on such Post-Closing Statement. Within thirty (30) days following the delivery of the Post-Closing Statement by Seller to Buyer, Buyer may object to the Post-Closing Adjustment in writing. Seller agrees to cooperate with Buyer to provide Buyer and Buyer's Representatives information used to prepare the Post-Closing Statement and information relating thereto. If Buyer objects to the Post-Closing Adjustment, the Parties shall attempt to resolve such dispute by negotiation. If the Parties are unable to resolve such dispute within thirty (30) days of any objection by Buyer, the Parties shall appoint the Independent Accounting Firm, which shall, at Seller's and Buyer's joint expense, review the Post-Closing Adjustment and determine the appropriate adjustment to the Purchase Price, if any, within thirty (30) days of such appointment. The Parties agree to cooperate with the Independent Accounting Firm and provide it with such information as it reasonably requests to enable it to make such determination. The finding of such Independent Accounting Firm shall be binding on the Parties hereto. Upon determination of the appropriate adjustment by agreement of the Parties or by binding determination of the Independent Accounting Firm, if the Post-Closing Adjustment is more or less than the Closing Adjustment, the Party owing the difference shall deliver such difference to the other Party no later than two (2) Business Days after such determination, in immediately available funds or in any other manner as reasonably requested by the payee. 3.4 Allocation of Purchase Price. Buyer and Seller shall endeavor to agree upon an allocation among the Purchased Assets of the sum of the Purchase Price and the Assumed Liabilities in a manner consistent with the provisions of Section 1060 of the Code and the Treasury Regulations thereunder within sixty (60) days of the date of this Agreement. Each of Buyer and Seller agrees to file Internal Revenue Service Form 8594, and all federal, state, local and foreign Tax Returns, in accordance with any such agreed to allocation. Each of Buyer and Seller shall report the transactions contemplated by this Agreement for federal Tax and all other Tax purposes in a manner consistent with any such agreed to allocation determined pursuant to this Section 3.4. Each of Buyer and Seller agrees to provide the other promptly with any information required to complete Form 8594. Buyer and Seller shall notify and provide the other with reasonable assistance in the event of an examination, audit or other proceeding regarding any allocation of the Purchase Price agreed to pursuant to this Section 3.4. 24 3.5 Prorations. (a) Buyer and Seller agree that all of the items normally prorated, including those listed below (but not including Income Taxes), relating to the business and operation of the Purchased Assets shall be prorated as of the Closing Date, with Seller liable to the extent such items relate to any time period prior to the Closing Date, and Buyer liable to the extent such items relate to periods commencing with the Closing Date (measured in the same units used to compute the item in question, otherwise measured by calendar days): (i) Personal property, real estate and occupancy Taxes, assessments and other charges, if any, on or with respect to the business and operation of the Purchased Assets; (ii) Rent, Taxes and all other items (including prepaid services or goods not included in Inventory) payable by or to Seller under any of Seller's Agreements; (iii) Any permit, license, registration, compliance assurance fees or other fees with respect to any Transferable Permit; (iv) Sewer rents and charges for water, telephone, electricity and other utilities; and (v) Rent and Taxes and other items payable by Seller under the Real Property Leases assigned to Buyer. (b) In connection with the prorations referred to in (a) above, in the event that actual figures are not available at the Closing Date, the proration shall be based upon the actual Taxes or other amounts accrued through the Closing Date or paid for the most recent year (or other appropriate period) for which actual Taxes or other amounts paid are available. Such prorated Taxes or other amounts shall be re-prorated and paid to the appropriate Party within sixty (60) days of the date that the previously unavailable actual figures become available. The prorations shall be based on the number of days in a year or other appropriate period (i) before the Closing Date and (ii) including and after the Closing Date. Seller and Buyer agree to furnish each other with such documents and other records as may be reasonably requested in order to confirm all adjustment and proration calculations made pursuant to this Section 3.5. Notwithstanding anything to the contrary herein, no proration shall be made under this Section 3.5 with respect to Taxes payable under the Pennsylvania Public Utility Realty Tax Act ("PURTA") that are attributable to the year in which the Closing occurs (the "Closing Year PURTA Tax"). Buyer shall be fully responsible and indemnify Seller for, and shall be entitled 25 to receive all refunds relating to payments Buyer makes with respect to, the Closing Year PURTA Tax; provided, however, that any additional tax that is imposed in the year in which the Closing occurs pursuant to Section 1104-A(b) of PURTA or any successor provision thereof (a "PURTA Surcharge") but which relates to the previous year shall not be treated as the Closing Year PURTA Tax and Seller shall be responsible for such PURTA Surcharge. 3.6 Deliveries by Seller. At the Closing, Seller will deliver, or cause to be delivered, the following to Buyer: (a) The Bill of Sale, duly executed by Seller; (b) Copies of any and all governmental and other third party consents, waivers or approvals required with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement; (c) The opinions of counsel and officer's certificates contemplated by Section 7.1; (d) One or more special warranty deeds conveying the Real Property to Buyer, in substantially the form of Exhibit F hereto, duly executed and acknowledged by Seller and in recordable form; (e) The Assignment and Assumption Agreement and any Ancillary Agreements which are not executed on the date hereof, duly executed by Seller; (f) A FIRPTA Affidavit, duly executed by Seller; (g) Copies, certified by the Secretary or Assistant Secretary of Seller, of corporate resolutions authorizing the execution and delivery of this Agreement and all of the agreements and instruments to be executed and delivered by Seller in connection herewith, and the consummation of the transactions contemplated hereby; (h) A certificate of the Secretary or Assistant Secretary of Seller identifying the name and title and bearing the signatures of the officers of Seller authorized to execute and deliver this Agreement and the other agreements and instruments contemplated hereby; (i) Certificates of Subsistence with respect to Seller, issued by the Secretary of the State of Seller's state of incorporation; 26 (j) To the extent available, originals of all Seller's Agreements, Real Property Leases, Permits, Environmental Permits, and Transferable Permits and, if not available, true and correct copies thereof, together with all the items referred to in Section 2.1(g); (k) All such other instruments of assignment, transfer or conveyance as shall, in the reasonable opinion of Buyer and its counsel, be necessary or desirable to transfer to Buyer the Purchased Assets, in accordance with this Agreement and where necessary or desirable in recordable form; (l) Notices, signed by Seller, to all other parties to the material Seller's Agreements where notice to such parties is required under the terms of such Seller's Agreements or pursuant to Section 6.5(d) hereof; (m) Reliance letters from Woodward & Clyde with respect to the Environmental Reports prepared by Woodward & Clyde concerning the Purchased Assets and made available for review by Buyer. (n) Such other agreements, documents, instruments and writings as are required to be delivered by Seller at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith; 3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or cause to be delivered, the following to Seller: (a) The Purchase Price, as adjusted pursuant to Section 3.3, by wire transfer of immediately available funds in accordance with Seller's instructions or by such other means as may be agreed to by Seller and Buyer; (b) The opinions of counsel and officer's certificates contemplated by Section 7.2; (c) The Assignment and Assumption Agreement and any Ancillary Agreements which are not executed on the date hereof, duly executed by Buyer; (d) Copies, certified by the Secretary or Assistant Secretary of Buyer, of resolutions authorizing the execution and delivery of this Agreement, the Guaranty and all of the agreements and instruments to be executed and delivered by Buyer in connection herewith, and the consummation of the transactions contemplated hereby; (e) A certificate of the Secretary or Assistant Secretary of Buyer, identifying the name and title and bearing 27 the signatures of the officers of Buyer authorized to execute and deliver this Agreement, the Guaranty and the other agreements contemplated hereby; (f) All such other instruments of assumption as shall, in the reasonable opinion of Seller and its counsel, be necessary for Buyer to assume the Assumed Liabilities in accordance with this Agreement; (g) Copies of any and all governmental and other third party consents, waivers or approvals obtained by Buyer with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement and where necessary or desirable in recordable forms; (h) Certificates of Insurance relating to the insurance policies required pursuant to Article 10 of the Interconnection Agreement; and (i) Such other agreements, documents, instruments and writings as are required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. 3.8 Ancillary Agreements. The Parties acknowledge that the Ancillary Agreements other than the Easement Agreements have been executed on the date hereof. 3.9 Easement Agreements. At the Closing, Buyer and Seller shall execute for each Site an Easement Agreement in the form attached hereto as Exhibit C, completed as required to cause the entity owning such Site to grant such Easements and licenses as are contemplated by such form of agreement and Exhibits B (Distribution Facilities), Exhibits C (Transmission Facilities), Exhibits F (Distribution Substation), and Exhibits G (Main Substation) thereto, forms of which are attached thereto. Such forms of Exhibits B, C, F and G to the agreements are subject to revision as the Parties may agree. The Parties shall engage in reasonable and good faith negotiations regarding such revisions so as to minimize the impact of the Seller's Easements, Easement areas and licenses on the Sites and Buyer's use thereof, consistent with the enjoyment by Seller of such Easements and license rights as Seller reasonably requires to continue its use, operation and maintenance of the Excluded Assets. The Parties shall also engage in reasonable, good faith negotiations to agree upon the rules and regulations under which Buyer will grant to Seller access to the Sites, and under which Seller will grant to Buyer access to Seller's Easements and Easement areas. Such rules and regulations shall be memorialized as Exhibit J to each agreement. 28 ARTICLE IV REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF SELLER Seller represents and warrants to Buyer as follows: 4.1 Incorporation; Qualification. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation and has all requisite corporate power and authority to own, lease, and operate its material properties and assets and to carry on its business as is now being conducted. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which its business as now being conducted shall require it to be so qualified, except where the failure to be so qualified would not have a Material Adverse Effect. Seller has heretofore delivered to Buyer true, complete and correct copies of its Certificate of Incorporation and Bylaws as currently in effect. 4.2 Authority Relative to this Agreement. Seller has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by it hereby. The execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated by Seller hereby have been duly and validly authorized by all necessary corporate action required on the part of Seller and this Agreement has been duly and validly executed and delivered by Seller. Subject to the receipt of Seller's Required Regulatory Approvals, this Agreement constitutes the legal, valid and binding agreement of Seller, enforceable against Seller in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 4.3 Consents and Approvals; No Violation. (a) Except as set forth in Schedule 4.3(a), and subject to obtaining Seller's Required Regulatory Approvals, neither the execution and delivery of this Agreement by Seller nor the consummation by Seller of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws of Seller, (ii) result in a default (or give rise to any right of termination, consent, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Seller is a party or by which it, or any of the Purchased Assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) 29 as to which requisite waivers or consents have been obtained or which, would not, individually or in the aggregate, create a Material Adverse Effect; or (iii) constitute violations of any law, regulation, order, judgment or decree applicable to Seller, which violations, individually or in the aggregate, would create a Material Adverse Effect, or create any Encumbrance other than a Permitted Encumbrance. (b) Except as set forth in Schedule 4.3(b), (the filings and approvals referred to in Schedule 4.3(b) are collectively referred to as the "Seller's Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery of this Agreement by Seller, or the consummation by Seller of the transactions contemplated hereby, other than (i) such consents, approvals, filings or notices which, if not obtained or made, will not prevent Seller from performing its material obligations hereunder and (ii) such consents, approvals, filings or notices which become applicable to Seller or the Purchased Assets as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged. 4.4 Insurance. Except as set forth in Schedule 4.4, all material policies of fire, liability, workers' compensation and other forms of insurance owned or held by, or on behalf of, Seller with respect to the business, operations or employees at the Plants or the Purchased Assets are in full force and effect, all premiums with respect thereto covering all periods up to and including the date hereof have been paid (other than retroactive premiums which may be payable with respect to comprehensive general liability and workers' compensation insurance policies), and no notice of cancellation or termination has been received with respect to any such policy which was not replaced on substantially similar terms prior to the date of such cancellation. Except as described in Schedule 4.4, within the 36 months preceding the date of this Agreement, Seller has not been refused any insurance with respect to the Purchased Assets nor has coverage been limited by any insurance carrier to which Seller has applied for any such insurance or with which Seller has carried insurance during the last 12 months. 4.5 Title and Related Matters. Except as set forth in Schedule 4.5 and subject to Permitted Encumbrances, (i) Seller is the owner of record title to the Real Property (or the interest in the Real Property as set forth in Schedule 2.1) and has good and valid title to the other Purchased Assets which it purports to own, free and clear of all material Encumbrances of which the Seller has knowledge and (ii) Seller shall convey to Buyer such 30 title with respect to the Real Property or interest therein as a reputable title company doing business in the Commonwealth of Pennsylvania, as applicable, would insure. 4.6 Real Property Leases. Schedule 4.6 lists, as of the date of this Agreement, all material real property leases under which Seller is a lessee or lessor and which relate to the Purchased Assets ("Real Property Leases"). Except as set forth in Schedule 4.6, all such leases are valid, binding and enforceable against Seller in accordance with their terms; there are no existing material defaults by Seller or, to Seller's Knowledge, any other party thereunder; and no event has occurred which (whether with or without notice, lapse of time or both) would constitute a material default by Seller or, to Seller's Knowledge, any other party thereunder. Seller has delivered to Buyer true, correct and complete copies of each of the material Real Property Leases. 4.7 Environmental Matters. Except as disclosed in Schedule 4.7 or in the "Phase I" and "Phase II" environmental site assessments prepared by Seller's outside environmental consultants ("Environmental Reports") and made available for inspection by Buyer: (a) Seller holds, and is in substantial compliance with, all permits, certificates, certifications, licenses and governmental authorizations under Environmental Laws ("Environmental Permits") that are required for Seller to conduct the business and operations of the Purchased Assets, and Seller is otherwise in compliance with applicable Environmental Laws with respect to the business and operations of such Purchased Assets except for such failures to hold or comply with required Environmental Permits, or such failures to be in compliance with applicable Environmental Laws, as would not, individually or in the aggregate, create a Material Adverse Effect; (b) Seller has not received any written request for information, or been notified that it is a potentially responsible party, under CERCLA or any similar state law with respect to the Real Property or any other Purchased Assets; (c) Seller has not entered into or agreed to any consent decree or order relating to the Purchased Assets, or is not subject to any outstanding judgment, decree, or judicial order relating to compliance with any Environmental Law or to investigation or cleanup of Hazardous Substances under any Environmental Law relating to the Purchased Assets. (d) To Seller's Knowledge, no Releases of Hazardous Substances have occurred at, from, in, on, or under any Site, and no Hazardous Substances are present in, on, about or migrating 31 from any such Site that could give rise to an Environmental Claim related to the Purchased Assets for which Remediation reasonably could be required, except in any such case to the extent that any such Releases would not, individually or in the aggregate, create a Material Adverse Effect. The representations and warranties made in this Section 4.7 are Seller's exclusive representations and warranties relating to environmental matters. 4.8 Labor Matters. Seller has previously delivered to Buyer a true and correct copy of the Collective Bargaining Agreement, which is the only collective bargaining agreement to which it is a party or is subject and which relates to the business and operations of the Purchased Assets. With respect to the business or operations of such Purchased Assets, except to the extent set forth in Schedule 4.8 and except for such matters as will not, individually or in the aggregate, create a Material Adverse Effect, Seller (a) is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours; (b) has not received written notice of any unfair labor practice complaint against it pending before the National Labor Relations Board; (c) no arbitration proceeding arising out of or under any collective bargaining agreement is pending against Seller; and (d) Seller has not experienced any work stoppage within the three-year period prior to the date hereof and to Seller's Knowledge none is currently threatened. 4.9 Benefit Plans: ERISA. (a)Schedule 4.9(a) lists all deferred compensation, profit-sharing, retirement and pension plans, including multiemployer plans, and all material bonus, fringe benefit and other employee benefit plans maintained or with respect to which contributions are made by Seller, Genco, GPUN or GPUS in respect of the current employees of Seller, Genco, GPUN or GPUS connected with the Purchased Assets ("Benefit Plans"). True and complete copies of all Benefit Plans have been made available to Buyer. (b) Except as set forth in Schedule 4.9(b), Seller and the ERISA Affiliates have fulfilled their respective obligations under the minimum funding requirements of Section 302 of ERISA, and Section 412 of the Code, with respect to each Benefit Plan which is an "employee pension benefit plan" as defined in Section 3(2) of ERISA and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and the Code and has been administered in all material respects in accordance with its terms as set forth in the documents governing such Benefit Plan. Except as set forth in Schedule 4.9(b), neither Seller nor any ERISA Affiliate has incurred any liability under Section 4062(b) of ERISA to the Pension Benefit Guaranty 32 Corporation in connection with any Benefit Plan which is subject to Title IV of ERISA or any withdrawal liability with respect to any Benefit Plan, within the meaning of Section 4021 of ERISA, nor is there any reportable event (as defined in Section 4043 of ERISA) with respect to any Benefit Plan. Except as set forth in Schedule 4.9(b), the Internal Revenue Service has issued a letter for each Benefit Plan which is intended to be qualified under Section 401(a) of the Code, which letter determines that such plan is qualified and exempt from United States Federal Income Tax under Section 401(a) and 501(a) of the Code, and Seller is not aware of any occurrence since the date of any such determination letter which would affect adversely such qualification or tax exemption. (c) Neither Seller nor any ERISA Affiliate has engaged in any transaction described in Section 4069(a) or Section 4212(c) of ERISA. No Benefit Plan is a multiemployer plan. (d) Seller and Sellers' Affiliates have materially complied in good faith with the notice and continuation requirements of Section 4980B of the Code, and Part 6 of Subtitle B of Title I of ERISA with respect to any Benefit Plan. Seller and each ERISA Affiliate have complied in all material respects with the requirements of Part 7 of Title I of ERISA. 4.10 Real Property. Schedule 4.10 contains a description of the Real Property included in the Purchased Assets. Copies of any current surveys, abstracts or title opinions in Seller's possession and any policies of title insurance in force and in the possession of Seller with respect to the Real Property have heretofore been made available to Buyer (without making any representation or warranty as to the accuracy or completeness thereof). Except as set forth in Schedule 4.10A, no real property other than the Real Property is necessary for Buyer to own, maintain and operate the Purchased Assets as they are currently used. 4.11 Condemnation. Except as set forth in Schedule 4.11, Seller has not received any written notices of and otherwise has no Knowledge of any pending or threatened proceedings or governmental actions to condemn or take by power of eminent domain all or any part of the Purchased Assets. 4.12 Contracts and Leases. (a) Schedule 4.12(a) lists each written contract, license, agreement, or personal property lease which is material to the business or operations of the Purchased Assets, other than any contract, license, agreement or personal property lease which is listed or described on another Schedule, or which is expected to expire or terminate prior to the Closing Date, or which provides for annual payments by Seller after the 33 date hereof of less than $250,000 or payments by Seller after the date hereof of less than $1,000,000 in the aggregate. (b) Except as disclosed in Schedule 4.12(b), each Seller's Agreement (i) constitutes a legal, valid and binding obligation of Seller and, to Seller's Knowledge, constitutes a valid and binding obligation of the other parties thereto, and (ii) may be transferred to Buyer pursuant to this Agreement without the consent of the other parties thereto and will continue in full force and effect thereafter, unless in any such case the impact of such lack of legality, validity or binding nature, or inability to transfer, would not, individually or in the aggregate, create a Material Adverse Effect. (c) Except as set forth in Schedule 4.12(c), there is not, under Seller's Agreements, any default or event which, with notice or lapse of time or both, would constitute a default on the part of Seller or to Seller's Knowledge, any of the other parties thereto, except such events of default and other events which would not, individually or in the aggregate, create a Material Adverse Effect. 4.13 Legal Proceedings, etc. Except as set forth in Schedule 4.13, there are no actions or proceedings pending (or to Seller's knowledge overtly threatened) against Seller before any court, arbitrator or Governmental Authority, which could, individually or in the aggregate, reasonably be expected to create a Material Adverse Effect. Except as set forth in Schedule 4.13, Seller is not subject to any outstanding judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator or Governmental Authority which would, individually or in the aggregate, create a Material Adverse Effect. 4.14 Permits. (a) Seller has all permits, licenses, franchises and other governmental authorizations, consents and approvals, (other than Environmental Permits, which are addressed in Section 4.7 hereof) (collectively, "Permits") necessary to permit Seller to own and operate the Purchased Assets except where the failure to have such Permits would not, individually or in the aggregate, create a Material Adverse Effect. Except as disclosed on Schedule 4.14(a), Seller has not received any notification that it is in violation of any such Permits, except notifications of violations which would not, individually or in the aggregate, create a Material Adverse Effect. Seller is in compliance with all such Permits except where non-compliance would not, individually or in the aggregate, create a Material Adverse Effect. 34 (b) Schedule 4.14(b) sets forth all material Permits and Environmental Permits, other than Transferable Permits (which are set forth on Schedule 1.1(103)) related to the Purchased Assets. 4.15 Taxes. Seller has filed all returns required to be filed by it with respect to any Tax relating to the Purchased Assets, and Seller has paid all Taxes that have become due as indicated thereon, except where such Tax is being contested in good faith by appropriate proceedings, or where the failure to so file or pay would not reasonably be expected to create a Material Adverse Effect. Seller has complied in all material respects with all applicable laws, rules and regulations relating to withholding Taxes relating to Transferred Employees. All Tax Returns relating to the Purchased Assets are true, correct and complete in all material respects. Except as set forth in Schedule 4.15, no notice of deficiency or assessment has been received from any taxing authority with respect to liabilities for Taxes of Seller in respect of the Purchased Assets, which have not been fully paid or finally settled, and any such deficiency shown in Schedule 4.15 is being contested in good faith through appropriate proceedings. Except as set forth in Schedule 4.15, there are no outstanding agreements or waivers extending the applicable statutory periods of limitation for Taxes associated with the Purchased Assets that will be binding upon Buyer after the Closing. None of the Purchased Assets is property that is required to be treated as being owned by any other person pursuant to the so-called safe harbor lease provisions of former Section 168(f) of the Code, and none of the Purchased Assets is "tax-exempt use" property within the meaning of Section 168(h) of the Code. Schedule 4.15 sets forth the taxing jurisdictions in which Seller owns assets or conducts business that require a notification to a taxing authority of the transactions contemplated by this Agreement, if the failure to make such notification, or obtain Tax clearance certificates in connection therewith, would either require Buyer to withhold any portion of the Purchase Price or subject Buyer to any liability for any Taxes of Seller. 4.16 Intellectual Property. Schedule 2.1(l) sets forth all Intellectual Property used in and, individually or in the aggregate with other Intellectual Property, material to the operation or business of the Purchased Assets, each of which Seller or its Affiliates either has all right, title and interest in or valid and binding rights under contract to use. Except as disclosed in Schedule 4.16, (i) Seller is not, nor has it received any notice that it is, in default (or with the giving of notice or lapse of time or both, would be in default), under any contract to use such Intellectual Property, and (ii) to Seller's Knowledge, such Intellectual Property is not being infringed by any other Person. Seller has not received notice that it is 35 infringing any Intellectual Property of any other Person in connection with the operation or business of the Purchased Assets, and Seller, to its Knowledge, is not infringing any Intellectual Property of any other Person the effect of which, individually or in the aggregate, would have a Material Adverse Effect. 4.17 Capital Expenditures. Except as set forth in Schedule 6.1, there are no capital expenditures associated with the Purchased Assets that are planned by Seller through December 31, 1999. 4.18 Compliance With Laws. Seller is in compliance with all applicable laws, rules and regulations with respect to the ownership or operation of the Purchased Assets except where the failure to be in compliance would not, individually or in the aggregate, create a Material Adverse Effect. 4.19 PUHCA. Seller is a wholly owned subsidiary of GPU, Inc., which is a holding company registered under the Public Utility Holding Company Act of 1935. 4.20 DISCLAIMERS REGARDING PURCHASED ASSETS. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED ASSETS ARE SOLD "AS IS, WHERE IS", AND SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, AS TO LIABILITIES, OPERATIONS OF THE PLANTS, THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS OR THE PROSPECTS (FINANCIAL AND OTHERWISE), RISKS AND OTHER INCIDENTS OF THE PURCHASED ASSETS AND SELLER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE PURCHASED ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT, OR COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS, OR THE APPLICABILITY OF ANY GOVERNMENTAL REQUIREMENTS, INCLUDING BUT NOT LIMITED TO ANY ENVIRONMENTAL LAWS, OR WHETHER SELLER POSSESSES SUFFICIENT REAL PROPERTY OR PERSONAL PROPERTY TO OPERATE THE PURCHASED ASSETS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER FURTHER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE ABSENCE OF HAZARDOUS SUBSTANCES OR LIABILITY OR POTENTIAL LIABILITY ARISING UNDER ENVIRONMENTAL LAWS WITH RESPECT TO THE PURCHASED ASSETS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND REGARDING THE CONDITION OF THE PURCHASED ASSETS OR THE SUITABILITY OF THE PURCHASED ASSETS FOR OPERATION AS A POWER PLANT AND NO SCHEDULE OR EXHIBIT TO THIS AGREEMENT, NOR ANY OTHER MATERIAL OR INFORMATION PROVIDED BY OR COMMUNICATIONS MADE BY SELLER OR ITS 36 REPRESENTATIVES, OR BY ANY BROKER OR INVESTMENT BANKER, WILL CAUSE OR CREATE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS. Seller makes no warranties and representations of any kind, whether direct or implied, that any of the hardware, software, and firmware products (including embedded microcontrollers in non-computer equipment) which may be included in the Purchased Assets to be transferred under this Agreement (the "Computer Systems") is Year 2000 Compliant. For purposes hereof, "Year 2000 Compliant" shall mean that the Computer Systems will correctly differentiate between years, in different centuries, that end in the same two digits, and will accurately process date/time data (including, but not limited to, calculating, comparing, and sequencing) from, into, and between the twentieth and twenty-first centuries, including leap year calculations. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: 5.1 Organization. Buyer is a Delaware corporation, duly organized, validly existing and in good standing under the laws of the state of its organization and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as is now being conducted. Buyer is, or by the Closing will be, qualified to do business in the Commonwealth of Pennsylvania and the State of Maryland. Buyer has heretofore delivered to Seller complete and correct copies of its Certificate of Incorporation and Bylaws (or other similar governing documents) as currently in effect. 5.2 Authority Relative to this Agreement. Buyer has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by it hereby. The execution and delivery of this Agreement by Buyer and the consummation of the transactions contemplated hereby by Buyer have been duly and validly authorized by all necessary corporate action required on the part of Buyer. This Agreement has been duly and validly executed and delivered by Buyer. Subject to the receipt of Buyer Required Regulatory Approvals, this Agreement constitutes a legal, valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to 37 enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 5.3 Consents and Approvals; No Violation. (a) Except as set forth in Schedule 5.3(a), and subject to obtaining Buyer Required Regulatory Approvals, neither the execution and delivery of this Agreement by Buyer nor the consummation by Buyer of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws (or other similar governing documents) of Buyer, or (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Buyer or any of its Subsidiaries is a party or by which any of their respective assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, have a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Buyer ("Buyer Material Adverse Effect") or (iii) violate any law, regulation, order, judgment or decree applicable to Buyer, which violations, individually or in the aggregate, would create a Buyer Material Adverse Effect. (b) Except as set forth in Schedule 5.3(b) (the filings and approvals referred to in such Schedule are collectively referred to as the "Buyer Required Regulatory Approvals"), no consent or approval of, filing with, or notice to, any Governmental Authority is necessary for Buyer's execution and delivery of this Agreement, or the consummation by Buyer of the transactions contemplated hereby, other than such consents, approvals, filings or notices, which, if not obtained or made, will not prevent Buyer from performing its obligations under this Agreement. 5.4 Availability of Funds. Buyer has sufficient funds and lines of credit available to it or has received binding written commitments from creditworthy financial institutions, copies of which have been provided to Seller, to provide sufficient funds on the Closing Date to pay the Purchase Price and to permit Buyer to timely perform all of its obligations under this Agreement. 5.5 Legal Proceedings. There are no actions or proceedings pending against Buyer before any court or arbitrator or Governmental Authority, which, individually or in the aggregate, could reasonably be expected to create a Buyer Material Adverse Effect. Buyer is not subject to any outstanding judgments, 38 rules, orders, writs, injunctions or decrees of any court, arbitrator or Governmental Authority which would, individually or in the aggregate, create a Buyer Material Adverse Effect. 5.6 No Knowledge of Seller's Breach. Buyer has no Knowledge of any breach by Seller of any representation or warranty of Seller, or of any other condition or circumstance that would excuse Buyer from its timely performance of its obligations hereunder. Buyer shall notify Seller promptly if any such information comes to its attention prior to the Closing. 5.7 Qualified Buyer. Buyer is qualified to obtain any Permits and Environmental Permits necessary for Buyer to own and operate the Purchased Assets as of the Closing. Without limiting the foregoing, Buyer is not aware of any reason or circumstance that would prevent Buyer from procuring Buyer Required Regulatory Approvals associated with Exempt Wholesale Generator (as defined in the Public Utility Holding Company Act of 1935) status and market-based rate authorization specified in items 3 and 2 of Schedule 5.3(b). 5.8 Inspections. Without limitation of Seller's representations, warranties and covenants contained in this Agreement or the Ancillary Agreements, Buyer acknowledges and agrees that it has, prior to its execution of this Agreement, (i) reviewed the Environmental Reports, (ii) had full opportunity to conduct to its satisfaction Inspections of the Purchased Assets, including the Sites, and (iii) fully completed and approved the results of all Inspections of the Purchased Assets. Subject to the restrictions set forth in Section 6.2(a), Buyer acknowledges that it is satisfied through such review and Inspections that no further investigation and study on or of the Sites is necessary for the purposes of acquiring the Purchased Assets for Buyer's intended use. Buyer acknowledges and agrees that it hereby assumes the risk that adverse past, present, and future physical characteristics and Environmental Conditions may not have been revealed by its Inspections and the investigations of the Purchased Assets contained in the Environmental Reports. In making its decision to execute this Agreement, and to purchase the Purchased Assets, Buyer has relied on and will rely upon, among other things, the results of its Inspections and the Environmental Reports. 5.9 WARN Act. Buyer does not intend to engage in a Plant Closing or Mass Layoff as such terms are defined in the WARN Act within sixty days of the Closing Date. 39 ARTICLE VI COVENANTS OF THE PARTIES 6.1 Conduct of Business Relating to the Purchased Assets. (a) Except as described in Schedule 6.1 or as expressly contemplated by this Agreement or to the extent Buyer otherwise consents in writing, during the period from the date of this Agreement to the Closing Date, Seller (i) will operate the Purchased Assets in the ordinary course of business consistent with the past practices of Seller or its Affiliates or with Good Utility Practices, (ii) shall use all Commercially Reasonable Efforts to preserve intact such Purchased Assets, and endeavor to preserve the goodwill and relationships with customers, suppliers and others having business dealings with it, (iii) shall maintain the insurance coverage described in Section 4.4, (iv) shall comply with all applicable laws relating to the Purchased Assets, including without limitation, all Environmental Laws, except where the failure to so comply would not result in a Material Adverse Effect, and (v) shall continue with Seller's program, or (at Buyer's expense) as Buyer may direct, to install such equipment or software with respect to Year 2000 Compliance in accordance with Seller's plans referred to in Section 2.1(k). Without limiting the generality of the foregoing, and, except as (x) contemplated in this Agreement, (y) described in Schedule 6.1, or (z) required under applicable law or by any Governmental Authority, prior to the Closing Date, without the prior written consent of Buyer, Seller shall not with respect to the Purchased Assets: (i) Make any material change in the levels of Inventories customarily maintained by Seller or its Affiliates with respect to the Purchased Assets, other than changes which are consistent with Good Utility Practices; (ii) Sell, lease (as lessor), encumber, pledge, transfer or otherwise dispose of, any material Purchased Assets individually or in the aggregate (except for Purchased Assets used, consumed or replaced in the ordinary course of business consistent with past practices of Seller or its Affiliates or with Good Utility Practices) other than to encumber Purchased Assets with Permitted Encumbrances; (iii) Modify, amend or voluntarily terminate prior to the expiration date any of Seller's Agreements or Real Property Leases or any of the Permits or Environmental Permits associated with such Purchased Assets in any material respect, other than (a) in the ordinary course of business, to the extent consistent with the past practices of Seller or its Affiliates or with Good Utility Practices, (b) with cause, to the extent consistent with past practices 40 of Seller or its Affiliates or with Good Utility Practices, or (c) as may be required in connection with transferring Seller's rights or obligations thereunder to Buyer pursuant to this Agreement; (iv) Except as otherwise provided herein, enter into any commitment for the purchase, sale, or transportation of fuel having a term greater than six months and not terminable on or before the Closing Date either (i) automatically, or (ii) by option of Seller (or, after the Closing, by Buyer) in its sole discretion, if the aggregate payment under such commitment for fuel and all other outstanding commitments for fuel not previously approved by Buyer would exceed $1,000,000 for all Aggregate Purchased Assets; (v) Sell, lease or otherwise dispose of Emission Allowances, or Emission Reduction Credits identified in Schedule 2.1(h), except to the extent necessary to operate the Purchased Assets in accordance with this Section 6.1; (vi) Except as otherwise provided herein, enter into any contract, agreement, commitment or arrangement relating to the Purchased Assets that individually exceeds $250,000 or in the aggregate exceeds $1,000,000 unless it is terminable by Seller (or, after the Closing, by Buyer) without penalty or premium upon no more than sixty (60) days notice; (vii) Except as otherwise required by the terms of the Collective Bargaining Agreement, (a) hire at, or transfer to the Purchased Assets, any new employees prior to the Closing, other than to fill vacancies in existing positions in the reasonable discretion of Seller, (b) increase salaries or wages of employees employed in connection with the Purchased Assets prior to the Closing other than in the ordinary course of business and in accordance with Seller's past practices, (c) take any action prior to the Closing to effect a change in a Collective Bargaining Agreement, or (d) take any action prior to the Closing to increase the aggregate benefits payable to the employees employed in connection with the Purchased Assets other than increases for Non-Union Employees in the ordinary course of business and in accordance with Seller's past practices or (e) enter into any employment contracts with employees at the Purchased Assets or any collective bargaining agreements with labor organizations representing such employees; 41 (viii) Make any Capital Expenditures except as permitted by Section 3.3(a)(iii) or for Seller's account; and (ix) Except as otherwise provided herein, enter into any written or oral contract, agreement, commitment or arrangement with respect to any of the proscribed transactions set forth in the foregoing paragraphs (i) through (viii). 6.2 Access to Information. (a) Between the date of this Agreement and the Closing Date, Seller will, at reasonable times and upon reasonable notice: (i) give Buyer and its Representatives reasonable access to its managerial personnel and to all books, records, plans, equipment, offices and other facilities and properties constituting the Purchased Assets; (ii) furnish Buyer with such financial and operating data and other information with respect to the Purchased Assets as Buyer may from time to time reasonably request, and permit Buyer to make such reasonable Inspections thereof as Buyer may request; (iii) furnish Buyer at its request a copy of each material report, schedule or other document filed by Seller or any of its Affiliates with respect to the Purchased Assets with the SEC, FERC, MPSC, PaPUC, PaDEP, or any other Governmental Authority; and (iv) furnish Buyer with all such other information as shall be reasonably necessary to enable Buyer to verify the accuracy of the representations and warranties of Seller contained in this Agreement; provided, however, that (A) any such inspections and investigations shall be conducted in such a manner as not to interfere unreasonably with the operation of the Purchased Assets, (B) Seller shall not be required to take any action which would constitute a waiver of the attorney-client privilege, and (C) Seller need not supply Buyer with any information which Seller is under a legal or contractual obligation not to supply. Notwithstanding anything in this Section 6.2 to the contrary, Seller will only furnish or provide such access to Transferring Employee Records and will not furnish or provide access to other employee personnel records or medical information unless required by law or specifically authorized by the affected employee, nor shall Buyer have the right to administer to any of Seller's employees any skills, aptitudes, psychological profile, or other employment related test. Buyer shall not have the right to perform or conduct any environmental sampling or testing at, in, on, or underneath the Purchased Assets. (b) Each Party shall, and shall use its best efforts to cause its Representatives to, (i) keep all Proprietary Information of the other Party confidential and not to disclose or reveal any such Proprietary Information to any person other 42 than such Party's Representatives and (ii) not use such Proprietary Information other than in connection with the consummation of the transactions contemplated hereby. After the Closing Date, any Proprietary Information to the extent related to the Purchased Assets shall no longer be subject to the restrictions set forth herein. The obligations of the Parties under this Section 6.2(b) shall be in full force and effect for three (3) years from the date hereof and will survive the termination of this Agreement, the discharge of all other obligations owed by the Parties to each other and the closing of the transactions contemplated by this Agreement. (c) For a period of seven (7) years after the Closing Date (or such longer period as may be required by applicable law or Section 6.8(g)), each Party and its Representatives shall have reasonable access to all of the books and records of the Purchased Assets, including all Transferring Employee Records in the possession of the other Party to the extent that such access may reasonably be required by such Party in connection with the Assumed Liabilities or the Excluded Liabilities, or other matters relating to or affected by the operation of the Purchased Assets. Such access shall be afforded by the Party in possession of any such books and records upon receipt of reasonable advance written notice and during normal business hours. The Party exercising this right of access shall be solely responsible for any costs or expenses incurred by it or the other Party with respect to such access pursuant to this Section 6.2(c). If the Party in possession of such books and records shall desire to dispose of any books and records upon or prior to the expiration of such seven-year period (or any such longer period), such Party shall, prior to such disposition, give the other Party a reasonable opportunity at such other Party's reasonable expense, to segregate and remove such books and records as such other Party may select. (d) Notwithstanding the terms of Section 6.2(b) above, the Parties agree that prior to the Closing Buyer may reveal or disclose Proprietary Information to any other Persons in connection with Buyer's financing of its purchase of the Purchased Assets or any equity participation in Buyer's purchase of the Purchased Assets (provided that such Persons agree in writing to maintain the confidentiality of the Proprietary Information in accordance with this Agreement). (e) Upon the other Party's prior written approval (which will not be unreasonably withheld or delayed), either Party may provide Proprietary Information of the other Party to the PaPUC, the MPSC, the SEC, the FERC or any other Governmental Authority with jurisdiction or any stock exchange, as may be necessary to obtain Seller's Required Regulatory Approvals, or Buyer Required Regulatory Approvals, respectively, or to comply 43 generally with any relevant law or regulation. The disclosing Party will seek confidential treatment for the Proprietary Information provided to any Governmental Authority and the disclosing Party will notify the other Party as far in advance as is practicable of its intention to release to any Governmental Authority any Proprietary Information. (f) Except as specifically provided herein or in the Confidentiality Agreement, nothing in this Section shall impair or modify any of the rights or obligations of Buyer or its Affiliates under the Confidentiality Agreement, all of which remain in effect until termination of such agreement in accordance with its terms. (g) Except as may be permitted in the Confidentiality Agreement, Buyer agrees that, prior to the Closing Date, it will not contact any vendors, suppliers, employees, or other contracting parties of Seller or its Affiliates with respect to any aspect of the Purchased Assets or the transactions contemplated hereby, without the prior written consent of Seller, which consent shall not be unreasonably withheld. (h) (i) Buyer shall be entitled to inspect, in accordance with this Section 6.2(h), all of the Purchased Assets located adjacent to any Point of Interconnection (as defined in the Interconnection Agreement), as shown in Schedule A to the Interconnection Agreement, to verify and/or determine the accuracy of the data, drawings, and records described in such Schedule. The Parties shall cooperate to schedule Buyer's inspection at the Plants so that any interference with the operation of the Plants is minimized, to the extent reasonably feasible, and so that Buyer may complete its inspections of the Plants within thirty (30) working days of commencement of inspections and within two (2) months after the execution of this Agreement. (ii) Seller shall provide, or shall cause to be provided, to Buyer, access to the Plants at the times scheduled for the inspections referred to in clause (i) above. Seller shall provide qualified engineering, operations, and maintenance personnel to escort Buyer's personnel and to assist Buyer's personnel in conducting the inspections. Seller and Buyer shall each bear their own costs of participating in the inspections. At a mutually convenient time not more than one (1) month after Buyer has completed its inspections, the Parties shall meet to discuss whether, as a result of the inspections, it is appropriate to modify Schedule A to the Interconnection Agreement to portray more accurately the Points of Interconnection. Any modification to any portion of Schedule A of the Interconnection Agreement to which the Parties agree shall thereafter be deemed 44 part of Schedule A of the Interconnection Agreement for all purposes under the Interconnection Agreement. 6.3 Public Statements. Subject to the requirements imposed by any applicable law or any Governmental Authority or stock exchange, prior to the Closing Date, no press release or other public announcement or public statement or comment in response to any inquiry relating to the transactions contemplated by this Agreement shall be issued or made by any Party without the prior approval of the other Parties (which approval shall not be unreasonably withheld). The Parties agree to cooperate in preparing such announcements. 6.4 Expenses. Except to the extent specifically provided herein, whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the Party incurring such costs and expenses. Notwithstanding anything to the contrary herein, Buyer will be responsible for (a) all costs and expenses associated with the obtaining of any title insurance policy and all endorsements thereto that Buyer elects to obtain and (b) all filing fees under the HSR Act. 6.5 Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the Parties hereto shall use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the purchase and sale of the Purchased Assets pursuant to this Agreement and the assumption of the Assumed Liabilities, including without limitation using its best efforts to ensure satisfaction of the conditions precedent to each Party's obligations hereunder, including obtaining all necessary consents, approvals, and authorizations of third parties and Governmental Authorities required to be obtained in order to consummate the transactions hereunder, and to effectuate a transfer of the Transferable Permits to Buyer. Buyer agrees to perform all conditions required of Buyer in connection with Seller's Required Regulatory Approvals, other than those conditions which would create a Buyer Material Adverse Effect. Neither of the Parties hereto shall, without prior written consent of the other Party, take or fail to take any action, which might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. (b) Buyer agrees that prior to the Closing Date, neither Buyer nor any of its Affiliates will enter into any other 45 contract to acquire, nor acquire, electric generation facilities located in the control area recognized by the North American Reliability Council as the PJM Control Area if the proposed acquisition of such additional electric generation facilities might reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. Buyer shall give Seller reasonable advance notice (and in any event not less than 30 days) before Buyer enters into contracts to acquire or acquires any electric generation facility located in said PJM Control Area. (c) In the event that any Purchased Asset shall not have been conveyed to Buyer at the Closing, Seller shall, subject to Section 6.5(d) and (e), use Commercially Reasonable Efforts to convey such asset to Buyer as promptly as is practicable after the Closing. In the event that any Easement shall not have been granted by Buyer to Seller at the Closing, Buyer shall use Commercially Reasonable Efforts to grant such Easement to Seller as promptly as is practicable after the Closing. (d) To the extent that Seller's rights under any Seller's Agreement or Real Property Lease may not be assigned without the consent of another Person which consent has not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign the same, if an attempted assignment would constitute a breach thereof or be unlawful. Seller and Buyer agree that if any consent to an assignment of any material Seller's Agreement or Real Property Lease shall not be obtained or if any attempted assignment would be ineffective or would impair Buyer's rights and obligations under the material Seller's Agreement or Real Property Lease in question, so that Buyer would not in effect acquire the benefit of all such rights and obligations, Seller, at Buyer's option and to the maximum extent permitted by law and such material Seller's Agreement or Real Property Lease, shall, after the Closing Date, appoint Buyer to be Seller's agent with respect to such material Seller's Agreement or Real Property Lease, or, to the maximum extent permitted by law and such material Seller's Agreement or Real Property Lease, enter into such reasonable arrangements with Buyer or take such other actions as are necessary to provide Buyer with the same or substantially similar rights and obligations of such material Seller's Agreement or Real Property Lease as Buyer may reasonably request. Seller and Buyer shall cooperate and shall each use Commercially Reasonable Efforts prior to and after the Closing Date to obtain an assignment of such material Seller's Agreement or Real Property Lease to Buyer. (e) To the extent that Seller's rights under any warranty or guaranty described in Section 2.1(i) may not be assigned without the consent of another Person, which consent has 46 not been obtained by the Closing Date, this Agreement shall not constitute an agreement to assign same, if an attempted assignment would constitute a breach thereof, or be unlawful. Seller and Buyer agree that if any consent to an assignment of any such warranty or guaranty shall not be obtained, or if any attempted assignment would be ineffective or would impair Buyer's rights and obligations under the warranty or guaranty in question, so that Buyer would not in effect acquire the benefit of all such rights and obligations, Seller, at Buyer's expense, shall use Commercially Reasonable Efforts, to the extent permitted by law and such warranty or guaranty, to enforce such warranty or guaranty for the benefit of Buyer so as to provide Buyer to the maximum extent possible with the benefits and obligations of such warranty or guaranty. (f) Between the date hereof and the Closing, Buyer shall have the right to commence the regulatory approval processes associated with the construction and operation of new, modified or repowered electric generating units and associated equipment at the Real Property. Seller shall provide reasonable assistance to Buyer, under Buyer's reasonable direction, in obtaining all Permits required (i) to own and operate the Purchased Assets as contemplated by the Agreement and the Ancillary Agreements and (ii) to construct and operate such new or modified facilities, provided, however, that Buyer shall reimburse Seller for all reasonable costs incurred by Seller in its assistance of Buyer hereunder. (g) Buyer agrees that it will enter into a lease agreement with Seller on or before the Closing Date, to be effective as of the Closing, providing for the lease to Seller of approximately 57,679 square feet of general office space and 54,510 square feet of various shops and labs, along with a loading dock access space and approximately 135 parking spaces, at the Genco Headquarters Building (1001 Broad Street, Johnstown, Pennsylvania), all as generally described on Schedule 6.5(g) attached hereto, such lease shall be for a term of three (3) to five (5) years (as designated by Seller), shall include a market rate rental and other customary expense pass through, and contain other customary terms and conditions. 6.6 Consents and Approvals. (a) As promptly as possible after the date of this Agreement, Seller and Buyer, as applicable, shall each file or cause to be filed with the Federal Trade Commission and the United States Department of Justice any notifications required to be filed under the HSR Act and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. The Parties shall use their respective best efforts to respond promptly to any requests for additional 47 information made by either of such agencies, and to cause the waiting periods under the HSR Act to terminate or expire at the earliest possible date after the date of filing. Buyer will pay all filing fees under the HSR Act but each Party will bear its own costs of the preparation of any filing. (b) As promptly as possible after the date of this Agreement, Buyer shall file with the FERC an application requesting Exempt Wholesale Generator status for Buyer, which filing may be made individually by Buyer or jointly with Seller in conjunction with other filings to be made with the FERC under this Agreement, as reasonably determined by the Parties. Prior to Buyer's submission of that application with the FERC, Buyer shall submit such application to Seller for review and comment and Buyer shall incorporate into the application any revisions reasonably requested by Seller. Buyer shall be solely responsible for the cost of preparing and filing this application, any petition(s) for rehearing, or any re-application. If Buyer's initial application for Exempt Wholesale Generator status is rejected by the FERC, Buyer agrees to petition the FERC for rehearing and/or to re-submit an application with the FERC, as reasonably required by Seller, provided that in either case the action directed by Seller does not create a Buyer Material Adverse Effect. (c) As promptly as possible after the date of this Agreement, Buyer shall file with the FERC an application requesting authorization under Section 205 of the Federal Power Act to sell electric generating capacity and energy, but not other services, including, without limitation, ancillary services, at wholesale at market-based rates, which filing may be made individually by Buyer or jointly with Seller in conjunction with other filings to be made with the FERC under this Agreement, as reasonably determined by the Parties. Prior to the filing of that application with the FERC, Buyer shall submit such application to Seller for review and comment and Buyer shall incorporate into the application any revisions reasonably requested by Seller. Buyer shall be solely responsible for the cost of preparing and filing this application, any petition(s) for rehearing, or any reapplication. If Buyer's initial application for market-based rate authorization results in a FERC request for additional information or is rejected by the FERC, Buyer shall provide that information promptly, to petition the FERC for rehearing and/or to re-submit an application with the FERC, as reasonably required by Seller, provided that Seller shall have a reasonable opportunity to make changes to such a petition or re-submission application and, provided further, that the action directed by Seller does not create a Buyer Material Adverse Effect. 48 (d) As promptly as possible, and in any case within sixty (60) days, after the date of this Agreement, Seller and Buyer, as applicable, shall file with the PaPUC, the FERC and any other Governmental Authority, and make any other filings required to be made with respect to the transactions contemplated hereby. The Parties shall respond promptly to any requests for additional information made by such agencies, and use their respective best efforts to cause regulatory approval to be obtained at the earliest possible date after the date of filing. Each Party will bear its own costs of the preparation of any such filing. (e) Without limitation of Section 10.11, Seller and Buyer shall cooperate with each other and promptly prepare and file notifications with, and request Tax clearances from, state and local taxing authorities in jurisdictions in which a portion of the Purchase Price may be required to be withheld or in which Buyer would otherwise be liable for any Tax liabilities of Seller pursuant to such state and local Tax law. (f) Buyer shall have the primary responsibility for securing the transfer, reissuance or procurement of the Permits and Environmental Permits (other than Transferable Permits) effective as of the Closing Date. Seller shall cooperate with Buyer's efforts in this regard and assist in any transfer or reissuance of a Permit or Environmental Permit held by Seller or the procurement of any other Permit or Environmental Permit when so requested by Buyer. 6.7 Fees and Commissions. Seller, on the one hand, and Buyer, on the other hand, represent and warrant to the other that, except for Goldman, Sachs & Co., which are acting for and at the expense of Seller, no broker, finder or other Person is entitled to any brokerage fees, commissions or finder's fees in connection with the transaction contemplated hereby by reason of any action taken by the Party making such representation. Seller, on the one hand, and Buyer, on the other hand, will pay to the other or otherwise discharge, and will indemnify and hold the other harmless from and against, any and all claims or liabilities for all brokerage fees, commissions and finder's fees (other than the fees, commissions and finder's fees payable to the parties listed above) incurred by reason of any action taken by the indemnifying party. 6.8 Tax Matters. (a) All transfer and sales taxes incurred in connection with this Agreement and the transactions contemplated hereby (including, without limitation, (a) Pennsylvania sales tax; and (b) the Pennsylvania realty transfer taxes on conveyances of interests in real property (including such taxes assessed by Pennsylvania municipalities as well as by the 49 Commonwealth of Pennsylvania itself)) shall be borne by Buyer. Except for the Pennsylvania Realty Transfer Tax Statement of Value, which shall be filed by Buyer, Seller shall file, to the extent required by, or permissible under, applicable law, all necessary Tax Returns and other documentation with respect to all such transfer and sales taxes, and, if required by applicable law, Buyer shall join in the execution of any such Tax Returns and other documentation. Prior to the Closing Date, to the extent applicable, Buyer shall provide to Seller appropriate certificates of Tax exemption from each applicable taxing authority. (b) With respect to Taxes to be prorated in accordance with Section 3.5 of this Agreement, Buyer shall prepare and timely file all Tax Returns required to be filed after the Closing Date with respect to the Purchased Assets, if any, and shall duly and timely pay all such Taxes shown to be due on such Tax Returns. Buyer's preparation of any such Tax Returns shall be subject to Seller's approval, which approval shall not be unreasonably withheld. Buyer shall make such Tax Returns available for Seller's review and approval no later than fifteen (15) Business Days prior to the due date for filing each such Tax Return. (c) Within fifteen (15) Business Days after receipt of a Tax Return referred to in Section 6.8(b), Seller shall pay to Buyer Seller's share of the amount shown on such Tax Return, less payments on account of such Taxes previously made by Seller. To the extent that Seller's previous payments exceed Seller's share, the Buyer shall pay such excess to Seller. With respect to real estate taxes, evidence of payment shall be delivered by Seller to Buyer at the Closing. As soon as practicable after the Closing, Seller and Buyer shall cooperate in the filing of an amended return and/or other documents in order to obtain the available refund with respect to any Closing Year PURTA Tax. Buyer shall be entitled to such refund to the extent, but only to the extent, that it does not exceed any payments made by Buyer on account of such PURTA liability. (d) Buyer and Seller shall provide the other with such assistance as may reasonably be requested by the other Party in connection with the preparation of any Tax Return, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to liability for Taxes, and each shall retain and provide the requesting party with any records or information which may be relevant to such return, audit, examination or proceedings. Any information obtained pursuant to this Section 6.8(d) or pursuant to any other Section hereof providing for the sharing of information or review of any Tax Return or other instrument relating to Taxes shall be kept 50 confidential by the parties hereto. Schedule 6.8 sets forth procedures to be followed with respect to the tax appeals and audits referred to therein. (e) Disputes. In the event that a dispute arises between Seller and Buyer as to the amount of Taxes, or indemnification, or the amount of any allocation of Purchase Price under Section 3.4 hereof, the parties shall attempt in good faith to resolve such dispute, and any agreed upon amount shall be paid to the appropriate party. If such dispute is not resolved 30 days thereafter, the parties shall submit the dispute to the Independent Accounting firm for resolution, which resolution shall be final, conclusive and binding on the parties. Notwithstanding anything in this Agreement to the contrary, the fees and expenses of the Independent Accounting Firm in resolving the dispute shall be borne equally by Seller and Buyer. Any payment required to be made as a result of the resolution of the dispute by the Independent Accounting firm shall be made within ten days after such resolution, together with any interest determined by the Independent Accounting Firm to be appropriate. (f) Cooperation. Buyer and Seller shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns pursuant to this Agreement and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other Party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees (to the extent such employees were responsible for the preparation, maintenance or interpretation of information and documents relevant to Tax matters or to the extent required as witnesses in any Tax proceedings), available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Parties agree to give the other Party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Party so requests, Buyer or Seller, as the case may be, shall allow the other Party to take possession of such books and records. Buyer and Seller further agree, upon request, to use their best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). 6.9 Advice of Changes. Prior to the Closing, each Party will promptly advise the other in writing with respect to any matter arising after execution of this Agreement of which that Party obtains Knowledge and which, if existing or occurring at 51 the date of this Agreement, would have been required to be set forth in this Agreement, including any of the Schedules hereto. Seller may at any time notify Buyer of any development causing a breach of any of its representations and warranties in Article IV. Unless Buyer has the right to terminate this Agreement pursuant to Section 9.1(f) below by reason of the developments and exercises that right within the period of fifteen (15) days after such right accrues, the written notice pursuant to this Section 6.9 will be deemed to have amended this Agreement, including the appropriate Schedule, to have qualified the representations and warranties contained in Article IV above, and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the development. 6.10 Employees. (a) At least 90 days prior to the Closing Date (but in no case sooner than ninety (90) days after the date hereof), Buyer shall provide Seller with notice of its Union Employee staffing level requirements (which Buyer may determine in its sole discretion), listed by classification and operation, and shall be required to make reasonable efforts to offer employment to that number of Union Employees necessary to satisfy such staffing level requirements. As used herein, "Union Employees" means such employees of Seller who are covered by the Collective Bargaining Agreement as defined in Section 6.10(d) below, and who are listed in, or whose employment responsibilities are listed in, Schedule 6.10(a)(i) as "Plant Employees" or "Dedicated Support Staff" as associated with the Plants purchased by Buyer, and those Union Employees who are listed in, or whose employment responsibilities are listed in, Schedule 6.10(a)(ii) as "Mobile Maintenance" or "Corporate Support". Any offers of employment shall be made at least 60 days prior to the Closing Date. In each classification, Union Employees shall be so offered employment in order of their seniority. (b) Buyer is also entitled to determine its Non-Union Employee staffing level requirements in its sole discretion, and shall make reasonable efforts to make offers of employment with Buyer or any of its Affiliates, effective on the Closing Date, to Non-Union Employees consistent with such staffing levels. As used herein, "Non-Union Employees" means such salaried employees of Seller, Genco, GPUN or GPUS who are listed in, or whose employment responsibilities are listed in, Schedule 6.10(b) as "Plant Employees" or "Dedicated Support Staff", and those Non-Union Employees listed in, or whose employment responsibilities are listed in, Schedule 6.10(a)(ii) as "Mobile Maintenance" or "Corporate Support". Any offers of employment shall be made at least sixty (60) days prior to the Closing Date. Each person who becomes employed by Buyer or any of its Affiliates pursuant to 52 Section 6.10(a) or (b) (whether pursuant to a Qualifying Offer or otherwise) shall be referred to herein as a "Transferred Union Employee" or "Transferred Non-Union Employee", respectively. At least forty-five(45) days prior to the Closing Date, Buyer shall provide Seller with notice of those Non-Union Employees to whom it made a Qualifying Offer. As used herein, the term "Qualifying Offer" means an offer of employment at an annual level of compensation that is at least 85% of the employee's current total annual cash compensation (consisting of base salary and target incentive bonus) at the time the offer is made. Schedule 6.10(b) sets forth, for each of the Non-Union Employees listed therein, his or her current base salaries and target incentive bonuses. (c) All offers of employment made pursuant to Sections 6.10(a) or (b) shall be made in accordance with all applicable laws and regulations, and in addition, for Union Employees, in accordance with seniority and all other applicable provisions of the Collective Bargaining Agreement. (d) Schedule 6.10(d) sets forth the collective bargaining agreement, and amendments thereto, to which Seller is a party with the Union in connection with the Purchased Assets ("Collective Bargaining Agreement"). Transferred Union Employees shall retain their seniority and receive full credit for service with Seller in connection with entitlement to vacation and all other benefits and rights under the Collective Bargaining Agreement and under each compensation, retirement or other employee benefit plan or program Buyer is required to maintain for Transferred Union Employees pursuant to the Collective Bargaining Agreement. With respect to Transferred Union Employees, effective as of the Closing Date, Buyer shall assume the Collective Bargaining Agreement for the duration of its term as it relates to Transferred Union Employees to be employed at the Plants in positions covered by the Collective Bargaining Agreement and shall thereafter comply with all applicable obligations under the Collective Bargaining Agreement. Consistent with its obligations under the Collective Bargaining Agreement and applicable laws, Buyer shall be required to establish and maintain a pension plan and other employee benefit programs for the Transferred Union Employees for the duration of the term of the Collective Bargaining Agreement which are substantially equivalent to Seller's plans and programs in effect for the Transferred Union Employees immediately prior to the Closing Date (the "Seller's Plans"), and which provide at least the same level of benefits or coverage as do Seller's Plans for the duration of the Collective Bargaining Agreement. Buyer further agrees to recognize the Union as the collective bargaining agent for the applicable Transferred Union Employees. (e) Transferred Non-Union Employees shall be eligible to commence participation in welfare benefit plans of Buyer or 53 its Affiliates as may be made available by Buyer (the "Replacement Welfare Plans"). Buyer shall (i) waive all limitations as to pre-existing condition exclusions and waiting periods with respect to the Transferred Non-Union Employees under the Replacement Welfare Plans, other than, but only to the extent of, limitations or waiting periods that were in effect with respect to such employees under the welfare plans maintained by Seller, Genco, GPUN or GPUS or their Affiliates and that have not been satisfied as of the Closing Date, and (ii) provide each Transferred Non-Union Employee with credit for any co-payments and deductibles paid prior to the Closing Date in satisfying any deductible or out-of-pocket requirements under the Replacement Welfare Plans (on a pro-rata basis in the event of a difference in plan years). (f) Transferred Non-Union Employees shall be given credit for all service with Seller, Genco, GPUN, GPUS and their Affiliates under all deferred compensation, profit-sharing, 401(k), retirement pension, incentive compensation, bonus, fringe benefit and other employee benefit plans, programs and arrangements of Buyer ("Buyer Benefit Plans") in which they may become participants. The service credit so given shall be for purposes of eligibility and vesting, but shall not be for purposes of level of benefits and benefit accrual except to the extent that the Buyer Benefit Plans otherwise provide. (g) To the extent allowable by law, Buyer shall take any and all necessary action to cause the trustee of any defined contribution plan of Buyer or its Affiliates in which any Transferred Employee becomes a participant to accept a direct "rollover" of all or a portion of said employee's "eligible rollover distribution" within the meaning of Section 402 of the Code from the GPU Companies Employee Savings Plan for Non-Bargaining Employees or from the Employee Savings Plan for Bargaining Unit Employees maintained by JCP&L, Met-Ed or Penelec (the "Seller's Savings Plans") if requested to do so by the Transferred Employee. Buyer agrees that the property so rolled over and the assets so transferred may include promissory notes evidencing loans from Seller's Savings Plans to Transferred Employees that are outstanding as of the Closing Date. However, except as otherwise provided in Section 6.10(d), any defined contribution plan of Buyer or its Affiliates accepting such a rollover or transfer shall not be required to make any further loans to any Transferred Employee after the Closing Date. (h) Buyer shall pay or provide to Transferred Employees the benefits described in subparagraphs (i), (ii) and (iii) of this Section 6.10(h), and shall reimburse Seller for the cost of the benefits Seller or Seller's Affiliates will provide to Union Employees and Non-Union Employees in accordance with subparagraph (iv) of this Section 6.10(h). 54 (i) Buyer shall make a transition incentive payment in the amount of $2,500 to each Transferred Union Employee. Payment shall be made as soon as practicable after, but in any event no later than 60 days following, the Closing Date. (ii) In the case of each Transferred Non-Union Employee who is initially assigned by Buyer to a principal place of work that is at least 50 miles farther from the employee's principal residence than was his principal place of work immediately prior to the Closing Date and who relocates his or her principal residence to the vicinity of his or her new principal place of work within 12 months following the Closing Date, Buyer shall reimburse the employee for all "moving expenses" within the meaning of Section 217(b) of the Code incurred by the employee and other members of his or her household in connection with such relocation, up to a maximum aggregate amount of $5,000. Claims for reimbursement for such expenses shall be filed in accordance with such procedures, and shall be accompanied by such substantiation of the expenses for which reimbursement is sought, as Buyer may reasonably request. All claims for reimbursement shall be processed, and qualifying expenses shall be reimbursed, as soon as practicable after, but in any event no later than 60 days following, the date on which the employee's claim for reimbursement is submitted to Buyer. (iii) Buyer shall provide the severance benefits described in Section 1 of Schedule 6.10(h) to each Transferred Employee who is "Involuntarily Terminated" (as defined below) (a) within 12 months after the Closing Date or (b), in the case of any Transferred Non-Union Employee who had attained age 50 and had completed at least 10 Years of Service (as defined in Section 1(c) of Schedule 6.10(h)) prior to the Closing Date, on or any time prior to June 30, 2004. For purposes of this Section 6.10(h) and Schedule 6.10(h), a Transferred Employee shall be treated as "Involuntarily Terminated" if his or her employment with Buyer and all of its Affiliates is terminated by Buyer or any of its Affiliates for any reason other than for cause or disability. Buyer shall require any Transferred Employee who is Involuntarily Terminated, as a condition to receiving the severance benefits described in Section 1(b), (c), (d), (e) and (f) of Schedule 6.10(h), to execute a release of claims against Seller, Genco, GPUN or GPUS, as applicable, and all of their Affiliates, and Buyer, in such form as Buyer and Seller shall agree upon. (iv) At the Closing or as soon thereafter as practicable, but in any event no later than 60 days 55 following the Closing Date, Buyer shall pay to Seller, in addition to all other amounts to be paid by Buyer to Seller hereunder, an amount equal to Buyer's Allocable Share (as defined below) of the aggregate estimated cost that Seller or any of Seller's Affiliates will or may incur in providing the severance, pension, health care and group term life insurance benefits described in Section 2 of Schedule 6.10(h) to the Union Employees and Non-Union Employees therein described (collectively the "Termination Benefits"). The estimated cost of such benefits shall be calculated by the actuarial firm regularly engaged to provide actuarial services to the GPU Companies with respect to their pension, health care and life insurance plans, and shall be determined using the same assumptions as to mortality, turnover, interest rate and other actuarial assumption as used by such firm in determining the cost of benefits under the GPU Companies' pension, health and group term life insurance plans for purposes of their most recently issued financial statements prior to the Closing Date. For purposes of the foregoing, Buyer's "Allocable Share" shall be calculated as set forth in Schedule 6.10(h)(iv). (i) Buyer shall not be responsible for any payments required under any voluntary early retirement plan, program or arrangement offered by Seller, Genco, GPUN or GPUS in connection with the transfer of the Purchased Assets. Within thirty (30) days following the last day that any Union Employee or Non-Union Employee may elect to participate in any such plan offered by Seller, Genco, GPUN or GPUS, Seller shall provide Buyer with a list of all such employees who have so elected. (j) Seller shall be responsible, with respect to the Purchased Assets, for performing and discharging all requirements under the WARN Act and under applicable state and local laws and regulations for the notification of its employees of any "employment loss" within the meaning of the WARN Act which occurs prior to the Closing Date. (k) Buyer shall not be responsible for extending COBRA continuation coverage to any employees and former employees of Seller, Genco, GPUN or GPUS, or to any qualified beneficiaries of such employees and former employees, who become or became entitled to COBRA continuation coverage before the Closing, including those for whom the Closing occurs during their COBRA election period. (l) Seller or Seller's Affiliates shall pay to all Transferred Employees all compensation, bonus, vacation and holiday compensation, pension, profit sharing and other deferred compensation benefits, workers' compensation or other employment 56 benefits to which they are entitled under the terms of the applicable compensation or benefit programs at such times as are provided therein. (m) Individuals who are otherwise "Union Employees" as defined in Section 6.10(a) or "Non-Union Employees" as defined in Section 6.10(b) but who on any date are not actively at work due to a leave of absence covered by the Family and Medical Leave Act ("FMLA"), or due to any other authorized leave of absence, shall nevertheless be treated as "Union Employees" or as "Non-Union Employees", as the case may be, on such date if they are able (i) to return to work within the protected period under the FMLA or such other leave (which in any event shall not extend more than twelve (12) weeks after the Closing Date), whichever is applicable, and (ii) to perform the essential functions of their jobs, with or without a reasonable accommodation. 6.11 Risk of Loss. (a) From the date hereof through the Closing Date, all risk of loss or damage to the property included in the Purchased Assets shall be borne by Seller, other than loss or damage caused by the acts or negligence of Buyer or any Buyer Representative, which loss or damage shall be the responsibility of Buyer. (b) If, before the Closing Date, all or any portion of the Purchased Assets is (i) taken by eminent domain or is the subject of a pending or (to the Knowledge of Seller) contemplated taking which has not been consummated, or (ii) damaged or destroyed by fire or other casualty, Seller shall notify Buyer promptly in writing of such fact, and (x) in the case of a condemnation, Seller shall assign or pay, as the case may be, any proceeds thereof to Buyer at the Closing and (y) in the case of a casualty, Seller shall either restore the damage or assign the insurance proceeds therefor (and pay the amount of any deductible and/or self-insured amount in respect of such casualty) to Buyer at the Closing. Notwithstanding the above, if such casualty or loss results in a Material Adverse Effect, Buyer and Seller shall negotiate to settle the loss resulting from such taking (and such negotiation shall include, without limitation, the negotiation of a fair and equitable adjustment to the Purchase Price). If no such settlement is reached within sixty (60) days after Seller has notified Buyer of such casualty or loss, then Buyer or Seller may terminate this Agreement pursuant to Section 9.1(h). In the event of damage or destruction which Seller elects to restore, Seller will have the right to postpone the Closing for up to four (4) months. Buyer will have the right to inspect and observe, or have its representatives inspect or observe, all repairs necessitated by any such damage or destruction. 57 6.12 Additional Covenants of Buyer. Notwithstanding any other provision hereof, Buyer covenants and agrees that, after the Closing Date, Buyer will not make any modifications to the Purchased Assets or take any action which, in and of itself, results in a loss of the exclusion of interest on the Pollution Control Revenue Bonds issued on behalf of Seller in connection with the Purchased Assets from gross income for federal income purposes under Section 103 of the Code. Actions with respect to the Purchased Assets shall not constitute a breach by the Buyer of this Section 6.12 in the following circumstances: (i) Buyer ceases to use or decommissions any of the Purchased Assets or subsequently repowers such Purchased Assets that are no longer used or decommissioned (but does not hold such Purchased Assets for sale); (ii) Buyer acts with respect to the Purchased Assets in order to comply with requirements under applicable federal, state or local environmental or other laws or regulations; or (iii) Buyer acts in a manner the Seller (i.e. a reasonable private provider of electricity of similar stature as Seller) would have acted during the term of the Pollution Control Revenue Bonds (including, but not limited to, applying new technology). In the event Buyer acts or anticipates acting in a manner that will cause a loss of the exclusion of interest on the Pollution Control Revenue Bonds from gross income for federal income tax purposes, at the request of Buyer, Seller shall take any remedial actions permitted under the federal income tax law that would prevent a loss of such inclusion of interest from gross income on the Pollution Control Revenue Bonds. Buyer further covenants and agrees that, in the event that Buyer transfers any of the Purchased Assets, Buyer shall obtain from its transferee a covenant and agreement that is analogous to Buyer's covenant and agreement pursuant to the immediately preceding sentence, as well as a covenant and agreement that is analogous to that of this sentence. In addition, Buyer shall not, without 60 days advanced written notice to Seller (to the extent practicable under the circumstances), take any action which would result in (x) a change in the use of the assets financed with the Pollution Revenue Control Bonds from the use in which such assets were originally intended, or (y) a sale of such assets separate from the generating assets to which they relate, provided that no notice is required of the events set forth in clauses (i), (ii), or (iii) above. This covenant shall survive Closing and shall continue in effect so long as the pollution control bonds remain outstanding. ARTICLE VII CONDITIONS 58 7.1 Conditions to Obligations of Buyer. The obligation of Buyer to effect the purchase of the Purchased Assets and the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver by Buyer) of the following conditions: (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated. (b) No preliminary or permanent injunction or other order or decree by any federal or state court or Governmental Authority which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority which prohibits the consummation of the sale of the Purchased Assets; (c) Buyer shall have received all of Buyer's Required Regulatory Approvals and such approvals shall contain no conditions or terms which would result in a Material Adverse Effect; (d) Seller shall have performed and complied in all material respects with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Seller on or prior to the Closing Date; (e) The representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects as of the Closing Date as though made at and as of the Closing Date; (f) Buyer shall have received certificates from an authorized officer of Seller, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Section 7.1(d) and (e) have been satisfied by Seller ; (g) Buyer shall have received an opinion from Seller's counsel reasonably acceptable to Buyer, dated the Closing Date and reasonably satisfactory in form and substance to Buyer and its counsel, substantially to the effect that: (i) Seller is a corporation duly incorporated, validly existing and in good standing under the laws of its state of incorporation and has the corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as is now conducted, and to execute and deliver the Agreement and each Ancillary 59 Agreement and to consummate the transactions contemplated thereby; and the execution and delivery of the Agreement by Seller and the consummation of the sale of the Purchased Assets and the other transactions contemplated thereby have been duly and validly authorized by all necessary corporate action required on the part of Seller; (ii) The Agreement and each Ancillary Agreement have been duly and validly executed and delivered by Seller and constitute legal, valid and binding agreements of Seller enforceable in accordance with their terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity); (iii) The execution, delivery and performance of the Agreement and each Ancillary Agreement by Seller do not (A) conflict with the Certificate of Incorporation or Bylaws of Seller or (B) to the knowledge of such counsel, constitute a violation of or default under those agreements or instruments set forth on a Schedule attached to the opinion and which have been identified to such counsel as all the agreements and instruments which are material to the business or financial condition of Seller; (iv) The Bill of Sale, the deeds, the Assignment and Assumption Agreement and other transfer instruments described in Section 3.6 have been duly executed and delivered and are in proper form to transfer to Buyer such title as was held by Seller to the Purchased Assets; (v) No consent or approval of, filing with, or notice to, any Governmental Authority is necessary for the execution and delivery of this Agreement by Seller, or the consummation by Seller of the transactions contemplated hereby, other than (i) such consents, approvals, filings or notices set forth in Schedule 4.3(b) or which, if not obtained or made, will not prevent Seller from performing its material obligations hereunder and (ii) such consents, approvals, filings or notices which become applicable to Seller or the Purchased Assets as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged; and 60 In rendering the foregoing opinion, Seller's counsel may rely on opinions of counsel as to local laws reasonably acceptable to Buyer. (h) Seller shall have delivered, or caused to be delivered, to Buyer at the Closing, Seller's closing deliveries described in Section 3.6. (i) Since the date of this Agreement, no Material Adverse Effect shall have occurred and be continuing. (j) Buyer shall have received (at Buyer's cost) from a title insurance company and surveyor reasonably acceptable to Buyer an ALTA owner's title policy and ALTA survey, together with all endorsements reasonably requested by Buyer as are available, insuring title to all of the Real Property included in the Aggregate Purchased Assets, subject only to Permitted Encumbrances. Seller shall provide Buyer with a copy of a preliminary title report and survey for the Real Property as soon as available. (k) The closings under the Purchase and Sale Agreements between JCP&L and Buyer, Met-Ed and Buyer, and JCP&L, Met-Ed, GPU and Buyer (collectively, the "Related Purchase Agreements"), shall have occurred or shall occur concurrently with the Closing and all conditions to the obligations of Buyer under the Related Purchase Agreements shall have been satisfied or waived by Buyer. (l) Buyer shall have received all Permits and Environmental Permits, to the extent necessary, to own and operate the Plants in accordance with past emissions and operating practices, except for those Permits and Environmental Permits, the absence of which would not in the aggregate have a Material Adverse Effect. (m) Seller's Required Regulatory Approvals shall contain no conditions or terms which would result in a Material Adverse Effect. (n) Neither the Real Property nor any portion thereof shall be part of a tax lot which includes any real property and/or buildings, facilities or other improvements other than that which comprises the Real Property. (o) No Site, or any portion thereof (other than the Development Properties listed on Schedule 2.1), shall be subject to a zoning classification or classifications, rule or regulation, or variance or special exception which does not permit such Site or any portion thereof, to be used as the same (i) is currently used for generation purposes or (ii) was 61 historically used for generation purposes while under Seller's current ownership or the ownership of any Affiliate thereof, unless the failure of such Site or any portion thereof, or to be zoned to permit such use, shall not result in a Material Adverse Effect. 7.2 Conditions to Obligations of Seller. The obligation of Seller to effect the sale of the Purchased Assets and the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver by Seller) of the following conditions: (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated; (b) No preliminary or permanent injunction or other order or decree by any federal or state court which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its reasonable best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority in the United States which prohibits the consummation of the sale of the Purchased Assets; (c) Seller shall have received all of Seller's Required Regulatory Approvals applicable to them, containing no conditions or terms which would materially diminish the benefit of this Agreement to Seller or result in a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Seller ("Seller Material Adverse Effect"); (d) All consents and approvals for the consummation of the sale of the Purchased Assets contemplated hereby required under the terms of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Seller is party or by which Seller, or any of the Purchased Assets, may be bound, shall have been obtained, other than those which if not obtained, would not, individually and in the aggregate, create a Material Adverse Effect; (e) Buyer shall have performed and complied with in all material respects the covenants and agreements contained in this Agreement which are required to be performed and complied with by Buyer on or prior to the Closing Date; (f) The representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material 62 respects as of the Closing Date as though made at and as of the Closing Date; (g) Seller shall have received a certificate from an authorized officer of Buyer, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Sections 7.2(e) and (f) have been satisfied by Buyer; (h) Effective upon Closing, Buyer shall have assumed, as set forth in Section 6.10, all of the applicable obligations under the Collective Bargaining Agreement as they relate to Transferred Union Employees; (i) Seller shall have received an opinion from Buyer's counsel reasonably acceptable to Seller, dated the Closing Date and satisfactory in form and substance to Seller and its counsel, substantially to the effect that: (i) Buyer is a Delaware corporation duly organized, validly existing and in good standing under the laws of the state of its organization and is qualified to do business in the State of Maryland and Commonwealth of Pennsylvania and has the full corporate power and authority to own, lease and operate its material assets and properties and to carry on its business as is now conducted, and to execute and deliver the Agreement and the Ancillary Agreements by Buyer and to consummate the transactions contemplated thereby; and the execution and delivery of the Agreement and the Ancillary Agreements by Buyer and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action required on the part of Buyer; (ii) The Agreement and the Ancillary Agreements have been duly and validly executed and delivered by Buyer, and constitute legal, valid and binding agreements of Buyer, enforceable against Buyer, in accordance with their terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting or relating to enforcement of creditor's rights generally and general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity); (iii) The execution, delivery and performance of the Agreement and the Ancillary Agreements by Buyer do not (A) conflict with the Certificate of Incorporation or Bylaws (or other organizational documents), as currently in effect, of Buyer or (B) to the knowledge of such counsel, constitute a violation of or default under those agreements or 63 instruments set forth on a Schedule attached to the opinion and which have been identified to such counsel as all the agreements and instruments which are material to the business or financial condition of Buyer; (iv) The Assignment and Assumption Agreement and other transfer instruments described in Section 3.7 are in proper form for Buyer to assume the Assumed Liabilities; and (v) No consent or approval of, filing with, or notice to, any Governmental Authority is necessary for Buyer's execution and delivery of the Agreement and the Ancillary Agreements, or the consummation by Buyer of the transactions contemplated hereby and thereby, other than such consents, approvals, filings or notices, which, if not obtained or made, will not prevent Buyer from performing its respective obligations under the Agreement, the Ancillary Agreements and Guaranty. (j) Buyer shall have delivered, or caused to be delivered, to Seller at the Closing, Buyer's closing deliveries described in Section 3.7. 7.3 Zoning Condition Adjustments. (a) In the event that any Site or any portion thereof (other than the Development Properties listed in Schedule 2.1) shall be subject to a zoning classification or classifications, rule or regulation, or a variance or special exception, which does not permit or otherwise restrict the Site or any portion thereof, to be used as the same (i) is currently used for generation purposes or (ii) was historically used for generation purposes while under Seller's current ownership or the ownership of any Affiliate thereof for generation purposes, and if such failure shall result in a material adverse effect on the use of such Site for generating purposes as currently used (or as so historically used), then, in such case, Buyer may, prior to the Closing on written notice to the Seller, exclude from the Purchased Assets such Site and the Purchased Assets related to such Site. Buyer and Seller shall thereupon negotiate a fair and equitable adjustment to the Purchase Price or, failing such agreement within 30 days, the adjustment shall be determined by appraisal in accordance with Section 7.3(b), the cost of which shall be shared equally be Buyer and Seller. (b) The Parties shall select an Appraiser (as defined below) within 30 days of the expiration of the 30 day period referred to in Section 7.3(a). In the event the Parties cannot within such period agree on a single Appraiser, the Parties shall each within 15 days select a separate Appraiser, and such Appraisers shall within 15 days, later designate a third 64 Appraiser. The Appraiser shall be instructed to provide a written report of the appropriate reduction of the Purchase Price to be allocated to the excluded Site (and associated Purchased Assets). Each of the Parties may submit such materials and information to the Appraiser as it deems appropriate and shall use its Commercially Reasonable Efforts to cause the Appraiser to render its decision within 60 days after the matter has been submitted to it. The determination of the Appraiser shall be final and binding on the Parties thereto. As used herein, "Appraiser" means an individual who has a minimum of ten (10) years of relevant experience in valuing electric generation facilities and has an MAI designation of the Appraisal Institute. (c) Buyer agrees to use Commercially Reasonable Efforts at its expense and in consultation with Seller to mitigate any adverse zoning restrictions which could cause a failure of the Closing condition in Section 7.1(o), or require a Purchase Price adjustment under this Section 7.3, including by seeking a re-zoning or zoning variance of the applicable Site. ARTICLE VIII INDEMNIFICATION 8.1 Indemnification. (a) Buyer shall indemnify, defend and hold harmless Seller, its officers, directors, employees, shareholders, Affiliates and agents (each, a "Seller's Indemnitee") from and against any and all claims, demands, suits, losses, liabilities, damages, obligations, payments, costs and expenses (including, without limitation, the costs and expenses of any and all actions, suits, proceedings, assessments, judgments, settlements and compromises relating thereto and reasonable attorneys' fees and reasonable disbursements in connection therewith) (each, an "Indemnifiable Loss"), asserted against or suffered by any Seller's Indemnitee relating to, resulting from or arising out of (i) any breach by Buyer of any covenant or agreement of Buyer contained in this Agreement or the representations and warranties contained in Sections 5.1, 5.2 and 5.3, (ii) the Assumed Liabilities, (iii) any loss or damages resulting from or arising out of any Inspection, or (iv) any Third Party Claims against Seller's Indemnitee arising out of or in connection with Buyer's ownership or operation of the Plants and other Purchased Assets on or after the Closing Date (other than Third Party Claims which arise out of acts by Buyer permitted by Section 6.12 hereof). (b) Seller shall indemnify, defend and hold harmless Buyer, its officers, directors, employees, shareholders, Affiliates and agents (each, a "Buyer Indemnitee") from and 65 against any and all Indemnifiable Losses asserted against or suffered by any Buyer Indemnitee relating to, resulting from or arising out of (i) any breach by Seller of any covenant or agreement of Seller contained in this Agreement or the representations and warranties contained in Sections 4.1, 4.2 and 4.3, (ii) the Excluded Liabilities, (iii) noncompliance by Seller with any bulk sales or transfer laws as provided in Section 10.11, or (iv) any Third Party Claims against a Buyer Indemnitee arising out of or in connection with Seller's ownership or operation of the Excluded Assets on or after the Closing Date. (c) Each party, for itself and on behalf of its Representatives and Affiliates, does hereby release, hold harmless and forever discharge the other party, its Representatives and Affiliates, from any and all Indemnifiable Losses of any kind or character, whether known or unknown, hidden or concealed, resulting from or arising out of any Environmental Condition or violation of Environmental Law relating to the Purchased Assets, provided that Seller's release of Buyer shall not extend to any of Buyer's Assumed Liabilities set forth in Section 2.3, and provided further that Buyer's release of Seller shall not extend to any of Seller's Excluded Liabilities set forth in Section 2.4. Subject to the foregoing proviso, each party hereby waives any and all rights and benefits with respect to such Indemnifiable Losses that it now has, or in the future may have conferred upon it by virtue of any statute or common law principle which provides that a general release does not extend to claims which a party does not know or suspect to exist in its favor at the time of executing the release, if knowledge of such claims would have materially affected such party's settlement with the obligor. In this connection, each party hereby acknowledges that it is aware that factual matters, now unknown to it, may have given or may hereafter give rise to Indemnifiable Losses that are presently unknown, unanticipated and unsuspected, and it further agrees that this release has been negotiated and agreed upon in light of that awareness and it nevertheless hereby intends to release the other party and its Representatives and Affiliates from the Indemnifiable Losses described in the first sentence of this paragraph. (d) Notwithstanding anything to the contrary contained herein: (i) Any Person entitled to receive indemnification under this Agreement (an "Indemnitee") shall use Commercially Reasonable Efforts to mitigate all losses, damages and the like relating to a claim under these indemnification provisions, including availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity. 66 The Indemnitee's Commercially Reasonable Efforts shall include the reasonable expenditure of money to mitigate or otherwise reduce or eliminate any loss or expenses for which indemnification would otherwise be due, and the Indemnitor shall reimburse the Indemnitee for the Indemnitee's reasonable expenditures in undertaking the mitigation. (ii) Any Indemnifiable Loss shall be net of the dollar amount of any insurance or other proceeds actually receivable by the Indemnitee or any of its Affiliates with respect to the Indemnifiable Loss, but shall not take into account any income tax benefits to the Indemnitee, or any Income Taxes attributable to the receipt of any indemnification payments hereunder. Any party seeking indemnity hereunder shall use Commercially Reasonable Efforts to seek coverage (including both costs of defense and indemnity) under applicable insurance policies with respect to any such Indemnifiable Loss. (e) The expiration or termination of any covenant or agreement shall not affect the Parties' obligations under this Section 8.1 if the Indemnitee provided the Person required to provide indemnification under this Agreement (the "Indemnifying Party") with proper notice of the claim or event for which indemnification is sought prior to such expiration, termination or extinguishment. (f) Except to the extent otherwise provided in Article IX, the rights and remedies of Seller and Buyer under this Article VIII are exclusive and in lieu of any and all other rights and remedies which Seller and Buyer may have under this Agreement or otherwise for monetary relief, with respect to (i) any breach of or failure to perform any covenant, agreement, or representation or warranty set forth in this Agreement, after the occurrence of the Closing, or (ii) the Assumed Liabilities or the Excluded Liabilities, as the case may be. The indemnification obligations of the Parties set forth in this Article VIII apply only to matters arising out of this Agreement, excluding the Ancillary Agreements. Any Indemnifiable Loss arising under or pursuant to an Ancillary Agreement shall be governed by the indemnification obligations, if any, contained in the Ancillary Agreement under which the Indemnifiable Loss arises. (g) Notwithstanding anything to the contrary herein, no party (including an Indemnitee) shall be entitled to recover from any other party (including an Indemnifying Party) for any liabilities, damages, obligations, payments losses, costs, or expenses under this Agreement any amount in excess of the actual compensatory damages, court costs and reasonable attorney's and other advisor fees suffered by such party. Buyer and Seller waive any right to recover punitive, incidental, special, 67 exemplary and consequential damages arising in connection with or with respect to this Agreement. The provisions of this Section 8.1(g) shall not apply to indemnification for a Third Party Claim. 8.2 Defense of Claims. (a) If any Indemnitee receives notice of the assertion of any claim or of the commencement of any claim, action, or proceeding made or brought by any Person who is not a party to this Agreement or any Affiliate of a Party to this Agreement (a "Third Party Claim") with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying Party reasonably prompt written notice thereof, but in any event such notice shall not be given later than ten (10) calendar days after the Indemnitee's receipt of notice of such Third Party Claim. Such notice shall describe the nature of the Third Party Claim in reasonable detail and shall indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be sustained by the Indemnitee. The Indemnifying Party will have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third Party Claim at such Indemnifying Party's expense and by such Indemnifying Party's own counsel, provided that the counsel for the Indemnifying Party who shall conduct the defense of such Third Party Claim shall be reasonably satisfactory to the Indemnitee. The Indemnitee shall cooperate in good faith in such defense at such Indemnitee's own expense. If an Indemnifying Party elects not to assume the defense of any Third Party Claim, the Indemnitee may compromise or settle such Third Party Claim over the objection of the Indemnifying Party, which settlement or compromise shall conclusively establish the Indemnifying Party's liability pursuant to this Agreement. (b) (i) If, within ten (10) calendar days after an Indemnitee provides written notice to the Indemnifying Party of any Third Party Claims, the Indemnitee receives written notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third Party Claim as provided in Section 8.2(a), the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided, however, that if the Indemnifying Party shall fail to take reasonable steps necessary to defend diligently such Third Party Claim within twenty (20) calendar days after receiving notice from the Indemnitee that the Indemnitee believes the Indemnifying Party has failed to take such steps, the Indemnitee may assume its own defense and the Indemnifying Party shall be liable for all reasonable expenses thereof. (ii) Without the prior written consent of the Indemnitee, the Indemnifying Party shall not enter into any settlement of any Third Party Claim which would lead to 68 liability or create any financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to the Indemnitee to that effect. If the Indemnitee fails to consent to such firm offer within ten (10) calendar days after its receipt of such notice, the Indemnifying Party shall be relieved of its obligations to defend such Third Party Claim and the Indemnitee may contest or defend such Third Party Claim. In such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will be the amount of such settlement offer plus reasonable costs and expenses paid or incurred by Indemnitee up to the date of said notice. (c) Any claim by an Indemnitee on account of an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct Claim") shall be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable, but in any event such notice shall not be given later than ten (10) calendar days after the Indemnitee becomes aware of such Direct Claim, and the Indemnifying Party shall have a period of thirty (30) calendar days within which to respond to such Direct Claim. If the Indemnifying Party does not respond within such thirty (30) calendar day period, the Indemnifying Party shall be deemed to have accepted such claim. If the Indemnifying Party rejects such claim, the Indemnitee will be free to seek enforcement of its right to indemnification under this Agreement. (d) If the amount of any Indemnifiable Loss, at any time subsequent to the making of an indemnity payment in respect thereof, is reduced by recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by, from or against any other entity, the amount of such reduction, less any costs, expenses or premiums incurred in connection therewith (together with interest thereon from the date of payment thereof at the publicly announced prime rate then in effect of Chase Manhattan Bank) shall promptly be repaid by the Indemnitee to the Indemnifying Party. (e) A failure to give timely notice as provided in this Section 8.2 shall not affect the rights or obligations of any Party hereunder except if, and only to the extent that, as a 69 result of such failure, the Party which was entitled to receive such notice was actually prejudiced as a result of such failure. ARTICLE IX TERMINATION 9.1 Termination. (a) This Agreement may be terminated at any time prior to the Closing Date by mutual written consent of Seller and Buyer. (b) This Agreement may be terminated by Seller or Buyer if (i) any Federal or state court of competent jurisdiction 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 nonappeallable or (ii) any statute, rule, order or regulation shall have been enacted or issued by any Governmental Authority which, directly or indirectly, prohibits the consummation of the Closing; or (iii) the Closing contemplated hereby shall have not occurred on or before the day which is 12 months from the date of this Agreement (the "Termination Date"); provided that the right to terminate this Agreement under this Section 9.1(b) (iii) shall not be available to any Party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; and provided, further, that if on the day which is 12 months from the date of this Agreement the conditions to the Closing set forth in Section 7.1(b) or (c) or 7.2(b), (c) or (d) shall not have been fulfilled but all other conditions to the Closing shall be fulfilled or shall be capable of being fulfilled, then the Termination Date shall be the day which is 18 months from the date of this Agreement. (c) Except as otherwise provided in this Agreement, this Agreement may be terminated by Buyer if any of Buyer Required Regulatory Approvals, the receipt of which is a condition to the obligation of Buyer to consummate the Closing as set forth in Section 7.1(c), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted but contains terms or conditions which do not satisfy the closing condition in Section 7.1(c). (d) This Agreement may be terminated by Seller, if any of Seller's Required Regulatory Approvals, the receipt of which is a condition to the obligation of Seller to consummate the Closing as set forth in Section 7.2(c), shall have been denied (and a petition for rehearing or refiling of an application 70 initially denied without prejudice shall also have been denied) or shall have been granted but contains terms or conditions which do not satisfy the closing condition in Section 7.2(c). (e) This Agreement may be terminated by Buyer if there has been a violation or breach by Seller of any covenant, representation or warranty contained in this Agreement which has resulted in a Material Adverse Effect and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Seller of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Buyer. (f) This Agreement may be terminated by Seller, if there has been a material violation or breach by Buyer of any covenant, representation or warranty contained in this Agreement and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Buyer of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Seller. (g) This Agreement may be terminated by Seller if there shall have occurred any change that is materially adverse to the business, operations or conditions (financial or otherwise) of Buyer. (h) This Agreement may be terminated by either of Seller or Buyer in accordance with the provisions of Section 6.11(b). 9.2 Procedure and Effect of No-Default Termination. In the event of termination of this Agreement by either or both of the Parties pursuant to Section 9, written notice thereof shall forthwith be given by the terminating Party to the other Party, whereupon, if this Agreement is terminated pursuant to any of Sections 9.1(a) through (d) and 9.1(g) and (h), the liabilities of the Parties hereunder will terminate, except as otherwise expressly provided in this Agreement, and thereafter neither Party shall have any recourse against the other by reason of this Agreement. ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified or supplemented only by written agreement of Seller and Buyer. 71 10.2 Waiver of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the Parties to comply with any obligation, covenant, agreement or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver of such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent failure to comply therewith 10.3 No Survival. Each and every representation, warranty and covenant contained in this Agreement (other than the covenants contained in Sections 3.3(c), 3.4, 3.5(b), 3.5(c), 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.12, 6.13 and in Articles VIII and X, which provisions shall survive the delivery of the deed(s) and the Closing in accordance with their terms and the representations and warranties set forth in Sections 4.1, 4.2, 4.3, 5.1, 5.2 and 5.3, which representations and warranties and any claims arising under Section 6.1 shall survive the Closing for eighteen (18) months from the Closing Date) shall expire with, and be terminated and extinguished by the consummation of the sale of the Purchased Assets and shall merge into the deed(s) pursuant hereto and the transfer of the Assumed Liabilities pursuant to this Agreement and such representations, warranties and covenants shall not survive the Closing Date; and none of Seller, Buyer or any officer, director, trustee or Affiliate of any of them shall be under any liability whatsoever with respect to any such representation, warranty or covenant. 10.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission, or mailed by overnight courier or registered or certified mail (return receipt requested), postage prepaid, to the recipient Party at its address (or at such other address or facsimile number for a Party as shall be specified by like notice; provided however, that notices of a change of address shall be effective only upon receipt thereof): (a) If to Seller, to: c/o GPU Service, Inc. 300 Madison Avenue Morristown, New Jersey 07962 Attention: Mr. David C. Brauer Vice President with a copy to: 72 Berlack, Israels & Liberman LLP 120 West 45th Street New York, New York 10036 Attention: Douglas E. Davidson, Esq. (b) if to Buyer, to: Sithe Energies, Inc. 450 Lexington Avenue New York, New York 10017 Attention: Mr. David Tohir and Hyun Park, Esq. with a copy to: Latham & Watkins Suite 1300 1001 Pennsylvania Avenue, N.W. Washington, D.C. 20004 Attention: W. Harrison Wellford, Esq. 10.5 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any Party hereto, including by operation of law, without the prior written consent of each other Party, nor is this Agreement intended to confer upon any other Person except the Parties hereto any rights, interests, obligations or remedies hereunder. No provision of this Agreement shall create any third party beneficiary rights in any employee or former employee of Seller (including any beneficiary or dependent thereof) in respect of continued employment or resumed employment, and no provision of this Agreement shall create any rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. Notwithstanding the foregoing, without the prior written consent of Seller, (i) Buyer may assign all of its rights and obligations hereunder to any majority owned Subsidiary (direct or indirect) and upon Seller's receipt of notice from Buyer of any such assignment, such assignee will be deemed to have assumed, ratified, agreed to be bound by and perform all such obligations, and all references herein to "Buyer" shall thereafter be deemed to be references to such assignee, in each case without the necessity for further act or evidence by the Parties hereto or such assignee, and (ii) Buyer or its permitted assignee may assign, transfer, pledge or 73 otherwise dispose of (absolutely or as security) its rights and interests hereunder to a trustee, lending institutions or other party for the purposes of leasing, financing or refinancing the Purchased Assets, including such an assignment, transfer or other disposition upon or pursuant to the exercise of remedies with respect to such leasing, financing or refinancing, or by way of assignments, transfers, pledges, or other dispositions in lieu thereof (and any such assignee may fully exercise its rights hereunder or under any other agreement and pursuant to such assignment without any further prior consent of any party hereto); provided, however, that no such assignment in clause (i) or (ii) shall relieve or discharge the assignor from any of its obligations hereunder. Seller agrees, at Buyer's expense, to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights and interests hereunder so long as Seller's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. 10.6 Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York (without giving effect to conflict of law principles) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. THE PARTIES HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE AND FEDERAL COURTS IN AND FOR NEW YORK COUNTY, NEW YORK, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 10.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.8 Interpretation. The articles, section and schedule headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. 10.9 Schedules and Exhibits. Except as otherwise provided in this Agreement, all Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of 74 this Agreement. 10.10 Entire Agreement. This Agreement, the Confidentiality Agreement, and the Ancillary Agreements including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein, embody the entire agreement and understanding of the Parties hereto in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein or therein. It is expressly acknowledged and agreed that there are no restrictions, promises, representations, warranties, covenants or undertakings contained in any material made available to Buyer pursuant to the terms of the Confidentiality Agreement (including the Offering Memorandum dated April 1998, previously delivered to Buyer by Seller and Goldman, Sachs & Co.). This Agreement supersedes all prior agreements and understandings between the Parties other than the Confidentiality Agreement with respect to such transactions. 10.11 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything in this Agreement to the contrary, Seller may, in its sole discretion, not comply with the provision of the bulk sales laws of any jurisdiction in connection with the transactions contemplated by this Agreement. Buyer hereby waives compliance by Seller with the provisions of the bulk sales laws of all applicable jurisdictions. 10.12 U.S. Dollars. Unless otherwise stated, all dollar amounts set forth herein are United States (U.S.) dollars. 10.13 Zoning Classification. Without limitation of Sections 7.1(o) and 7.3, Buyer acknowledges that the Real Properties are zoned as set forth in Schedule 10.13. 10.14 Sewage Facilities. Except as set forth in Schedule 10.14, Buyer acknowledges that there is no community (municipal) sewage system available to serve the Real Property. Accordingly, any additional sewage disposal planned by Buyer will require an individual (on-site) sewage system and all necessary permits as required by the Pennsylvania Sewage Facilities Act (the "Facilities Act"). Buyer recognizes that certain of the existing individual sewage systems on the Real Property may have been installed pursuant to exemptions from the requirements of the Facilities Act or prior to the enactment of the Facilities Act and that soils and site testing may not have been performed in connection therewith. The owner of the property or properties served by such a system, at the time of any malfunction, may be held liable for any contamination, pollution, public health hazard or nuisance which occurs as the result of such malfunction. 75 IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. SITHE ENERGIES, INC. PENNSYLVANIA ELECTRIC COMPANY By: By: -------------------------- -------------------------- Name: Name: Title: Title: 76 LIST OF EXHIBITS AND SCHEDULES EXHIBITS Exhibit A Form of Assignment and Assumption Agreement Exhibit B Form of Bill of Sale Exhibit C Form of Easement and Attachment Agreement Exhibit D Form of FIRPTA Affidavit Exhibit E Form of Interconnection Agreement Exhibit F Form of Deeds Exhibit G Form of Transition Power Purchase Agreement SCHEDULES 1.1(72) Permitted Encumbrances 1.1(103) Transferable Permits (both environmental and non- environmental) 2.1 Schedule of Purchased Assets 2.1(c) Schedule of Tangible Personal Property to be Conveyed to Buyer 2.1(h) Schedule of Emission Reduction Credits 2.1(l) Intellectual Property 2.2(a) Description of Transmission and other Assets not included in Conveyance 2.4(h) Seward Coal Refuse Site 3.3(a)(i) Schedule of Inventory 4.3(a) Third Party Consents 4.3(b) Seller's Required Regulatory Approvals 4.4 Insurance Exceptions 4.5 Exceptions to Title 4.6 Real Property Leases 4.7 Schedule of Environmental Matters 4.8 Schedule of Noncompliance with Employment Laws 4.9(a) Schedule of Benefit Plans 4.9(b) Benefit Plan Exceptions 4.l0 Description of Real Property 4.10A Real Property Matters 4.11 Notices of Condemnation 4.12(a) List of Contracts 4.12(b) List of Non-assignable Contracts 4.12(c) List of Defaults under the Contracts 4.13 List of Litigation 4.14(a) List of Permit Violations 4.14(b) List of material Permits (other than Transferable Permits) 4.15 Tax Matters 4.16 Intellectual Property Exceptions 5.3(a) Third Party Consents 5.3(b) Buyer's Required Regulatory Approvals 6.1 Schedule of Permitted Activities prior to Closing 51301v9 -iv- 6.5(g) Description of Leased Space 6.8 Tax Appeals 6.10(a)(i) Plant and Support Staff (Union) 6.10(a)(ii) Mobile Maintenance/Corporate Support 6.10(b) Schedule of Non-Union Employees 6.10(d) Collective Bargaining Agreements 6.10(h) Schedule of Severance Benefits 6.10(h)(iv) Allocable Share Percentages 6.12 Pollution Control Revenue Bonds 10.13 Zoning 10.14 Sewage Matters EX-10 21 EXHIBIT 10-PP - VERP FOR NONBARGAINING EMPLOYEES EXHIBIT 10-PP VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP) THE AGREEMENT For Nonbargaining Employees VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP) For Nonbargaining Employees The Agreement The Agreement August 3, 1998 By accepting to participate in the Voluntary Enhanced Retirement Program being offered by GPU Generation, Inc. and GPU Nuclear, Inc. (hereinafter referred to as the "Company"), I fully understand that: - - My employment with the Company will end with my retirement on the date established by the Company but no later than September 30, 1999; and - - In exchange for the benefits I will receive under the Voluntary Enhanced Retirement Program, I am giving up forever any and all rights and claims I have against the Company and others with respect to my employment up through the date I execute this Agreement, except for the right to retirement benefits, enforcement of the Voluntary Enhanced Retirement Program, and Workers' Compensation claims. - - If I am employed by the buyer of the GPU Generation assets, I will continue to receive Voluntary Enhanced Retirement Program benefits, but will not be entitled to transition benefits, whether pension related or otherwise, provided to employees who transition directly from the Company to the buyer. Page 1 VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP) For Nonbargaining Employees The Agreement PART I: ACCEPTANCE TO PARTICIPATE IN THE VOLUNTARY ENHANCED RETIREMENT PROGRAM 1. Conclusion of Employment: I, Robert L. Wise, hereby voluntarily elect to participate in the Company's Voluntary Enhanced Retirement Program (the "Program") and retire from the Company on the date established by the Company but no later than September 30, 1999. The Program is set forth in the Plan Description, a copy of which has been provided to me and is incorporated herein by reference. 2. I UNDERSTAND AND AGREE THAT MY ELECTION TO RETIRE WILL BECOME IRREVOCABLE AS OF THE CLOSE OF BUSINESS SEVEN (7) DAYS FOLLOWING THE DATE I SIGN THIS AGREEMENT UNLESS I REVOKE MY ACCEPTANCE TO PARTICIPATE IN THE PROGRAM BY MY DELIVERING IN HAND, WITHIN SUCH SEVEN (7) DAY PERIOD, TO AN R&DP OR HUMAN RESOURCES REPRESENTATIVE AT MY WORK SITE (OR DESIGNEE IF NO SUCH REPRESENTATIVE IS LOCATED THERE) A SIGNED AND DATED "REVOCATION FORM", A COPY OF WHICH FORM HAS BEEN PROVIDED TO ME. 3. Separation Incentive: I understand that the Program provides the following incentive to which I am otherwise not entitled under the Company's Employee Pension Plan (hereinafter referred to and the "pension plan") and Retiree Health Care Plan, and I accept this incentive as the full, sufficient and complete consideration for my agreement to retire on the agreed-upon date but no later than September 30, 1999 and for the Full and Final Waiver and Release which is a part of this Agreement: - The basic pension, as defined in the pension plan, will be calculated by adding five (5) years to my age and five (5) years to my years of Creditable Service. With respect to any Social Security Equalization option benefit I may elect, my actual age will be used for that part of the calculation and the 20% first year increase will not be applied to that portion of the benefit. - A Social Security Supplement will be payable in the amount of $500 monthly, commencing at retirement and continuing until my attaining age 62. With respect to any Social Security Supplement benefit, the 20% first year increase will not be applied to that portion of the benefit. - I shall be eligible for retiree health coverage regardless of my length of service. Page 2 VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP) For Nonbargaining Employees The Agreement PART II: FULL AND FINAL WAIVER AND GENERAL RELEASE In return for the benefits available to me under the Program, I hereby fully release the Company from any and all claims and rights which I now have or may have against it, including claims for attorney's fees through the date I sign this Agreement. Such claims and rights include those of which I am aware and those of which I may be presently unaware. They extend to those arising under any contract and those involving any tort or personal injury I may have suffered. Such claims and rights also include those which may arise under any federal, state, or local statute or under common law, including those dealing with employment discrimination, such as the Age Discrimination in Employment Act, the Pennsylvania Human Relations Act, the New Jersey Law Against Discrimination, or the New Jersey Conscientious Employee Protection Act, as amended, and those which may arise under any other legal restriction on an employer's rights with respect to its employees. I also waive all rights I might have to share in any damages or other relief awarded under any class action, EEOC charge, Pennsylvania Human Relations Commission complaint, New Jersey Division on Civil Rights complaint, or as a result of any federal, state, or local administrative agency action. I also hereby fully release the Company's parent, affiliated and subsidiary companies and the present and former directors, officers, employees and agents and their successors in interest of the Company and its parent, affiliated and subsidiary companies from any such claims or rights I might have. The only exceptions to this Waiver and General Release of claims and rights are with respect to my retirement benefits, enforcement of the Program, and claims under applicable Workers' Compensation laws for occupational injuries or illnesses. I understand and agree that after the Agreement becomes effective, I cannot bring or participate as a party, or member of a class, in any lawsuit or receive any portion of any recovery in a proceeding conducted or brought by the EEOC or other administrative agency which is based on any claims or rights covered by this Waiver and General Release. Page 3 VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP) For Nonbargaining Employees The Agreement PART III: EMPLOYEE CERTIFICATION I certify to the Company the following: 1. I voluntarily elect to participate in the Program and execute this Agreement; 2. The only consideration for executing this Agreement is the benefit to be provided to me under the Program as set forth in Part I above and, more fully, in the Plan Description; 3. No other promise, inducement, threat, agreement or understanding of any kind or description whatsoever has been made with or to me by any person or entity to cause me to execute this Agreement; 4. I have carefully read the Plan Description and this Agreement; 5. I have been given at least forty-five (45) days from the date on which I received this Agreement within which to consider this Agreement. If I have executed this Agreement before the end of the full forty-five (45) days, I did so of my own free will; 6. I was advised by the Company to consult with my personal attorney prior to executing this Agreement; 7. I fully understand that if I want to revoke this Agreement and my election to participate in the Program, I must do so by delivering in hand to a Human Resources representative at my work site (or its designee if no Human Resources representative is located there) a fully executed Revocation Form within seven (7) days from the date I executed this Agreement; and 8. During the period between my execution of this Agreement and my retirement date, I will promptly notify the Company, in writing, of any change of circumstances that relates to the matters to which I have certified in this Agreement or of any events that I believe may give rise to a claim or cause of action by me against the Company or any of its officers, directors, employees, and agents. If I have not so notified the Company, it and the others I have released and waived rights against in this Agreement can rely that no such change in circumstances or events occurred during that period; and I will be precluded from participating as a party, or as a member of a class, in any lawsuit or receive any portion of any recovery in a proceeding conducted or brought by the EEOC or other administrative agency which is based on any such claim or cause of action. Page 4 VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP) For Nonbargaining Employees The Agreement PART IV: EFFECTIVE DATE AND EXECUTION This Agreement will become effective and irrevocable on the eighth (8th) day after the date I execute this Agreement unless I revoke my acceptance to participate in the Program in the manner described above. IN WITNESS WHEREOF, I, for myself and my heirs, administrators, executors, representatives and assigns, intending to be legally bound by this Agreement, have executed and sealed this Agreement this 17 day of September , 1998, before a Notary Public. Robert Wise Employee Name (please print) Employee Signature - --- --- --- - --- --- - --- --- --- --- Social Security Number Sworn to and subscribed before me this 17 day of September , 1998. -------- ----------------- __________________________ My Commission expires: ___________________ Notary Public Signature EMPLOYEE AND MANAGEMENT RETIREMENT DATE CONSULATION The retirement date the Company has established for me. See attached for qualifier. Retirement Date: June 30, 1999 ________________________________ Sept. 29, 1999 ----------------------------------- Employee Signature Date Page 5 VOLUNTARY ENHANCED RETIREMENT PROGRAM (VERP) For Nonbargaining Employees The Agreement Fred D. Hafer Manager Name (please print) Manager Signature HUMAN RESOURCES USE ONLY This Agreement has been received this 17 day of Sept. , 1998, by me as a Human Resources representative or Human Resources designee of the Company. - --------------------------------- -------------------------------- Human Resources/Designee Name Human Resources/Designee Signature (please print) Page 6 EX-10 22 EXHIBIT 10-QQ EXHIBIT 10-QQ THREE MILE ISLAND UNIT 1 NUCLEAR GENERATING FACILITY ASSET PURCHASE AGREEMENT BY AND AMONG GPU NUCLEAR, INC., JERSEY CENTRAL POWER & LIGHT COMPANY, METROPOLITAN EDISON COMPANY PENNSYLVANIA ELECTRIC COMPANY, as SELLERS, AND AMERGEN ENERGY COMPANY, LLC, as BUYER Dated as of October 15, 1998 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 1 1.1 Definitions 1 1.2 Certain Interpretive Matters 20 ARTICLE II PURCHASE AND SALE 20 2.1 Transfer of Assets 20 2.2 Excluded Assets 22 2.3 Assumed Liabilities and Obligations 23 2.4 Excluded Liabilities 24 2.5 Control of Litigation 28 ARTICLE III THE CLOSING 28 3.1 Closing 28 3.2 Payment of Purchase Price 28 3.3 Adjustment to Purchase Price 29 3.4 Allocation of Purchase Price 31 3.5 Prorations 32 3.6 Deliveries by Sellers 33 3.7 Deliveries by Buyer 35 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS 35 4.1 Organization; Qualification 36 4.2 Authority Relative to this Agreement 36 4.3 Consents and Approvals; No Violation 36 4.4 Reports 37 4.5 Undisclosed Liabilities 38 4.6 Absence of certain Changes or Events 38 4.7 Title and Related Matters 38 4.8 Leases 38 4.9 Insurance 39 4.10 Environmental Matters 39 4.11 Labor Matters 40 4.12 ERISA; Benefit Plans 40 4.13 Real Property; Plant and Equipment 41 4.14 Condemnation 42 4.15 Certain Contracts and Arrangements 42 4.16 Legal Proceedings, etc. 43 4.17 Permits 43 4.18 NRC Licenses 43 4.19 Regulation as a Utility 44 4.20 Taxes 44 4.21 Year 2000 Qualification 45 4.22 Qualified Decommissioning Funds 45 4.23 Nonqualified Decommissioning Funds 48 Page ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER 49 5.1 Organization 50 5.2 Authority Relative to this agreement 50 5.3 Consents and Approvals; No Violation 50 5.4 Regulation as a Utility 51 5.5 Availability of Funds 51 5.6 Legal Proceedings 51 5.7 WARN Act 51 ARTICLE VI COVENANTS OF THE PARTIES 52 6.1 Conduct of Business Relating to the Purchased Assets 52 6.2 Access to Information 55 6.3 Expenses 58 6.4 Further Assurances; Cooperation 59 6.5 Public Statements 61 6.6 Consents and Approvals 61 6.7 Fees and Commissions 63 6.8 Tax Matters 64 6.9 Advice of Changes 65 6.10 Employees 65 6.11 Risk of Loss 70 6.12 Decommissioning Funds .71 6.13 Spent Fuel Fees 75 6.14 Department of Energy Decontamination Decommissioning Fees 75 6.15 Cooperation Relating to Insurance and Price-Anderson Act 75 6.16 Tax Clearance Certificates 75 6.17 TMI-2 Monitoring Agreement 75 6.18 TMI-2 Decommissioning 76 6.19 Spent Fuel Acceptance 76 6.20 Residual Waste Landfill 76 6.21 Easement, License and Attachment Agreement 76 ARTICLE VII CONDITIONS 77 7.1 Conditions to Obligations of Buyer 77 7.2 Conditions to Obligations of Sellers 80 ARTICLE VIII INDEMNIFICATION 82 8.1 Indemnification 82 8.2 Defense of Claims 85 ARTICLE IX TERMINATION 87 9.1 Termination 87 9.2 Procedure and Effect of No-Default Termination 88 Page ARTICLE X MISCELLANEOUS PROVISIONS 89 10.1 Amendment and Modification 89 10.2 Waiver of Compliance; Consents 89 10.3 Survival of Representations, Warranties, Covenants 89 10.4 Notices 90 10.5 Assignment 90 10.6 Governing Law 91 10.7 Counterparts 92 10.8 Interpretation 92 10.9 Schedules and Exhibits 92 10.10 Entire Agreement 92 10.11 Bulk Sales Laws 92 10.12 U.S. Dollars 92 10.13 Zoning Classification 93 10.14 Sewage Facilities 93 LIST OF EXHIBITS AND SCHEDULES EXHIBITS Exhibit A Form of Assignment and Assumption Agreement Exhibit B Form of Bill of Sale Exhibit C List of Principal Terms for the Easement, License and Attachment Agreement Exhibit D Form of FIRPTA Affidavit Exhibit E Form of Interconnection Agreement Exhibit F Form of Deal Strike Price Adjustment Agreement Exhibit G Form of Special Warranty Deed Exhibit H Form of TMI-2 Monitoring Agreement Exhibit I Form of Power Purchase Agreement Exhibit J Form of Decommissioning Trust Agreement Exhibit K Form of Exclusion Area Agreement Exhibit L Form of GPU Service Agreement Exhibit M Form of Opinion from Each of Seller's Counsel Exhibit N Form of Opinion from Each of Buyer's Counsel Exhibit O Form of Investment Manager Agreement SCHEDULES 1.1(151) Transferable Permits 2.1(h) Emission Reduction Credits 2.1(l) Intellectual Property 2.2(a) Excluded Transmission and other Assets 2.2(i) Excluded Real Property (TMI-2) 3.3(a)(ii) Closing Date Purchase Price Adjustment 4.3(a) Sellers' Third Party Consents 4.3(b) Sellers' Required Regulatory Approvals 4.5 Liabilities 4.6 Absence of Certain Changes or Events 4.7(a) Exceptions to Title to Real Property 4.7(b) Exceptions to Title to other Purchased Assets 4.7(c) Ownership Percentage 4.8 Real Property Leases 4.9 Insurance Exceptions 4.10 Environmental Matters 4.11 Noncompliance with Employment Laws 4.12(a) Benefit Plans 4.12(b) Benefit Plan Exceptions 4.13(a) Description of Real Property 4.13(b) Description of Major Equipment Components and Personal Property 4.13(c) List of Defects of Purchased Assets 4.14 Notices of Condemnation 4.15(a) List of Sellers' Agreements 4.15(b) Agreement Exceptions 4.15(c) Agreement Defaults 4.16 List of Litigation 4.17(a) List of Permit Violations 4.17(b) List of Material Permits (other than Transferable Permits) 4.18(a) List of License Violations 4.18(b) List of Material NRC Licenses 4.19 Utility Matters regarding Sellers 4.20 Tax Matters 4.22 Tax and Financial Matters Relating to Qualified Decommissioning Funds 4.23 Financial Matters Relating to Nonqualified Decommissioning Funds 5.3(a) Buyer's Third Party Consents 5.3(b) Buyer's Required Regulatory Approvals 5.4 Utility Matters regarding Buyer 6.1 Permitted Activities Prior to Closing 6.10(d) IBEW Collective Bargaining Agreement 7.1(o) Required Work 7.1(s) Year 2000 Qualification Program 10.13 Zoning Classification 10.14 Sewage Facilities ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated as of October 15, 1998, by and among GPU Nuclear, Inc., a New Jersey corporation ("GPU Nuclear"), Jersey Central Power & Light Company, a New Jersey corporation ("JCP&L"), Metropolitan Edison Company, a Pennsylvania corporation ("Met-Ed"), and Pennsylvania Electric Company, a Pennsylvania corporation ("Penelec") (GPU Nuclear, JCP&L, Met-Ed and Penelec, each a "Seller" and, collectively, "Sellers"), and AmerGen Energy Company, LLC, a Delaware limited liability company ("Buyer"). Sellers and Buyer are referred to individually as a "Party," and collectively as the "Parties." W I T N E S S E T H WHEREAS, each of JCP&L, Met-Ed and Penelec (collectively, the "Owners") owns as tenant-in-common in percentages of 25%, 50% and 25%, respectively, an undivided interest in the Three Mile Island Unit 1 Nuclear Generating Facility ("TMI-1"), NRC Operating License No. DPR-50, Docket No. 50-289, located near Middletown, Pennsylvania, and certain facilities and other assets associated therewith and ancillary thereto; WHEREAS, GPU Nuclear is responsible for the daily operations of TMI-1 for the Owners; WHEREAS, Sellers have heretofore agreed jointly to divest themselves of TMI-1; and WHEREAS, Buyer desires to purchase and assume, and Sellers desire to sell and assign, the Purchased Assets (as defined in Section 2.1 below) and certain associated liabilities, upon the terms and conditions hereinafter set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms have the meanings specified in this Section 1.1. (1) "Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934. 1 (2) "Agreement" means this Asset Purchase Agreement together with the Schedules and Exhibits hereto, as the same may be from time to time amended. (3) "Ancillary Agreements" means the Assignment and Assumption Agreement, the Easement, License and Attachment Agreement, the Interconnection Agreement, the Deal Strike Price Adjustment Agreement, the TMI-2 Monitoring Agreement, the Power Purchase Agreement, the Decommissioning Trust Agreement, the GPU Service Agreement, and the Exclusion Area Agreement, as the same may amended be from time to time. (4) "Assignment and Assumption Agreement" means the Assignment and Assumption Agreement between Sellers and Buyer substantially in the form of Exhibit A hereto, by which Sellers, subject to the terms and conditions hereof, shall assign Sellers' Agreements, the Real Property Leases, the Transferable Permits, certain intangible assets and other Purchased Assets to Buyer and whereby Buyer shall assume the Assumed Liabilities and Obligations. (5) "Assumed Liabilities and Obligations" has the meaning set forth in Section 2.3. (6) "Atomic Energy Act" means the Atomic Energy Act of 1954, as amended. (7) "Benefit Plans" has the meaning set forth in Section 4.12(a). (8) "Bill of Sale" means the Bill of Sale, substantially in the form of Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible Personal Property included in the Purchased Assets transferred to Buyer at the Closing. (9) "Business Day" shall mean any day other than Saturday, Sunday and any day on which banking institutions in the Commonwealth of Pennsylvania are authorized by law or other governmental action to close. (10) "Buyer Benefit Plans" has the meaning set forth in Section 6.10(f). (11) "Buyer Indemnitee" has the meaning set forth in Section 8.1(b). (12) "Buyer Material Adverse Effect" has the meaning set forth in Section 5.3(a). (13) "Buyer's Required Regulatory Approvals" has the meaning set forth in Section 5.3(b). 2 (14) "Capital Expenditures" has the meaning set forth in Section 3.3(a)(iii). (15) "CERCLA" means the Federal Comprehensive Environmental Response, Compensation, and Liability Act, as amended. (16) "Closing" has the meaning set forth in Section 3.1. (17) "Closing Adjustment" has the meaning set forth in Section 3.3(b). (18) "Closing Payment" has the meaning set forth in Section 3.2. (19) "Closing Date" has the meaning set forth in Section 3.1. (20) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. (21) "Code" means the Internal Revenue Code of 1986, as amended. (22) "Commercially Reasonable Efforts" means efforts which are designed to enable a Party, directly or indirectly, to satisfy a condition to, or otherwise assist in the consummation of, the transactions contemplated by this Agreement and which do not require the performing Party to expend any funds or assume liabilities other than expenditures and liabilities which are reasonable in nature and amount in the context of the transactions contemplated by this Agreement. (23) "Confidentiality Agreement" means the Non-Disclosure Agreement, dated August 1997, by and among Sellers and the members of Buyer. (24) "Cowanesque Reservoir Agreements" means all agreements between Sellers and the SRBC relating to the consumptive use of Susquehanna River water at the Site; such agreements are separately identified on Schedule 4.15(a) hereto. (25) "Deal Strike Price Adjustment" means the adjustment to the Purchase Price calculated and paid in accordance with the Deal Strike Price Adjustment Agreement. (26) "Deal Strike Price Adjustment Agreement" means the agreement between Sellers and Buyer substantially in the form of Exhibit F hereto. (27) "Decommissioning" means the complete retirement and removal of the Facilities from service and the restoration of the 3 Site, as well as any planning and administrative activities incidental thereto, including but not limited to (a) the dismantlement, decontamination, storage, and/or entombment of the Facilities, in whole or in part, and any reduction or removal, whether before or after termination of the NRC license for the Facilities, of radioactivity at the Site, and (b) all activities necessary for the retirement, dismantlement and decontamination of the Facilities to comply with all applicable requirements of the Atomic Energy Act and the NRC's rules, regulations, orders and pronouncements thereunder, the NRC Operating License for the Facilities and any related decommissioning plan. (28) "Decommissioning Funds" means the Qualified Decommissioning Funds and the Nonqualified Decommissioning Funds, collectively. (29) "Decommissioning Indenture" means the Indenture and Second Amendment to Indenture dated October 25, 1990 regarding the Qualified Decommissioning Funds and the Nonqualified Decommissioning Funds between Metropolitan Edison Company, Pennsylvania Electric Company, Jersey Central Power & Light Company and Bank of New York, as amended on March 12, 1994 and on December 1, 1996 and as further amended from time to time thereafter. (30) "Decommissioning Trust Agreement" means the Decommissioning Trust Agreement, between any Seller and the Trustee under the Decommissioning Trust Agreement, pursuant to which any assets of any of the Decommissioning Funds retained by any Seller after Closing pursuant to Section 6.12(c) hereof will be held in trust, which agreement shall be substantially in the form of Exhibit J hereto except that (i) the provisions thereof shall be appropriately modified to reflect the fact that the agreement provides for a continuation of the Qualified Decommissioning Fund and/or the Nonqualified Decommissioning Fund maintained by the Sellers pursuant to the Decommissioning Indenture, and to reflect the provisions of Section 4.14 of the Decommissioning Indenture relating to the appointment of a successor Trustee; (ii) the provisions thereof relating to contributions made to the Decommissioning Fund by the Sellers shall be deleted or appropriately modified to reflect the fact that no contributions will be made by the Sellers under the agreement; (iii) the provisions thereof relating to the "Qualified Fund" shall be deleted or appropriately modified if the assets of just the Sellers' Nonqualified Decommissioning Fund are to be maintained pursuant to such agreement; and (iv) the provisions thereof relating to the "Nonqualified Fund" shall be deleted or appropriately modified if the assets of just the Sellers' Qualified Decommissioning Fund are to be maintained pursuant to such agreement. 4 (31) "Department of Energy" means the United States Department of Energy and any successor agency thereto. (32) "Department of Energy Decommissioning and Decontamination Fees" means all fees related to the Department of Energy's Special Assessment of utilities for the Uranium Enrichment Decontamination and Decommissioning Fund pursuant to Sections 1801, 1802 and 1803 of the Atomic Energy Act and the Department of Energy's implementing regulations at 10 CFR Part 766, or any similar fees assessed under amended or superseding statutes or regulations applicable to separative work units purchased from the Department of Energy in order to decontaminate and decommission the Department's gaseous diffusion enrichment facilities. (33) "Department of Justice" means the United States Department of Justice and any successor agency thereto. (34) "Diked Area" has the meaning set forth in Section 7.1(s). (35) "Direct Claim" has the meaning set forth in Section 8.2(c). (36) "Easements" means the easements, licenses and access rights to be granted by Buyer, Sellers or York Haven, or reserved by Sellers, in connection with the Interconnection Agreement , the TMI-2 Monitoring Agreement or the Easement Agreements, including easements authorizing access, use, maintenance, construction, repair, replacement and other activities by Sellers, York Haven or Buyer, as the case may be, or otherwise necessary for Sellers, York Haven and Buyer to operate their respective businesses and to fulfill all applicable legal requirements (including FERC and other licensing requirements and requirements imposed in connection with applications for new and subsequent licenses). (37) "Easement, License and Attachment Agreement" means both (i) the Easement, License and Attachment Agreement to be negotiated in good faith between Sellers and Buyer, whereby Buyer and Sellers will provide each other with Easements with respect to the Real Property transferred to Buyer or retained by Sellers and whereby Sellers will provide Buyer with certain attachment rights with respect to Real Property owned by Sellers, and (ii) the York Haven Easement Agreement to be negotiated in good faith between York Haven and Buyer, whereby Buyer and York Haven will provide each other with Easements with respect to the Real Property transferred to Buyer or retained by York Haven. In the event of any conflict between the Easement, License and Attachment Agreement and the Exclusion Area Agreement, the terms 5 of the Exclusion Area Agreement shall govern. The Easements to be provided in the Easement, License and Attachment Agreement which are contemplated by the Parties as of the date hereof are listed on Exhibit C hereto. However, such listing shall not be binding on the Parties or York Haven, and the Parties may eliminate from, or add to, the listing of easements on said Exhibit C in the course of their negotiations. (38) "Emission Allowance" means all present and future authorizations to emit specified units of pollutants or Hazardous Substances from the Purchased Assets, which units are established by the Governmental Authority with jurisdiction over the Purchased Assets under (i) an air pollution control and emission reduction program designed to mitigate global warming, interstate or intrastate transport of air pollutants; (ii) a program designed to mitigate impairment of surface waters, watersheds, or groundwater; or (iii) any pollution reduction program with a similar purpose. Allowances include allowances, as described above, regardless as to whether the Governmental Authority establishing such allowances designates such allowances by a name other than "allowances." (39) "Emission Reduction Credits" means credits, in units that are established by the Governmental Authority with jurisdiction over the Purchased Assets that has obtained the credits, resulting from reductions in the emissions of air pollutants from an emitting source or facility (including, without limitation, and to the extent allowable under applicable law, reductions from shutdowns or control of emissions beyond that required by applicable law) that: (i) have been identified by the PaDEP as complying with applicable Pennsylvania law governing the establishment of such credits (including, without limitation, that such emissions reductions are enforceable, permanent, quantifiable and surplus) and listed in the Emissions Reduction Credit Registry maintained by the PaDEP or with respect to which such identification and listing are pending; or (ii) have been certified by any other applicable Governmental Authority as complying with the law and regulations governing the establishment of such credits (including, without limitation, certification that such emissions reductions are enforceable, permanent, quantifiable and surplus). The term includes Emission Reduction Credits that have been approved by the PaDEP and are awaiting USEPA approval. The term also includes certified air emissions reductions, as described above, regardless as to whether the Governmental Authority certifying such reductions designates such certified air emissions reductions by a name other than "emission reduction credits." (40) "Encumbrances" means any mortgages, pledges, liens, security interests, conditional and installment sale agreements, 6 activity and use limitations, conservation easements, deed restrictions, easements, encumbrances and charges of any kind. (41) "Energy Reorganization Act" means the Energy Reorganization Act of 1974, as amended. (42) "Environmental Claim" means any and all pending and/or threatened administrative or judicial actions, suits, orders, claims, liens, notices, notices of violation, investigations, complaints, requests for information, proceedings, or other written communication, whether criminal or civil, pursuant to or relating to any applicable Environmental Law by any person (including, but not limited to, any Governmental Authority, private person and citizens' group) based upon, alleging, asserting, or claiming any actual or potential (a) violation of, or liability under any Environmental Law, (b) violation of any Environmental Permit, or (c) liability for investigatory costs, cleanup costs, removal costs, remedial costs, response costs, natural resource damages, property damage, personal injury, fines, or penalties arising out of, based on, resulting from, or related to the presence, Release, or threatened Release into the environment of any Hazardous Substances at any location related to the Purchased Assets, including, but not limited to, any off-Site location to which Hazardous Substances, or materials containing Hazardous Substances, were sent for handling, storage, treatment, or disposal. (43) "Environmental Condition" means the presence or Release to the environment, whether at the Site or at an off-Site location, of Hazardous Substances, including any migration of those Hazardous Substances through air, soil or groundwater to or from the Site or any off-Site location regardless of when such presence or Release occurred or is discovered. (44) "Environmental Laws" means all federal, state and local, provincial and foreign, civil and criminal laws, regulations, rules, ordinances, codes, decrees, judgments, directives, or judicial or administrative orders relating to pollution or protection of the environment, natural resources or human health and safety, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Substances (including, without limitation, Releases to ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport, disposal or handling of Hazardous Substances. "Environmental Laws" include, without limitation, CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.) , the Resource Conservation and Recovery Act (42 U.S.C. Section 7 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S. C. Section 7401 et seq.) , the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Oil Pollution Act (33 U.S.C. Section 2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), the Pennsylvania Hazardous Sites Cleanup Act (35 P.S. Section 6020.101 et seq.), the Pennsylvania Solid Waste Management Act (35 P.S. 6018.101 et seq.), the Pennsylvania Clean Stream Law (35 P.S. 691.1 et seq. ), the Pennsylvania Radiation Act and all other state laws analogous to any of the above. Notwithstanding the foregoing, Environmental Laws do not include the Atomic Energy Act, NRC rules, regulations and orders promulgated or issued thereunder, or the Energy Reorganization Act and applicable regulations thereunder. (45) "Environmental Permits" has the meaning set forth in Section 4.10(a). (46) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (47) "ERISA Affiliate" has the meaning set forth in Section 2.4(l). (48) "ERISA Affiliate Plans" has the meaning set forth in Section 2.4(l). (49) "Estimated Adjustment" has the meaning set forth in Section 3.3(b). (50) "Estimated Closing Statement" has the meaning set forth in Section 3.3(b). (51) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (52) "Excluded Assets" has the meaning set forth in Section 2.2. (53) "Excluded Liabilities" has the meaning set forth in Section 2.4. (54) "Exclusion Area Agreement" means the Exclusion Area Agreement, between Sellers and Buyer, in the form of Exhibit K hereto, under which Sellers will provide Buyer with authority, within those parts of the Exclusion Area for TMI-1 (as described on Schedule A to the Exclusion Area Agreement, the "Exclusion Area") which are owned and controlled by Sellers, to determine 8 and control all activities in the Exclusion Area, including exclusion of personnel and property from the Exclusion Area, to the extent necessary to comply with applicable NRC requirements. (55) "Exempt Wholesale Generator" means an exempt wholesale generator as defined in Section 32 of the Holding Company Act and the regulations issued thereunder. (56) "Facilities" means the plant, facilities, equipment, supplies and improvements owned by Sellers and included in the Purchased Assets. (57) "Facilities Act" has the meaning as set forth in Section 10.14. (58) "Fair Market Value" means with respect to the assets of the Decommissioning Funds, the value reflected in a statement prepared by the Trustee under the Decommissioning Indenture listing the assets as of the close of the Business Day before Closing, including purchase price and FMV of each asset. (59) "Federal Power Act" means the Federal Power Act, as amended. (60) "Federal Trade Commission" means the United States Federal Trade Commission or any successor agency thereto. (61) "FERC" means the United States Federal Energy Regulatory Commission or any successor agency thereto. (62) "Final Safety Analysis Report" or ("FSAR") means the report, as updated, that is required to be maintained for TMI-1 in accordance with the requirements of 10 CFR Section 50.71(e). (63) "FIRPTA Affidavit" means the Foreign Investment in Real Property Tax Act Certification and Affidavit, substantially in the form of Exhibit D hereto. (64) "Good Utility Practices" means any of the practices, methods and activities approved by a significant portion of the electric utility industry as good practices applicable to nuclear generating facilities of similar design, size and capacity or any of the practices, methods or activities which, in the exercise of reasonable judgment by a prudent nuclear operator in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety, expedition and applicable law. Good Utility Practices are not intended to be limited to the optimal practices, methods or acts 9 to the exclusion of all others, but rather to be practices, methods or acts generally accepted in the electric utility industry. (65) "Governmental Authority" means any federal, state, local or other governmental, regulatory or administrative agency, commission, department, board, or other governmental subdivision, court, tribunal, arbitrating body or other governmental authority. (66) "GPU" means GPU, Inc., a Pennsylvania corporation which is the parent company of GPU Nuclear, JCP&L, Met-Ed and Penelec. (67) "GPU Nuclear" means GPU Nuclear, Inc., a New Jersey corporation which is a wholly owned subsidiary of GPU. (68) "GPU Service Agreement" means the GPU Service Agreement, between the Owners and Buyer, in the form of Exhibit L, under which the Owners will provide certain administrative and other services to Buyer for a specified period after the Closing Date. (69) "Hazardous Substances" means (a) any petrochemical or petroleum products, oil or coal ash, radioactive materials, radon gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid which may contain levels of polychlorinated biphenyls; (b) 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; and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any applicable Environmental Law; excluding, however, any "source", "special nuclear" and "byproduct" material, as such terms are defined in and to the extent regulated under the Atomic Energy Act. (70) "Holding Company Act" means the Public Utility Holding Company Act of 1935, as amended. (71) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. (72) "IBEW" means Local 777 of the International Brotherhood of Electrical Workers. 10 (73) "IBEW Collective Bargaining Agreement" has the meaning set forth in Section 6.10(d). (74) "Income Tax" means any federal, state, local or foreign Tax (a) based upon, measured by or calculated with respect to net income, profits or receipts (including, without limitation, capital gains Taxes and minimum Taxes) or (b) based upon, measured by or calculated with respect to multiple bases (including, without limitation, corporate franchise taxes) if one or more of the bases on which such Tax may be based, measured by or calculated with respect to, is described in clause (a), in each case together with any interest, penalties, or additions to such Tax. (75) "Indemnifiable Loss" has the meaning set forth in Section 8.1(a). (76) "Indemnifying Party" has the meaning set forth in Section 8.1(d) . ------------------ (77) "Indemnitee" has the meaning set forth in Section 8.1(c). (78) "Independent Accounting Firm" means such independent accounting firm of national reputation as is mutually appointed by Sellers and Buyer. (79) "Inspection" means all tests, reviews, examinations, inspections, investigations, verifications, samplings and similar activities conducted by Buyer or its agents or Representatives with respect to the Purchased Assets prior to the Closing. (80) "Intellectual Property" means all patents and patent rights, trademarks and trademark rights, inventions, copyrights and copyright rights owned by Sellers and necessary for the operation and maintenance of the Purchased Assets, and all pending applications for registrations of patents, trademarks, and copyrights, as set forth in Schedule 2.1(1) (81) "Interconnection Agreement" means the Interconnection Agreement, between Sellers and Buyer, in the form of Exhibit E hereto, under which Sellers will provide Buyer after the Closing Date with interconnection services consistent with NRC requirements relating to offsite power availability and grid reliability and access to Sellers' transmission facilities for the transmission of power from TMI-1. (82) "Interconnection Facilities" has the meaning set forth in the Interconnection Agreement. 11 (83) "Inventories" means nuclear fuel or alternative fuel inventories, materials, spare parts, consumable supplies and chemical and gas inventories relating to the operation of the Facilities located at, or in transit to, the Facilities. (84) "Investment Manager Agreement" means one or more Investment Manager Agreements, between any Seller and one or more professional investment managers substantially in the form of Exhibit O hereto, pursuant to which any assets of the Decommissioning Funds retained by Sellers after Closing pursuant to Section 6.12(c) hereof will be invested. (85) "IRS" means the United States Internal Revenue Service or any successor agency thereto. (86) "JCP&L" means Jersey Central Power & Light Company, a New Jersey corporation which is a wholly owned subsidiary of GPU. (87) "Knowledge" means the actual knowledge of the corporate officers or managerial representatives of the specified Person charged with responsibility for the particular function, after reasonable inquiry by them of selected employees of such Person whom they believe, in good faith, to be the persons responsible for the subject matter of the inquiry. (88) "Material Adverse Effect" means any change (or changes taken together) in, or effect on, the Purchased Assets that is materially adverse to the operations or condition (financial or otherwise) of the Purchased Assets, taken as a whole, other than any change (or changes taken together) generally affecting the international, national, regional or local electric industry as a whole and not affecting the Purchased Assets or the Parties in any manner or degree significantly different than the industry as a whole, including changes in local wholesale or retail markets for electric power; national, regional or local electric transmission systems or operations thereof, and any change or effect resulting from action or inaction by a Governmental Authority with respect to an independent system operator or retail access in Pennsylvania. (89) "Member Letters" means letters from the members of Buyer, dated the date hereof and addressed to Sellers, regarding the respective financial responsibility of each such member for the financial obligations of Buyer under this Agreement. (90) "Met-Ed" means Metropolitan Edison Company, a Pennsylvania corporation which is a wholly owned subsidiary of GPU. 12 (91) "Mortgage Indenture" means collectively, the mortgage originally granted to City Bank Farmer's Trust Company by Jersey Central Power & Light Company, dated as of March 1, 1946, as amended and supplemented, the mortgage originally granted to Guaranty Trust Company of New York by Metropolitan Edison Company, dated as of November 1, 1944, as amended and supplemented, and the mortgage originally granted to Bankers Trust Company by Pennsylvania Electric Company, dated as of January 1, 1942, as amended and supplemented. (92) "National Labor Relations Board" means the United States National Labor Relations Board or any successor agency thereto. (93) "Net Unrealized Gain" means the amount by which the Fair Market Value as of the close of the Business Day before the Closing of any asset of the Nonqualified Decommissioning Funds exceeds the Tax Basis of such asset. (94) "NJBPU" means the New Jersey Board of Public Utilities and any successor agency thereto. (95) "Nonqualified Decommissioning Funds" means the external trust funds, that do not meet the requirements of Code section 468A and Treasury Regulations section 1.468A-5, maintained by Sellers with respect to the Facilities prior to the Closing pursuant to the Decommissioning Indenture and maintained by Sellers after the Closing pursuant to the Decommissioning Trust Agreement to the extent assets of such Funds are retained by Sellers pursuant to Section 6.12(c). (96) "Non-Union Employees" has the meaning as set forth in Sections 6.10(b) and (n). (97) "NRC" means the United States Nuclear Regulatory Commission and any successor agency thereto. (98) "Nuclear Waste Policy Act" means the Nuclear Waste Policy Act of 1982, as amended. (99) "NYPSC" means the Public Service Commission of the State of New York and any successor agency thereto. (100) "Observers" has the meaning set forth in Section 6.1(c). (101) "Owners" has the meaning set forth in the recitals. (102) "Oyster Creek" means the Oyster Creek Nuclear Generating Station, located in Lacey Township, New Jersey and 13 identified in NRC Operating License No. DPR-16, Docket No. 50-219. (103) "PaPUC" means the Pennsylvania Public Utility Commission and any successor agency thereto. (104) "PaDEP" means the Pennsylvania Department of Environmental Protection and any successor agency thereto. (105) "Party" (and the corresponding term "Parties") has the meaning set forth in the preamble. (106) "Penelec" means Pennsylvania Electric Company, a Pennsylvania corporation and a wholly owned subsidiary of GPU. (107) "PBGC" means the Pension Benefit Guaranty Corporation established by ERISA. (108) "Permits" has the meaning set forth in Section 4.17. (109) "Permitted Encumbrances" means: (i) the Easements; (ii) those exceptions to title to the Purchased Assets listed in Schedule 4.7(a) with respect to Real Property and Schedule 4.7(b) with respect to Tangible Personal Property; (iii) with respect to any date before the Closing Date, Encumbrances created by the Mortgage Indenture and Easements by and among the Sellers; (iv) statutory liens for Taxes or other governmental charges or assessments not yet due or delinquent or the validity of which is being contested in good faith by appropriate proceedings provided that the aggregate amount being so contested does not exceed $100,000; (v) mechanics', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business relating to obligations as to which there is no default on the part of Sellers or the validity of which are being contested in good faith, and which do not, individually or in the aggregate, exceed $100,000; and (vi) zoning, entitlement, conservation restriction and other land use and environmental regulations by Governmental Authorities, which do not materially, individually or in the aggregate, detract from the value of the Purchased Assets as currently used or interfere with the present use of the Purchased Assets and neither secure indebtedness, nor individually or in the aggregate create a Material Adverse Effect. (110) "Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, or governmental entity or any department or agency thereof. (111) "PJM" means the Pennsylvania-New Jersey-Maryland Interconnection, LLC. 14 (112) "Post-Closing Adjustment" has the meaning set forth in Section 3.3(c). (113) "Post-Closing Statement" has the meaning set forth in Section 3.3(c). (114) "PPA" means the Power Purchase Agreement between Sellers and Buyer, in the form of Exhibit I hereto, under which Sellers will agree to purchase capacity and energy from Buyer for a period after the Closing Date. (115) "Price-Anderson Act" means Section 170 of the Atomic Energy Act of 1954, as amended. (116) "Proposed Post-Closing Adjustment" has the meaning set forth in Section 3.3(c). (117) "Proprietary Information" of a Party means all information about the Party or its Affiliates, including their respective properties or operations, furnished to the other Party or its Representatives by the Party or its Representatives, after the date hereof, regardless of the manner or medium in which it is furnished, including information provided to a Party pursuant to the Confidentiality Agreement. In addition, after the Closing Date, "Proprietary Information" includes any non-public information regarding the Purchased Assets or the transactions contemplated by this Agreement. Proprietary Information does not include information that: (a) is or becomes generally available to the public (other than as a result of a disclosure by the other Party or its Representatives in violation of a confidentiality agreement); (b) was available to the other Party on a nonconfidential basis prior to its disclosure by the Party or its Representatives; (c) becomes available to the other Party on a nonconfidential basis from a person, other than the Party or its Representatives, who is not otherwise bound by a confidentiality agreement with the Party or its Representatives, or is not otherwise under any obligation to the Party or any of its Representatives not to transmit the information to the other Party or its Representatives; or (d) is independently developed by the other Party. (118) "Purchased Assets" has the meaning set forth in Section 2.1. (119) "Purchase Price" has the meaning set forth in Section 3.2. (120) "Qualified Decommissioning Funds" means the three external trust funds, that meet the requirements of Code section468A and Treasury Regulations section 1.468A-5, maintained by Sellers with respect to the Facilities prior to closing 15 pursuant to the Decommissioning Indenture and maintained by Sellers after the Closing pursuant to the Decommissioning Trust Agreement to the extent assets of such funds are retained by Sellers pursuant to Section 6.12(c). (121) "Real Property" has the meaning set forth in Section 4.13(a). (122) "Real Property Leases" has the meaning set forth in Section 4.8. (123) "Refueling Outage" means the refueling outage for TMI-1 referred to by the Parties as "13R" and currently scheduled for September-October 1999, including the refueling of TMI-1 and the performance of certain maintenance, inspection and other work, all of which shall be completed in accordance with Good Utility Practices and applicable NRC requirements. (124) "Release" means release, spill, leak, discharge, dispose of, pump, pour, emit, empty, inject, leach, dump or allow to escape into or through the environment. (125) "Remediation" means action of any kind to address a Release, the threat of a Release or the presence of Hazardous Substances at the Site or an off-Site location including, without limitation, any or all of the following activities to the extent they relate to or arise from the presence of a Hazardous Substance at the Site or an off-Site location: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work; (b) obtaining any permits, consents, approvals or authorizations of any Governmental Authority necessary to conduct any such activity; (c) preparing and implementing any plans or studies for any such activity; (d) obtaining a written notice from a Governmental Authority with jurisdiction over the Site or an off-Site location under Environmental Laws that no material additional work is required by such Governmental Authority; (e) the use, implementation, application, installation, operation or maintenance of removal actions on the Site or an off-Site location, remedial technologies applied to the surface or subsurface soils, excavation and off-Site treatment or disposal of soils, systems for long term treatment of surface water or ground water, engineering controls or institutional controls; and (f) any other activities reasonably determined by a Party to be necessary or appropriate or required under Environmental Laws to address the presence or Release of Hazardous Substances at the Site or an off-Site location. (126) "Replacement Welfare Plans" has the meaning set forth in Section 6.10(e). 16 (127) "Representatives" of a Party means the Party and its Affiliates and their directors, officers, employees, agents, partners, advisors (including, without limitation, accountants, counsel, environmental consultants, financial advisors and other authorized representatives) and parents and other controlling persons. (128) "Residual Waste Landfill" means the waste landfill on the Real Property that is identified on Schedule 4.13(a) and is subject to an Environmental Permit issued by PaDEP (Permit No. 301029). (129) "SEC" means the United States Securities and Exchange Commission and any successor agency thereto. (130) "SRBC" means the Susquehanna River Basin Commission and any successor agency thereto. (131) "Securities Act" means the Securities Act of 1933, as amended. (132) "Seller" (and the corresponding term "Sellers") has the meaning set forth in the preamble. (133) "Sellers' Agreements" means those contracts, agreements, licenses and leases relating to the ownership, operation and maintenance of the Purchased Assets that are being assigned to Buyer as part of the Purchased Assets, as more particularly described on Schedule 4.15(a). (134) "Sellers' Indemnitee" has the meaning set forth in Section 8.1(a). (135) "Sellers' Required Regulatory Approvals" has the meaning set forth in Section 4.3(b). (136) "Sellers' Savings Plans" has the meaning set forth in Section 6.10(g). (137) "Site" means the Real Property (described in Schedule 4.13(a)) forming a part of, or used or usable in connection with the operation of, the Purchased Assets. The Site specifically excludes those parcels of real property described on Schedule 2.2(i). Any reference to the Site shall include, by definition, the surface and subsurface elements, including the soils and groundwater present at the Site, and any reference to items "at the Site" shall include all items "at, on, in, upon, over, across, under and within" the Site. (138) "Spent Fuel Fees" means those fees assessed on electricity generated at TMI-1 and sold pursuant to the Standard Contract for Disposal of Spent Nuclear Fuel and/or High Level 17 Waste, as provided in Section 302 of the Nuclear Waste Policy Act and 10 CFR Part 961, as the same may be amended from time to time. (139) "Subsidiary" when used in reference to any Person means any entity of which outstanding securities having ordinary voting power to elect a majority of the Board of Directors or other, Persons performing similar functions of such entity, are owned directly or indirectly, by such Person. (140) "Tangible Personal Property" has the meaning set forth in Section 2.1(c). (141) "Tax Basis" means the adjusted tax basis determined for federal income tax purposes under Code section 1011(a). (142) "Taxes" means all taxes, charges, fees, levies, penalties or other assessments imposed by any federal, state or local or foreign taxing authority, including, but not limited to, income, excise, real or personal property, sales, transfer, franchise, payroll, withholding, social security, gross receipts, license, stamp, occupation, employment or other taxes, including any interest, penalties or additions attributable thereto. (143) "Tax Return" means any return, report, information return, declaration, claim for refund or other document (including any schedule or related or supporting information) required to be supplied to any taxing authority with respect to Taxes including amendments thereto. (144) "Technical Specifications"means the technical specifications included in the NRC License for TMI-1 in accordance with the requirements of 10 CFR Section 50.36. (145) "Termination Date" has the meaning set forth in Section 9.1(b). (146) "Third Party Claim" has the meaning set forth in Section 8.2(a). (147) "TMI-1" means the Three Mile Island Unit 1 Nuclear Generating Facility, located near Middletown, Pennsylvania and identified in NRC Operating License No. DPR-50, Docket No. 50-289. (148) "TMI-2 Monitoring Agreement" means the agreement between Sellers and Buyer, substantially in the form of Exhibit H hereto. (149) "TMI-2" has the meaning set forth in Section 2.2(i). 18 (150) "Total FMV" has the meaning set forth in Section 6.12(a). (151) "Transferable Permits" means those Permits and Environmental Permits identified in Schedule 1.1(151), which may be transferred to Buyer without a filing with, notice to, consent or approval of any Governmental Authority. (152) "Transferred Employee Records" means all records related to Transferred Employees, including but not limited to the following information: (i) skill and development training, (ii) biographies, (iii) seniority histories, (iv) salary and benefit information, (v) Occupational, Safety and Health Administration reports, (vi) active medical restriction forms, (vii) fitness for duty, and (viii) disciplinary actions. (153) "Transferred Employees" has the meaning set forth in Section 6.10(b). (154) "Transferred Non-Union Employees" has the meaning set forth in Section 6.10(b). (155) "Transferred Union Employees" has the meaning set forth in Section 6.10(b). (156) "Transition Committee" has the meaning set forth in Section 6.1(b). (157) "Transmission Assets" has the meaning set forth in Section 2.2(a). (158) "Trustee" means prior to the Closing the trustee of the Decommissioning Funds appointed by Sellers pursuant to the Decommissioning Indenture or after the Closing in the event any assets of the Decommissioning Funds are retained by Sellers pursuant to Section 6.12(c) appointed pursuant to the Decommissioning Trust Agreement. (159) "Union Employees" has the meaning set forth in Sections 6.10(a) and (n). (160) "USEPA" means the United States Environmental Protection Agency and any successor agency thereto. (161) "WARN Act" means the Federal Worker Adjustment Retraining and Notification Act of 1988, as amended. (162) "Year 2000 Compliant," "Year 2000 Qualified" and "Year 2000 Ready" have the meanings set forth in Section 4.21. "Year 2000 Qualification" has a meaning correlative to Year 2000 Qualified. 19 (163) "York Haven" means York Haven Power & Light Company, a Pennsylvania corporation which is a wholly owned subsidiary of Met-Ed. (164) "York Haven Dam Agreements" means the agreements between York Haven and Sellers providing for the ownership, operation and maintenance of the York Haven Hydroelectric Project (FERC Project No. 1888) on the Susquehanna River; such agreements are separately identified on Schedule 4.15(a) hereto. 1.2 Certain Interpretive Matters. In this Agreement, unless the context otherwise requires, the singular shall include the plural, the masculine shall include the feminine and neuter, and vice versa. The term "includes" or "including" shall mean "including without limitation." References to a Section, Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule of this Agreement, and reference to a given agreement or instrument shall be a reference to that agreement or instrument as modified, amended, supplemented and restated through the date as of which such reference is made. ARTICLE II PURCHASE AND SALE 2.1 Transfer of Assets. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, at the Closing each of Sellers will sell, assign, convey, transfer and deliver to Buyer, and Buyer will purchase, assume and acquire from each such Seller, free and clear of all Encumbrances (except for Permitted Encumbrances), and subject to Section 2.2, all of such Seller's right, title and interest in and to all of the assets constituting, or used in and necessary for the operation of, the Facilities, including without limitation those assets identified in Schedules 2.1(h) and (l) and Schedule 4.13(b) and those assets described below (but excluding the Excluded Assets), each as in existence on the Closing Date (collectively, "Purchased Assets"): (a) The real property (including all buildings, facilities and other improvements thereon, all appurtenances thereto and rights of ingress and egress) described on Schedule 4.13(a) (including parcels owned by York Haven but excluding those parcels identified in Section 2.2(i) below), but subject to the Permitted Encumbrances and except as otherwise constituting part of the Excluded Assets; (b) All Inventories and Emission Allowances; (c) All machinery, mobile or otherwise, equipment (including computer hardware and software and communications 20 equipment), vehicles, tools, spare parts, fixtures, furniture and furnishings and other personal property relating to or used in the operation of the Facilities, including, without limitation, the items of personal property included in Schedule 4.13(b), together with all the personal property of Sellers used principally in the operation of the Facilities, other than property used or primarily usable as part of the Transmission Assets or otherwise constituting part of the Excluded Assets (collectively, "Tangible Personal Property"); (d) Subject to the provisions of Section 6.4(b), all Sellers' Agreements; (e) Subject to the provisions of Section 6.4(b), all Real Property Leases; (f) All Transferable Permits; (g) All books, operating records, operating, safety and maintenance manuals, inspection reports, engineering design plans, documents, blueprints and as built plans, specifications, procedures and similar items of Sellers, wherever located, relating to the Facilities and the other Purchased Assets (subject to the right of Sellers to retain copies of same for their use) other than general ledger accounting records; (h) All Emission Reduction Credits associated with the Facilities and identified in Schedule 2.1(h) that have accrued prior to, or that accrue on or after, the date of this Agreement; (i) All unexpired, transferable warranties and guarantees from third parties with respect to any item of Real Property or personal property constituting part of the Purchased Assets; (j) The name "Three Mile Island Unit 1". It is expressly understood that Sellers are not assigning or transferring to Buyer any right to use the name "GPU", "GPU Energy", "GPU Nuclear", "Jersey Central Power & Light Company", "JCP&L", "Metropolitan Edison Company" or "Met-Ed", or "Pennsylvania Electric Company" or "Penelec", or any related or similar trade names, trademarks, service marks, corporate names and logos or any part, derivative or combination thereof; provided, however, that Sellers will grant to Buyer a non-assignable (except to Affiliates), royalty-free, non-exclusive license to use "GPU Nuclear" and any related or similar trade names, trademarks, service marks, corporate names and logos on signs and displays affixed to the Purchased Assets on the Closing Date for a period of three months thereafter in order to allow Buyer adequate time to change the signage to the name of Buyer. 21 (k) All drafts, memoranda, reports, information, technology, and specifications relating to Sellers' plans for Year 2000 Compliance with respect to the Facilities; (l) A non-assignable (except to Affiliates), royalty-free, non-exclusive license to the Intellectual Property described on Schedule 2.1(l); (m) The substation equipment set forth in Schedule A to the Interconnection Agreement and designated therein as being transferred to Buyer; and (n) Whether transferred to Buyer pursuant to Section 6.12(b) or retained by Sellers pursuant to Section 6.12(c), the assets comprising the Decommissioning Funds together with all related accounting and other records other than general ledger accounting records. 2.2 Excluded Assets. Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement will constitute or be construed as conferring on Buyer, and Buyer is not acquiring, any right, title or interest in or to the following specific assets which are associated with the Purchased Assets, but which are hereby specifically excluded from the sale and the definition of Purchased Assets herein (the "Excluded Assets"): (a) Except as expressly identified in Schedule 4.13(b) or Schedule A to the Interconnection Agreement, the electrical transmission or distribution facilities (as opposed to generation facilities) of Sellers or any of their Affiliates located at the Site or forming part of the Facilities (whether or not regarded as a "transmission" or "generation" asset for regulatory or accounting purposes), including all switchyard facilities, substation facilities and support equipment, as well as all permits, contracts and warranties, to the extent they relate to such transmission and distribution assets (collectively, the "Transmission Assets"), and those certain assets, facilities and agreements identified on Schedule 2.2(a); (b) Certain switches and meters in the Facilities, gas facilities, revenue meters and remote testing units, drainage pipes and systems, as identified in the Easement, License and Attachment Agreement; (c) Certificates of deposit, shares of stock, securities, bonds, debentures, evidences of indebtedness, and interests in joint ventures, partnerships, limited liability companies and other entities (including, without limitation, Sellers' account balances with Nuclear Electric Insurance Limited), except the assets comprising the Decommissioning Funds; 22 (d) All cash, cash equivalents, bank deposits, accounts and notes receivable (trade or otherwise), and any income, sales, payroll or other tax receivables (including, without limitation, Sellers' account balances with Nuclear Electric Insurance Limited), except the assets comprising the Decommissioning Funds; (e) Subject to the license referred to in Section 2.1(j) hereof, the rights of Sellers and their Affiliates to the names "GPU", "GPU Energy", "GPU Nuclear", "Jersey Central Power & Light Company", "JCP&L", "Metropolitan Edison Company" or "Met-Ed", "Pennsylvania Electric Company" or "Penelec", or any related or similar trade names, trademarks, service marks, corporate names or logos, or any part, derivative or combination thereof; (f) All tariffs, agreements and arrangements to which Sellers are a party for the purchase or sale of electric capacity and/or energy or for the purchase of transmission or ancillary services; (g) The rights of Sellers in and to any causes of action against third parties (including indemnification and contribution) relating to any Real Property or personal property, Permits, Environmental Permits, Taxes, Real Property Leases or Sellers' Agreements, if any, including any claims for refunds, prepayments, offsets, recoupment, insurance proceeds, condemnation awards, judgments and the like, whether received as payment or credit against future liabilities, relating specifically to the Facilities or the Site and relating to any period prior to the Closing Date; (h) Any and all of Sellers' rights in any contract representing an intercompany transaction between Sellers and an Affiliate of Sellers, whether or not such transaction relates to the provision of goods and services, payment arrangements, intercompany charges or balances, or the like; and (i) Any right, title and interest in (A) those certain parcels of real property (including all buildings, facilities and other improvements thereon and all appurtenances thereto) pertaining to Three Mile Island Unit 2 Nuclear Generating Facility, including those described in Schedule 2.2(i) ("TMI-2"), or (B) the structures and improvements comprising the dams referred to in the York Haven Dam Agreements, except that this paragraph shall not be construed to limit in any way the rights conveyed to Buyer in accordance with the Exclusion Area Agreement between Buyer and Sellers. 2.3 Assumed Liabilities and Obligations. On the Closing Date, Buyer shall deliver to Sellers the Assignment and Assumption Agreement pursuant to which Buyer shall assume and 23 agree to discharge when due, all of the following liabilities and obligations of Sellers (collectively, "Assumed Liabilities and Obligations"): (a) All liabilities and obligations of Sellers arising on or after the Closing Date under Sellers' Agreements, the Real Property Leases, and the Transferable Permits in accordance with the terms thereof, including, without limitation, (i) the contracts, licenses, agreements and personal property leases entered into by Sellers with respect to the Purchased Assets and disclosed on the relevant schedule and (ii) the contracts, licenses, agreements and personal property leases entered into by Sellers with respect to the Purchased Assets after the date hereof consistent with the terms of this Agreement, except in each case to the extent such liabilities and obligations, but for a breach or default by Sellers, would have been paid, performed or otherwise discharged on or prior to the Closing Date or to the extent the same arise out of any such breach or default or out of any event which after the giving of notice would constitute a default by Sellers; (b) All liabilities and obligations associated with the Purchased Assets in respect of Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof; (c) All liabilities and obligations with respect to the Transferred Employees on and after the Closing Date for which Buyer is responsible pursuant to Section 6.10; (d) All liabilities and obligations of Sellers with respect to the Purchased Assets under the agreements set forth on Schedule 4.15(a) arising after the Closing; (e) With respect to the Purchased Assets, any Tax that may be imposed by any federal, state or local government on the ownership, sale, operation or use of the Purchased Assets on or after the Closing Date, except for any Income Taxes attributable to income received by Sellers; (f) All liabilities and obligations of Sellers for Decommissioning of the Facilities; and (g) All liabilities and obligations of Sellers to SRBC or any third party to pay the annual operation and maintenance expense provided for in the Cowanesque Reservoir Agreements. 2.4 Excluded Liabilities. Buyer shall not assume or be obligated to pay, perform or otherwise discharge the following liabilities or obligations (the "Excluded Liabilities"): 24 (a) Any liabilities or obligations of Sellers in respect of any Excluded Assets (including TMI-2) or other assets of Sellers which are not Purchased Assets, including any liability or obligation for the Decommissioning of TMI-2; (b) Any liabilities or obligations in respect of Taxes attributable to the ownership, operation or use of Purchased Assets for taxable periods, or portions thereof, ending before the Closing Date, except for Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof; (c) Any liabilities or obligations of Sellers accruing under any of Sellers' Agreements prior to the Closing Date; (d) Any and all asserted or unasserted liabilities or obligations to third parties (including employees) for personal injury or tort, or similar causes of action arising out of the ownership or operation of the Purchased Assets prior to the Closing Date, including liabilities or obligations arising out of or resulting from a "nuclear incident" or "precautionary evacuation" (as such terms are defined in the Atomic Energy Act) at the Site, or any other licensed nuclear reactor site in the United States, or in the course of the transportation of radioactive materials to or from the Site or any other site prior to the Closing Date, including, without limitation, liability for any deferred premiums assessed in connection with such a nuclear incident or precautionary evacuation under any applicable NRC or industry retrospective rating plan or insurance policy, including any mutual insurance pools established in compliance with the requirements imposed under Section 170 of the Atomic Energy Act and 10 C.F.R. Part 140, 10 C.F.R. Section 50.54(w), other than any liabilities or obligations which have been expressly assumed by Buyer under Section 2.3; (e) Any fines, penalties or costs imposed by a Governmental Authority with respect to the Purchased Assets resulting from (i) an investigation, proceeding, request for information or inspection before or by a Governmental Authority relating to actions or omissions prior to the Closing Date, or (ii) illegal acts, willful misconduct or gross negligence of Sellers; (f) Any payment obligations of Sellers for goods delivered or services rendered prior to the Closing Date, including, but not limited to, rental or lease payments pursuant to the Real Property Leases and any leases relating to Tangible Personal Property; (g) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability, obligation or responsibility is known or unknown, 25 contingent or accrued (whether or not arising or made manifest before the Closing Date or on or after the Closing Date), arising as a result of or in connection with (i) the Residual Waste Landfill, (ii) the Real Property pertaining to TMI-2, as described in Schedule 2.2(i), (iii) the Real Property identified as the "Substation" on the map included in Schedule 4.13(a), (iv) loss of life, injury to persons or property or damage to natural resources to the extent caused (or allegedly caused) by the off-Site disposal, storage, transportation, discharge, Release, or recycling of Hazardous Substances, or the arrangement for such activities, of Hazardous Substances, prior to the Closing Date, in connection with the ownership or operation of the Purchased Assets; (v) any violation or alleged violation of Environmental Laws prior to the Closing Date with respect to the ownership or operation of any of the other Purchased Assets; (vi) loss of life, injury to persons or property or damage to natural resources caused (or allegedly caused) by the presence or Release of, or the Remediation (whether or not such Remediation commenced before the Closing Date or commences on or after the Closing Date) of Hazardous Substances at, on, in, under, adjacent to or migrating from the Purchased Assets prior to the Closing Date, including, but not limited to, Hazardous Substances contained in building materials at or adjacent to the Purchased Assets or in the soil, surface water, sediments, groundwater, landfill cells, or in other environmental media at or near the Purchased Assets; (h) Third party liability for toxic torts arising as a result of or in connection with loss of life or injury to persons (whether or not such loss or injury arose or was made manifest on or after the Closing Date) caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, adjacent to or migrating from the Purchased Assets prior to the Closing Date; (i) Any liabilities, obligations or responsibilities relating to (a) the property, equipment or machinery within the switchyards for which Sellers will retain an Easement, (b) the disposal, discharge or Release of Hazardous Substances, whether such liabilities, obligations or responsibilities arose from the ownership or operation of said property, equipment or machinery prior to or after the Closing Date unless caused by Buyer's operations or equipment, (c) the transmission lines delineated in the Easements or (d) any Sellers' operations on, or usage of, the Easements, including, without limitation, liabilities, obligations or responsibilities arising as a result of or in connection with (1) any violation or alleged violation of Environmental Law and (2) loss of life, injury to persons or property or damage to natural resources, except to the extent caused by Buyer; (j) Any liabilities or obligations relating to personal injury, discrimination, wrongful discharge, unfair labor 26 practice or similar claim or cause of action filed with or pending before any court or administrative agency on the Closing Date with respect to the Purchased Assets or the Transferred Employees or where the material facts of such claim or cause of action occurred prior to the Closing Date; (k) Subject to Section 6.10, any liabilities or obligations relating to any Benefit Plan maintained by Sellers or any trade or business (whether or not incorporated) which is or ever has been under common control, or which is or ever has been treated as a single employer, with a Seller under Section 414 (b) , (c) , (m) or (o) of the Code ("ERISA Affiliate") or to which a Seller or any ERISA Affiliate contributed (the "ERISA Affiliate Plans"), including any multi-employer plan contributed to at any time by a Seller or any ERISA Affiliate, or any multi-employer plan to which a Seller or ERISA Affiliate is or was obligated at any time to contribute, including but not limited to any liability (i) relating to benefits payable under any Benefit Plans; (ii) relating to the PBGC under Title IV of ERISA; (iii) relating to a multi-employer plan; (iv) with respect to non-compliance with the notice and benefit continuation requirements of COBRA; (v) with respect to any noncompliance with ERISA or any other applicable laws; or (vi) with respect to any suit, proceeding or claim which is brought against Buyer, any Benefit Plan, ERISA Affiliate Plan, any fiduciary or former fiduciary of any such Benefit Plan or ERISA Affiliate Plan; (l) Subject to Section 6.10, any liabilities or obligations relating to the employment or termination of employment, including discrimination, wrongful discharge, unfair labor practices, or constructive termination by a Seller of any individual, attributable to any actions or inactions by Sellers prior to the Closing Date other than such actions or inactions taken at the written direction of Buyer; (m) Subject to Section 6.10, any obligations for wages, overtime, employment taxes, severance pay, transition payments in respect of compensation or similar benefits accruing or arising prior to the Closing under any term or provision of any contract, plan, instrument or agreement relating to any of the Purchased Assets; (n) All liabilities and obligations of Sellers to SRBC or any third party to pay the construction costs provided for in the Cowanesque Reservoir Agreements; (o) Any liability of a Seller arising out of a breach by a Seller or any of its Affiliates of any of their respective obligations under this Agreement or the Ancillary Agreements; and 27 (p) Any other liability or obligation of a Seller not specifically assumed hereunder. 2.5 Control of Litigation. The Parties agree and acknowledge that Sellers shall be entitled exclusively to control, defend and settle any litigation, administrative or regulatory proceeding, and any investigation or Remediation activities (including without limitation any environmental mitigation or Remediation activities), arising out of or related to any Excluded Liabilities, so long as such defense, settlement or other activities do not unreasonably interfere with Buyer's operation of the Facilities, and Buyer agrees to cooperate with Sellers (at Sellers' expense) in connection therewith. ARTICLE III THE CLOSING 3.1 Closing. Upon the terms and subject to the satisfaction of the conditions contained in Article VII of this Agreement, the sale, assignment, conveyance, transfer and delivery of the Purchased Assets to Buyer, the payment of the Purchase Price to Sellers, and the consummation of the other respective obligations of the Parties contemplated by this Agreement shall take place at a closing (the "Closing"), to be held at the offices of Morgan Lewis & Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania, at 10:00 a.m. local time, or another mutually acceptable time and location, on the date that is fifteen (15) Business Days following the date on which the last of the conditions precedent to Closing set forth in Article VII of this Agreement have been either satisfied or waived by the Party for whose benefit such conditions precedent exist, but in any event not before the completion of the Refueling Outage (unless the Parties otherwise agree pursuant to Section 6.1(e)), or such other date as the Parties may mutually agree. The date of Closing is hereinafter called the "Closing Date." The Closing shall be effective for all purposes as of 12:01 a.m. on the Closing Date. 3.2 Payment of Purchase Price. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, in consideration of the aforesaid sale, assignment, conveyance, transfer and delivery of the Purchased Assets, Buyer will pay or cause to be paid to Sellers at the Closing in consideration of the Purchased Assets other than the nuclear fuel in the TMI-1 reactor core on the Closing Date, an aggregate amount of Twenty-Three Million Dollars ($23,000,000) (the "Closing Payment"), plus or minus any adjustments pursuant to the provisions of this Agreement, by wire transfer of immediately 28 available funds denominated in U.S. dollars or by such other means as are agreed upon by Sellers and Buyer. In addition, in consideration of the nuclear fuel in the TMI-1 reactor core on the Closing Date, Buyer will pay or cause to be paid to Seller annually in five equal installments (each a "Fuel Payment" and together with the Closing Payment, the "Purchase Price"), commencing on the first anniversary of the Closing Date and on each subsequent anniversary of the Closing Date until the fifth Fuel Payment has been paid, the sum of Fifteen Million Four Hundred Fifty-Three Thousand Four Hundred Dollars ($15,453,400) (which amount shall be deemed to include interest from the Closing Date at the lowest rate permitted by Treas. Reg. Section 1.483-3 to avoid the imputation of interest thereon), by wire transfer of immediately available funds denominated in U.S. dollars or by such other means as are agreed upon by Sellers and Buyer. 3.3 Adjustment to Purchase Price. (a) Subject to Section 3.3(b), at the Closing, the Purchase Price shall be adjusted, without duplication, to account for the items set forth in this Section 3.3(a): (i) The Purchase Price shall be adjusted to account for the items prorated as of the Closing Date pursuant to Section 3.5. (ii) The Purchase Price shall be adjusted if the Closing Date occurs on a date other than December 31, 1999, as set forth on Schedule 3.3(a)(ii). (iii) The Purchase Price shall be increased by the amount expended by Sellers between the date hereof and the Closing Date for capital additions to or replacements of property, plant and equipment included in the Purchased Assets and other expenditures or repairs on property, plant and equipment included in the Purchased Assets that are capitalized by Sellers in accordance with their normal accounting policies, provided, that such expenditures (A) are not described in the capital budgets listed on Schedule 6.1, (B) are not required (1) for the customary operation and maintenance of TMI-1, (2) to replace equipment which has failed for any other reason, or (3) to comply with applicable laws, rules and regulations and (C) Buyer has specifically requested or approved such expenditures in writing ("Capital Expenditures"). Nothing in this paragraph should be construed to limit Sellers' rights and obligations to make all capital expenditures necessary to comply with NRC licenses and other Permits. 29 (iv) The Purchase Price shall be adjusted from time to time following the Closing Date by the payment of an amount (the "Deal Strike Price Adjustment") for the period of January 1, 2002 through December 31, 2010, under the Deal Strike Price Adjustment Agreement. (v) In the event the assets of any of the Nonqualified Decommissioning Funds are retained by Sellers after the Closing pursuant to Section 6.12(c), the Purchase Price shall be adjusted downward by an amount equal to the sum of (i) the net present value of the tax on the Net Unrealized Gains of such retained assets at Closing using a discount rate of 7%, an assumed tax rate of 41.49% and assuming that all Net Unrealized Gains are realized in 2014, and (ii) the amount in clause (i) divided by 0.5851. (vi) The Purchase Price shall be adjusted downward by Five Million Dollars ($5,000,000) on the Closing Date to account for anticipated repairs or replacement of the Facility's low pressure turbines. (b) At least thirty (30) calendar days prior to the Closing Date, Sellers shall prepare and deliver to Buyer an estimated closing statement (the "Estimated Closing Statement") that shall set forth Sellers' best estimate of all estimated adjustments to the Purchase Price required by Section 3.3(a) (other than with respect to subparagraph (a) (iv) thereof) (the "Estimated Adjustment"). Within ten (10) calendar days following the delivery of the Estimated Closing Statement by Sellers to Buyer, Buyer may object in good faith to the Estimated Adjustment in writing. If Buyer objects to the Estimated Adjustment, the Parties shall attempt to resolve their differences by negotiation. If the Parties are unable to do so prior to the Closing Date (or if Buyer does not object to the Estimated Adjustment), the Purchase Price shall be adjusted (the "Closing Adjustment") for the Closing by the amount of the Estimated Adjustment not in dispute. The disputed portion shall be resolved as part of the Proposed Post-Closing Adjustment set forth in Section 3.3(c) and paid as part of any Post-Closing Adjustment to the extent required by Section 3.3(c). (c) Within sixty (60) days following the Closing Date, Sellers shall prepare and deliver to Buyer a final closing statement (the "Post-Closing Statement") that shall set forth all adjustments to the Purchase Price required by Section 3.3(a) (other than with respect to subparagraph (a) (iv) thereof) (the "Proposed Post-Closing Adjustment"). The Post-Closing Statement shall be prepared using the same accounting principles, policies and methods as Sellers have historically used in connection with the calculation of the items reflected on such Post-Closing Statement. Within thirty (30) days following the 30 delivery of the Post-Closing Statement by Sellers to Buyer, Buyer may object to the Proposed Post-Closing Adjustment in writing. Sellers agree to cooperate with Buyer to provide Buyer with the information used to prepare the Post-Closing Statement and information relating thereto. If Buyer objects to the Proposed Post-Closing Adjustment, the Parties shall attempt to resolve such dispute by negotiation. If the Parties are unable to resolve such dispute within thirty (30) days of any objection by Buyer, the Parties shall appoint the Independent Accounting Firm, which shall, at Sellers' and Buyer's joint expense, review the Proposed Post-Closing Adjustment and determine the appropriate adjustment to the Purchase Price, if any, within thirty (30) days of such appointment. The Parties agree to cooperate with the Independent Accounting Firm and provide it with such information as it reasonably requests to enable it to make such determination. The finding of such Independent Accounting Firm shall be binding on the Parties hereto. Upon determination of the appropriate adjustment (the "Post-Closing Adjustment") by agreement of the Parties or by binding determination of the Independent Accounting Firm, the Party owing the difference shall deliver such amount to the other Party no later, than two (2) Business Days after such determination, in immediately available funds or in any other manner as reasonably requested by the payee. 3.4 Allocation of Purchase Price. Buyer and Sellers shall agree upon an allocation among the Purchased Assets of the sum of the Purchase Price and the Assumed Liabilities and Obligations consistent with Section 1060 of the Code and the Treasury Regulations thereunder within sixty (60) days of the Closing Date. In addition, prior to the Closing Date Buyer and Sellers shall allocate between items which are "real estate" and items which are personal property or "permanently attached machinery and equipment in an industrial plant", as those terms are used in the Pennsylvania realty transfer tax statute, Act of July 2, 1996 P.L. 318, as amended, and the regulations promulgated pursuant thereto by the Pennsylvania Department of Revenue at Chapter 91 of the Pennsylvania Code. If Buyer and Sellers cannot agree on any such allocation, such dispute shall be resolved in accordance with Section 6.8(d) of this Agreement. Each of Buyer and Sellers agree to file Internal Revenue Service Form 8594, and all federal, state, local and foreign Tax Returns, in accordance with any such agreed allocation. Each of Buyer and Sellers shall report the transactions contemplated by this Agreement for federal Tax and all other Tax purposes in a manner consistent with any such agreed allocation determined pursuant to this Section 3.4. Each of Buyer and Sellers agree to provide the other promptly with any information required to complete Form 8594. Buyer and Sellers shall notify and provide the other with reasonable assistance in the event of an examination, audit or 31 other proceeding regarding any allocation of the Purchase Price agreed to pursuant to this Section 3.4. Buyer and Sellers shall not take any position in any tax return, tax proceeding or audit that is inconsistent with such allocation. 3.5 Prorations. (a) Buyer and Sellers agree that all of the items normally prorated, including those listed below (but not including Income Taxes), relating to the business and operation of the Purchased Assets shall be prorated as of the Closing Date, with Sellers liable to the extent such items relate to any time period prior to the Closing Date, and Buyer liable to the extent such items relate to periods commencing with the Closing Date (measured in the same units used to compute the item in question, otherwise measured by calendar days): (i) Personal property, real estate and occupancy Taxes, assessments and other charges, if any, on or with respect to the business and operation of the Purchased Assets; (ii) Rent, Taxes and all other items (including prepaid services or goods not included in Inventory) payable by or to Sellers under any of Sellers' Agreements; (iii) Any permit, license, registration, compliance assurance fees or other fees with respect to any Transferable Permit; (iv) Sewer rents and charges for water, telephone, electricity and other utilities; and (v) Rent and Taxes and other items payable by Sellers under the Real Property Leases assigned to Buyer. (b) In connection with the prorations referred to in (a) above, in the event that actual figures are not available at the Closing Date, the proration shall be based upon the actual Taxes or other amounts accrued through the Closing Date or paid for the most recent year (or other appropriate period) for which actual Taxes or other amounts paid are available. Such prorated Taxes or other amounts shall be re-prorated and paid to the appropriate Party within sixty (60) days of the date that the previously unavailable actual figures become available. The prorations shall be based on the number of days in a year or other appropriate period (i) before the Closing Date and (ii) including and after the Closing Date. Sellers and Buyer agree to furnish each other with such documents and other records as may be reasonably requested in order to confirm all adjustment and proration calculations made pursuant to this Section 3.5. 32 (c)(i) Each of Sellers shall be responsible for any Pennsylvania public utility realty tax pursuant to 72 P.S. Section 8102-A ("PURTA"), additional PURTA assessments pursuant to 72 P.S. Section 8104-A, or any successor tax or fee relating to calendar years ending prior to the Closing. In addition, Sellers shall reimburse Buyer, in accordance with this Section 3.5(c), for its proportionate share of PURTA, additional PURTA assessments or any successor tax or fee levied or assessed, with respect to the Purchased Assets, against Buyer for the calendar year in which the Closing occurs. The proration shall be based upon the number of days within the Closing year that Sellers owned the Purchased Assets. For example, if Closing occurs on December 1, 1999, and Buyer incurs $1,000,000 in PURTA, additional PURTA assessments or any successor tax or fee, then Sellers' proportionate share of such tax or fee shall be calculated by multiplying $1,000,000 by a fraction, the numerator of which is the amount of calendar days in 1999 which Seller owned the Purchased Assets (335), and the denominator of which is the amount of days in 1999 (365). Therefore, Sellers' proportionate share to be reimbursed to Buyer will be $1,000,000 multiplied by 335/365, or $917,808.20. The reimbursement payable by Sellers to Buyer hereunder shall be paid by Sellers within sixty (60) days after Sellers' receipt from Buyer of documentation showing the imposition of PURTA, additional PURTA assessment, or any successor tax or fee on the Purchased Assets in the Closing year. (ii) If Sellers are required to pay PURTA, additional PURTA or any successor tax or fee relating to the Purchased Assets, in the year of sale, Buyer shall reimburse Sellers, using the proration method described above, for the portion of the amount so payable by Sellers that is attributable to the number of days during such year that Buyer owned the Purchased Assets during such year; provided, however, that the amount of the Buyer's required reimbursement shall be reduced by the amount of any real estate, personal property and ad valorem taxes on the Purchased Assets that the Buyer is required to pay for the year of sale. 3.6 Deliveries by Sellers. At the Closing, each of Sellers will deliver, or cause to be delivered, the following to Buyer: (a) The Bill of Sale, duly executed by each of Sellers; (b) Copies of any and all governmental and other third party consents, waivers or approvals obtained by Sellers with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement; 33 (c) The opinions of counsel and officer's certificates contemplated by Section 7.1; (d) One or more special warranty deeds conveying the Real Property to Buyer, in substantially the form of Exhibit G hereto, duly executed and acknowledged by the appropriate Sellers or York Haven in recordable form, and any owner's affidavits or similar documents reasonably required by the title company; (e) All Ancillary Agreements, duly executed by each of Sellers; (f) A FIRPTA Affidavit, duly executed by each of Sellers; (g) Copies, certified by the Secretary or Assistant Secretary of each Seller, of corporate resolutions authorizing the execution and delivery of this Agreement and all of the agreements and instruments to be executed and delivered by Sellers in connection herewith, and the consummation of the transactions contemplated hereby; (h) A certificate of the Secretary or Assistant Secretary of each Seller identifying the name and title and bearing the signatures of the officers of such Seller authorized to execute and deliver this Agreement and the other agreements and instruments contemplated hereby; (i) Certificates of good standing with respect to Sellers, issued by the Secretary of the State of each Sellers' state of incorporation, as applicable; (j) Tax clearance certificates for each jurisdiction identified on Schedule 4.20; (k) To the extent available, originals of all Sellers' Agreements, Real Property Leases and Transferable Permits and, if not available, true and correct copies thereof; (l) The assets of the Decommissioning Funds to be transferred pursuant to Section 6.12(b), shall be delivered to Buyer (or to the trustee of any trust specified by Buyer), and/or, the assets of the Decommissioning Funds to be retained by Sellers pursuant to Section 6.12(c), shall be delivered to the Trustee under the Decommissioning Trust Agreement; (m) All such other instruments of assignment, transfer or conveyance as shall, in the reasonable opinion of Buyer and its counsel, be necessary or desirable to transfer to Buyer the Purchased Assets, in accordance with this Agreement and where necessary or desirable in recordable form; and 34 (n) Such other agreements, documents, instruments and writings as are required to be delivered by Sellers at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. 3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or cause to be delivered, the following to Sellers: (a) The Closing Payment, as adjusted pursuant to Section 3.3; (b) The opinions of counsel and certificates contemplated by Section 7.2; (c) All Ancillary Agreements, duly executed by Buyer; (d) Copies, certified by the Secretary or Assistant Secretary of Buyer, of resolutions authorizing the execution and delivery of this Agreement, and all of the agreements and instruments to be executed and delivered by Buyer in connection herewith, and the consummation of the transactions contemplated hereby; (e) A certificate of the Secretary or Assistant Secretary of Buyer identifying the name and title and bearing the signatures of the officers of Buyer authorized to execute and deliver this Agreement, and the other agreements contemplated hereby; (f) All such other instruments of assumption as shall, in the reasonable opinion of Sellers and their counsel, be necessary for Buyer to assume the Assumed Liabilities and Obligations in accordance with this Agreement; (g) Copies of any and all governmental and other third party consents, waivers or approvals obtained by Buyer with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement; (h) Such other agreements, documents, instruments and writings as are required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS GPU Nuclear, jointly and severally with the other Sellers, and each of the other Sellers, severally as to matters involving 35 such Seller only and in accordance with their respective pro rata ownership interests in the Purchased Assets as to all other representations and warranties, hereby represent and warrant to Buyer as follows (all such representations and warranties, except those regarding Sellers individually, being made to the Knowledge of Sellers): 4.1 Organization; Qualification. Each of JCP&L and GPU Nuclear is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey and has all requisite corporate power and authority to own, lease, and operate its properties and to carry on its business as is now being conducted. Each of Met-Ed and Penelec is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has all requisite corporate power and authority to own, lease, and operate its properties and to carry on its business as is now being conducted. Sellers are duly qualified or licensed to do business as foreign corporations and are in good standing in each jurisdiction in which the property owned, leased or operated by them or the nature of the business conducted by them makes such qualification necessary, except in each case in those jurisdictions where the failure to be so duly qualified or licensed and in good standing would not create a Material Adverse Effect. Sellers have heretofore delivered to Buyer complete and correct copies of their Certificates or Articles of Incorporation and Bylaws as currently in effect. 4.2 Authority Relative to this Agreement. Sellers have full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action required on the part of Sellers and no other corporate proceedings on the part of Sellers are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Sellers, andassuming that this Agreement constitutes a valid and binding agreement of Buyer, subject to the receipt of Sellers' Required Regulatory Approvals, constitutes the legal, valid and binding agreement of Sellers, enforceable against Sellers in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to the enforcement of creditors rights generally or general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 4.3 Consents and Approvals; No Violation. 36 (a) Except as set forth in Schedule 4.3(a), and subject to the receipt of Sellers' Required Regulatory Approvals, neither the execution and delivery of this Agreement by Sellers nor the consummation of the transactions contemplated hereby will (i) conflict with or result in the breach or violation of any provision of the Certificates or Articles of Incorporation or Bylaws of Sellers, (ii) require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, except (x) where the failure to obtain such consent, approval, authorization or permit, or to make such filing or notification, individually or in the aggregate, would not create a Material Adverse Effect or (y) for those requirements which become applicable to Sellers as a result of the specific regulatory status of Buyer (or any of its Affiliates) or as a result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged; (iii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which Sellers are a party or by which Sellers, or any of the Purchased Assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, create a Material Adverse Effect; or (iv) constitute violations of any order, writ, injunction, decree, statute, rule or regulation applicable to Sellers, or any of their assets, which violation, individually or in the aggregate, would create a Material Adverse Effect. (b) Except as set forth in Schedule 4.3(b) (the filings and approvals referred to in Schedule 4.3(b) are collectively referred to as the "Sellers' Required Regulatory Approvals"), no declaration, filing or registration with, or notice to, or authorization, consent or approval of anygovernmental or regulatory body or authority is necessary for the consummation by Sellers of the transactions contemplated hereby, other than (i) such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made, will not, individually or in the aggregate, create a Material Adverse Effect or (ii) such declarations, filings, registrations, notices, authorizations, consents or approvals which become applicable to Sellers as a result of the specific regulatory status of Buyer (or any of its Affiliates) or the result of any other facts that specifically relate to the business or activities in which Buyer (or any of its Affiliates) is or proposes to be engaged. 4.4 Reports. Since January 1, 1994, Sellers have filed or caused to be filed with the SEC, the applicable state or local utility commissions or regulatory bodies, the NRC and the FERC, 37 as the case may be, all material forms, statements, reports and documents (including all exhibits, amendments and supplements thereto) required to be filed by them with respect to the Purchased Assets or the operation thereof under each of the Securities Act, the Exchange Act, the applicable state public utility laws, the Federal Power Act, the Holding Company Act, the Atomic Energy Act, the Energy Reorganization Act, and the Price-Anderson Act and the respective rules and regulations thereunder, all of which complied in all material respects with all applicable requirements of the appropriate act and the rules and regulations thereunder in effect on the date each such report was filed, and there are no material misstatements or omissions in respect of such reports; provided however, that Sellers shall not be deemed to be making any representation or warranty to Buyer hereunder concerning the financial statements of Sellers or any such Affiliate contained in any such reports. 4.5 Undisclosed Liabilities. Except as set forth in Schedule 4.5, the Purchased Assets are not subject to any material liability or obligation (whether absolute, accrued, contingent or otherwise) that has not been accrued or reserved against in Sellers' financial statements as of the end of the most recent fiscal quarter for which such statements are available or disclosed in the notes thereto in accordance with generally accepted accounting principles consistently applied. 4.6 Absence of Certain Changes or Events. Since January 1, 1998, except as set forth in Schedule 4.6, there has not been: (a) any Material Adverse Effect; (b) any damage, destruction or casualty loss, whether or not covered by insurance, which, individually or in the aggregate, created a Material Adverse Effect or (c) any agreement, commitment or transaction entered into by Sellers that is material to the ownership or operation of the Purchased Assets and remains in full force and effect on the date hereof. 4.7 Title and Related Matters. Except for Permitted Encumbrances, each Seller and York Haven has good and marketable title to the Real Property to be conveyed by it hereunder free and clear of all Encumbrances. The Real Property constitutes all of the real property necessary to operate the Facilities as currently operated. Except for Permitted Encumbrances, Sellers have good and marketable title to each of the Purchased Assets not constituting Real Property free and clear of all Encumbrances. The Sellers own the Purchased Assets (other than the Real Property identified on Schedule 4.13(a) as being owned by York Haven) in the respective percentage amounts set forth on Schedule 4.7(c). 4.8 Leases. Schedule 4.8 lists, as of the date of this Agreement, all real property leases, easements, licenses and 38 other rights in real property (collectively, the "Real Property Leases") to which any Seller is a party and which (i) are to be transferred and assigned to Buyer on the Closing Date, (ii) affect all or any part of any Real Property and (iii) (A) provide for annual payments of more than $100,000 or (B) are material to the ownership or operation of the Purchased Assets. Except as set forth in Schedule 4.8, all such Real Property Leases are valid, binding and enforceable in accordance with their terms, and are in full force and effect; there are no existing material defaults by Sellers or any other party thereunder; and no event has occurred which (whether with or without notice, lapse of time or both) would constitute a material default by Sellers or any other party thereunder. 4.9 Insurance. Except as set forth in Schedule 4.9, all material policies of fire, liability, worker's compensation and other forms of insurance owned or held by Sellers and insuring the Purchased Assets are in full force and effect, all premiums with respect thereto covering all periods up to and including the date as of which this representation is being made have been paid (other than retroactive premiums which may be payable with respect to comprehensive general liability and worker's compensation insurance policies), and no notice of cancellation or termination has been received with respect to any such policy which was not replaced on substantially similar terms prior to the date of such cancellation. Except as described in Schedule 4.9, as of the date of this Agreement, Sellers have not been refused any insurance with respect to the Purchased Assets nor has their coverage been limited by any insurance carrier to which they have applied for any such insurance or with which they have carried insurance during the last twelve months. 4.10 Environmental Matters. Except as disclosed in Schedule 4.10 or in the "Phase I" or supplemental environmental site assessments prepared by Buyer's environmental consultants and made available for inspection by Sellers: (a) Sellers hold, and are in compliance with, all permits, certificates, licenses and governmental authorizations under applicable Environmental Laws ("Environmental Permits") required for Sellers to own and operate the Purchased Assets, and Sellers are otherwise in compliance with applicable Environmental Laws with respect to their ownership and operation of the Purchased Assets except for such failures to hold or comply with required Environmental Permits, or such failures to be in compliance with applicable Environmental Laws, which, individually or in the aggregate, would not create a Material Adverse Effect; (b) None of Sellers have received any written request for information, or been notified that they are a potentially 39 responsible party, under CERCLA or any similar state law with respect to the Site, except for such liability under such laws as would not create, individually or in the aggregate, a Material Adverse Effect; and (c) None of Sellers have entered into or agreed to any consent decree or order with respect to or affecting the Purchased Assets are subject to any outstanding judgment, decree, or judicial order relating to compliance with any Environmental Law or to investigation or cleanup of Hazardous Substances under any Environmental Law, except for such consent decree or order, judgment, decree or judicial order that would not create, individually or in the aggregate, a Material Adverse Effect. (d) There are no underground storage tanks on the Real Property. 4.11 Labor Matters. Sellers have previously delivered to Buyer true, correct and complete copies of all collective bargaining agreements to which Sellers are a party or are subject and which relate to the Purchased Assets. With respect to the ownership or operation of the Purchased Assets, except to the extent set forth in Schedule 4.11 (which matters shall remain the sole responsibility of Sellers): (a) Sellers are in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours; (b) none of Sellers have received notice of any unfair labor practice complaint pending before the National Labor Relations Board; (c) there is no labor strike, slowdown or stoppage actually pending or threatened by any authorized representative of any union or other representative of employees against or affecting Sellers; (d) none of Sellers have received notice that any representation petition respecting the employees of Sellers has been filed with the National Labor Relations Board; (e) no arbitration proceeding arising out of or under collective bargaining agreements is pending against Sellers; and (f) Sellers have not experienced any primary work stoppage since at least December 31, 1994. 4.12 ERISA; Benefit Plans. (a) Schedule 4.12(a) lists all deferred compensation, profit-sharing, retirement and pension plans, including multi-employer plans (of which none exist), and all material bonus and other employee benefit or fringe benefit plans, including multi-employer plans (of which none exist), maintained or with respect to which contributions are made by Sellers in respect to current or former employees employed at the Purchased Assets ("Benefit Plans"). True, correct, and complete copies of all such Benefit Plans have been made available to Buyer. 40 (b) Except as set forth in Schedule 4.12(b), Sellers and the ERISA Affiliates have fulfilled their respective obligations under the minimum funding requirements of Section 302 of ERISA and Section 412 of the Code with respect to each Benefit Plan which is an "employee pension benefit plan" as defined in Section 3(2) of ERISA and to which Section 302 of ERISA applies, and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and the Code. Except as set forth in Schedule 4.12(b), neither Sellers nor any ERISA Affiliate has incurred any liability under Sections 4062(b), 4063 or 4064 of ERISA to the Pension Benefit Guaranty Corporation in connection with any Benefit Plan which is subject to Title IV of ERISA, nor any withdrawal liability to any multi-employer pension plan under Section 4201 et. seq. of ERISA or to any multi-employer welfare benefit plan, nor is there or has there been any reportable event (as defined in Section 4043 of ERISA) with respect to any Benefit Plan except as set forth in Schedule 4.12(b). Except as set forth in Schedule 4.12(b), the IRS has issued a letter for each Benefit Plan which is intended to be qualified determining that such plan is exempt from United States Federal Income Tax under Sections 401(a) and 501(a) of the Code, and there has been no occurrence since the date of any such determination letter (including but not limited to statutory or regulatory changes to the requirements of Section 401(a) of the Code for which the remedial amendment period has expired) which has or could have adversely affected such qualification. (c) None of Sellers nor any ERISA Affiliate or parent or successor corporation, within the meaning of Section 4069(b) of ERISA, has engaged in any transaction which may be disregarded under Section 4069 or Section 4212(c) of ERISA. No Benefit Plan ERISA Affiliate Plan is a multi-employer plan. (d) Each of Sellers that maintains a "group health plan" within the meaning of Section 5000(b)(1) of the Code or Sections 607(1) and 733(a) of ERISA and related regulations, has materially complied with all reporting, disclosure, notice, election, coverage and other benefit requirements of Sections 4980B and 9801-9833 of the Code and Sections 601-734 of ERISA as and when applicable to such plans. 4.13 Real Property; Plant and Equipment. (a) Schedule 4.13(a) contains a description of, and exhibits indicating the location of, the real property owned by Sellers or York Haven and included in the Purchased Assets (the "Real Property"). For purposes of this Agreement, all of the Real Property titled in the name of York Haven shall be deemed to be owned by Sellers, and Sellers shall cause York Haven to convey such Real Property to Buyer at the Closing, free and clear of all 41 Encumbrances other than Permitted Encumbrances, as if such Real Property were owned directly by Sellers. All Encumbrances on the Real Property (other than Permitted Encumbrances) shall be released on or before the Closing Date. Complete and correct copies of any current surveys in Sellers' possession or any policies of title insurance currently in force and in the possession of Sellers with respect to the Real Property have heretofore been delivered by Sellers to Buyer. (b) Schedule 4.13(b) contains a description of the major equipment components and personal property comprising the Purchased Assets as of the date hereof. (c) Except for the exceptions listed in Schedule 4.13(c), the Purchased Assets conform in all material respects to the Technical Specifications and the Final Safety Analysis Report (FSAR) and are being operated and are in material conformance with all applicable requirements under the Atomic Energy Act, the Energy Reorganization Act, and the rules, regulations, orders, and licenses issued thereunder. 4.14 Condemnation. Except as set forth in Schedule 4.14, neither the whole nor any part of the Real Property or any other real property or rights leased, used or occupied by Sellers in connection with the ownership or operation of the Purchased Assets is subject to any pending suit for condemnation or other taking by any Governmental Authority, and no such condemnation or other taking has been threatened. 4.15 Certain Contracts and Arrangements. (a) Except (i) as listed in Schedule 4.15(a) or the other schedules to this Agreement ("Sellers' Agreements") or (ii) for contracts, agreements, personal property leases, commitments, understandings or instruments in which all obligations of Sellers will expire prior to the Closing Date, Sellers are not a party to any written contract, agreement, personal property lease, commitment, understanding or instrument which is material to the ownership or operation of the Purchased Assets. (b) Except as disclosed in Schedule 4.15(b), each of Sellers' Agreements (i) constitutes the legal, valid and binding obligation of one or more of Sellers, and constitutes the legal, valid and binding obligation of the other parties thereto, (ii) is in full force and effect, and (iii) may be transferred or assigned to Buyer at the Closing without consent or approval of the other parties thereto, and will continue in full force and effect thereafter, in each case without breaching the terms thereof or resulting in the forfeiture or impairment of any material rights thereunder. 42 (c) Except as set forth in Schedule 4.15(c), there is not, under any of Sellers' Agreements, any default or event which, with notice or lapse of time or both, would constitute a default on the part of any of the parties thereto, except such events of default and other events as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, create a Material Adverse Effect. 4.16 Legal Proceedings, etc. Except as set forth in Schedule 4.16 or in any filing made by Sellers or any of their Affiliates pursuant to the Securities Act, the Exchange Act or the Atomic Energy Act, there are no claims, actions, proceedings or investigations pending or threatened against or relating to Sellers before any court, governmental or regulatory authority or body which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Except as set forth in Schedule 4.16 or in any filing made by Sellers or any of their Affiliates pursuant to the Securities Act, the Exchange Act or the Atomic Energy Act, Sellers are not subject to any outstanding judgment, rule, order, writ, injunction or decree of any court, governmental or regulatory authority which, individually or in the aggregate, could have a Material Adverse Effect. 4.17 Permits (a) Sellers have all permits, licenses, franchises and other governmental authorizations, consents and approvals, other than with respect to permits under Environmental Laws referred to in Section 4.10 hereof or permits issued by the NRC referred to in Section 4.18 hereof (collectively, "Permits"), used in or necessary for the ownership and operation of the Purchased Assets as presently conducted. Except as set forth in Schedule 4.17(a), Sellers have not received any written notification that they are in violation of any of such Permits, or any law, statute, order, rule, regulation, ordinance or judgment of any governmental or regulatory body or authority applicable to it, except for notifications of violations which would not, individually or in the aggregate, have a Material Adverse Effect. Sellers are in compliance with all Permits, laws, statutes, orders, rules, regulations, ordinances, or judgments of any governmental or regulatory body or authority applicable to the Purchased Assets, except for violations which, individually or in the aggregate, could not have a Material Adverse Effect. (b) Schedule 4.17(b) sets forth all material Permits and Environmental Permits other than Transferable Permits (which are set forth on Schedule 1.1(149) applicable to the Purchased Assets. 4.18 NRC Licenses. 43 (a) Sellers have all permits, licenses, and other consents and approvals issued by the NRC necessary to own and operate the Purchased Assets as presently operated, pursuant to the requirements of the Atomic Energy Act and the Energy Reorganization Act. Except as set forth in Schedule 4.18(a), Sellers have not received any written notification that they are in violation of any of such license, or any order, rule, regulation, or decision of the NRC with respect to the Purchased Assets, except for notifications of violations which would not, individually or in the aggregate, have a Material Adverse Effect. Sellers are in compliance with the Atomic Energy Act, the Energy Reorganization Act, and all orders, rules, regulations, or decisions of NRC applicable to them with respect to the Purchased Assets, except for violations which, individually or in the aggregate, could not have a Material Adverse Effect. (b) Schedule 4.18(b) sets forth all material permits, licenses, and other consents and approvals issued by the NRC applicable to the Purchased Assets. 4.19 Regulation as a Utility. Each of JCP&L, Met-Ed and Penelec is an electric utility company within the meaning of the Holding Company Act, a public utility within the meaning of the Federal Power Act and an electric utility within the meaning of the NRC regulations implementing the Atomic Energy Act. Except as set forth on Schedule 4.19 or with respect to local tax and zoning laws, Sellers are not subject to regulation as a public utility or public service company (or similar designation) by the United States, any state of the United States, any foreign country or any municipality or any political subdivision of the foregoing. 4.20 Taxes. With respect to the Purchased Assets (i) all Tax Returns required to be filed have been filed, and (ii) all material Taxes shown to be due on such Tax Returns have been paid in full. Except as set forth in Schedule 4.20, no notice of deficiency or assessment has been received from any taxing authority with respect to liabilities for Taxes of Sellers in respect of the Purchased Assets, which have not been fully paid or finally settled, and any such deficiency shown in such Schedule 4.20 is being contested in good faith through appropriate proceedings. Except as set forth in Schedule 4.20, there are no outstanding agreements or waivers extending the applicable statutory periods of limitation for Taxes associated with the Purchased Assets for any period. Schedule 4.20 sets forth the taxing jurisdictions in which Sellers own assets or conduct business that require a notification to a taxing authority of the transactions contemplated by this Agreement, if the failure to make such notification, or obtain Tax clearances in connection therewith, would either require Buyer to withhold 44 any portion of the Purchase Price or would subject Buyer to any liability for any Taxes of Sellers. 4.21 Year 2000 Qualification. Subject to the timely completion of the work program contained in Schedule 7.1(s), all of the hardware, software and firmware products (including embedded microcontrollors in non-computer equipment) which are included in the Purchased Assets are Year 2000 Qualified based on implementation of a program similar to that outlined in Nuclear Utility Year 2000 Readiness, NEI/NUSMG 97-07. For purposes of this Agreement, "Year 2000 Qualified" shall mean that all constituent software, controllers, central processing units, and other computer equipment, including all components, applications and modules thereof, are either "Year 2000 Compliant" or "Year 2000 Ready" as defined in NEI/NUSMG 97-07 and as restated below. Notwithstanding the following definitions, an item required to be Year 2000 Qualified that does not satisfy the definition of Year 2000 Compliant shall only be considered Year 2000 Ready (and consequently Year 2000 Qualified) if (i) the item maintains its function as it crosses any key date even if there may be date errors or some form of compensatory action required to maintain valid functional operation; (ii) a deficiency can be addressed by pre-defined manual action; and (iii) the integration of all manual actions required are confirmed to be reasonably within the capability of the facility resources and can be accomplished without any material risk of loss, damage or destruction to facility equipment or the operation of the Facilities. As used herein (and as defined in NEI/NUSMG 97-07) (i) the term "Year 2000 Compliant" means computer systems or applications that accurately process date/time data (including but not limited to calculating, comparing, and sequencing) from, into, and between the twentieth and twenty-first centuries, the years 1999 and 2000, and leap-year calculations; and (ii) the term "Year 2000 Ready" means a computer system or application that has been determined to be suitable for continued use into the year 2000 even though the computer system or application is not fully Year 2000 Compliant. 4.22 Qualified Decommissioning Funds. (a) Each of Sellers' Qualified Decommissioning Funds is a trust, validly existing and in good standing under the laws of the State of New York with all requisite authority to conduct its affairs as it now does. Sellers have heretofore delivered to Buyer a copy of the Decommissioning Indenture as in effect on the date of this Agreement. Sellers agree to furnish Buyer with copies of all amendments of the Decommissioning Indenture adopted after the date of this Agreement promptly after each such amendment has been adopted. Each of Sellers' Qualified Decommissioning Funds satisfies the requirements necessary for 45 such Fund to be treated as a "Nuclear Decommissioning Reserve Fund" within the meaning of Code section 468A(a) and as a "nuclear decommissioning fund" and a "qualified nuclear decommissioning fund" within the meaning of Treas. Reg. Section 1.468A-1(b)(3). Each such Fund is in compliance in all material respects with all applicable rules and regulations of the NRC, the PaPUC, the NJBPU and the IRS. None of Sellers' Qualified Decommissioning Funds has engaged in any acts of "self-dealing" as defined in Treas. Reg. Section 1.468A-5(b)(2). No "excess contribution," as defined in Treas. Reg. Section 1.468A-5(c)(2)(ii), has been made to Sellers' Qualified Decommissioning Funds which has not been withdrawn within the period provided under Treas. Reg. Section 1.468A-5(c)(2)(i) for withdrawals of excess contributions to be made without resulting in a disqualification of the Funds under Treas. Reg Section 1.468A-5(c)(1). Sellers have made timely and valid elections to make annual contributions to the Qualified Decommissioning Funds since 1984. Sellers have heretofore delivered copies of such elections to Buyer. (b) Subject only to Sellers' Required Regulatory Approvals, Sellers have all requisite authority to cause the assets of the Qualified Decommissioning Funds to be transferred to Buyer in accordance with the provisions of this Agreement. (c) Sellers and/or the Trustee of each of the Qualified Decommissioning Funds have filed or caused to be filed with the NRC, the IRS and any state or local authority all material forms, statements, reports, documents (including all exhibits, amendments and supplements thereto) required to be filed by either of them. Sellers have delivered to Buyer a copy of the schedule of ruling amounts most recently issued by the IRS for each of the Qualified Decommissioning Funds, a copy of the request that was filed to obtain such schedule of ruling amounts and a copy of any pending requests for revised ruling amounts, in each case together with all exhibits, amendments and supplements thereto. As of the Closing, Sellers will have timely filed all requests for revised schedules of ruling amounts for the Qualified Decommissioning Funds in accordance with Treas. Reg. Section 1.468A-3(i). Sellers shall furnish Buyer with copies of such requests for revised schedules of ruling amounts, together with all exhibits, amendments and supplementals thereto, promptly after they have been filed with the IRS. Any amounts contributed to the Qualified Decommissioning Funds while such requests are pending before the IRS and which turn out to be in excess of the applicable amounts provided in the schedule of ruling amounts issued by the IRS will be withdrawn from the Qualified Decommissioning Funds within the period provided under Treas. Reg. Section 1.468A-5(c)(2)(i) for withdrawals of excess contributions to be made without resulting in a disqualification 46 of the Funds under Treas. Reg. Section 1.468A-5(c)(1). There are no interim rate orders that may be retroactively adjusted or retroactive adjustments to interim rate orders that may affect amounts that Buyer may contribute to the Qualified Decommissioning Funds or may require distributions to be made from the Qualified Decommissioning Funds. (d) Sellers have made available to Buyer the balance sheets for each of the Qualified Decommissioning Funds as of December 31, 1997 and as of the last Business Day before Closing, and they present fairly as of December 31, 1997 and as of the last Business Day before Closing, the financial position of each of the Qualified Decommissioning Funds in conformity with generally accepted accounting principles applied on a consistent basis, except as otherwise noted therein. Sellers have made available to Buyer information from which Buyer can determine the Tax Basis of all assets in the Qualified Decommissioning Funds as of the last Business Day before Closing. There are no liabilities (whether absolute, accrued, contingent or otherwise and whether due or to become due), including, but not limited to, any acts of "self-dealing" as defined in Treas. Reg. Section 1.468A-5(b)(2) or agency or other legal proceedings that may materially affect the financial position of each of the Qualified Decommissioning Funds other than those, if any, that are disclosed on Schedule 4.22. (e) Sellers have made available to Buyer all contracts and agreements to which the Trustee of each of the Qualified Decommissioning Funds, in its capacity as such, is a party. (f) Each of the Qualified Decommissioning Funds has filed all Tax Returns required to be filed and all material Taxes shown to be due on such Tax Returns have been paid in full. Except as shown in Schedule 4.22, no notice of deficiency or assessment has been received from any taxing authority with respect to liability for Taxes of each of the Qualified Decommissioning Funds which have not been fully paid or finally settled, and any such deficiency shown in such Schedule 4.22 is being contested in good faith through appropriate proceedings. Except as set forth in Schedule 4.22, there are no outstanding agreements or waivers extending the applicable statutory periods of limitations for Taxes associated with each of the Qualified Decommissioning Funds for any period. (g) To the extent Sellers have pooled the assets of the Qualified Decommissioning Funds for investment purposes in periods prior to Closing, such pooling arrangement is a partnership for federal income tax purposes and Sellers have filed all Tax Returns required to be filed with respect to such pooling arrangement for such periods. 47 (h) In the event Sellers retain any of the assets of the Qualified Decommissioning Funds after the Closing Date pursuant to the provisions of Section 6.12(c) hereof, the representations and warranties set forth in paragraphs (a) through (g) of this Section 4.22 shall survive the Closing Date and shall remain continuing obligations of Sellers and Sellers shall comply with all the conditions therein until the assets of the Qualified Decommissioning Funds are transferred to Buyer pursuant to Section 6.12(d)(iv) or expended in full for Decommissioning the Facilities. Notwithstanding the foregoing, in the case of any Decommissioning Funds, the assets of which are retained by Sellers after the Closing pursuant to Section 6.12(c), Sellers shall be liable for a breach of or a failure to comply with any of the representations, warranties or conditions set forth in paragraphs (a) through (g) of this Section 4.22 that occurs after the Closing only if such failure results from either (i) any action taken by Sellers without the written consent of Buyer, or (ii) failure by Sellers to take any action they are directed in writing by Buyer to take. 4.23 Nonqualified Decommissioning Funds. (a) Each of Sellers' Nonqualified Decommissioning Funds is a trust validly existing and in good standing under the laws of the State of New York with all requisite authority to conduct its affairs as it now does. Each of Sellers' Nonqualified Decommissioning Funds is in full compliance with all applicable rules and regulations of the NRC, the PaPUC and the NJBPU. (b) Subject only to Sellers' Required Regulatory Approvals, Sellers have all requisite authority to cause the assets of the Nonqualified Decommissioning Funds to be transferred to Buyer in accordance with the provisions of this Agreement. (c) Sellers and/or the Trustee of the Nonqualified Decommissioning Funds have filed or caused to be filed with the NRC and any state or local authority all material forms, statements, reports, documents (including all exhibits, amendments and supplements thereto) required to be filed by either of them. (d) Sellers have made available to Buyer the balance sheets for the Nonqualified Decommissioning Funds as of December 31, 1997 and as of the last Business Day before Closing, and they present fairly as of December 31, 1997 and as of the last Business Day before Closing, the financial position of the Nonqualified Decommissioning Funds in conformity with generally accepted accounting principles applied on a consistent basis, 48 except as otherwise noted therein. Sellers have made available to Buyer information from which Buyer can determine the Tax Basis as of the last Business Day before Closing of all assets (other than cash) of the Nonqualified Decommissioning Funds transferred to Buyer pursuant to Section 6.12(b). There are no liabilities (whether absolute, accrued, contingent or otherwise and whether due or to become due) including, but not limited to, agency or other legal proceedings, that may materially affect the financial position of the Nonqualified Decommissioning Funds other than those, if any, that are disclosed on Schedule 4.23. (e) Sellers have made available to Buyer all contracts and agreements to which the Trustee of the Nonqualified Decommissioning Funds, in its capacity as such, is a party. (f) In the event Sellers retain any of the assets of the Nonqualified Decommissioning Funds after the Closing Date pursuant to the provisions of Section 6.12(c) hereof, the representations and warranties set forth in paragraphs (a) through (e) of this Section 4.23 shall survive the Closing Date and shall remain continuing obligations of Sellers and Sellers shall comply with all the conditions therein until the assets of the Nonqualified Decommissioning Funds are transferred to Buyer pursuant to Section 6.12(d)(iv) or expended in full for Decommissioning the Facilities. Notwithstanding the foregoing, in the case of any Decommissioning Funds, the assets of which are retained by Sellers after the Closing pursuant to Section 6.12(c), Sellers shall be liable for a breach of or a failure to comply with any of the representations, warranties or conditions set forth in paragraphs (a) through (g) of this Section 4.22 that occurs after the Closing only if such failure results from either (i) any action taken by Sellers without the written consent of Buyer, or (ii) failure by Sellers to take any action they are directed in writing by Buyer to take. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE IV, THE PURCHASED ASSETS ARE BEING SOLD AND TRANSFERRED "AS IS, WHERE IS," AND SELLERS ARE NOT MAKING ANY OTHER REPRESENTATIONS OR WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, CONCERNING SUCH PURCHASED ASSETS, INCLUDING, IN PARTICULAR, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Sellers as follows (all such representations and warranties, except those regarding Buyer, being made to the Knowledge of Buyer): 49 5.1 Organization. Buyer is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as is now being conducted. Buyer has heretofore delivered to Sellers complete and correct copies of its Certificate of Formation and Operating Agreement (or other similar governing documents), as currently in effect. 5.2 Authority Relative to this Agreement. Buyer has full organizational power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action required on the part of Buyer and no other corporate proceedings on the part of Buyer are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Buyer, and assuming that this Agreement constitutes a valid and binding agreement of Sellers, subject to the receipt of Buyer Required Regulatory Approvals, constitutes a valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms, except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to enforcement of creditors' rights generally or general principles of equity. 5.3 Consents and Approvals; No Violation. (a) Except as set forth in Schedule 5.3(a), and other than obtaining Buyer Required Regulatory Approvals, neither the execution and delivery of this Agreement by Buyer nor the purchase by Buyer of the Purchased Assets pursuant to this Agreement will (i) conflict with or result in any breach of any provision of the Certificate of Formation or Operating Agreement (or other similar governing documents) of Buyer, (ii) require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, (iii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, agreement, lease or other instrument or obligation to which Buyer is a party or by which any of its assets may be bound, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, have a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Buyer ("Buyer Material Adverse 50 Effect") or (iv) violate any law, regulation, order, judgment or decree applicable to Buyer, which violations, individually or in the aggregate, would create a Buyer Material Adverse Effect. (b) Except as set forth in Schedule 5.3(b) (the filings and approvals referred to such Schedule are collectively referred to as the "Buyer's Required Regulatory Approvals"), no declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for the consummation by Buyer of the transactions contemplated hereby. 5.4 Regulation as a Utility. As of the date hereof, Buyer is not subject to regulation as a public utility or public service company by the United States, any State of the United States, any foreign country or any municipality or any political subdivision of the foregoing; however, upon the receipt of certain of the Buyer's Required Regulatory Approvals and the Closing, Buyer is expected to be a public utility company within the meaning of the Federal Power Act and may be an electric utility within the meaning of NRC regulations implementing the Atomic Energy Act. In addition, as a result of certain such filings and the Closing, Buyer may be a public utility under the Pennsylvania Public Utility Code, but Buyer expects that any regulation of Buyer under the Pennsylvania Public Utility Code as a public utility would be preempted by federal law. Except as set forth in this Section 5.4, on Schedule 5.4, or with respect to local tax and zoning laws, Buyer is not subject to regulation as a public utility or public service company by the United States, any State of the United States, any foreign country or any municipality or any political subdivision of the foregoing. 5.5 Availability of Funds. Buyer has sufficient funds available to it or has received binding written commitments from third parties (copies of which have been provided to Sellers) to provide sufficient funds on the Closing Date to pay the Purchase Price and to enable Buyer timely to perform all of its obligations under this Agreement and Ancillary Agreements. 5.6 Legal Proceedings. There are no actions, suits or proceedings pending against Buyer or its members before any court, arbitrator or governmental or regulatory body or authority which, individually or in the aggregate, could have a Buyer Material Adverse Effect. Neither Buyer nor its members is subject to any outstanding judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator or governmental or regulatory body or authority which, individually or in the aggregate, have a Buyer Material Adverse Effect. 5.7 WARN Act. Buyer does not intend to engage in a "plant closing" or "mass layoff", as such terms are defined in the WARN Act within 60 days of the Closing Date. 51 ARTICLE VI COVENANTS OF THE PARTIES 6.1 Conduct of Business Relating to the Purchased Assets (a) Except as described in Schedule 6.1 or the extent Buyer otherwise consents in writing, during the period from the date of this Agreement to the Closing Date, Sellers (i) shall operate the Purchased Assets in the ordinary course consistent with Good Utility Practices; (ii) shall use Commercially Reasonable Efforts to preserve intact the Purchased Assets and preserve the goodwill and relationships with customers, employees, suppliers and others having business dealings with them with respect thereto; (iii) shall maintain the insurance coverage described in Section 4.9; (iv) shall comply with all applicable laws, rules and regulations relating to the Purchased Assets, including without limitation, all nuclear regulatory and Environmental Laws; and (v) shall continue to implement in accordance with Good Utility Practice Sellers' Year 2000 Qualification program as set forth on Schedule 7.1(s). Without limiting the generality of the foregoing, and, except as contemplated in this Agreement or as described in Schedule 6.1, or as required under applicable law or by any Governmental Authority, prior to the Closing Date, without the prior written consent of Buyer, Sellers will not with respect to the Purchased Assets: (i) make any material change in the levels of fuel inventory customarily maintained by Sellers with respect to the Purchased Assets; (ii) except for Permitted Encumbrances, sell, lease (as lessor), pledge, encumber, restrict, transfer or otherwise dispose of, or grant any right with respect to, any of the Purchased Assets, other than assets used, consumed or replaced in the ordinary course of business consistent with Good Utility Practices; (iii) modify, amend or voluntarily terminate prior to the expiration date thereof any of Sellers' Agreements, and leases listed in Schedule 4.8 (or any other lease to the extent any such extension or amendment thereof would require the lease to be disclosed on Schedule 4.8) or any material Permit or Environmental Permits or waive any default by, or release, settle or compromise any claim against, any other party thereto, other than (a) in the ordinary course of business, to the extent consistent with Good Utility Practices, (b) with cause, to the extent consistent with Good Utility Practices or (c) as may be required in connection with Sellers' obligations to Buyer under this Agreement; 52 (iv) enter into any commitment for the purchase or sale of nuclear fuel having a term that extends beyond December 31, 1999 or such other date that the Parties mutually agree to be the date on which the Closing is expected to occur; (v) enter into any power sales agreement having a term that extends beyond December 31, 1999 or such other date that the Parties mutually agree to be the date on which the Closing is expected to occur; (vi) amend in any material respect or cancel any liability or casualty insurance policies related thereto, or fail to maintain by self insurance or with financially responsible insurance companies insurance in such amounts and against such risks and losses as are customary for such assets and businesses; (vii) enter into any commitment or contract for goods or services not addressed in clauses (i) through (vii) above that will be delivered or provided after December 31, 1999 or such other date that the parties mutually agree to be the date on which the Closing is expected to occur that exceeds $100,000 in the aggregate, unless such commitment or contract is terminable by Sellers (or after the Closing Date by Buyer) without further liability, upon not more than 60 days notice; (viii) except as required by the terms of the IBEW Collective Bargaining Agreement or regulatory requirements (a) hire any new employees, or transfer any existing employees, other than to fill vacancies in existing positions, (b) other than consistent with past practice, increase salaries or wages of employees employed in connection with the Purchased Assets prior to Closing, (c) take any action prior to Closing to effect a material change in the IBEW Collective Bargaining Agreement or enter into any other collective bargaining or representation agreement for employees, or (d) take any action prior to the Closing to increase materially the aggregate benefits payable to employees; (ix) enter into any written or oral contract, agreement, commitment or arrangement with respect to any of the transactions set forth in the foregoing paragraphs (i) through (ix). (b) A committee comprised of one or more senior representatives designated by Sellers and one or more senior representatives designated by Buyer (the "Transition Committee") will be established as soon as practicable after the execution of this Agreement to permit Buyer to observe the operation of the Purchased Assets and to facilitate the transfer of the Purchased 53 Assets to Buyer at the Closing. The Transition Committee will be kept fully apprised by GPU Nuclear of all TMI-1 management and operating developments. The Transition Committee shall arrange for Buyer to assess TMI-1's management and employees and shall have access to the management and board of directors of GPU Nuclear. The Transition Committee shall be accountable directly to the respective chief executive officers of Buyer and GPU Nuclear and shall from time to time report its findings to the senior management of each of Sellers and Buyer. (c) Between the date of this Agreement and the Closing Date, in the interest of cooperation between Sellers and Buyer and to permit informed action by Buyer regarding its rights pursuant to Section 6.1(a), the parties agree that at the sole responsibility and expense of Buyer, and subject to compliance with all applicable NRC rules and regulations, Sellers will permit designated employees ("Observers") of Buyer to observe all operations of Sellers that relate to the Purchased Assets, and such observation will be permitted on a cooperative basis in the presence of personnel of Sellers but not restricted to the normal business hours of Sellers; provided, however, that such observers and their actions shall not interfere with the operation of TMI-1. Buyer's Observers may recommend or suggest actions be taken or not be taken by Sellers; provided, however, that Sellers will be under no obligation to follow any such recommendations or suggestions and Sellers shall be entitled, subject to this Agreement, to conduct their business in accordance with their own judgment and discretion. Buyer's Observers shall have no authority to bind or make agreements on behalf of Sellers; to conduct discussions with or make representations to third parties on behalf of Sellers; or to issue instructions to or direct or exercise authority over Sellers or any of Sellers' officers, employees, advisors or agents. (d) Sellers shall advise Buyer regarding implementation or changes in PJM rules or procedures which are reasonably likely to have a Material Adverse Effect on TMI-1. Sellers agree that they will not take or cause to be taken any action to reduce the current installed capacity credit PJM has assigned to TMI-1 under PJM rules, regulations or policies in effect on the date hereof; provided, however, that the foregoing shall in no way restrict or prohibit Sellers from taking or causing to take any such action which generally affects Sellers' generating facilities. (e) This Agreement contemplates that the Closing shall occur after TMI-1 has successfully completed the Refueling Outage and has returned to full licensed capacity operation. Sellers shall conduct the Refueling Outage in accordance with Good Utility Practice and all applicable NRC requirements, including 54 the work identified on Schedule 7.1(o) hereof. The Parties recognize, however, that it may be possible to satisfy all of the conditions precedent to Closing prior to the commencement of the Refueling Outage. In such event, the Parties desire to proceed with the Closing prior to the Refueling Outage; provided, however, that the Parties in their discretion are able to agree on acceptable terms and conditions for the allocation of liabilities and obligations associated with the Refueling Outage. Accordingly, as promptly as practicable after the date of this Agreement, the Parties shall negotiate in good faith the terms and conditions under which the Closing Date could be advanced to a date prior to the Refueling Outage. The topics to be negotiated include, among other things, the following: (i) The work schedule contemplated for the Refueling Outage, including the number of scheduled days that TMI-1 would be out of service; (ii) The capital, operating and maintenance budgets for the Refueling Outage; (iii) Criteria to distinguish between delays in the work schedule attributable to various factors (e.g., performance delays, equipment delays, etc.) and the assignment of financial responsibility to Buyer or Sellers for such delays; (iv) A mechanism to adjust the Fuel Payments to reflect the purchase of the Purchased Assets prior to the Refueling Outage; (v) An amendment to the PPA to increase the amount of time during which the PPA would be in effect during calendar year 1999 at the price set forth therein for the year 2000; (vi) The representation of both Parties on a joint committee to monitor the conduct of the Refueling Outage; and (vii) A provision for expedited, non-judicial resolution of disputes related to the Refueling Outage. Nothing herein shall require any of the Parties to consummate the transaction contemplated by this Agreement prior to the Refueling Outage. 6.2 Access to Information. (a) In addition to the rights granted by Sections 6.1 (b), (c) and (d), between the date of this Agreement and the Closing Date, Sellers will, during ordinary business hours and 55 upon reasonable notice and subject to compliance with all applicable NRC rules and regulations (i) give Buyer and Buyer Representatives reasonable access to all books, records, plants, offices and other facilities and properties constituting the Purchased Assets; (ii) permit Buyer to make such reasonable inspections thereof as Buyer may reasonably request; (iii) furnish Buyer with such financial and operating data and other information with respect to the Purchased Assets as Buyer may from time to time reasonably request; (iv) furnish Buyer a copy of each material report, schedule or other document filed or received by them with respect to the Purchased Assets with the SEC, NRC, FERC, PaPUC, NYPSC, the NJBPU or any other Governmental Authority having jurisdiction over the Purchased Assets; provided, however, that (A) any such investigation shall be conducted in such a manner as not to interfere unreasonably with the operation of the Purchased Assets, (B) Sellers shall not be required to take any action which would constitute a waiver of the attorney-client privilege and (C) Sellers need not supply Buyer with any information that Sellers are legally prohibited to supply. Sellers will provide Buyer with access to the Transferring Employee Records, but Sellers shall not be required to provide access to other employee records or medical information unless required by law or specifically authorized by the affected employee. (b) Buyer and Sellers acknowledge that all information furnished to or obtained by Buyer or Buyer Representatives pursuant to this Section 6.2 shall be subject to the provisions of the Confidentiality Agreement and shall be treated as "Proprietary Information" (as defined in the Confidentiality Agreement). (c) For a period of seven (7) years after the Closing Date, each Party and their respective Representatives shall have reasonable access to all of the books and records of the Purchased Assets, including all Transferring Employee Records or other personnel and medical records required by law, legal process or subpoena, in the possession of the other Party or Parties to the extent that such access may reasonably be required by such Party in connection with the Assumed Liabilities and Obligations or the Excluded Liabilities, or other matters relating to or affected by the operation of the Purchased Assets. Such access shall be afforded by the Party or Parties in possession of such books and records upon receipt of reasonable advance notice and during normal business hours. The Party or Parties exercising this right of access shall be solely responsible for any costs or expenses incurred by it or them pursuant to this Section 6.2(c). If the Party or Parties in possession of such books and records shall desire to dispose of any such books and records upon or prior to the expiration of 56 such seven-year period, such Party or Parties shall, prior to such disposition, give the other Party or Parties a reasonable opportunity at such other Party's or Parties' expense, to segregate and remove such books and records as such other Party or Parties may select. (d) Sellers agree (i) not to release any Person (other than Buyer) from any confidentiality agreement now existing with respect to the Purchased Assets, or waive or amend any provision thereof, and (ii) to assign any rights arising under any such confidentiality agreement (to the extent assignable) to Buyer. (e) Notwithstanding the terms of the Confidentiality Agreement and Section 6.2(b) above, the Parties agree that prior to the Closing Buyer may reveal or disclose Proprietary Information to any other Persons in connection with Buyer's financing and risk management of the Purchased Assets, and, to the extent that Sellers consent, which consent shall not be unreasonably withheld, to existing and potential customers and suppliers, and to such Persons with whom Buyer expects it may have business dealings regarding the Purchased Assets from and after the Closing Date; provided, however, that all such Persons agree in writing to maintain the confidentiality of the Proprietary Information on substantially the same terms and conditions as the Confidentiality Agreement. (f) Except as may be permitted in the Confidentiality Agreement or during the course of Buyer's due diligence investigation of the Purchased Assets prior to the date hereof, Buyer agrees that, prior to the Closing Date, it will not contact any vendors, suppliers, employees, or other contracting parties of Sellers or their Affiliates with respect to any aspect of the Purchased Assets or the transactions contemplated hereby, without the prior written consent of Sellers, which consent shall not be unreasonably withheld. (g) Upon the other Party's prior written approval (which approval shall not be unreasonably withheld or delayed) either Party may provide Proprietary Information of the other Party to the SEC, NRC, FERC, PaPUC, NYPSC, the NJBPU or any other Governmental Authority having jurisdiction over the Purchased Assets or any stock exchange, as may be necessary to obtain Sellers' Required Regulatory Approvals or Buyer's Required Regulatory Approvals, respectively, or to comply generally with any relevant law, rule or regulation. The disclosing Party shall seek confidential treatment for the Proprietary Information provided to any such Governmental Authority and the disclosing Party shall notify the other Party as far in advance as practical of its intention to release to any Governmental Authority any such Proprietary Information. 57 (h) Except as required by law, unless otherwise agreed to in writing by Buyer, Sellers shall keep (i) all Proprietary Information confidential and not disclose or reveal any Proprietary Information to any Person other than Representatives of Sellers who are actively and directly participating in the transactions contemplated hereby or who otherwise need to know the Proprietary Information for such purpose and to cause those Persons to observe the terms of this Section 6.2(g) and (ii) not to use Proprietary Information for any purpose other than consistent with the terms of this Agreement. Sellers shall continue to hold all Proprietary Information according to the same internal security procedures and with the same degree of care regarding its secrecy and confidentiality as currently applicable thereto. Sellers shall notify Buyer of any unauthorized disclosure to third parties that it discovers, and shall endeavor to prevent any further such disclosures. Sellers shall be responsible for any breach of the terms of this Section 6.2(g) by Sellers or Sellers' Representatives. After the Closing Date, in the event that Sellers are requested pursuant to, or required by, applicable law or regulation or by legal process to disclose any Proprietary Information, Sellers shall provide Buyer with prompt notice of such request or requirement in order to enable Buyer to seek an appropriate protective order or other remedy, to consult with Sellers with respect to taking steps to resist or narrow the scope of such request or legal process, or to waive compliance, in whole or in part, with the terms of this Section 6.2(g). Sellers agree not to oppose any action by Buyer to obtain a protective order or other appropriate remedy after the Closing Date. In the event that no such protective order or other remedy is obtained, or that Buyer waives compliance with the terms of this Section 6.2(g), Sellers shall furnish only that portion of the Proprietary Information which Sellers are advised by counsel is legally required. In any such event Sellers shall use their Commercially Reasonable Efforts to ensure that all Proprietary Information that is so disclosed will be accorded confidential treatment. (i) The Parties agree that the Confidentiality Agreement will terminate in accordance with its terms, without further act or evidence by the Parties. 6.3 Expenses. Except to the extent specifically provided herein, whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by the Party incurring such costs and expenses. Notwithstanding anything to the contrary herein, Buyer will be responsible for (a) all costs and expenses associated with the 58 obtaining of any title insurance policy and all endorsements thereto that Buyer elects to obtain and (b) all filing fees under the HSR Act. 6.4 Further Assurances; Cooperation. (a) Subject to the terms and conditions of this Agreement, each of the Parties hereto will use Commercially Reasonable Efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the sale of the Purchased Assets pursuant to this Agreement, including without limitation using Commercially Reasonable Efforts to ensure satisfaction of the conditions precedent to each Party's obligations hereunder. Notwithstanding anything in the previous sentence to the contrary, Sellers and Buyer shall use Commercially Reasonable Efforts to obtain all Permits and Environmental Permits necessary for Buyer to acquire and operate the Purchased Assets. Neither of the Parties hereto will, without the prior written consent of the other Party, take or fail to take any action, which would reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. Buyer further agrees that prior to the Closing Date, neither it nor any of its members or their respective Affiliates will enter into any other contract to acquire, nor acquire, electric generation facilities or uncommitted generation capacity located in the PJM area if the proposed acquisition of such additional electric generation facilities or uncommitted generation capacity are reasonably likely to prevent or materially interfere with the transactions contemplated by this Agreement; provided, however, that nothing herein shall prohibit Buyer or its members or their respective Affiliates from increasing capacity at any of their existing generation facilities or increasing their percentage ownership of generation facilities that are partially owned (to the extent of at least 40 percent) as of the date hereof. (b) From time to time after the Closing Date, without further consideration, Sellers will, at their own expense, execute and deliver such documents to Buyer as Buyer may reasonably request in order to more effectively consummate the sale and purchase of the Purchased Assets or to more effectively vest in Buyer good and marketable title to the Purchased Assets subject to the Permitted Encumbrances. Seller shall cooperate with Buyer, at Buyer's expense, in Buyer's efforts to cure or remove any Permitted Encumbrances that Buyer reasonably deems objectionable. From time to time after the Closing Date, without further consideration, Buyer will, at its own expense, execute and deliver such documents to Sellers as Sellers may reasonably request in order to evidence Buyer's assumption of the Assumed Liabilities and Obligations. 59 (c) To the extent that Sellers' rights under any Sellers' Agreement may not be assigned without the consent of another Person which consent has not been obtained, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and Sellers, at their expense, shall use Commercially Reasonable Efforts to obtain any such required consent(s) as promptly as possible. Sellers and Buyer agree that if any consent to an assignment of any Sellers' Agreement shall not be obtained or if any attempted assignment would be ineffective or would impair Buyer's rights and obligations under the applicable Sellers' Agreement so that Buyer would not in effect acquire the benefit of all such rights and obligations, Sellers, to the maximum extent permitted by law and such Sellers' Agreement, shall after the Closing appoint Buyer to be Sellers' representative and agent with respect to such Sellers' Agreement, and Sellers shall, to the maximum extent permitted by law and such Sellers' Agreement, enter into such reasonable arrangements with Buyer as are necessary to provide Buyer with the benefits and obligations of such Sellers' Agreement. Sellers and Buyer shall cooperate and shall each use Commercially Reasonable Efforts after the Closing to obtain an assignment of such Sellers' Agreement to Buyer. (d) Sellers shall continue after the Closing Date to implement at their expense Sellers' Year 2000 Qualification program as set forth on Schedule 7.1 (s). All such work and any additional work required to complete Year 2000 Qualification pursuant to such program shall be completed in accordance with Good Utility Practice on or before the milestone dates set forth on such Schedule 7.1 (s). Buyer shall cooperate with Sellers' personnel in such activities, and Buyer shall be reimbursed for all reasonable costs thereof in accordance with established accounting procedures or on an alternative cost reimbursement basis as mutually agreed by the Parties. (e) For a reasonable time after the Closing Date and in addition to the services contemplated by the GPU Services Agreement, Buyer and Sellers agree to provide services to each other as reasonably required to the extent necessary to ensure the continuity of support for both TMI-1 and Sellers' other nuclear facilities and the orderly completion of projects or other work in progress that would be adversely affected if those services were interrupted. Such support by one Party to the other will not be unreasonably withheld, provided that requests for such support are made in a timely manner. The Party providing the requested support will be reimbursed for all reasonable costs thereof in accordance with established accounting procedures or on an alternative cost reimbursement basis as mutually agreed by the Parties. 60 6.5 Public Statements. Prior to the Closing Date, the Parties shall consult with each other before issuing any public announcement, statement or other disclosure with respect to this Agreement or the transactions contemplated hereby and shall not issue any such public announcement, statement or other disclosure prior to such consultation, except as may be required by law or stock exchange rules. 6.6 Consents and Approvals. (a) Sellers and Buyer shall each file or cause to be filed with the Federal Trade Commission and the Department of Justice any notifications required to be filed under the HSR Act and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. The Parties shall consult with each other as to the appropriate time of filing such notifications and shall agree upon the timing of such filings, to respond promptly to any requests for additional information made by either of such agencies, and to cause the waiting periods under the HSR Act to terminate or expire at the earliest possible date after the date of filing. Buyer will pay all filing fees under the HSR Act but each Party will bear its own costs for the preparation of any such filing. (b) As promptly as practicable after the date of this Agreement and after the receipt of any findings required to be made by any other Governmental Authority as a condition to Buyer making the filing contemplated by this paragraph, Buyer shall file with FERC an application requesting Exempt Wholesale Generator status for Buyer, which filing may be made individually by Buyer or jointly with Sellers, as reasonably determined by the Parties. Buyer shall be solely responsible for the cost of preparing and filing this application, any petition(s) for rehearing, or any reapplication(s). (c) As promptly as practicable after the date of this Agreement, Sellers and Buyer, as applicable, shall file with PaPUC, NYPSC, NJBPU, or any other Governmental Authority having jurisdiction over the Purchased Assets, applications requesting (i) a determination that allowing the Purchased Assets to be an eligible facility under Section 32 of the Holding Company Act (1) will benefit consumers, (2) is in the public interest, and (3) does not violate state law, and (ii) a determination required by Section 32 of the Holding Company Act to exempt PECO Energy Company from the prohibition against purchasing electric energy or capacity at wholesale from an affiliated Exempt Wholesale Generator. (d) As promptly as practicable after the date of this Agreement, Buyer shall file with FERC an application requesting authorization under Section 205 of the Federal Power Act to sell 61 electric generating capacity and energy at wholesale at market-based rates, which filing may be made individually by Buyer or jointly with Sellers, as reasonably determined by the Parties. Buyer shall be solely responsible for the cost of preparing and filing this application, any petition(s) for rehearing, or any reapplication(s). (e) As promptly as practicable after the date of this Agreement, Buyer and Sellers shall file with NRC an application requesting consent under Section 184 of the Atomic Energy Act and 10 CFR Section 50.80 for the transfer of the TMI-1 license from Sellers to Buyer, and any associated licenses amendments or approvals. The Parties shall respond promptly to any requests for additional information made by NRC and use their respective best efforts to cause regulatory approval to be obtained at the earliest possible date after the date of filing. Each Party will bear its own costs of the preparation of any such filing. (f) On or before November 1, 1998, Sellers shall file with NRC an application requesting clarification of the dimensions of the Exclusion Area for TMI-1 under Sellers' TMI-1 license. Sellers shall respond promptly to any request for additional information made by NRC and shall use their respective best efforts to cause such clarification to be obtained at the earliest possible date after the date of filing. Sellers will bear all costs of the preparation of any such filing. (g) As promptly as practicable after the date of this Agreement, Sellers and Buyer (or with respect to the Member Letters, Buyer's members), as applicable, shall file with FERC, PaPUC, NYPSC, NJBPU, or any other Governmental Authority having jurisdiction over the Purchased Assets, any other filings required to be made with respect to the transactions contemplated hereby. The Parties shall respond promptly to any requests for additional information made by such agencies, and use their respective best efforts to cause regulatory approval to be obtained at the earliest possible date after the date of filing. Each Party will bear its own costs of the preparation of any such filing. (h) Sellers and Buyer shall cooperate with each other and (i) promptly prepare and file all necessary documentation, (ii) effect all necessary applications, notices, petitions and filings and execute all agreements and documents, (iii) use best efforts to obtain the transfer or reissuance to Buyer of all necessary Transferable Permits, consents, approvals and authorizations of all Governmental Authority and (iv) use best efforts to obtain all necessary consents, approvals and authorizations of all other parties, in the case of each of the foregoing clauses (i), (ii), (iii) and (iv), necessary or 62 advisable to consummate the transactions contemplated by this Agreement (including, without limitation, Sellers' Required Regulatory Approvals and Buyer Required Regulatory Approvals) or required by the terms of any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument to which Sellers or Buyer is a party or by which any of them is bound. Each of Sellers and Buyer shall have the right to review in advance all characterizations of the information relating to the transactions contemplated by this Agreement which appear in any filing made in connection with the transactions contemplated hereby. (i) Sellers and Buyer shall cooperate with each other and promptly prepare and file notifications with, and request Tax clearances from, state and local taxing authorities in jurisdictions in which a portion of the Purchase Price may be required to be withheld or in which Buyer would otherwise be liable for any Tax liabilities of Sellers pursuant to such state and local Tax law. (j) As promptly as practicable after the date of this Agreement, Sellers and Buyer, as applicable, shall file with the IRS the requests for private letter rulings described in Sections 6.12(b), 6.12(c), 7.1(k) and 7.2(l). The Parties shall respond promptly to any requests for additional information made by the IRS, and use their respective Commercially Reasonable Efforts to cause the private letter rulings to be obtained at the earliest possible date after the date of filing. Each of Sellers and Buyer shall cooperate with one another to secure the private letter rulings described in Sections 6.12(b), 6.12(c), 7.1(k) and 7.2(l) and each shall have the right to review in advance all information included in the requests for private letter rulings and supplemental submissions to the IRS. Each Party will bear its own costs of the preparation of such requests. (k) Buyer shall have the primary responsibility for securing the transfer, reissuance or procurement of the Permits and Environmental Permits (other than Transferable Permits) effective as of the Closing Date. Sellers shall cooperate with Buyer's efforts in this regard and assist in any transfer or reissuance of a Permit or Environmental Permit held by Sellers or the procurement of any other Permit or Environmental Permit when so requested by Buyer. 6.7 Fees and Commissions. Sellers and Buyer each represent and warrant to the other that no broker, finder or other Person is entitled to any brokerage fees, commissions or finder's fees in connection with the transaction contemplated hereby by reason of any action taken by the Party making such representation. Sellers and Buyer will pay to the other or otherwise discharge, 63 and will indemnify and hold the other harmless from and against, any and all claims or liabilities for all brokerage fees, commissions and finder's fees incurred by reason of any action taken by the indemnifying party. 6.8 Tax Matters. (a) All transfer and sales taxes incurred in connection with this Agreement and the transactions contemplated hereby shall be borne equally by Buyer and Sellers. Buyer will file, to the extent required by applicable law, all necessary Tax Returns and other documentation with respect to all such transfer or sales taxes, and Sellers will be entitled to review such returns in advance and, if required by applicable law, will join in the execution of any such Tax Returns or other documentation. Prior to the Closing Date, Buyer will provide to Sellers, to the extent possible, an appropriate exemption certificate in connection with this Agreement and the transactions contemplated hereby, due from each applicable taxing authority. (b) With respect to Taxes to be prorated in accordance with Section 3.5 of this Agreement (other than PURTA, additional PURTA assessments and any successor tax or fee described in Section 3.5(c)), Buyer shall prepare and timely file all Tax Returns required to be filed after the Closing with respect to the Purchased Assets, if any, and shall duly and timely pay all such Taxes shown to be due on such Tax Returns. Buyer's preparation of any such Tax Returns shall be subject to Sellers' approval, which approval shall not be unreasonably withheld. Buyer shall make such Tax Returns available for Sellers' review and approval no later than fifteen (15) Business Days prior to the due date for filing such Tax Return. Within ten (10) Business Days after receipt of such Tax Return, Sellers shall pay to Buyer their proportionate share of the amount shown as due on such Tax Return determined in accordance with Section 3.5 of this Agreement. (c) Buyer and Sellers shall provide the other Parties with such assistance as may reasonably be requested by the other Party in connection with the preparation of any Tax Return, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to liability for Taxes, and each will retain and provide the requesting Party with any records or information which may be relevant to such return, audit or examination, proceedings or determination. Any information obtained pursuant to this Section 6.8(c) or pursuant to any other Section hereof providing for the sharing of information or review of any Tax Return or other schedule relating to Taxes shall be kept confidential by the Parties hereto 64 (d) In the event that a dispute arises between Sellers and Buyer as to the amount of Taxes, or the amount of any allocation of Purchase Price under Section 3.4, the Parties shall attempt in good faith to resolve such dispute, and any amount so agreed amount shall be paid to the appropriate party. If such dispute is not resolved 30 days thereafter, the Parties shall submit the dispute to the Independent Accounting Firm for resolution, which resolution shall be final, conclusive and binding on the Parties. Notwithstanding anything in this Agreement to the contrary, the fees and expenses of the Independent Accounting Firm in resolving the dispute shall be borne 50 percent by Sellers and 50 percent by Buyer. Any payment required to be made as a result of the resolution of the dispute by the Independent Accounting Firm shall be made within ten days after such resolution, together with any interest determined by the Independent Accounting Firm to be appropriate. 6.9 Advice of Changes. Prior to the Closing Date, each Party will promptly advise the other in writing with respect to any matter arising after execution of this Agreement which, if existing or occurring at the date of this Agreement, would have been required to be set forth in this Agreement, including any of the Schedules hereto. If Sellers advise Buyer in writing of any change occurring after the date of this Agreement but prior to Closing that is material to any representation, warranty or covenant of Sellers under this Agreement, Buyer shall have the right to terminate this Agreement pursuant to Section 9.1(e). If Buyer fails to exercise its termination right, Sellers' written notice under this Section 6.9 will be deemed to have amended this Agreement, including the appropriate schedule, or to have qualified the representations and warranties contained in Article IV. Sellers shall be entitled to amend, substitute or otherwise modify any Sellers' Agreement to the extent that such Sellers' Agreement expires by its terms prior to the Closing Date or is terminable without liability to Buyer on or after the Closing Date, or if the terms and conditions of such modified Sellers' Agreement constituting the Assumed Liabilities and Obligations are on terms and conditions not less favorable to Buyer than the original Sellers' Agreement. Nothing contained herein shall relieve Sellers or Buyer of any breach of representation, warranty or covenant under this Agreement existing as of the date hereof or any subsequent date as of which such representation, warranty or covenant shall have been made. 6.10 Employees. (a) Buyer will offer employment, effective on the Closing Date, to all employees of Sellers who are covered by the IBEW Collective Bargaining Agreement and are actively employed as of the Closing Date in positions relating to the Purchased Assets except those who are assigned to TMI-2 ("Union Employees"). 65 (b) (i) Buyer will offer employment, effective on the Closing Date, to all employees of Sellers located at the Purchased Assets who are not covered by the IBEW Collective Bargaining Agreement except those who are assigned to TMI-2, and (ii) Buyer will be entitled to offer employment to any employee of Sellers located in Sellers' Parsippany headquarters (collectively, the "Non-Union Employees"). Each person who becomes employed by Buyer pursuant to Section 6.10(a) or (b) shall be referred to herein as a "Transferred Union Employee" or "Transferred Non-Union Employee", respectively, and collectively as "Transferred Employees". (c) All offers of employment made pursuant to Sections 6.10(a) or (b) shall be made (i) in accordance with all applicable laws, rules and regulations, and (ii) for Union Employees, in accordance with the IBEW Collective Bargaining Agreement. Buyer shall not administer as a pre-condition of employment any skills, aptitude, psychological profile or other employment-related tests to any of Seller's employees. (d) Schedule 6.10(d) sets forth the collective bargaining agreement, and all amendments thereto, to which Sellers are a party with the IBEW in connection with the Purchased Assets ("IBEW Collective Bargaining Agreement"). Transferred Union Employees shall retain their seniority and receive full credit for service with Sellers in connection with entitlement to vacation and all other benefits and rights under the IBEW Collective Bargaining Agreement and under each compensation, retirement or other employee benefit plan or program Buyer is required to maintain for Transferred Union Employees pursuant to the IBEW Collective Bargaining Agreement. With respect to Transferred Union Employees, on the Closing Date Buyer shall assume the IBEW Collective Bargaining Agreement for the duration of its term as it relates to Transferred Union Employees to be employed at TMI-1 in positions covered by the IBEW Collective Bargaining Agreement and shall comply with all applicable obligations under the IBEW Collective Bargaining Agreement. Buyer shall establish and maintain a pension plan and other employee benefit programs for the Transferred Union Employees for the duration of the term of the IBEW Collective Bargaining Agreement which are consistent with Sellers' pension plans and other employee benefit programs in effect for the Transferred Union Employees immediately prior to the Closing Date (the "GPU Plans") for the duration of the IBEW Collective Bargaining Agreement and comply with the obligations of the employer under the IBEW Collective Bargaining Agreement and applicable law. Buyer further agrees to recognize the IBEW as the collective bargaining agent for the Transferred Union Employees. 66 (e) As of the Closing Date, all Transferred Non-Union Employees shall commence participation in welfare benefit plans of Buyer or its Affiliates (the "Replacement Welfare Plans") that will provide benefits or coverage substantially similar to the benefits or coverage provided to the Transferred Non-Union Employees under the Sellers' plans and programs in effect for the Transferred Non-Union Employees immediately prior to the Closing Date. Buyer shall (i) waive all limitations as to pre-existing condition exclusions and waiting periods with respect to the Transferred Non-Union Employees under the Replacement Welfare Plans, other than, but only to the extent of, limitations or waiting periods that were in effect with respect to such employees under the welfare plans maintained by Sellers and that have not been satisfied as of the Closing Date, and (ii) provide each Transferred Non-Union Employee with credit for any co-payments and deductibles paid prior to the Closing Date in satisfying any deductible or out-of-pocket requirements under the Replacement Welfare Plans (on a pro-rata basis in the event of a difference in plan years). (f) As of the Closing Date, Transferred Non-Union Employees shall be offered employment on substantially the same terms and conditions under which they are employed by Sellers and shall be given credit for all service with Sellers under all deferred compensation, profit-sharing, 401(k), retirement and pension plans, incentive compensation, bonus, fringe benefit and other employee benefit plans, programs and arrangements of Buyer ("Buyer Benefit Plans") in which they become participants. The Buyer Benefit Plans will provide benefits or coverage substantially similar to the benefits or coverage provided under Sellers' plans and programs in effect for the Transferred Non-Union Employees immediately prior to the Closing Date. The service credit so given shall be for purposes of eligibility and vesting, but not for level of benefits and benefit accrual except to the extent the Buyer Benefit Plans otherwise provide. (g) To the extent allowable by law, Buyer shall take any and all necessary action to cause the trustee of any defined contribution plan of Buyer or its Affiliates in which any Transferred Employee becomes a participant to accept a direct "rollover" in cash (except as provided in the immediately following sentence) of all or a portion of said employee's "eligible rollover distribution" within the meaning of Section 402 of the Code from the GPU Companies Employee Savings Plan for Non-Bargaining Employees or the Metropolitan Edison Company Savings Plan for Bargaining Unit Employees (the "Sellers' Savings Plans") if requested to do so by the Transferred Employee. Buyer agrees that the assets so rolled over may include promissory notes evidencing loans from Sellers' Savings Plans to Transferred Employees that are outstanding as of the Closing Date. However, 67 except as otherwise provided in Section 6.10(d), any defined contribution plan of Buyer or its Affiliates accepting such a rollover shall not be required to (x) make any further loans to any Transferred Employee after the Closing Date or (y) permit any investment to be made in GPU common stock on behalf of any Transferred Employee after the Closing Date. (h) Sellers shall retain any obligation to make, and shall indemnify Buyer in respect of, all severance payments to any Transferred Employee whose employment is terminated by Buyer for any reason other than for cause or disability within (i) the period from the Closing Date to the first anniversary thereof, or (ii) the period from the first anniversary of the Closing Date to the second anniversary thereof if prior to the first anniversary of the Closing Date the Buyer has notified Sellers of its intent to terminate a specified number of Transferred Employees during the period between such first and second anniversaries (and Sellers' obligations under this subparagraph (ii) shall be limited to such specified number of employees). All severance payments shall be made pursuant to a severance program to be adopted by Sellers prior to the Closing Date. (i) Sellers shall be responsible, with respect to the Purchased Assets, for performing and discharging all requirements under the WARN Act and under applicable state and local laws and regulations for the notification of its employees of any "employment loss" within the meaning of the WARN Act which occurs prior to the Closing Date. (j) Sellers are responsible for extending COBRA continuation coverage to all employees and former employees, and qualified beneficiaries of such employees and former employees, who become or became entitled to such COBRA continuation coverage on or before the Closing Date, including those for whom the Closing Date occurs during their COBRA election period. Buyer shall be responsible for providing COBRA continuation coverage to all Transferred Employees and qualified beneficiaries of such employees who become entitled to such COBRA continuation coverage on or after the Closing Date. (k) Sellers shall pay to all Transferred Employees all compensation, bonus, vacation and holiday compensation, pension, profit sharing and other deferred compensation benefits, workers' compensation or other employment benefits to which they are entitled under the terms of the applicable compensation or benefit programs at such times as are provided therein. (l) Prior to the Closing Date Sellers will implement a program of retirement protection benefits, as described below, that will be provided under the pension plans of Sellers or 68 Sellers' Affiliates to each Transferred Employee (i) who has at least five years of "Creditable Service," as defined in Sellers' pension plans, as of the Closing Date, and (ii) who will attain age 55 and complete at least 10 years (or 20 years, in the case of any Transferred Union Employee) of Creditable Service after the Closing Date but before his or her employment with Buyer and all of its Affiliates terminates for any reason. Employment with Buyer and its Affiliates shall be treated as service with Sellers and Sellers' Affiliates for purposes of the service requirements referred to in the preceding sentence. The retirement protection benefits to be provided to each such Transferred Employee shall consist of the right on the part of such employee to receive his or her pension under Sellers' pension plans starting when the employee's employment with Buyer and all of its Affiliates terminates, with the amount of the employee's pension determined by using the plan's employer-subsidized early retirement reduction factors instead of the full actuarial factors that would otherwise apply in determining the amount of the employee's pension. In the case of any such Transferred Employee who is a Non-Union Employee, the pension so payable to the employee shall be based on his or her service and salary with Sellers and Sellers' Affiliates prior to the Closing Date. In the case of any such Transferred Employee who is a Union Employee and who first attains age 55 and completes at least 20 years of total Creditable Service on or prior to May 14, 2002 (and while still employed with Buyer or any of its Affiliates), the pension so payable to the employee shall be based on his or her service with Sellers and Sellers' Affiliates prior to the Closing Date but shall take into account the employee's pay during his or her period of service with Buyer and its Affiliates. (m) In the case of (i) each Transferred Employee who has met the Age and Service Requirements (as defined below) as of the Closing Date, and (ii) each Transferred Employee who first meets the Age and Service Requirements after the Closing Date but on or prior to the earlier of (A) the date on which his or her employment with Buyer and all of its Affiliates terminates for any reason, or (B) December 31, 2004 if such Transferred Employee is a Non-Union Employee, or May 14, 2002 if such Transferred Employee is a Union Employee, Sellers will cause such Transferred Employee to be provided with retiree coverage under the health care plans and group term life insurance programs of Sellers or Sellers' Affiliates on the same terms and conditions as would be applicable to the employee if he or she actually retired from Sellers or any of their Affiliates, under the retirement provisions of Sellers' pension plans, on the date of the employee's termination of employment with Buyer and its Affiliates. For purposes of the foregoing, "Age and Service Requirements" shall mean, in the case of any Transferred Employee, the attainment of age 55 and the completion of 10 years 69 of Creditable Service if the Transferred Employee is a Non-Union Employee, or 20 years of Creditable Service if the Transferred Employee is a Union Employee. Employment with Buyer and its Affiliates shall be treated as service with Sellers and Sellers' Affiliates for purposes of the foregoing service requirements. (n) Individuals who are otherwise "Union Employees" as defined in Section 6.10(a) or "Non-Union Employees" as defined in Section 6.10(b) but who on any date are not actively at work due to a leave of absence covered by the Family and Medical Leave Act, or due to any other authorized leave of absence, shall nevertheless be treated as "Union Employees" or as "Non-Union Employees," as the case may be, on such date if they are able (i) to return to work within the protected period under the Family Medical Leave Act or such other leave (which in any event shall not extend more than twelve (12) weeks after the Closing Date), whichever is applicable, and (ii) to perform the essential functions of their job, with or without a reasonable accommodation. (o) All Transferred Employee Records shall be delivered promptly after the Closing Date to Buyer. 6.11 Risk of Loss. (a) From the date hereof through the Closing Date, all risk of loss or damage to the property included in the Purchased Assets shall be borne by Sellers. Sellers shall replace or repair any damage to the Purchased Assets in accordance with Good Utility Practices, except as otherwise provided in paragraphs (b) or (c) below. (b) If, before the Closing Date all or any portion of the Purchased Assets are taken by eminent domain or is the subject of a pending or (to the Knowledge of Sellers) contemplated taking which has not been consummated, Sellers shall notify Buyer promptly in writing of such fact. If such taking would create a Material Adverse Effect, Buyer and Sellers shall negotiate in good faith to settle the loss resulting from such taking (including, without limitation, by making a fair and equitable adjustment to the Purchase Price) and, upon such settlement, consummate the transactions contemplated by this Agreement pursuant to the terms of this Agreement. If no such settlement is reached within sixty (60) days after Sellers have notified Buyer of such taking, then Buyer or Sellers may terminate this Agreement pursuant to Section 9.1(g). (c) If, before the Closing Date all or any portion of the Purchased Assets are damaged or destroyed by fire or other casualty, Sellers shall notify Buyer promptly in writing of such 70 fact. If such damage or destruction would create a Material Adverse Effect and Sellers have not notified Buyer of their intention to cure such damage or destruction within fifteen (15) days after its occurrence, Buyer and Sellers shall negotiate in good faith to settle the loss resulting from such casualty (including, without limitation, by making a fair and equitable adjustment to the Purchase Price) and, upon such settlement, consummate the transactions contemplated by this Agreement pursuant to the terms of this Agreement. If no such settlement is reached within sixty (60) days after Sellers have notified Buyer of such casualty, then Buyer may terminate this Agreement pursuant to Section 9.1(g). 6.12 Decommissioning Funds. (a) Between the date hereof and the Closing Date, Sellers will make additional cash deposits from time to time to the Qualified Decommissioning Funds and the Nonqualified Decommissioning Funds such that, on the Closing Date, Sellers shall have accumulated assets in the Decommissioning Funds with an aggregate Fair Market Value of $320 million ("Total FMV"). Between the date hereof and the Closing Date, Sellers shall make additional cash deposits to the Qualified Decommissioning Funds equal to as much of the Total FMV as is eligible to be contributed during such period to the Qualified Decommissioning Funds under Code section 468A and applicable Treasury Regulations as they exist on the Closing Date. On or before the Closing Date, Sellers shall make additional cash deposits to the Nonqualified Decommissioning Funds such that the aggregate Fair Market Value of the assets of the Nonqualified Decommissioning Funds equals the difference between the Total FMV and the aggregate Fair Market Value of the assets of the Qualified Decommissioning Funds. To the extent that the aggregate Fair Market Value of the assets of the Qualified Decommissioning Funds as of the Closing Date is greater than $260 million, Sellers' required Fair Market Value asset accumulation to be contained in the Non-Qualified Decommissioning Fund of $60 million (such that the Total FMV equals $320 million) shall be decreased by $1.14 for every additional dollar that the Qualified Decommissioning Fund is above $260 million. To the extent that the aggregate Fair Market Value of the assets of the Qualified Decommissioning Funds as of the Closing Date is less than $138 million, Sellers' required Fair Market Value asset accumulation to be contained in the Non-Qualified Decommissioning Fund of $182 million (such that the Total FMV equals $320 million) shall be increased by $1.14 for every additional dollar that the Qualified Decommissioning Fund is below $138 million. In the event the Closing Date occurs other than on December 31, 1999, the Total FMV and the respective amounts of each Decommissioning Fund shall be adjusted up or down as the case may be using an annual after-tax, net of expenses, rate of return of four percent (4%). 71 (b) At the Closing, Sellers shall cause all of the assets of the Qualified Decommissioning Funds and all of the assets of the Nonqualified Decommissioning Funds to be transferred to Buyer (or, if directed in writing to do so by Buyer, to the trustee of any trust specified in such written direction), provided that, prior to the Closing Date (i) with respect to the Qualified Decommissioning Funds, the Parties have received rulings issued by the IRS or an opinion of counsel satisfactory to each of the Parties to the effect that the Parties and the Qualified Decommissioning Funds shall not recognize any gain or otherwise take into account any income for federal income tax purposes by reason of the transfer of the assets of the Qualified Decommissioning Funds to Buyer and that the trust established by Buyer into which the assets of the Qualified Decommissioning Funds are to be transferred at Closing will be treated as a nuclear decommissioning reserve fund within the meaning of Code section 468A(a) and Treas. Reg. Section 1.468A-1(b)(3); and (ii) with respect to the Nonqualified Decommissioning Funds, Buyer has received a ruling issued by the IRS, or an opinion of counsel satisfactory to it, to the effect that Buyer will not recognize any gain or otherwise take into account any income for federal income tax purposes by reason of the transfer of the assets of the Nonqualified Decommissioning Funds to Buyer. (c) If any of the conditions specified in Section 6.12(b) above have not been met as of the Closing Date with respect to either or both of the Qualified Decommissioning Funds and Nonqualified Decommissioning Funds, the assets of the Qualified Decommissioning Funds and/or the assets of the Nonqualified Decommissioning Funds, as the case may be, shall not be transferred to Buyer at the Closing, but instead shall be retained by Sellers in accordance with the provisions of Section 6.12(d), provided that (i) the Parties have received a ruling issued by the IRS to the effect that the assets of the Decommissioning Funds that are to be so retained by Sellers will not be treated as having been transferred to Buyer in a transaction taxable to Buyer for federal income tax purposes; and (ii) the ruling described in the first sentence of Section 7.2(k) has been issued by the IRS to Sellers, and such ruling expressly provides that Sellers' retention of the assets of the applicable Decommissioning Funds will not prevent Sellers from being allowed current ordinary deductions for federal income tax purposes for any amounts realized by Sellers, or otherwise recognized as income to Sellers, as a result of Buyer's assumption of decommissioning liabilities with respect to the Facilities pursuant to Section 2.3(a); and (iii) if the assets of the Qualified Decommissioning Funds are to be so retained by Sellers, the Parties have received a ruling issued by the IRS to the effect that the Qualified Decommissioning Funds shall not be disqualified by reason of Sellers' sale of TMI-1 to Buyer. 72 (d) In the event Sellers retain any assets in the Decommissioning Funds after Closing, Sellers shall undertake and implement the following actions: (i) Each of Sellers shall appoint Mellon Bank, N.A., or such other entity as provided in writing by Buyer to Sellers, as trustee, to hold the retained assets of the Decommissioning Funds in trust, pursuant to the terms of the Decommissioning Trust Agreement. The retained assets of the Decommissioning Funds shall be segregated from funds for other nuclear plants of Sellers, for the exclusive purpose of Decommissioning the Facilities and paying the administrative expenses (including taxes) of the Decommissioning Funds. Sellers shall not amend, modify or change the Decommissioning Trust Agreement nor appoint a successor trustee without the prior written consent of Buyer. At the written request of Buyer, Sellers shall amend, modify or change the Decommissioning Trust Agreement in the manner specified in such written request. Notwithstanding anything else to the contrary in the Agreement or in the Decommissioning Trust Agreement, each of Sellers shall have the right to exercise the powers specified in Code Section 675(4) in its sole discretion with respect to the retained assets of the Decommissioning Funds. (ii) Each of Sellers shall appoint one or more investment managers, acceptable to Buyer, to manage the retained assets of the Decommissioning Funds pursuant to the terms of the Investment Manager Agreement until such assets either are transferred to Buyer or are expended for Decommissioning the Facilities. Sellers shall not amend, modify or change the Investment Manager Agreement nor appoint a successor investment manager without the prior written consent of Buyer. At the written request of Buyer, Sellers shall amend, modify or change the Investment Manager Agreement in the manner specified in such written request. (iii) Each of Sellers shall provide Buyer promptly with all information relating to Taxes or accounting treatment of the retained assets of the Decommissioning Funds as Buyer shall request. Such information shall include, but not be limited to, Trustee statements, Tax Returns of the Qualified Decommissioning Funds and information from each of Sellers' Tax Returns to verify the Taxes to be paid to Sellers by Buyer pursuant to Section 8.1 hereof, and investment statements. Sellers shall authorize and instruct the Trustee and investment manager to make the books and records of the retained Decommissioning Funds available for inspection by the Buyer at all reasonable times. 73 (iv) If at any time after the Closing Date and prior to the completion of Decommissioning of the Facilities, the conditions specified in Section 6.12(b) can be met, the assets of the Decommissioning Funds so retained by Sellers shall be transferred to Buyer (or, if directed in writing to do so by Buyer, to the trustee of any trust specified in such written direction) upon receipt of the rulings or opinions of counsel referred to in Section 6.12(b)(i) or (ii) as applicable. (v) If the assets of the Nonqualified Decommissioning Funds have been retained by Sellers pursuant to Section 6.12(c), Sellers will cause assets of the Nonqualified Decommissioning Funds to be transferred to the Qualified Decommissioning Funds, if directed to do so by Buyer, provided Buyer furnishes to Sellers assurances satisfactory to Sellers that such transfers will not result in any adverse tax consequence to Sellers or constitute a violation of any applicable law or regulation. (vi) After the Closing Date, Sellers shall disburse monies from the retained assets of the Decommissioning Funds as directed by Buyer to pay for Decommissioning of the Facilities or administrative expenses (including taxes) of the Decommissioning Funds. After the Closing Date, Sellers shall not authorize or instruct the Trustee to disburse any monies from the retained assets of the Decommissioning Funds except at the direction of Buyer. (vii) Each Seller severally and not jointly shall use all Commercially Reasonable Efforts to obtain the release of any lien, claim or attachment of any third party who files such lien, claim or attachment against the retained assets of the Decommissioning Funds and each Seller severally shall indemnify Buyer pursuant to Section 8.2 hereof, for any such lien, claim or attachment. If requested by Buyer (but, in the case of any Qualified Decommissioning Funds, only if permissible under Section 468A of the Code and the regulations issued thereunder), Sellers shall grant a security interest in the retained assets of the Decommissioning Funds in favor of Buyer; (viii) Any assets retained by Sellers in respect of Decommissioning of the Facilities after all Decommissioning activities have been completed shall be paid to Buyer or expended as Buyer shall direct. (e) From and after the Closing Date, Buyer shall assume all liabilities and obligations for the Decommissioning of the Facilities, and Sellers shall have no further liabilities or obligations with respect to the Decommissioning of the Facilities. 74 6.13 Spent Fuel Fees. Between the date hereof and the Closing Date, and at all times thereafter, Sellers will pay all Spent Fuel Fees and any other fees associated with electricity generated at TMI-1 and sold prior to the Closing Date, and Buyer shall have no liability or responsibility therefor. Buyer shall pay and discharge all fees and expenses associated with the nuclear fuel consumed in TMI-1 and sold from and after the Closing Date, and Sellers shall have no liability or responsibility therefor. Buyer shall assume title to, and responsibility for the storage and disposal of the spent nuclear fuel in TMI-1 as of the Closing Date. Sellers shall assign to Buyer the DOE Standard Spent Fuel Disposal Contract and shall provide the required notice to DOE within 90 days of transfer of title to spent fuel. 6.14 Department of Energy Decontamination and Decommissioning Fees. Sellers will continue to pay all Department of Energy Decontamination and Decommissioning Fees relating to nuclear fuel purchased and consumed at TMI-1 prior to the Closing Date, including but not limited to all annual Special Assessment invoices to be issued after the Closing Date by the Department of Energy, as contemplated by its regulations at 10 CFR Part 766 implementing Sections 1801, 1802, and 1803 of the Atomic Energy Act. 6.15 Cooperation Relating to Insurance and Price-Anderson Act. Sellers shall cooperate with Buyer's efforts to obtain insurance, including insurance required under the Price-Anderson Act with respect to the Purchased Assets. Buyer will, to the extent available, obtain separate insurance on the Purchased Assets. If, however, insurers do not agree to separately insure TMI-1 and TMI-2, Sellers and Buyer shall agree on a reasonable allocation of insurance costs and expenses between TMI-1 and TMI-2. In addition, Sellers agree to use reasonable efforts to assist Buyer in making any claims against pre-Closing insurance policies of Sellers that may provide coverage related to Assumed Liabilities and Obligations. Buyer agrees that it will indemnify Sellers for their reasonable out of pocket expenses incurred in providing such assistance and cooperation. 6.16 Tax Clearance Certificates. Sellers and Buyer shall cooperate and use their best efforts to cause the tax clearance certificates described in Schedule 4.20 of this Agreement to be issued by the appropriate taxing authorities prior to the Closing Date or as soon as practicable thereafter. 6.17 TMI-2 Monitoring Agreement. Sellers and Buyer shall enter into an agreement substantially in the form of Exhibit H hereto to be effective at Closing pursuant to which Buyer will provide ongoing post-defueling monitored storage, maintenance and other services for TMI-2. 75 6.18 TMI-2 Decommissioning. Prior to the date six months after Buyer makes the written certification to the NRC regarding the permanent cessation of operations at TMI-1 pursuant to 10 CFR 50.82(a)(1) and 50.4(b)(8) (or any future comparable regulation or requirement), Buyer and Sellers shall attempt in good faith to negotiate a commercially acceptable agreement pursuant to which Buyer will perform certain decommissioning activities at TMI-2. Notwithstanding the foregoing, Sellers shall retain ultimate safety-related decision-making authority with respect to TMI-2 consistent with NRC requirements and applicable guidance criteria for concluding either that no NRC review under 10 CFR 50.80 is necessary, or upon such review, that there is no transfer of control of the TMI-2 license. 6.19 Spent Fuel Acceptance. Buyer will permit Sellers, at no cost, to utilize TMI-1 spent fuel acceptance allowances as determined by the Department of Energy in connection with the decommissioning of Oyster Creek; provided, however, Buyer will have no obligation to transfer such allowances to the extent prohibited by applicable law or to the extent any such transfer would, in the reasonable judgment of Buyer, have any adverse consequences to Buyer in respect of its ownership or operation of the Purchased Assets. To the extent TMI-1 waste acceptance priority allowances are utilized for Oyster Creek, Sellers will cause the transfer to Buyer for use in shipment of TMI-1 spent fuel for disposal by the Department of Energy an amount of spent fuel acceptance allowances equal to the amount of TMI-1 allowances utilized for Oyster Creek. 6.20 Residual Waste Landfill. As promptly as is practicable following the date hereof and in any event prior to the Closing Date, Sellers shall have (a) closed the Residual Waste Landfill, (b) caused all residual wastes to be removed therefrom to an off-Site landfill qualified to accept such residual wastes and (c) submitted to the PaDEP an amended Closure and Post-Closure Plan in order to obtain a Closure Certification from the PaDEP. Sellers further agree to use Commercially Reasonable Efforts promptly to obtain such Closure Certification and will comply with the terms and conditions of any PaDEP approved Closure and Post-Closure Plan for the Residual Waste Landfill at Sellers' expense. 6.21 Easement, License and Attachment Agreement. Sellers and Buyer shall in good faith negotiate as soon as practicable after the date hereof an agreement containing the principal items referred to in Exhibit C hereto and such other matters relating to the Easements as shall be customary for similar agreements and reasonably acceptable to the Parties hereto. 76 ARTICLE VII CONDITIONS 7.1 Conditions to Obligations of Buyer. The obligations of Buyer to purchase the Purchased Assets and to consummate the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver by Buyer) of the following conditions: (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated. (b) No preliminary or permanent injunction or other order or decree by any federal or state court or Governmental Authority which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to cooperate in all efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority which prohibits the consummation of the sale of the Purchased Assets; (c) Buyer shall have received all of Buyer's Required Regulatory Approvals, in form and substance reasonably satisfactory (including no material adverse conditions) to it and such approvals shall be final and non-appealable; (d) Sellers shall have performed and complied in all material respects with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Sellers on or prior to the Closing Date; (e) The representations and warranties of Sellers set forth in this Agreement that are qualified by materiality shall be true and correct as of the Closing Date and all other representations and warranties shall be true and correct in all material respects as of the Closing Date, in each case as though made at and as of the Closing Date; (f) Buyer shall have received certificates from an authorized officer of each Seller, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Section 7.1(d) and (e) have been satisfied by such Seller; (g) Buyer shall have received an opinion from each Seller's counsel reasonably acceptable to Buyer, dated the Closing Date and reasonably satisfactory in form and substance to Buyer and its counsel, substantially in the form of Exhibit M hereto; 77 (h) Sellers shall have delivered, or caused to be delivered, to Buyer at the Closing, Sellers' closing deliveries described in Section 3.6, including, without limitation, special warranty deeds from York Haven for any Real Property titled in York Haven; (i) Buyer shall have received from a title insurance company reasonably acceptable to Buyer ALTA owner's title insurance policies on the Real Property insuring title as described in Section 4.7, subject only to the Permitted Encumbrances. Buyer shall provide Sellers with a copy of a preliminary title report and an updated survey for the Real Property to the extent obtained by Buyer; (j) Since the date of this Agreement, no Material Adverse Effect shall have occurred and be continuing; (k) The IRS rulings or opinions of counsel applicable to Buyer set forth in Sections 6.12(b) and/or (c), as the case may be, shall have been received; (l) Sellers shall have entered into the Easement, License and Attachment Agreement, and such Agreement shall be in full force and effect. (m) (1) Sellers shall have assigned the Cowanesque Reservoir Agreements (other than the Excluded Liability portion thereof) and the York Haven Dam Agreements to Buyer, and the Cowanesque Reservoir Agreements and the York Haven Dam Agreements shall not have been amended and shall be in full force and effect; and (2) the Sellers shall have obtained from the SRBC an amendment to their groundwater pumping permit (Permit No. 19961102), as described in Schedule 4.10, to increase the daily quantity of groundwater pumped from the three on-site wells to an amount sufficient to satisfy normal operating requirements for the Facilities, and such amended permit shall be final and nonappealable; (n) Any lease or other Encumbrance (other than non-financial restrictions imposed by applicable law that are inherent to nuclear material) relating to the nuclear fuel in the TMI-1 reactor core shall have been paid in full by Sellers; (o) Sellers shall have performed the maintenance, repair and replacement work on the Facilities set forth on Schedule 7.1(o) in accordance with the previously established schedule for the completion of such work, and such work shall have been completed in accordance with Good Utility Practices and in conformity with all applicable legal requirements; 78 (p) Sellers shall have obtained from the NRC written confirmation that the Exclusion Area set forth in Technical Specification 5.1 complies with applicable NRC requirements or Sellers shall have undertaken, at their expense and by an agreement in form and substance satisfactory to Buyer in its discretion, to modify the Exclusion Area to conform to NRC requirements; (q) (1) Sellers shall have proceeded with their plans to seek from the NRC and shall have obtained from the NRC written confirmation of an increase in the tube plugging limit applicable to TMI-1's steam generators to 20 percent of the total number of tubes. Alternatively, NRC shall have approved an increase in the tube plugging limit to such lesser amount as Buyer shall have approved in its discretion as adequate in order for TMI-1 to operate at its currently licensed capacity (2568 MWth) until the scheduled expiration of its NRC license in 2014; and (2) Sellers shall have proceeded with their plans to seek from the NRC and shall also have obtained from NRC written confirmation of approval of the extension of the tube repair criteria currently limited in the Technical Specifications to the prior refueling outage (referred to by the Parties as "12R") and the current operating cycle for use in the Refueling Outage and subsequent operating cycle. Alternatively, if such approval has not been obtained, Buyer at its discretion shall determine the extent to which the applicable tube repair criteria as provided for in the Technical Specifications is acceptable; (r) Sellers shall have obtained all approvals necessary from any Governmental Authority having jurisdiction to subdivide , convey and operate the Real Property separately from the parcels pertaining to TMI-2 and such approvals shall be final and non-appealable; (s) Sellers shall have completed in accordance with Good Utility Practice all work required to be accomplished as of the milestone dates set forth on Schedule 7.1(s) occurring prior to the Closing Date in order for the Purchased Assets to be Year 2000 Qualified, and any work relating to subsequent milestone dates or any additional work in order to complete Year 2000 Qualification shall be undertaken by Sellers at their expense pursuant to Section 6.4(d); (t) All radioactive waste stored or otherwise located on the Real Property outside the area enclosed by the dikes referenced in Section 3.14 of the TMI-1 Technical Specifications (the "Diked Area"), including, without limitation, all radioactive filter cake waste that has been stored in a building outside the Diked Area, shall have been shipped off-Site by Sellers for permanent disposal, and all buildings outside the Diked Area shall have been decontaminated in accordance with all applicable legal requirements; 79 (u) All low-level radioactive waste that has been generated in the operations of the Facilities more than 90 days prior to the Closing Date shall have been shipped off-Site by Sellers for permanent disposal in accordance with all applicable legal requirements, and all low-level radioactive waste generated in the operations of the Facilities within 90 days prior to the Closing Date shall have been properly bagged, tagged, packaged and/or stored by Sellers at the Facilities in accordance with Good Utility Practice for handling low-level radioactive waste; (v) The lien of the Mortgage Indenture on the Purchased Assets shall have been released; and (w) The Total FMV of the Decommissioning Funds shall be $320 million, adjusted pursuant to Section 6.12(a) hereof, 7.2 Conditions to Obligations of Sellers. The obligation of Sellers to sell the Purchased Assets and to consummate the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver by Sellers) of the following conditions: (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated; (b) No preliminary or permanent injunction or other order or decree by any federal or state court which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its best efforts to have any such injunction, order or decree lifted) and no statute, rule or regulation shall have been enacted by any state or federal government or Governmental Authority in the United States which prohibits the consummation of the sale of the Purchased Assets; (c) Sellers shall have received all of Sellers' Required Regulatory Approvals, in form and substance reasonably satisfactory (including no material adverse conditions) to them and such approvals shall be final and non-appealable; (d) All consents and approvals for the consummation of the sale of the Purchased Assets contemplated hereby required under the terms of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which any Seller is party or by which any Seller, or any of the Purchased Assets, may be bound, shall have been obtained, other than those which if not obtained, would not, individually and in the aggregate, create a Material Adverse Effect; 80 (e) Buyer shall have performed and complied with in all material respects the covenants and agreements contained in this Agreement which are required to be performed and complied with by Buyer on or prior to the Closing Date; (f) The representations and warranties of Buyer set forth in this Agreement that are qualified by materiality shall be true and correct as of the Closing Date and all other representations and warranties shall be true and correct in all material respects as of the Closing Date, in each case as though made at and as of the Closing Date; (g) Sellers shall have received a certificate from an authorized officer of Buyer, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Sections 7.2(d), (e) and (f) have been satisfied by Buyer; (h) Effective upon Closing, Buyer shall have assumed, as set forth in Section 6.10, all of the applicable obligations under the IBEW Collective Bargaining Agreement as they relate to Transferred Union Employees; (i) Sellers shall have received an opinion from Buyer's counsel reasonably acceptable to Sellers, dated the Closing Date and satisfactory in form and substance to Sellers and their counsel, substantially in the form of Exhibit N hereto; (j) Buyer shall have delivered, or caused to be delivered, to Sellers at the Closing, Buyer's closing deliveries described in Section 3.7; (k) Sellers shall have received from Buyer's members copies of all required consents and approvals from Governmental Authorities relating to the Member Letters, and the Member Letters shall not have been amended and shall be in full force and effect; (l) Sellers shall have received a ruling from the IRS to the effect that Sellers will be allowed current ordinary deductions for federal income tax purposes for any amounts treated as realized by Sellers, or otherwise recognized as income to Sellers, as a result of Buyer's assumption of Decommissioning liabilities with respect to TMI-1 pursuant to Section 2.3(f). In addition, the IRS rulings or opinions of counsel applicable to Sellers set forth in Section 6.12(b) and/or (c), as the case may be, shall be received; and (m) Buyer shall have entered into the Easement, License and Attachment Agreement, and such Agreement shall be in full force and effect. 81 ARTICLE VIII INDEMNIFICATION 8.1 Indemnification. (a) Buyer shall indemnify, defend and hold harmless Sellers, their officers, directors, employees, shareholders, Affiliates and agents (each, a "Sellers' Indemnitee") from and against any and all claims, demands, suits, losses, liabilities, damages, obligations, payments, costs and expenses (including, without limitation, the costs and expenses of any and all actions, suits, proceedings, assessments, judgments, settlements and compromises relating thereto and reasonable attorneys' fees and reasonable disbursements in connection therewith) (each, an "Indemnifiable Loss"), asserted against or suffered by any Sellers' Indemnitee relating to, resulting from or arising out of (i) any breach by Buyer of any representations, warranties or covenants contained in this Agreement, (ii) the Assumed Liabilities and Obligations, (iii) any loss or damages resulting from or arising out of any Inspection, or the use by Buyer of the non-exclusive license granted under Section 2.1(j) or (iv) any Third Party Claims against a Sellers' Indemnitee arising out of or in connection with Buyer's ownership or operation of TMI-1 and other Purchased Assets on or after the Closing Date, (v) any Taxes asserted against Seller by reason of any act of "self-dealing" as defined in Treas. Reg. Section 1.468A-5(b)(2) that is determined to have occurred after the Closing, except for any acts of self-dealing that constitute a breach by Sellers of this Agreement, or (vi) if the Nonqualified Decommissioning Funds are retained by Sellers after the Closing pursuant to Section 6.12(c), the amount of Taxes arising after the Closing Date attributable to amounts required to be included in Sellers' income with respect to income and net gains realized by the Nonqualified Decommissioning Funds except to the extent such Taxes have not been paid to Sellers out of the Nonqualified Decommissioning Funds, (vii) all Taxes attributable to any amounts required to be included in Sellers' income by reason of any payments or distributions made or deemed to have been made from the Qualified Decommissioning Funds after the Closing, but only to the extent such amounts are not offset by deductions allowable to Sellers with respect to such payments or distributions, and only to the extent such payments or distributions are not caused by any Sellers' breach of this Agreement; or (viii) if any of the Decommissioning Funds are retained by Sellers after the Closing, any actions or inaction by Sellers in connection with the administration of the Decommissioning Funds pursuant to the Decommissioning Trust Agreement or under the Investment Management Agreement (including any supplement or amendment thereto or replacement thereof) as contemplated by Section 6.12(d) hereof or as Buyer may otherwise direct in writing. 82 (b) Sellers, severally with respect to the Owners in accordance with their pro rata ownership interests in the Purchased Assets, and jointly and severally with respect to GPU Nuclear, shall indemnify, defend and hold harmless Buyer, its officers, directors, members, employees, shareholders, Affiliates and agents (each, a "Buyer Indemnitee") from and against any and all Indemnifiable Losses asserted against or suffered by any Buyer Indemnitee relating to, resulting from or arising out of (i) any breach by Sellers of any representations, warranties or covenants contained in this Agreement, (ii) the Excluded Liabilities, (iii) noncompliance by Sellers with any bulk sales or transfer laws as provided in Section 10.11, (iv) any Third Party Claims against a Buyer Indemnitee arising out of or in connection with Sellers' ownership or operation of the Purchased Assets on or prior to the Closing Date, (v) any Third Party Claims against a Buyer Indemnitee arising out of or in connection with Sellers' ownership or operation of the Excluded Assets, (vi) any Indemnifiable Loss relating to TMI-2, (vii) all Taxes incurred, either by reason of any act of Sellers after Closing that constitutes an act of "self-dealing" as defined in Treas. Reg. Section 1.468A-5(b)(2) and that constitutes a breach of this Agreement by any Seller or by reason of any act of any Seller that results in the disqualification of the Qualified Decommissioning Funds under Treas. Reg. Section 1.468A-5 and that constitutes a breach of this Agreement by any Seller or (viii) any claims or attachments of any Seller against the Decommissioning Funds after the Closing Date. (c) Notwithstanding anything to the contrary contained herein: (i) Any Person entitled to receive indemnification under this Agreement (an "Indemnitee") shall use Commercially Reasonable Efforts to mitigate all losses, damages and the like relating to a claim under these indemnification provisions, including availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity. The Indemnitee's Commercially Reasonable Efforts shall include the reasonable expenditure of money to mitigate or otherwise reduce or eliminate any loss or expenses for which indemnification would otherwise be due, and the Indemnitee shall advise Indemnitor promptly of such expenditure (or provide Indemnitor with the opportunity to pay such expenditures directly). The Indemnitor shall promptly reimburse the Indemnitee for the Indemnitee's reasonable expenditures in undertaking the mitigation (together with interest thereon from the date of payment thereof to the date of repayment at the "prime rate" as published in The Wall Street Journal). 83 (ii) Any Indemnifiable Loss shall be net of (i) the dollar amount of any insurance or other proceeds actually received by the Indemnitee or any of its Affiliates with respect to the Indemnifiable Loss, and (ii) income tax benefits to the Indemnitee, to the extent realized by the Indemnitee, but such net amount shall be increased to give effect to the Income Taxes attributable to the receipt of any indemnification payments hereunder. Any Party seeking indemnity hereunder shall use best efforts to make claims (including both costs of defense and indemnity) under applicable insurance policies with respect to any such Indemnifiable Loss. (iii) Sellers' liability and obligation to Buyer for an Indemnifiable Loss relating to, resulting from or arising out of (A) a breach of representation or warranty (other than with respect to Taxes and Tax Returns, environmental matters or the matters set forth in Sections 4.22 and 4.23 hereof) shall be the amount thereof in excess of $250,000 in the aggregate (cumulative) up to the amount of Ten Million Dollars ($10,000,000) and must be asserted by Buyer on or before the first anniversary of the Closing Date, and (B) a breach of representation or warranty with respect to environmental matters under Section 4.10 of the type described in Section 2.4(g)(v) or (vi) hereof shall be the amount thereof in excess of $250,000 in the aggregate (cumulative) up to the amount of Ten Million Dollars ($10,000,000) and must be asserted by Buyer on or before the second anniversary of the Closing Date. Nothing in this subparagraph (iii) is intended to modify or limit Sellers' liability or obligation hereunder for any other Indemnifiable Loss or to constitute an assumption by Buyer of any Excluded Liability. (d) The expiration or termination of any representation or warranty shall not affect the Parties' obligations under this Section 8.1 if the Indemnitee provided the Person required to provide indemnification under this Agreement (the "Indemnifying Party") with proper notice of the claim or event for which indemnification is sought prior to such expiration, termination or extinguishment. (e) Except to the extent otherwise provided in Article IX, the rights and remedies of Sellers and Buyer under this Article VIII are exclusive and in lieu of any and all other rights and remedies which Sellers and Buyer may have under this Agreement or otherwise for monetary relief, with respect to (i) any breach of or failure to perform any covenant, agreement, or representation or warranty set forth in this Agreement, after the occurrence of the Closing, or (ii) the Assumed Liabilities and 84 Obligations or the Excluded Liabilities, as the case may be. The indemnification obligations of the Parties set forth in this Article VIII apply only to matters arising out of this Agreement, excluding the Ancillary Agreements. Any Indemnifiable Loss arising under or pursuant to an Ancillary Agreement shall be governed by the indemnification obligations, if any, contained in the Ancillary Agreement under which the Indemnifiable Loss arises. (f) Notwithstanding anything to the contrary herein, no Party (including an Indemnitee) shall be entitled to recover from any other Party (including an Indemnifying Party) for any liabilities, damages, obligations, payments, losses, costs, or expenses under this Agreement any amount in excess of the actual compensatory damages, court costs and reasonable attorney's and other advisor fees suffered by such Party. Buyer and Sellers waive any right to recover punitive, incidental, special, exemplary and consequential damages arising in connection with or with respect to this Agreement. The provisions of this Section 8.1(f) shall not apply to indemnification for a Third Party Claim. 8.2 Defense of Claims. (a) If any Indemnitee receives notice of the assertion of any claim or of the commencement of any claim, action, or proceeding made or brought by any Person who is not a Party to this Agreement or any Affiliate of a Party to this Agreement (a "Third Party Claim") with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee shall give such Indemnifying Party reasonably prompt written notice thereof, but in any event such notice shall not be given later than twenty (20) calendar days after the Indemnitee's receipt of notice of such Third Party Claim. Such notice shall describe the nature of the Third Party Claim in reasonable detail and shall indicate the estimated amount, if practicable, of the Indemnifiable Loss that has been or may be sustained by the Indemnitee. The Indemnifying Party will have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third Party Claim at such Indemnifying Party's expense and by such Indemnifying Party's own counsel, provided that the counsel for the Indemnifying Party who shall conduct the defense of such Third Party Claim shall be reasonably satisfactory to the Indemnitee. The Indemnitee shall cooperate in good faith in such defense at such Indemnitee's own expense. If an Indemnifying Party elects not to assume the defense of any Third Party Claim, the Indemnitee may compromise or settle such Third Party Claim over the objection of the Indemnifying Party, which settlement or compromise shall conclusively establish the Indemnifying Party's liability pursuant to this Agreement. 85 (b) (i) If, within twenty (20) calendar days after an Indemnitee provides written notice to the Indemnifying Party of any Third Party Claims, the Indemnitee receives written notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third Party Claim as provided in Section 8.2 (a) , the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided, however, that if the Indemnifying Party shall fail to take reasonable steps necessary to defend diligently such Third Party Claim within twenty (20) calendar days after receiving notice from the Indemnitee that the Indemnitee believes the Indemnifying Party has failed to take such steps, the Indemnitee may assume its own defense and the Indemnifying Party shall be liable for all reasonable expenses thereof. (ii) Without the prior written consent of the Indemnitee, the Indemnifying Party shall not enter into any settlement of any Third Party Claim which would lead to liability or create any financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to the Indemnitee to that effect. If the Indemnitee fails to consent to such firm offer within twenty (20) calendar days after its receipt of such notice, the Indemnifying Party shall be relieved of its obligations to defend such Third Party Claim and the Indemnitee may contest or defend such Third Party Claim. In such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will be the amount of such settlement offer plus reasonable costs and expenses paid or incurred by Indemnitee up to the date of said notice. (c) Any claim by an Indemnitee on account of an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct Claim") shall be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable, but in any event such notice shall not be given later than twenty (20) calendar days after the Indemnitee becomes aware of such Direct Claim, and the Indemnifying Party shall have a period of twenty (20) calendar days within which to respond to such Direct Claim. If the Indemnifying Party does not respond within such twenty (20) calendar day period, the Indemnifying Party shall be deemed to have accepted such claim. If the Indemnifying Party rejects such 86 claim, the Indemnitee will be free to seek enforcement of its right to indemnification under this Agreement. (d) If the amount of any Indemnifiable Loss, at any time subsequent to the making of an indemnity payment in respect thereof, is reduced by recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by, from or against any other entity, the amount of such reduction, less any costs, expenses or premiums incurred in connection therewith (together with interest thereon from the date of payment thereof to the date or repayment at the "prime rate" as published in The Wall Street Journal) shall promptly be repaid by the Indemnitee to the Indemnifying Party. (e) A failure to give timely notice as provided in this Section 8.2 shall not affect the rights or obligations of any Party hereunder except if, and only to the extent that, as a result of such failure, the Party which was entitled to receive such notice was actually prejudiced as a result of such failure. ARTICLE IX TERMINATION 9.1 Termination. (a) This Agreement may be terminated at any time prior to the Closing Date by mutual written consent of Sellers and Buyer. (b) This Agreement may be terminated by Sellers or Buyer, if (i) any Federal or state court of competent jurisdiction 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 or (ii) any statute, rule, order or regulation shall have been enacted or issued by any Governmental Authority which, directly or indirectly, prohibits the consummation of the Closing; or (iii) the Closing contemplated hereby shall have not occurred on or before the day which is 24 months from the date of this Agreement (the "Termination Date"); provided that the right to terminate this Agreement under this Section 9.1(b) (iii) shall not be available to any Party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date. (c) Except as otherwise provided in this Agreement, this Agreement may be terminated by Buyer if any of Buyer Required Regulatory Approvals, the receipt of which is a 87 condition to the obligation of Buyer to consummate the Closing as set forth in Section 7.1(c), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted but are not in form and substance reasonably satisfactory to Buyer because such Approval contains conditions that would have a material adverse effect on the operations or condition (financial or otherwise) of the Purchased Assets or a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Buyer or its members. (d) This Agreement may be terminated by Sellers, if any of Sellers' Required Regulatory Approvals applicable to Sellers, the receipt of which is a condition to the obligation of Sellers to consummate the Closing as set forth in Section 7.2(c), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted but are not in form and substance reasonably satisfactory to Sellers, because such Approval contains conditions that would have a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Sellers. (e) This Agreement may be terminated by Buyer if there has been a violation or breach by Sellers of any covenant, representation or warranty contained in this Agreement which has resulted in a Material Adverse Effect and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Sellers of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Buyer. (f) This Agreement may be terminated by Sellers if there has been a material violation or breach by Buyer of any covenant, representation or warranty contained in this Agreement and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Buyer of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Sellers. (g) This Agreement may be terminated by Buyer or Sellers in accordance with the provisions of Sections 6.11(b) or (c). 9.2 Procedure and Effect of No-Default Termination. In the event of termination of this Agreement by either or both of the Parties pursuant to this Section 9, written notice thereof shall forthwith be given by the terminating Party to the other Party, whereupon, if this Agreement is terminated pursuant to any of Sections 9.1(a) through (d) and 9.1(g), the liabilities of the Parties hereunder will terminate, except as otherwise expressly 88 provided in this Agreement, and thereafter neither Party shall have any recourse against the other by reason of this Agreement. ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified or supplemented only by written agreement of Sellers and Buyer. 10.2 Waiver of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the Parties to comply with any obligation, covenant, agreement or condition herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver of such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent failure to comply therewith. 10.3 Survival of Representations, Warranties, Covenants and Obligations. (i) The representations and warranties given or made by any Party to this Agreement or in any certificate or other writing furnished in connection herewith shall survive the Closing for a period of one (1) year after the Closing Date and shall thereafter terminate and be of no further force or effect, except that (a) all representations and warranties relating to Taxes and Tax Returns shall survive the Closing for the period of the applicable statutes of limitation plus any extensions or waivers thereof, (b) all representations and warranties with respect to environmental matters shall survive the Closing for a period of two (2) years after the Closing Date; (c) all representations and warranties set forth in Sections 4.22 and 4.23 hereof shall survive the Closing indefinitely, and (d) any representation or warranty as to which a claim (including without limitation a contingent claim) shall have been asserted during the survival period shall continue in effect with respect to such claim until such claim shall have been finally resolved or settled. Each Party shall be entitled to rely upon the representations and warranties of the other Party or Parties set forth herein, notwithstanding any investigation or audit conducted before or after the Closing Date or the decision of any Party to complete the Closing. (ii) The covenants and obligations of Sellers and Buyer set forth in this Agreement, including without limitation the indemnification obligations of the parties under Article VIII 89 hereof, shall survive the Closing indefinitely, and the Parties shall be entitled to the full performance thereof by the other Parties hereto without limitation as to time or amount (except as otherwise specifically set forth herein). 10.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission, or mailed by overnight courier or registered or certified mail (return receipt requested), postage prepaid, to the recipient Party at its address (or at such other address or facsimile number for a Party as shall be specified by like notice; provided however, that notices of a change of address shall be effective only upon receipt thereof): (a) If to Sellers, to: GPU Service, Inc. 300 Madison Ave. P.O. Box 8699 Morristown, NJ 07962 Attention: David C. Brauer, Vice President with a copy to: Berlack, Israels & Liberman LLP 120 West 45th Street New York, NY 10036 Attention: Douglas E. Davidson, Esq. (b) if to Buyer, to: AmerGen Energy Company, LLC 965 Chesterbrook Blvd., 63C-3 Wayne, PA 19087 Attention: Dickinson M. Smith, Chief Executive Officer with a copy to: Morgan, Lewis & Bockius LLP 2000 One Logan Square Philadelphia, PA 19103 Attention: Howard L. Meyers, Esq. 10.5 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any Party 90 hereto, including by operation of law, without the prior written consent of each other Party, such consent not to be unreasonably withheld, nor is this Agreement intended to confer upon any other Person except the Parties hereto any rights, interests, obligations or remedies hereunder. No provision of this Agreement shall create any third party beneficiary rights in any employee or former employee of Sellers (including any beneficiary or dependent thereof) in respect of continued employment or resumed employment, and no provision of this Agreement shall create any rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. Notwithstanding the foregoing, but subject to all applicable legal requirements, (i) Buyer or its permitted assignee may assign, transfer, pledge or otherwise dispose of (absolutely or as security) its rights and interests hereunder to a trustee, lending institutions or other party for the purposes of leasing, financing or refinancing the Purchased Assets, including such an assignment, transfer or other disposition upon or pursuant to the exercise of remedies with respect to such leasing, financing or refinancing, or by way of assignments, transfers, pledges, or other dispositions in lieu thereof, and (ii) Buyer or its permitted assignee may assign, transfer, pledge or otherwise dispose of its rights and interests to cause Sellers to perform in accordance with the provisions of Section 6.12(d) hereof in connection with any subsequent disposition by Buyer of the Purchased Assets; provided, however, that no such assignment shall relieve or discharge Buyer from any of its obligations hereunder. Sellers agree, at Buyer's expense, to execute and deliver such documents as may be reasonably necessary to accomplish any such assignment, transfer, pledge or other disposition of rights and interests hereunder so long as Sellers' rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired. 10.6 Governing Law. This Agreement shall be governed by and construed in accordance with the law of the Commonwealth of Pennsylvania (without giving effect to conflict of law principles) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. THE PARTIES HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS AND PROCEEDINGS RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE IN THE STATE AND FEDERAL COURTS IN AND FOR CHESTER COUNTY, PENNSYLVANIA, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION FOR SUCH PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH 91 RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 10.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.8 Interpretation. The articles, section and schedule headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this Agreement. 10.9 Schedules and Exhibits. Except as otherwise provided in this Agreement, all Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. 10.10 Entire Agreement. This Agreement, the Confidentiality Agreement, the Ancillary Agreements and the Member Letters, including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein, embody the entire agreement and understanding of the Parties hereto in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein or therein. It is expressly acknowledged and agreed that there are no restrictions, promises, representations, warranties, covenants or undertakings contained in any material made available to Buyer pursuant to the terms of the Confidentiality Agreement. This Agreement supersedes all prior agreements and understandings between the Parties (including without limitation, the letter of intent between the Parties dated July 17, 1998) other than the Confidentiality Agreement with respect to such transactions. 10.11 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything in this Agreement to the contrary, Sellers will not comply with the provision of the bulk sales laws of any jurisdiction in connection with the transactions contemplated by this Agreement. Buyer hereby waives compliance by Sellers with the provisions of the bulk sales laws of all applicable jurisdictions. 10.12 U.S. Dollars. Unless otherwise stated, all dollar amounts set forth herein are United States (U.S.) dollars. 92 10.13 Zoning Classification. Buyer acknowledges that the Real Properties are zoned as set forth in Schedule 10.13. 10.14 Sewage Facilities. Except as set forth in Schedule 10.14, Buyer acknowledges that there is no community (municipal) sewage system available to serve the Real Property. Accordingly, any additional sewage disposal planned by Buyer will require an individual (on-site) sewage system and all necessary permits as required by the Pennsylvania Sewage Facilities Act (the "Facilities Act"). Buyer recognizes that certain of the existing individual sewage systems on the Real Property may have been installed pursuant to exemptions from the requirements of the Facilities Act or prior to the enactment of the Facilities Act and that soils and site testing may not have been performed in connection therewith. The owner of the property or properties served by such a system, at the time of any malfunction, may be held liable for any contamination, pollution, public health hazard or nuisance which occurs as the result of such malfunction. 93 IN WITNESS WHEREOF, Sellers and Buyer have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. GPU NUCLEAR, INC. JERSEY CENTRAL POWER & LIGHT COMPANY By: By: --------------------------- ------------------------- Name: Terrance G. Howson Name: Terrance G. Howson Title: Vice President & Treasurer Title: Vice President & Treasurer METROPOLITAN EDISON COMPANY PENNSYLVANIA ELECTRIC COMPANY By By: --------------------------- ------------------------- Name: Terrance G. Howson Name: Terrance G. Howson Title: Vice President & Tresurer Title: Vice President & Treasurer AMERGEN ENERGY COMPANY, LLC By: -------------------------------- Name: Dickinson M. Smith Title: Chief Executive Officer EX-12 23 EX. 12-A GPU, INC. AND SUBSIDIARY COMPANIES Exhibit 12-A Page 1 of 2 GPU, INC. AND SUBSIDIARY COMPANIES STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands)
Twelve Months Ended December 31, -------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ----------- OPERATING REVENUES $4,248,792 $4,143,379 $3,970,711 $3,822,459 $3,654,211 --------- --------- --------- --------- --------- OPERATING EXPENSES 3,352,713 3,272,644 3,292,796 3,080,614 3,017,888 Interest portion of rentals (A) 30,594 26,108 26,093 27,362 24,655 Fixed charges of service company subsidiaries (B) 2,424 3,121 3,695 3,666 3,637 --------- --------- --------- --------- --------- Net expense 3,319,695 3,243,415 3,263,008 3,049,586 2,989,596 --------- --------- --------- --------- --------- OTHER INCOME AND DEDUCTIONS: Allowance for funds used during construction 5,264 5,583 10,672 14,671 11,827 Equity in undistributed earnings/(losses) of affiliates, net 72,012 (27,100) 33,981 (3,597) (1,014) Other income/ (expense), net 48,366 5,585 23,490 215,007 (146,958) Minority interest net income (2,171) (1,337) (2,701) (922) - --------- --------- --------- --------- --------- Total other income and deductions 123,471 (17,269) 65,442 225,159 (136,145) --------- --------- --------- --------- --------- EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $1,052,568 $ 882,695 $ 773,145 $ 998,032 $ 528,470 ========= ========= ========= ========= ========= FIXED CHARGES: Interest on funded indebtedness $ 319,737 $ 249,026 $ 216,352 $ 192,488 $ 186,259 Other interest (C) 65,024 66,400 59,398 56,396 47,498 Preferred stock dividends of subsidiaries on a pretax basis (E) 18,045 19,500 24,008 26,756 30,314 Interest portion of rentals (A) 30,594 26,108 26,093 27,362 24,655 --------- --------- --------- --------- --------- Total fixed charges $ 433,400 $ 361,034 $ 325,851 $ 303,002 $ 288,726 ========= ========= ========= ========= ========= RATIO OF EARNINGS TO FIXED CHARGES 2.43 2.44 2.37 3.29 1.83 ==== ==== ==== ==== ==== RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (D) 2.43 2.44 2.37 3.29 1.83 ==== ==== ==== ==== ====
Exhibit 12-A Page 2 of 2 GPU, INC. AND SUBSIDIARY COMPANIES STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands) Notes: (A) GPU has included the equivalent of the interest portion of all rentals charged to income as fixed charges for this statement and has excluded such components from operating expenses. (B) Represents fixed charges of GPU Service, Inc. and GPU Nuclear, Inc. which are accounted for as operating expenses in the consolidated income statement. GPU has removed the fixed charges from operating expenses and included such amounts in fixed charges as interest on funded indebtedness and other interest for this statement. (C) Includes dividends on subsidiary-obligated mandatorily redeemable preferred securities of $28,888, $28,888, $28,888, $24,816 and $7,692 for the years 1998, 1997, 1996, 1995 and 1994, respectively. (D) GPU, Inc., the parent holding company, does not have any preferred stock outstanding, therefore, the ratio of earnings to combined fixed charges and preferred stock dividends is the same as the ratio of earnings to fixed charges. (E) Calculation of preferred stock dividends of subsidiaries on a pretax basis is as follows:
Twelve Months Ended December 31, -------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ----------- Income before provision for income taxes and preferred stock dividends of subsidiaries and gain on preferred stock reacquisition $637,213 $541,161 $471,302 $721,786 $270,058 Income before extraordinary item in 1998 and preferred stock dividends of subsidiaries and gain on preferred stock reacquisition 397,124 347,625 304,583 457,080 184,380 Pretax earnings ratio 160.5% 155.7% 154.7% 157.9% 146.5% Preferred stock dividends of subsidiaries 11,243 12,524 15,519 16,945 20,692 Preferred stock dividends of subsidiaries on a pretax basis 18,045 19,500 24,008 26,756 30,314
EX-12 24 EX. 12-B JCP&L AND SUBSIDIARY COMPANIES Exhibit 12-B Page 1 of 2 JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands)
Twelve Months Ended December 31, -------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ----------- OPERATING REVENUES $2,069,648 $2,093,972 $2,057,918 $2,035,928 $1,952,425 --------- --------- --------- --------- --------- OPERATING EXPENSES 1,607,589 1,658,382 1,729,532 1,653,387 1,622,399 Interest portion of rentals (A) 11,838 10,614 10,666 12,354 10,187 --------- --------- --------- --------- --------- Net expense 1,595,751 1,647,768 1,718,866 1,641,033 1,612,212 --------- --------- --------- --------- --------- OTHER INCOME AND DEDUCTIONS: Allowance for funds used during construction 2,424 2,319 6,647 7,824 4,143 Other income, net 13,227 1,919 7,202 14,889 21,995 --------- --------- --------- --------- --------- Total other income and deductions 15,651 4,238 13,849 22,713 26,138 --------- --------- --------- --------- --------- EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $ 489,548 $ 450,442 $ 352,901 $ 417,608 $ 366,351 ========= ========= ========= ========= ========= FIXED CHARGES: Interest on funded indebtedness $ 87,261 $ 89,869 $ 89,648 $ 92,602 $ 93,477 Other interest (B) 22,929 25,829 21,847 16,337 14,726 Interest portion of rentals (A) 11,838 10,614 10,666 12,354 10,187 --------- --------- --------- --------- --------- Total fixed charges $ 122,028 $ 126,312 $ 122,161 $ 121,293 $ 118,390 ========= ========= ========= ========= ========= RATIO OF EARNINGS TO FIXED CHARGES 4.01 3.57 2.89 3.44 3.09 ==== ==== ==== ==== ==== Preferred stock dividend requirement 10,065 11,376 13,072 14,457 14,795 Ratio of income before provision for income taxes to net income (C) 165.2% 152.9% 147.6% 148.8% 152.3% Preferred stock dividend requirement on a pretax basis 16,627 17,394 19,294 21,512 22,529 Fixed charges, as above 122,028 126,312 122,161 121,293 118,390 --------- --------- --------- --------- --------- Total fixed charges and preferred stock dividends $ 138,655 $ 143,706 $ 141,455 $ 142,805 $ 140,919 ========= ========= ========= ========= ========= RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 3.53 3.13 2.50 2.92 2.60 ==== ==== ==== ==== ====
Exhibit 12-B Page 2 of 2 JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands) Notes: (A) The Company has included the equivalent of the interest portion of all rentals charged to income as fixed charges for this statement and has excluded such components from Operating Expenses. (B) Includes dividends on company-obligated mandatorily redeemable preferred securities of $10,700, $10,700 and $10,700 for the years 1998, 1997 and 1996, respectively. (C) Represents income before provision for income taxes divided by net income as follows:
Twelve Months Ended December 31, -------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ----------- Income before provision for income taxes $367,520 $324,130 $230,740 $296,315 $247,961 Net Income 222,442 212,014 156,303 199,089 162,841
EX-12 25 EX. 12-C MET-ED AND SUBSIDIARY COMPANIES Exhibit 12-C Page 1 of 2 METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands)
Twelve Months Ended December 31, 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ----------- OPERATING REVENUES $919,594 $943,109 $910,408 $854,674 $801,303 ------- ------- ------- ------- ------- OPERATING EXPENSES 752,168 728,644 733,664 686,183 655,805 Interest portion of rentals (A) 9,784 6,151 5,367 5,186 5,315 ------- ------- ------- ------- ------- Net expense 742,384 722,493 728,297 680,997 650,490 ------- ------- ------- ------- ------- OTHER INCOME AND DEDUCTIONS: Allowance for funds used during construction 943 1,100 1,245 2,430 3,847 Other income/ (expense), net (13,539) 3,371 1,220 129,660 (98,953) ------- ------- ------ ------- ------- Total other income and deductions (12,596) 4,471 2,465 132,090 (95,106) ------- ------- ------ ------- ------- EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $164,614 $225,087 $184,576 $305,767 $ 55,707 ======= ======= ======= ======= ======= FIXED CHARGES: Interest on funded indebtedness $ 42,493 $ 43,885 $ 45,373 $ 45,844 $ 43,270 Other interest (B) 17,194 15,765 14,436 14,147 15,137 Interest portion of rentals (A) 9,784 6,151 5,367 5,186 5,315 ------- ------- ------- ------- ------- Total fixed charges $ 69,471 $ 65,801 $ 65,176 $ 65,177 $ 63,722 ======= ======= ======= ======= ======= RATIO OF EARNINGS TO FIXED CHARGES 2.37 3.42 2.83 4.69 0.87 ==== ==== ==== ==== ==== Preferred stock dividend requirement 483 483 944 944 2,960 Ratio of income before provision for income taxes to net income (C) 164.8% 170.3% 172.9% 162.0% 174.8% Preferred stock dividend requirement on a pretax basis 796 823 1,632 1,529 5,174 Fixed charges, as above 69,471 65,801 65,176 65,177 63,722 ------- ------- ------- ------- ------- Total fixed charges and preferred stock dividends $ 70,267 $ 66,624 $ 66,808 $ 66,706 $ 68,896 ======= ======= ======= ======= ======= RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 2.34 3.38 2.76 4.58 0.81 ==== ==== ==== ==== ====
Exhibit 12-C Page 2 of 2 METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands) Notes: (A) Met-Ed has included the equivalent of the interest portion of all rentals charged to income as fixed charges for this statement and has excluded such components from Operating Expenses. (B) Includes dividends on company-obligated mandatorily redeemable preferred securities of $9,000, $9,000, $9,000, $9,000 and $3,200 for the years 1998, 1997, 1996, 1995 and 1994, respectively. (C) Represents income before provision for income taxes divided by income before extraordinary item/net income as follows:
Twelve Months Ended December 31, 1998 1997 1996 1995 1994* ---------- ---------- ---------- ---------- ----------- Income before provision for income taxes $ 95,143 $159,286 $119,400 $240,590 $ - Income before extraordinary item/Net Income 57,720 93,517 69,067 148,540 - * For the twelve months ended December 31, 1994, the ratio was based on the composite income tax rate for 1994.
EX-12 26 EX. 12-D PENELEC AND SUBSIDIARY COMPANIES Exhibit 12-D Page 1 of 2 PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands)
Twelve Months Ended December 31, -------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ----------- OPERATING REVENUES $1,032,226 $1,052,936 $1,019,645 $ 981,329 $ 944,744 --------- --------- --------- --------- --------- OPERATING EXPENSES 861,453 824,596 840,288 793,320 776,215 Interest portion of rentals (A) 4,970 4,236 4,490 4,911 3,632 --------- --------- --------- --------- --------- Net expense 856,483 820,360 835,798 788,409 772,583 --------- --------- --------- --------- --------- OTHER INCOME AND DEDUCTIONS: Allowance for funds used during construction 1,897 2,164 2,780 4,417 3,837 Other income/ (expense), net (6,429) 2,469 (825) 56,454 (71,287) --------- --------- --------- --------- --------- Total other income and deductions (4,532) 4,633 1,955 60,871 (67,450) --------- --------- --------- --------- --------- EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $ 171,211 $ 237,209 $ 185,802 $ 253,791 $ 104,711 ========= ========= ========= ========= ========= FIXED CHARGES: Interest on funded indebtedness $ 47,729 $ 49,125 $ 49,654 $ 49,875 $ 46,439 Other interest (B) 17,385 17,526 16,300 17,616 11,913 Interest portion of rentals (A) 4,970 4,236 4,490 4,911 3,632 --------- --------- --------- --------- --------- Total fixed charges $ 70,084 $ 70,887 $ 70,444 $ 72,402 $ 61,984 ========= ========= ========= ========= ========= RATIO OF EARNINGS TO FIXED CHARGES 2.44 3.35 2.64 3.51 1.69 ==== ==== ==== ==== ==== Preferred stock dividend requirement 695 665 1,503 1,544 2,937 Ratio of income before provision for income taxes to net income (C) 172.6% 175.0% 165.2% 163.4% 134.4% Preferred stock dividend requirement on a pretax basis 1,200 1,164 2,483 2,523 3,946 Fixed charges, as above 70,084 70,887 70,444 72,402 61,984 --------- --------- --------- --------- --------- Total fixed charges and preferred stock dividends $ 71,284 $ 72,051 $ 72,927 $ 74,925 $ 65,930 ========= ========= ========= ========= ========= RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 2.40 3.29 2.55 3.39 1.59 ==== ==== ==== ==== ====
Exhibit 12-D Page 2 of 2 PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands) Notes: (A) Penelec has included the equivalent of the interest portion of all rentals charged to income as fixed charges for this statement and has excluded such components from Operating Expenses. (B) Includes dividends on company-obligated mandatorily redeemable preferred securities of $9,188, $9,188, $9,188, $9,188 and $4,492 for the years 1998, 1997, 1996, 1995 and 1994, respectively. (C) Represents income before provision for income taxes divided by income before extraordinary item/net income as follows:
Twelve Months Ended December 31, 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ----------- Income before provision for income taxes $101,127 $166,322 $115,358 $181,389 $42,727 Income before extraordinary item/Net Income 58,590 95,023 69,809 111,010 31,799
EX-21 27 JCP&L Exhibit 21(A) JERSEY CENTRAL POWER & LIGHT COMPANY SUBSIDIARIES OF THE REGISTRANT NAME OF STATE OF SUBSIDIARIES BUSINESS INCORPORATION - ------------ -------- ------------- JCP&L CAPITAL, L.P. SPECIAL-PURPOSE DELAWARE EX-21 28 MET-ED Exhibit 21(B) METROPOLITAN EDISON COMPANY SUBSIDIARIES OF THE REGISTRANT NAME OF STATE OF SUBSIDIARIES BUSINESS INCORPORATION - ------------ -------- ------------- YORK HAVEN POWER COMPANY HYDROELECTRIC GENERATING NEW YORK STATION MET-ED CAPITAL, L.P. SPECIAL-PURPOSE DELAWARE EX-21 29 PENELEC Exhibit 21(C) PENNSYLVANIA ELECTRIC COMPANY SUBSIDIARIES OF THE REGISTRANT NAME OF STATE OF SUBSIDIARIES BUSINESS INCORPORATION ------------ -------- ------------- NINEVEH WATER WATER SERVICE PENNSYLVANIA COMPANY THE WAVERLY ELECTRIC LIGHT ELECTRIC DISTRIBUTION PENNSYLVANIA AND POWER COMPANY PENELEC CAPITAL, L.P. SPECIAL-PURPOSE DELAWARE EX-23 30 GPU, INC. EXHIBIT 23-A CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of GPU, Inc. on Form S-8 (File Nos. 33-32325, 33-32326, 33-34661, 33-32327, 33-51037, 33-32328 and 33-51035), and Form S-3 (File Nos. 33-30765 and 33-10485) of our report dated February 3, 1999, on our audits of the consolidated financial statements and financial statement schedule of GPU, Inc. and Subsidiaries as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, which report is included in this Annual Report on Form 10-K, for the year ended December 31, 1998. PricewaterhouseCoopers LLP New York, New York March 30, 1999 EX-23 31 JCP&L EXHIBIT 23-B CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Jersey Central Power & Light Company on Form S-3 (File Nos. 33-49463, 33-57905 and 33-57905-01) of our report dated February 3, 1999, on our audits of the consolidated financial statements and financial statement schedule of Jersey Central Power & Light Company and Subsidiary as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, which report is included in this Annual Report on Form 10-K, for the year ended December 31, 1998. PricewaterhouseCoopers LLP New York, New York March 30, 1999 EX-23 32 MET-ED EXHIBIT 23-C CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Metropolitan Edison Company on Form S-3 (File Nos. 33-51001, 33-53673, 33-62967, 33-53673-01, 33-62967-01 and 33-62967-02) of our report dated February 3, 1999, on our audits of the consolidated financial statements and financial statement schedule of Metropolitan Edison Company and Subsidiaries as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, which report is included in this Annual Report on Form 10-K, for the year ended December 31, 1998. PricewaterhouseCoopers LLP New York, New York March 30, 1999 EX-23 33 PENELEC EXHIBIT 23-D CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Pennsylvania Electric Company on Form S-3 (File Nos. 33-49669, 33-53677, 33-62295, 33-53677-01, 33-62295-01 and 33-62295-02) of our report dated February 3, 1999, on our audits of the consolidated financial statements and financial statement schedule of Pennsylvania Electric Company and Subsidiaries as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, which report is included in this Annual Report on Form 10-K, for the year ended December 31, 1998. PricewaterhouseCoopers LLP New York, New York March 30, 1999 EX-27 34 GPU FDS 27A
UT 0000040779 GPU, INC. 1,000 US DOLLARS 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1 PER-BOOK 6,804,895 2,299,943 1,062,409 6,120,862 0 16,288,109 331,958 1,011,310 2,199,121 3,464,648 416,500 66,478 3,825,584 368,607 0 0 561,183 2,500 2,593 126,480 7,453,536 16,288,109 4,248,792 238,241 3,352,713 3,590,954 657,838 119,446 777,284 389,232 360,126 0 360,126 258,058 177,483 797,176 2.83 2.83 INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) OF ($31,304). INCLUDES REACQUIRED COMMON STOCK OF $77,741. INCLUDES AMOUNT FOR SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $330,000. INCLUDES AMOUNT FOR SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $28,888 AND PREFERRED STOCK DIVIDENDS OF SUBSIDIARIES OF $11,243. INCLUDES MINORITY INTEREST NET (INCOME)/LOSS OF ($2,171) AND AN AFTER-TAX CHARGE FOR AN EXTRAORDINARY ITEM OF $25,755 ($.20 PER SHARE).
EX-27 35 JCP&L FDS 27B
UT 0000053456 JERSEY CENTRAL POWER & LIGHT COMPANY 1,000 US DOLLARS 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1 PER-BOOK 2,684,782 548,744 390,437 958,159 0 4,582,122 153,713 510,769 892,591 1,557,073 211,500 37,741 1,173,532 53,300 0 69,044 12 2,500 0 85,366 1,392,054 4,582,122 2,069,648 164,445 1,607,589 1,772,034 297,614 33,380 330,994 108,552 222,442 10,065 212,377 195,000 87,261 434,873 0 0 INCLUDES ACCUMULATED OTHER COMPREHENSIVE LOSS OF $425. INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $125,000. INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $10,700. REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
EX-27 36 MET-ED FDS 27C
UT 0000065350 METROPOLITAN EDISON COMPANY 1,000 US DOLLARS 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1 PER-BOOK 1,286,388 222,936 207,604 2,348,041 0 4,064,969 66,273 370,200 250,586 687,059 100,000 12,056 546,904 16,400 0 63,140 30,024 0 0 27,135 2,582,251 4,064,969 919,594 42,979 752,168 795,147 124,447 (7,853) 116,594 58,874 50,915 483 50,432 85,000 42,493 173,548 0 0 INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $16,520. REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES. INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $9,000. INCLUDES AN AFTER-TAX CHARGE FOR AN EXTRAORDINARY ITEM OF $6,805. REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
EX-27 37 PENELEC FDS 27D
UT 0000077227 PENNSYLVANIA ELECTRIC COMPANY 1,000 US DOLLARS 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1 PER-BOOK 1,664,862 90,508 243,859 2,525,578 0 4,524,807 105,812 285,486 376,006 767,304 105,000 16,681 626,434 31,900 0 54,123 50,012 0 2,593 13,979 2,856,781 4,524,807 1,032,226 45,150 861,453 906,603 125,623 (3,816) 121,807 63,217 39,640 695 38,945 65,000 47,729 192,135 0 0 INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $8,353. REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES. INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $9,188. INCLUDES AN AFTER-TAX CHARGE FOR AN EXTRAORDINARY ITEM OF $18,950. REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
EX-99 38 GENERATION DIVESTITURE - 1998 PRO FORMA FIN.STMTS. EXHIBIT 99 GENERATION DIVESTITURE - 1998 PRO-FORMA FINANCIAL STATEMENTS ACQUISITION OR DISPOSITION OF ASSETS In October 1997, GPU announced its intention to begin a process to sell, through a competitive bid process, up to all of the fossil-fuel and hydroelectric generating facilities owned by the GPU Energy companies (Jersey Central Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed), Pennsylvania Electric Company (Penelec)). These facilities, comprised of 26 operating stations, support organizations and development sites, total approximately 5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300 MW; Penelec 2,100 MW) of capacity and have a net book value of approximately $1.1 billion (JCP&L $272 million; Met-Ed $283 million; Penelec $508 million) at December 31, 1998. In August 1998, after the completion of an auction process, Penelec and New York State Electric & Gas Corporation (NYSEG) entered into definitive agreements with Edison Mission Energy (Edison) to sell the Homer City Station for a total purchase price of approximately $1.8 billion. The Homer City Station is a 1,884 MW three unit coal-fired generation station located in Indiana County, Pennsylvania. In March 1999, the sale of Homer City to EME Homer City Generation, L.P., a subsidiary of Edison, was completed. Penelec and NYSEG each owned a 50% interest in the station and shared equally in the net sale proceeds. In November 1998, the GPU Energy companies entered into definitive agreements with Sithe Energies and FirstEnergy Corporation to sell all their remaining fossil-fuel and hydroelectric generating facilities other than JCP&L's 50% interest in the Yards Creek Pumped Storage Facility (Yards Creek) for a total purchase price of approximately $1.7 billion (JCP&L $442 million; Met-Ed $677 million; Penelec $604 million). Penelec's 20% undivided ownership interest in the Seneca Pumped Storage Facility (Seneca) is being sold to FirstEnergy for $43 million, which is included in this amount. The sales are expected to be completed by mid-1999, subject to the timely receipt of the necessary regulatory and other approvals. Sithe has agreed to assume the collective bargaining agreements covering union employees and to fill bargaining positions on the basis of seniority. Sithe has also agreed to use reasonable efforts to offer positions to GPU Generation, Inc. (Genco) non-bargaining employees. The GPU Energy companies have agreed to assume up to $20 million (JCP&L $7 million; Met-Ed $9 million; Penelec $4 million) of employee severance costs for employees not hired by Sithe. In October 1998, the GPU Energy companies entered into definitive agreements to sell Three Mile Island Unit 1 (TMI-1) to AmerGen Energy Company, LLC (AmerGen), which is a joint venture between PECO Energy and British Energy. Terms of the purchase agreements are summarized as follows: - - The total cash purchase price is approximately $100 million, which represents $23 million to be paid at closing, and $77 million for the nuclear fuel in the reactor to be paid in five equal annual installments beginning one year after the closing. The purchase price and closing payment are subject to certain adjustments for capital expenditures and other items. 1 - - AmerGen will make contingent payments of up to $80 million for the period January 1, 2002 through December 31, 2010 depending on the actual energy market clearing prices through 2010. - - GPU will purchase the energy and capacity from TMI-1 from the closing through December 31, 2001, at predetermined rates. - - At closing, GPU will make additional deposits into the TMI-1 decommissioning trusts to bring the trust totals up to $320 million and AmerGen will then assume all liability and obligation for decommissioning TMI-1. - - GPU will continue to own and hold the license for Three Mile Island Unit 2 (TMI-2). No liability for TMI-2 or its decommissioning will be assumed by AmerGen. AmerGen will, however, maintain TMI-2 under contract with GPU. - - AmerGen will employ all employees located at TMI-1 at closing, and will also have the opportunity to offer positions to GPU Nuclear, Inc.'s headquarters staff. GPU will be responsible for all severance payments associated with these employees for a one-year period following closing. AmerGen will assume the current collective bargaining agreement covering TMI-1 union employees. The sale is subject to various conditions, including the receipt of satisfactory federal and state regulatory approvals. Nuclear Regulatory Commission approval of the TMI-1 license transfer to AmerGen, as well as certain rulings from the Internal Revenue Service, will be necessary with respect to the maintenance or transfer of the decommissioning trusts. There can be no assurance as to the outcome of these matters. The net proceeds from these generation asset sales will be used to reduce the capitalization of the respective GPU Energy companies, repurchase GPU, Inc. common stock, fund previously incurred liabilities in accordance with the Pennsylvania settlement, and may also be applied to reduce short-term debt, finance further acquisitions, and reduce acquisition debt of the GPUI Group. Financial Statements and Pro Forma Financial Information The following consolidated financial statements are filed with this exhibit: Actual (audited) and Pro Forma (unaudited) Consolidated Balance Sheets at December 31, 1998 for: GPU, Inc. and Subsidiaries Jersey Central Power & Light and Subsidiary Metropolitan Edison Company and Subsidiaries Pennsylvania Electric Company and Subsidiaries 2 Actual (audited) and Pro Forma (unaudited) Consolidated Statements of Income For The Year Ended December 31, 1998 for: GPU, Inc. and Subsidiaries Jersey Central Power & Light and Subsidiary Metropolitan Edison Company and Subsidiaries Pennsylvania Electric Company and Subsidiaries The following major assumptions were used in preparing the pro forma financial statements of GPU, Inc., JCP&L, Met-Ed and Penelec: Assumes an asset sale date of January 1, 1998. A 41% effective tax rate. Estimate of selling/transaction costs considering costs already incurred and estimated future expenditures. Replacement power for the facilities sold is assumed to have been purchased at $21.80/MWH (the average 1998 Pennsylvania-New Jersey-Maryland interchange rate). Capacity is assumed to be priced at $70/MW day. Assumes no change in rate structure during 1998 for Pennsylvania or New Jersey (JCP&L Levelized Energy Adjustment Clause and Pennsylvania deferral of above market nonutility generation still in effect). All gains and losses on the sales have been deferred except for the Federal Energy Regulatory Commission jurisdictional portion which is credited to retained earnings. TMI-1 decommissioning trust funds transferred to AmerGen and any gains not subject to taxation. The tax effect of the asset sales as it relates to depreciation has been analyzed and is reflected in the pro forma entries. The tax effect of other items (mainly employee benefits), which are expected to primarily affect the balance sheet, are not reflected in the pro forma entries. Pro forma entries are presented up to the point of receipt of cash proceeds. No assumptions were made regarding the utilization of proceeds, including Penelec First Mortgage Bond redemption and intended re-issuance of unsecured debt in the second quarter of 1999. A general statement on the use of proceeds is included in our general description of the transactions at the beginning of the exhibit. 3 Description of Pro-forma Adjustments The Pro-forma financial statements reflect the following transactions: 1. The sale of the GPU Energy companies' assets as described above including the recording of the gain on the sale, reversal of related accumulated depreciation balances and deferral of the gain pending ratemaking determination. 2. The reversal of tax balances from the balance sheet related to the assets sold. 3. The recording of selling costs related to the sale (includes legal fees, advisory fees, employee benefits, etc.). 4. The removal from the income statement of fuel, depreciation and operations and maintenance expenses which would not have been incurred if assets were sold at January 1, 1998. 5. The recording of the effect of purchasing power and capacity from external sources which would have replaced the energy from the assets sold. 6. The elimination of the income statement tax effects of the generation assets sold assuming the sale was effective January 1, 1998. 4
GPU, Inc. and Subsidiaries Consolidated Balance Sheets Actual (audited) and Pro Forma (unaudited) December 31, 1998 ------------------------------------------- (In Thousands) ASSETS Actual Adjustments Pro Forma ----------- ----------- ----------- Utility Plant: Utility plant in service $11,025,439 $(2,480,900) $ 8,544,539 Accumulated depreciation (4,460,341) 1,608,700 (2,851,641) ---------- ---------- ----------- Net utility plant in service 6,565,098 (872,200) 5,692,898 Construction work in progress 94,005 (26,300) 67,705 Other, net 145,792 (54,300) 91,492 ---------- ---------- ----------- Net utility plant 6,804,895 (952,800) 5,852,095 ---------- ---------- ----------- Other Property and Investments: GPUI Group equity investments 682,125 - 682,125 Goodwill, net 545,262 - 545,262 Nuclear decommissioning trusts, at market 716,274 (174,600) 541,674 Other, net 356,282 - 356,282 ---------- ---------- ----------- Total other property and investments 2,299,943 (174,600) 2,125,343 ---------- ---------- ----------- Current Assets: Cash and temporary cash investments 72,755 2,117,354 2,190,109 Special deposits 62,673 - 62,673 Accounts receivable: Customers, net 286,278 - 286,278 Other 126,088 64,300 190,388 Unbilled revenues 144,076 - 144,076 Materials and supplies, at average cost or less: Construction and maintenance 155,827 (116,600) 39,227 Fuel 42,697 (42,469) 228 Investments held for sale 48,473 - 48,473 Deferred income taxes 47,521 - 47,521 Prepayments 76,021 - 76,021 ---------- ---------- ----------- Total current assets 1,062,409 2,022,585 3,084,994 ---------- ---------- ----------- Deferred Debits and Other Assets: Regulatory assets, net: Competitive transition charge 1,023,815 - 1,023,815 Other regulatory assets, net 2,882,413 (72,900) 2,809,513 Deferred income taxes 2,004,278 573,900 2,578,178 Other 210,356 62,500 272,856 ---------- ---------- ----------- Total deferred debits and other assets 6,120,862 563,500 6,684,362 ---------- ---------- ----------- Total Assets $16,288,109 $ 1,458,685 $17,746,794 ========== ========== =========== 5
GPU, Inc. and Subsidiaries Consolidated Balance Sheets Actual (audited) and Pro Forma (unaudited) December 31, 1998 ------------------------------------------- (In Thousands) LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma ----------- ----------- ----------- Capitalization: Common stock $ 331,958 $ - $ 331,958 Capital surplus 1,011,310 - 1,011,310 Retained earnings and accumulated other comprehensive income/(loss) 2,199,121 (151,299) 2,047,822 ---------- ---------- ----------- Total 3,542,389 (151,299) 3,391,090 Reacquired common stock, at cost (77,741) - (77,741) ---------- ---------- ----------- Total common stockholders' equity 3,464,648 (151,299) 3,313,349 Cumulative preferred stock: With mandatory redemption 86,500 - 86,500 Without mandatory redemption 66,478 - 66,478 Subsidiary-obligated mandatorily redeemable preferred securities 330,000 - 330,000 Long-term debt 3,825,584 - 3,825,584 ---------- ---------- ----------- Total capitalization 7,773,210 (151,299) 7,621,911 ---------- ---------- ----------- Current Liabilities: Securities due within one year 563,683 - 563,683 Notes payable 368,607 - 368,607 Obligations under capital leases 126,480 (54,300) 72,180 Accounts payable 394,815 (25,200) 369,615 Taxes accrued 92,339 658,600 750,939 Interest accrued 81,931 - 81,931 Deferred energy credits 2,411 (107,500) (105,089) Other 377,594 39,400 416,994 ---------- ---------- ----------- Total current liabilities 2,007,860 511,000 2,518,860 ---------- ---------- ----------- Deferred Credits and Other Liabilities: Deferred income taxes 3,044,947 (131,700) 2,913,247 Unamortized investment tax credits 114,308 1,600 115,908 Three Mile Island Unit 2 future costs 483,515 - 483,515 Nonutility generation contract loss liability 1,803,820 - 1,803,820 Other 1,060,449 1,229,084 2,289,533 ---------- ---------- ----------- Total deferred credits and other liabilities 6,507,039 1,098,984 7,606,023 ---------- ---------- ----------- Total Liabilities and Capitalization $16,288,109 $ 1,458,685 $17,746,794 ========== ========== =========== 6
GPU, Inc. and Subsidiaries Consolidated Statements of Income Actual (audited) and Pro Forma (unaudited) For The Year Ended December, 31, 1998 --------------------------------------------- (In Thousands) Actual Adjustments Pro Forma ----------- ----------- ----------- Operating Revenues $4,248,792 $(163,000) $4,085,792 ----------- ----------- ----------- Operating Expenses: Fuel 407,105 (335,270) 71,835 Power purchased and interchanged 1,122,841 678,462 1,801,303 Deferral of energy and capacity costs, net (25,542) (107,500) (133,042) Other operation and maintenance 1,106,913 (216,346) 890,567 Depreciation and amortization 522,094 (91,300) 430,794 Taxes, other than income taxes 219,302 - 219,302 ----------- ----------- ----------- Total operating expenses 3,352,713 (71,954) 3,280,759 ----------- ----------- ----------- Operating Income Before Income Taxes 896,079 (91,046) 805,033 Income taxes 238,241 (36,200) 202,041 ----------- ----------- ----------- Operating Income 657,838 (54,846) 602,992 ----------- ----------- ----------- Other Income and Deductions: Allowance for other funds used during construction 916 - 916 Equity in undistributed earnings/(losses) of affiliates 72,012 - 72,012 Other income, net 48,366 - 48,366 Income taxes (1,848) - (1,848) ----------- ----------- ----------- Total other income and deductions 119,446 - 119,446 ----------- ----------- ----------- Income Before Interest Charges and Preferred Dividends 777,284 (54,846) 722,438 Interest Charges and Preferred Dividends: Long-term debt 318,396 - 318,396 Subsidiary-obligated mandatorily redeemable preferred securities 28,888 - 28,888 Other interest 35,053 - 35,053 Allowance for borrowed funds used during construction (4,348) - (4,348) Preferred stock dividends of subsidiaries 11,243 - 11,243 ----------- ----------- ----------- Total interest charges and preferred dividends 389,232 - 389,232 ----------- ----------- ----------- Minority interest net income 2,171 - 2,171 ----------- ----------- ----------- Income Before Extraordinary Item 385,881 (54,846) 331,035 Extraordinary item (net of income tax benefit of $16,300) (25,755) - (25,755) ----------- ----------- ----------- Net Income $ 360,126 $ (54,846) 305,280 =========== =========== =========== Basic- Earnings Per Average Common Share Before Extraordinary Item $ 3.03 $ (0.43) $ 2.60 Extraordinary Item (0.20) - (0.20) ----------- ----------- ----------- Earnings Per Average Common Share $ 2.83 $ (0.43) $ 2.40 =========== =========== =========== Average Common Shares Outstanding (In Thousands) 127,093 127,093 127,093 =========== =========== =========== Diluted-Earnings Per Average Common Share Before Extraordinary Item $ 3.03 $ (0.43) $ 2.60 Extraordinary Item (0.20) - (0.20) ----------- ----------- ----------- Earnings Per Average Common Share $ 2.83 $ (0.43) $ 2.40 =========== =========== =========== Average Common Shares Outstanding (In Thousands) 127,312 127,312 127,312 =========== =========== =========== 7
Jersey Central Power & Light Company and Subsidiary Consolidated Balance Sheets Actual (audited) and Pro Forma (unaudited) ---------------------------------------------------- December 31, 1998 (In Thousands) ASSETS Actual Adjustments Pro Forma ----------- ----------- ----------- Utility Plant: Utility plant in service $ 4,755,273 $ (606,800) $ 4,148,473 Accumulated depreciation (2,217,108) 403,100 (1,814,008) ----------- ----------- ----------- Net utility plant in service 2,538,165 (203,700) 2,334,465 Construction work in progress 48,126 (6,100) 42,026 Other, net 98,491 (13,500) 84,991 ----------- ----------- ----------- Net utility plant 2,684,782 (223,300) 2,461,482 ----------- ----------- ----------- Other Property and Investments: Nuclear decommissioning trusts, at market 422,277 (48,300) 373,977 Other, net 126,467 - 126,467 ----------- ----------- ----------- Total other property and investments 548,744 (48,300) 500,444 ----------- ----------- ----------- Current Assets: Cash and temporary cash investments 1,850 327,300 329,150 Special deposits 6,047 - 6,047 Accounts receivable: Customers, net 152,120 - 152,120 Other 32,562 7,100 39,662 Unbilled revenues 56,391 - 56,391 Materials and supplies, at average cost or less: Construction and maintenance 79,863 (71,100) 8,763 Fuel 13,144 (13,144) - Deferred income taxes 20,812 - 20,812 Prepayments 27,648 - 27,648 ----------- ----------- ----------- Total current assets 390,437 250,156 640,593 ----------- ----------- ----------- Deferred Debits and Other Assets: Other regulatory assets, net 753,885 (47,500) 706,385 Deferred income taxes 179,237 45,300 224,537 Other 25,037 15,600 40,637 ----------- ----------- ----------- Total deferred debits and other assets 958,159 13,400 971,559 ----------- ----------- ----------- Total Assets $ 4,582,122 $ (8,044) $ 4,574,078 =========== =========== =========== 8
Jersey Central Power & Light Company and Subsidiary Consolidated Balance Sheets Actual (audited) and Pro Forma (unaudited) December 31, 1998 ---------------------------------------------------- (In Thousands) LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma ----------- ----------- ----------- Capitalization: Common stock $ 153,713 $ - $ 153,713 Capital surplus 510,769 - 510,769 Retained earnings and accumulated other comprehensive income/(loss) 892,591 (25,400) 867,191 ----------- ----------- ----------- Total common stockholder's equity 1,557,073 (25,400) 1,531,673 Cumulative preferred stock: With mandatory redemption 86,500 - 86,500 Without mandatory redemption 37,741 - 37,741 Company-obligated mandatorily redeemable preferred securities 125,000 - 125,000 Long-term debt 1,173,532 - 1,173,532 ----------- ----------- ----------- Total capitalization 2,979,846 (25,400) 2,954,446 ----------- ----------- ----------- Current Liabilities: Securities due within one year 2,512 - 2,512 Notes payable 122,344 - 122,344 Obligations under capital leases 85,366 (13,500) 71,866 Accounts payable: Affiliates 40,861 - 40,861 Other 80,233 (4,200) 76,033 Taxes accrued 5,559 70,800 76,359 Interest accrued 26,678 - 26,678 Deferred energy credits 2,411 (107,500) (105,089) Other 104,408 39,400 143,808 ----------- ----------- ----------- Total current liabilities 470,372 (15,000) 455,372 ----------- ----------- ----------- Deferred Credits and Other Liabilities: Deferred income taxes 670,961 (33,600) 637,361 Unamortized investment tax credits 50,225 - 50,225 Nuclear fuel disposal fee 141,270 - 141,270 Three Mile Island Unit 2 future costs 120,904 - 120,904 Other 148,544 65,956 214,500 ----------- ----------- ----------- Total deferred credits and other liabilities 1,131,904 32,356 1,164,260 ----------- ----------- ----------- Total Liabilities and Capitalization $ 4,582,122 $ (8,044) $ 4,574,078 ========== ========== =========== 9
Jersey Central Power & Light Company and Subsidiary Consolidated Statements of Income Actual (audited) and Pro Forma (unaudited) For The Year Ended December, 31, 1998 ------------------------------------------------------ (In Thousands) Actual Adjustments Pro Forma ----------- ----------- ----------- Operating Revenues $2,069,648 $ (109,700) $1,959,948 ----------- ----------- ----------- Operating Expenses: Fuel 86,431 (59,211) 27,220 Power purchased and interchanged: Affiliates 57,643 (57,643) - Others 658,742 154,100 812,842 Deferral of energy and capacity costs, net (25,542) (107,500) (133,042) Other operation and maintenance 485,054 (53,446) 431,608 Depreciation and amortization 250,675 14,000 264,675 Taxes, other than income taxes 94,586 - 94,586 ----------- ----------- ----------- Total operating expenses 1,607,589 (109,700) 1,497,889 ----------- ----------- ----------- Operating Income Before Income Taxes 462,059 - 462,059 Income taxes 164,445 - 164,445 ----------- ----------- ----------- Operating Income 297,614 - 297,614 ----------- ----------- ----------- Other Income and Deductions: Allowance for other funds used during construction 786 - 786 Other income, net 13,227 - 13,227 Income taxes 19,367 - 19,367 ----------- ----------- ----------- Total other income and deductions 33,380 - 33,380 ----------- ----------- ----------- Income Before Interest Charges 330,994 - 330,994 ----------- ----------- ----------- Interest Charges: Long-term debt 87,261 - 87,261 Company-obligated mandatorily redeemable preferred securities 10,700 - 10,700 Other interest 12,229 - 12,229 Allowance for borrowed funds used during construction (1,638) - (1,638) ----------- ----------- ----------- Total interest charges 108,552 - 108,552 ----------- ----------- ----------- Net Income 222,442 - 222,442 Preferred stock dividends 10,065 - 10,065 ----------- ----------- ----------- Earnings Available for Common Stock $ 212,377 $ - $ 212,377 =========== =========== =========== 10
Metropolitan Edison Company and Subsidiaries Consolidated Balance Sheets Actual (audited) and Pro Forma (unaudited) December 31, 1998 --------------------------------------------- (In Thousands) ASSETS Actual Adjustments Pro Forma ----------- ----------- ----------- Utility Plant: Utility plant in service $ 2,247,627 $ (772,500) $ 1,475,127 Accumulated depreciation (1,008,438) 575,200 (433,238) ----------- ----------- ----------- Net utility plant in service 1,239,189 (197,300) 1,041,889 Construction work in progress 19,380 (11,700) 7,680 Other, net 27,819 (27,100) 719 ----------- ----------- ----------- Net utility plant 1,286,388 (236,100) 1,050,288 ----------- ----------- ----------- Other Property and Investments: Nuclear decommissioning trusts, at market 211,194 (88,000) 123,194 Other, net 11,742 - 11,742 ----------- ----------- ----------- Total other property and investments 222,936 (88,000) 134,936 ----------- ----------- ----------- Current Assets: Cash and temporary cash investments 442 481,977 482,419 Special deposits 1,062 - 1,062 Accounts receivable: Customers, net 60,012 - 60,012 Other 41,895 8,700 50,595 Unbilled revenues 43,687 - 43,687 Materials and supplies, at average cost or less: Construction and maintenance 24,727 (17,300) 7,427 Fuel 12,218 (12,218) - Deferred income taxes 2,945 - 2,945 Prepayments 20,616 - 20,616 ----------- ----------- ----------- Total current assets 207,604 461,159 668,763 ----------- ----------- ----------- Deferred Debits and Other Assets: Regulatory assets, net: Competitive transition charge 680,213 - 680,213 Other regulatory assets, net 921,934 (5,000) 916,934 Deferred income taxes 714,202 143,400 857,602 Other 31,692 31,200 62,892 ----------- ----------- ----------- Total deferred debits and other assets 2,348,041 169,600 2,517,641 ----------- ----------- ----------- Total Assets $ 4,064,969 $ 306,659 $ 4,371,628 =========== =========== =========== 11
Metropolitan Edison Company and Subsidiaries Consolidated Balance Sheets Actual (audited) and Pro Forma (unaudited) December 31, 1998 ------------------------------------------- (In Thousands) LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma ----------- ----------- ----------- Capitalization: Common stock $ 66,273 $ - $ 66,273 Capital surplus 370,200 - 370,200 Retained earnings and accumulated other comprehensive income 250,586 (62,676) 187,910 ----------- ----------- ----------- Total common stockholder's equity 687,059 (62,676) 624,383 Cumulative preferred stock 12,056 - 12,056 Company-obligated mandatorily redeemable preferred securities 100,000 - 100,000 Long-term debt 546,904 - 546,904 ----------- ----------- ----------- Total capitalization 1,346,019 (62,676) 1,283,343 ----------- ----------- ----------- Current Liabilities: Securities due within one year 30,024 - 30,024 Notes payable 79,540 - 79,540 Obligations under capital leases 27,135 (27,100) 35 Accounts payable: Affiliates 75,933 - 75,933 Other 102,390 (7,700) 94,690 Taxes accrued 19,463 140,500 159,963 Interest accrued 16,747 - 16,747 Other 42,598 - 42,598 ----------- ----------- ----------- Total current liabilities 393,830 105,700 499,530 ----------- ----------- ----------- Deferred Credits and Other Liabilities: Deferred income taxes 1,010,982 (12,500) 998,482 Unamortized investment tax credits 27,157 600 27,757 Three Mile Island Unit 2 future costs 241,707 - 241,707 Nuclear fuel disposal fee 31,912 - 31,912 Nonutility generation contract loss liability 787,440 - 787,440 Other 225,922 275,535 501,457 ----------- ----------- ----------- Total deferred credits and other liabilities 2,325,120 263,635 2,588,755 ----------- ----------- ----------- Total Liabilities and Capitalization $ 4,064,969 $ 306,659 $ 4,371,628 =========== =========== =========== 12
Metropolitan Edison Company and Subsidiaries Consolidated Statements of Income Actual (audited) and Pro Forma (unaudited) For The Year Ended December, 31, 1998 ----------------------------------------------- (In Thousands) Actual Adjustments Pro Forma ----------- ----------- ----------- Operating Revenues $ 919,594 $ (32,400) $ 887,194 ----------- ----------- ----------- Operating Expenses: Fuel 99,511 (99,511) - Power purchased and interchanged: Affiliates 17,766 (17,766) - Others 220,095 242,700 462,795 Other operation and maintenance 247,189 (83,800) 163,389 Depreciation and amortization 109,148 (47,600) 61,548 Taxes, other than income taxes 58,459 - 58,459 ----------- ----------- ----------- Total operating expenses 752,168 (5,977) 746,191 ----------- ----------- ----------- Operating Income Before Income Taxes 167,426 (26,423) 141,003 Income taxes 42,979 (10,400) 32,579 ----------- ----------- ----------- Operating Income 124,447 (16,023) 108,424 ----------- ----------- ----------- Other Income and Deductions: Allowance for other funds used during construction 130 - 130 Other income/(expense), net (13,539) - (13,539) Income taxes 5,556 - 5,556 ----------- ----------- ----------- Total other income and deductions (7,853) - (7,853) ----------- ----------- ----------- Income Before Interest Charges 116,594 (16,023) 100,571 ----------- ----------- ----------- Interest Charges: Long-term debt 42,493 - 42,493 Company-obligated mandatorily redeemable preferred securities 9,000 - 9,000 Other interest 8,194 - 8,194 Allowance for borrowed funds used during construction (813) - (813) ----------- ----------- ----------- Total interest charges 58,874 - 58,874 ----------- ----------- ----------- Income Before Extraordinary Item 57,720 (16,023) 41,697 Extraordinary item (net of income tax benefit of $4,708) (6,805) - (6,805) ----------- ----------- ----------- Net Income 50,915 (16,023) 34,892 ----------- ----------- ----------- Preferred stock dividends 483 - 483 Earnings Available for Common Stock $ 50,432 $ (16,023) $ 34,409 =========== =========== =========== 13
Pennsylvania Electric Company and Subsidiaries Consolidated Balance Sheets Actual (audited) and Pro Forma (unaudited) December 31, 1998 ------------------------------------------------ (In Thousands) ASSETS Actual Adjustments Pro Forma ----------- ----------- ----------- Utility Plant: Utility plant in service $ 2,802,360 $(1,101,600) $ 1,700,760 Accumulated depreciation (1,175,842) 630,400 (545,442) ----------- ----------- ----------- Net utility plant in service 1,626,518 (471,200) 1,155,318 Construction work in progress 18,862 (8,500) 10,362 Other, net 19,482 (13,700) 5,782 ----------- ----------- ----------- Net utility plant 1,664,862 (493,400) 1,171,462 ----------- ----------- ----------- Other Property and Investments: Nuclear decommissioning trusts, at market 82,803 (38,300) 44,503 Other, net 7,705 - 7,705 ----------- ----------- ----------- Total other property and investments 90,508 (38,300) 52,208 ----------- ----------- ----------- Current Assets: Cash and temporary cash investments 2,750 1,308,077 1,310,827 Special deposits 2,632 - 2,632 Accounts receivable: Customers, net 69,887 - 69,887 Other 28,893 48,500 77,393 Unbilled revenues 43,998 - 43,998 Materials and supplies, at average cost or less: Construction and maintenance 39,452 (28,200) 11,252 Fuel 17,107 (17,107) - Deferred income taxes 7,589 - 7,589 Prepayments 31,551 - 31,551 ----------- ----------- ----------- Total current assets 243,859 1,311,270 1,555,129 ----------- ----------- ----------- Deferred Debits and Other Assets: Regulatory assets, net: Competitive transition charge 343,602 - 343,602 Other regulatory assets, net 1,206,594 (20,400) 1,186,194 Deferred income taxes 951,471 385,200 1,336,671 Other 23,911 15,700 39,611 ----------- ----------- ----------- Total deferred debits and other assets 2,525,578 380,500 2,906,078 ----------- ----------- ----------- Total Assets $ 4,524,807 $ 1,160,070 $ 5,684,877 =========== =========== =========== 14
Pennsylvania Electric Company and Subsidiaries Consolidated Balance Sheets Actual (audited) and Pro Forma (unaudited) December 31, 1998 --------------------------------------------- (In Thousands) LIABILITIES AND CAPITALIZATION Actual Adjustments Pro Forma ----------- ----------- ----------- Capitalization: Common stock $ 105,812 $ - $ 105,812 Capital surplus 285,486 - 285,486 Retained earnings and accumulated other comprehensive income 376,006 (63,223) 312,783 ----------- ----------- ----------- Total common stockholder's equity 767,304 (63,223) 704,081 Cumulative preferred stock 16,681 - 16,681 Company-obligated mandatorily redeemable preferred securities 105,000 - 105,000 Long-term debt 626,434 - 626,434 ----------- ----------- ----------- Total capitalization 1,515,419 (63,223) 1,452,196 ----------- ----------- ----------- Current Liabilities: Securities due within one year 50,012 - 50,012 Notes payable 86,023 - 86,023 Obligations under capital leases 13,979 (13,700) 279 Accounts payable: Affiliates 47,164 - 47,164 Other 47,795 (13,300) 34,495 Taxes accrued 32,755 447,300 480,055 Interest accrued 19,700 - 19,700 Other 37,272 - 37,272 ----------- ----------- ----------- Total current liabilities 334,700 420,300 755,000 ----------- ----------- ----------- Deferred Credits and Other Liabilities: Deferred income taxes 1,338,235 (85,600) 1,252,635 Unamortized investment tax credits 36,926 1,000 37,926 Three Mile Island Unit 2 future costs 120,904 - 120,904 Nuclear fuel disposal fee 15,956 - 15,956 Nonutility generation contract loss liability 1,016,380 - 1,016,380 Other 146,287 887,593 1,033,880 ----------- ----------- ----------- Total deferred credits and other liabilities 2,674,688 802,993 3,477,681 ----------- ----------- ----------- Total Liabilities and Capitalization $ 4,524,807 $ 1,160,070 $ 5,684,877 =========== =========== =========== 15
Pennsylvania Electric Company and Subsidiaries Consolidated Statements of Income Actual (audited) and Pro Forma (unaudited) For The Year Ended December, 31, 1998 --------------------------------------------------- (In Thousands) Actual Adjustments Pro Forma ----------- ----------- ----------- Operating Revenues $1,032,226 $ (99,100) $ 933,126 ----------- ----------- ----------- Operating Expenses: Fuel 176,548 (176,548) - Power purchased and interchanged: Affiliates 2,729 (2,729) - Others 233,395 281,600 514,995 Other operation and maintenance 275,107 (79,100) 196,007 Depreciation and amortization 109,800 (57,700) 52,100 Taxes, other than income taxes 63,874 - 63,874 ----------- ----------- ----------- Total operating expenses 861,453 (34,477) 826,976 ----------- ----------- ----------- Operating Income Before Income Taxes 170,773 (64,623) 106,150 Income taxes 45,150 (25,800) 19,350 ----------- ----------- ----------- Operating Income 125,623 (38,823) 86,800 ----------- ----------- ----------- Other Income and Deductions: Other income/(expense), net (6,429) - (6,429) Income taxes 2,613 - 2,613 ----------- ----------- ----------- Total other income and deductions (3,816) - (3,816) Income Before Interest Charges 121,807 (38,823) 82,984 ----------- ----------- ----------- Interest Charges: Long-term debt 47,729 - 47,729 Company-obligated mandatorily redeemable preferred securities 9,188 - 9,188 Other interest 8,197 - 8,197 Allowance for borrowed funds used during construction (1,897) - (1,897) ----------- ----------- ----------- Total interest charges 63,217 - 63,217 ----------- ----------- ----------- Income Before Extraordinary Item 58,590 (38,823) 19,767 Extraordinary item (net of income tax benefit of $11,592) (18,950) - (18,950) ----------- ----------- ----------- Net Income 39,640 (38,823) 817 Preferred stock dividends 695 - 695 ----------- ----------- ----------- Earnings Available for Common Stock $ 38,945 $ (38,823) $ 122 =========== =========== =========== 16
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